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Analysis of the Benefits and Costs of Channeling

Publication Date


U.S. Department of Health and Human Services

Analysis of the Benefits and Costs of Channeling

Executive Summary

Craig Thornton and Shari Miller Dunstan

Mathematica Policy Research, Inc.

December 1985
Revised May 1986

The paper was written as part of contract #HHS-100-80-0157 between the U.S. Department of Health and Human Services (HHS), Office of Social Services Policy (now the Office of Disability, Aging and Long-Term Care Policy (DALTCP)) and Mathematica Policy Research, Inc., and contract #HHS-100-80-0133 between DALTCP and Temple University. Additional funding was provided by the Administration on Aging and Health Care Financing Administration (now the Centers for Medicare and Medicaid Services). For additional information about this subject, you can visit the DALTCP home page at or contact the office at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, S.W., Washington, D.C. 20201. The e-mail address is: The Project Officer was Robert Clark.

This report was prepared for the Department of Health and Human Services under Contract Number HHS-100-80-0157. The DHHS project officer is Robert Clark, Office of the Secretary, Department of Health and Human Services, Room 447F, Hubert Humphrey Building, Washington, D.C. 20201. The opinions and views expressed in this report are those of the authors. They do not necessarily reflect the views of the Department of Health and Human Services, the contractor or any other funding organization.


The National Long Term Care Demonstration, initiated by the U.S. Department of Health and Human Services in 1980, tested whether a managed approach to providing community-based long term care could help control costs while maintaining or improving the well-being of its clients and their informal caregivers. These effects were expected to derive from more appropriate decisions on institutionalization and the more rational use of services in the community. This report analyzes the benefits and costs of this program, focusing particularly on the net impact of channeling on public and private expenditures for living, medical, and long term care services.

Channeling was designed to work through 10 local projects, each of which used a uniform client-centered case management approach. Two models were tested:

  • The basic case management model, which augmented the case management intervention with a small amount of direct service purchasing power to fill service gaps
  • The financial control model, which, through the pooling of categorical program funds, permitted channeling case managers to order the amount, duration, and scope of services that they deemed necessary

It was hoped that both models would enable impaired elderly persons to remain in the community rather than enter a nursing home. In the process, the models were expected to help contain long term care costs while enhancing the quality of the lives of clients. The program included an extensive outreach and screening process to identify persons at risk of institutionalization. A comprehensive assessment of each client's needs was conducted, and an appropriate care plan was developed. This plan was then implemented and monitored over time to ensure that the necessary services were delivered.

The demonstration included an evaluation component designed to estimate the impacts of adding channeling case management services to the existing service system. Thus, this benefit-cost analysis, which is one component of that evaluation, examines the additional costs and benefits generated by channeling. These costs and benefits are in addition to those created by the long term care systems in place at the 10 demonstration sites.

The general conclusion of this benefit-cost analysis is that channeling, as it was fielded in the demonstration, led to an increase in total costs for clients, including costs for medical and long term care services and costs for shelter, food, and other daily living expenses. The absolute and relative size of this increase differed substantially by each model. The basic case management model appeared to increase these costs by about $1,300 per client during the 18-month observation period, which represents an increase of approximately 7 percent over the $18,500 per-client costs that we estimate clients would have incurred in the absence of channeling.

The financial control model, with its greater expenditures for community services, increased costs by much more: approximately $3,400 per client during the observation period. We estimate that during this period clients would have incurred average costs of almost $23,000 per client in the absence of channeling. Thus, the increase generated by this model of channeling represents an increase of roughly 15 percent.

In both models, the government pays for a great deal of the living, medical, and long term care services used by clients, particularly when Social Security, SSI, and food stamp benefits are included. In the absence of channeling, the government would have paid between 65 percent (under the basic model) and 75 percent (under the financial control model) of the living, medical, and long term care costs of clients, excluding payments from social insurance programs. When these social insurance payments are added in with the other costs, the total government costs for the 18 months following enrollment approximately equal the total expenditures for the clients.

Because the per-client estimates are inadequate in several respects for planning an on-going program, we have converted these estimates into estimates of the net cost to the government budget per case month (i.e., the net cost implied by providing channeling services to a client for a month). This conversion encompasses all of the impacts of channeling. Thus, the estimates include effects on all government agencies (i.e., Medicare, Medicaid, channeling, Social Security, and other public agencies). The estimates reflect the direct operating cost of channeling, as well as indirect costs and savings for services (e.g., formal community care and nursing homes) and social insurance (Social Security benefit payments). Our calculations indicate that it would cost the government approximately $2,500 (under the basic model) and almost $3,100 (under the financial control model) per case month to operate a permanent channeling program. These costs must be compared with those that the government would have incurred in the absence of channeling: $2,300 per case month in the basic model sites, and $2,600 in the financial control model sites. Thus, channeling would increase government costs for clients by 10 percent under the basic model and by 20 percent under the financial control model. These increases in government costs are greater than those for society as a whole because the government costs exclude savings to clients and their families.

In both models, these increased net costs appeared to produce benefits in the form of reductions in the number of unmet client needs and increases in the reported levels of life satisfaction by clients. There were relatively clear indications that the number of unmet needs fell in both models, and that the proportion of clients with severe (i.e., more than three) unmet needs fell significantly. The proportion of clients who reported being satisfied with their service arrangements increased. In addition, channeling seemed to increase clients' reported satisfaction with life, an increase that was observed at 6, 12, and 18 months after randomization.

Primary informal caregivers also seemed to derive benefits from channeling: they reported more satisfaction both with their lives and with the care arrangements for clients. The evidence suggests that primary caregivers did not reduce their efforts due to channeling under either model. The only observed reduction in effort was a slight reduction for visiting caregivers (who were generally less closely associated with clients) under the financial control model.

The differences among the sites in which the two channeling models were fielded create some uncertainty about the extent to which observed differences between the models can be generalized to a broader context. In general, however, the results indicate that the basic model was more cost-effective. It produced approximately the same increase in measures of life quality as did the financial control model, but its net cost was about one-third that of the financial control model. However, the differences in the availability of services in the sites cloud this issue, since it is unclear whether the financial control model might have generated greater increases in life quality had it been fielded in the less service-rich environment of the basic model sites. Nevertheless, our available evidence indicates that the basic case management model is the more cost-effective of the two.

When the evidence from the channeling demonstration is combined with the findings from previous community care evaluations, two general conclusions emerge about the benefits and costs of channeling-type programs. The first is that these efforts will tend to raise overall costs. Community care programs have largely been unsuccessful in delivering services only to those clients who would enter a nursing home in the absence of community services. This has limited their ability to generate nursing home cost savings. At the same time, they have increased the general level of services provided to community residents, thereby increasing overall costs.

The second conclusion is that these extra services to community residents have apparently increased the quality of the lives of the elderly clients. Further, channeling was found to increase the quality of the lives of primary caregivers and their satisfaction with service arrangements. In addition, the formal services provided by channeling did not appear to cause primary caregivers to reduce their efforts.

These two conclusions must be considered together in order to make the final assessment of channeling or other efforts to expand case management or community care. The net costs of this intervention are now well documented, both in this report and in previous studies. Benefits in the form of increases in life quality have been more difficult to document, but they do appear to exist. The issue for consideration is whether the largely intangible benefits are worth the net costs of producing them.

The Full Report is also available from the DALTCP website ( or directly at