Rebalancing Medicaid Long-Term Services And Supports

An elderly couple pose for a photograph.

The national profile of Medicaid long-term services and supports expenditures has shifted away from primary dependence on institutional care.


What's the Issue?

Twenty-five years after the passage of the Americans with Disabilities Act (ADA), the Medicaid program is also marking an important milestone in system transformation in 2015. The national profile of Medicaid long-term services and supports (LTSS) expenditures has shifted away from primary dependence on institutional care. In 2013 the majority of Medicaid LTSS spending was for the first time focused on home and community-based settings instead of institutional care, and the Centers for Medicare and Medicaid Services (CMS) projects that community-based spending will reach 63 percent of all Medicaid LTSS spending by 2020. However, the fundamental structure of the Medicaid statute continues to promote an “institutional bias” that strongly limits the potential for true balance for beneficiaries.

Since enactment of the ADA on July 26, 1990, there has been a concerted effort at the state, federal, and community levels to transform one of the Medicaid program’s primary roles as an institutional care–focused financing mechanism into a comprehensive and flexible community-based long-term services and supports program. The most obvious testament to this shift is the strong upward trend in Medicaid spending on community-based care options—between 1995 and 2013, Medicaid home and community-based services (HCBS) expenditures increased from 18.0 percent of total Medicaid LTSS spending to 51.3 percent (see Exhibit 1). Medicaid spending on LTSS totaled $146 billion in 2013, representing a 7.6 percent increase in spending on HCBS and a 0.7 percent decrease in spending for institutional services since 2012.

Medicaid’s focus on home and community-based LTSS actually predates the ADA. The movement began with a young girl named Katie Beckett, whose mother successfully advocated that providing the ventilator support and other services that Katie needed at home, instead of in the hospital, would be a more humane and cost-effective approach to caring for her. Medicaid HCBS waivers, giving states the option to provide LTSS in home and community-based settings as an alternative to institutional care, were authorized in 1981 under section 1915(c) of the Social Security Act. Because HCBS waivers can be designed to target specialized services to specific populations, in 2015 there are more than 330 HCBS waivers in operation in forty-seven states and the District of Columbia. While waiver programs today serve a relatively small proportion of Medicaid beneficiaries, they continue to represent more than half of HCBS spending, even as new state plan and waiver options have become available.

Congress has provided new options and incentives for states to develop noninstitutional service options for Medicaid beneficiaries, most significantly through the Affordable Care Act (ACA), providing support for the effort to “rebalance” service options in long-term care. However, state progress in providing choice of home and community-based alternatives to institutional care has been uneven, and expenditures for certain population groups continue to be largely institutionally based.

The experience for the elderly is significantly different than for individuals with disabilities younger than age sixty-five. In 2010, 71 percent of national LTSS expenditures for elderly Medicaid beneficiaries was for institutionally based services, compared to only 35 percent of institutional LTSS spending for younger beneficiaries. The prevalence of HCBS also varies by population type: In 2013 HCBS accounted for 72 percent of spending in programs targeting people with developmental disabilities, 40 percent of spending in programs targeting older people or people with physical disabilities, and 36 percent of spending in programs focused on people with serious mental illness or serious emotional disturbance.

In addition, there is substantial variation in how states spend their long-term care dollars—the proportion of HCBS versus institutional care expenditures ranges from 25.5 percent of total LTSS spending in Mississippi to 78.9 percent in Oregon. Twenty-six states report less than 50 percent of spending on HCBS, and twenty-two states and the District of Columbia spend more than 50 percent of LTSS on community-based care (not all states reporting [see Exhibit 2]). While it is worth noting that Mississippi has made significant progress in recent years, the wide state-by state variation indicates that beneficiaries’ experience with long-term care is strongly influenced by where they live.

There are important structural differences within the Medicaid program that may affect the speed of reform for certain populations. For example, nursing facility services are mandatory under federal Medicaid law, while institutional services for people with intellectual or developmental disabilities, a typically younger population, are an optional service. This may give states more flexibility in system design for younger populations. In addition, the section 1915(c) waivers, used by most states to create Medicaid HCBS, require HCBS to be “cost effective” when compared to the institutional alternative. The relatively higher cost of institutional ser vices for younger populations, especially those with intellectual or developmental disabilities, may result in more options for HCBS being viewed as cost-effective alternatives to institutional care for this population.

A more fundamental challenge to supporting consumer choice of HCBS is that Medicaid reimburses the costs of room and board only for individuals residing in specific institutional settings (that is, hospitals, nursing facilities, and intermediate care facilities for people with intellectual or developmental disabilities). Support for room and board is specifically excluded under the section 1915 authorities that provide access to HCBS. States report that securing affordable and accessible housing remains a major barrier to broader use of HCBS.

Finally, the wide variation in the design of HCBS as they have evolved across hundreds of state waivers has raised concern that these alternatives may not always be as effective as they could be in supporting full integration into the broader community for individuals with disabilities. CMS enacted final HC BS regulations in January 2015 that, for the first time, attempt to create a national standard regarding the characteristics of home and community-based care settings and to clarify the components of the person-centered planning that is the hallmark of effective community-based care.

What's Next?

Passing the 50 percent mark for home and community-based services expenditures in Medicaid LTSS represents a level of success in achieving system rebalancing. However, it is clear that the current reform efforts in the nation’s system of LTSS are focused on a level of transformation that goes beyond the simple balancing of expenditures. CMS has raised the bar in terms of system performance by establishing national standards for the characteristics of home and community-based settings of care, emphasizing expectations for person-centered service planning and an obligation to support community integration, in addition to assuring safety, quality, and supervision.

States are also looking for increased accountability, “whole person” service integration, and improved cost controls through new service delivery arrangements that include health homes for individuals with multiple chronic conditions, value-based purchasing arrangements with providers, and capitated managed LTSS. This includes the critical engagement by both federal and state policy makers and stakeholders to improve service delivery and integration of physical, behavioral, and LTSS for dual eligibles in particular. By 2014 the number of states that had implemented some form of managed LTSS arrangements had grown to twenty-three, with additional states moving in this direction in 2015.

The percentage of LTSS provided through managed care organizations increased from 4 percent in FY 2008 to 10 percent in FY 2013, with significant additional growth expected in 2014. Many states adopting capitated managed care arrangements for LTSS expect to see further rebalancing as a result of improved integration of services and enhanced person-centered care management. The success of these efforts is likely to depend on states’ ability to effectively identify and monitor performance goals and to align financial incentives with those desired outcomes.

The role of Medicaid HCBS is increasingly being recognized as an important resource for achieving broader national goals. For example, efforts to end chronic homelessness and to improve treatment and recovery for individuals with mental illness or substance use disorders are focused on strategies to better link Medicaid-funded HCBS with affordable housing. The Department of Housing and Urban Development and HHS have partnered in recent years to improve cross-system collaborations, including redesign of the Section 811 housing program to require closer cooperation between state housing agencies and state Medicaid programs to serve disability populations.

CMS has issued Center for Medicaid and CHIP Services informational bulletins and other guidance to clarify for states how Medicaid services can be used to offer supported housing and supported employment to achieve more effective integration into a community for people living with chronic and disabling conditions. The dual-eligible demonstration initiatives offer an opportunity to better leverage Medicaid LTSS to improve the effectiveness of care across settings and achieve Medicare goals such as reducing preventable hospital readmissions.

This collective movement beyond a narrow focus on “rebalancing” expenditures is critical. The shift to community living must continue to move toward a refinement of expectations for transformation that will ultimately achieve the vision of consumer choice, person-centered services, and individuals able to live in the most integrated community setting.