Congrats!!
Tough call, indeed. Indiana is a fantastic school (I'm not sure of where they are in your subfields, but I do Vict. Lit and would kill for the post to reach the West Coast and put me out of my misery), but I do believe somewhere buried in their department page is info that funding in the first year or so can get squirrelly. I would personally pay more attention to which institutions are known/strong in my subfield and placement records than overall ranking, or which schools have scholars I really really want to work with (at least for the PhD).
Re the MA: Funded MAs are an excellent choice, and they will put you in a much stronger position when you reapply (with the exception of a few schools who really prefer to promote from within and so discourage applicants who already hold an MA). It would give you time to develop and refine your scholarly interests, work on your writing, attend conferences, be on committees or take other service positions, etc. All of this is excellent professional development, and might make the idea of reapplying seem less horrific. If you're not going to rack up debt while doing it, and the programs offered suit you, I definitely don't think it's anything to sneeze at, esp. if either of those programs is known for tracking its students into the PhD (the good thing about this arrangement is that you can still apply other places as your MA comes to a close w/o looking ungrateful).
Re. the PhD: It's a sure thing. It's Indiana. Have you visited any of these schools? That might influence how much you're willing to take on in the way of debt. There might be some fellowships or outside sources of funding still available for next fall, but my guess would be that that ship has pretty much sailed. If you're not sitting on a mountain of undergrad loans, though, one year is really not terrible. I sort of feel like the pros of Indiana don't need much reiterating. Cons: ? Lots of Indiana is flat as a pancake?
Re. Insurance: I'm not sure whether your first post means the MA offers what might be better insurance or they might offer insurance (or if this is even important to you), but either way--if you are not offered insurance as part of a TA or fellowship at either school, you should still be eligible to buy into the regular group plan at the uni (and pay the premiums out of pocket). Wading through the relative costs of this is usually a beast, but unless you have ongoing health problems, the things that matter will be the fine print for stuff that is unpredictable and expensive (is there an annual deductible? How much? Is there an annual cap on benefits? How much? Is there catastrophic coverage? Are things like in-patient procedures and surgeries covered? ...ad nauseam). Possibly mundane things like prescription coverage, if it includes dental or eye care (if you want/need either), etc. If you do wind up with a TA position, you may be on a different/better plan than the school's main one (by virtue of having a union).
---I would look closely enough to make sure you can live with either plan and then not let it make or break the decision (barring serious health needs). I sort of feel like this is a thing most students don't pay any attention to until the sh!t hits the fan, and by then you won't be in any shape to go digging through the legalese, so pardon the excessive info.