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Using Medicaid to Cover Services for Elderly Persons in Residential Care Settings: State Policy Maker and Stakeholder Views in Six States

Publication Date

U.S. Department of Health and Human Services


Using Medicaid to Cover Services for Elderly Persons in Residential Care Settings: State Policy Maker and Stakeholder Views in Six States

Executive Summary

Janet O'Keeffe, Dr.P.H., R.N., Christine O'Keeffe, B.A., and Shulamit Bernard, Ph.D.

RTI International

December 2003

This report was prepared under contract #HHS-100-97-0014 between the U.S. Department of Health and Human Services (HHS), Office of Disability, Aging and Long-Term Care Policy (DALTCP) and the Research Triangle Institute. For additional information about the study, you may visit the DALTCP home page at or contact the ASPE Project Officer, Gavin Kennedy, at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201. His e-mail address is:



We thank the many respondents who participated in this study, particularly the Medicaid program staff, who answered numerous follow-up questions. We also thank Gavin Kennedy and Pamela Doty for their thoughtful comments on earlier drafts. We dedicate this report to the memory of Richard Ladd, one of our respondents for this study. As Director of Oregon's Senior and Disabled Division in the 1980s, he pioneered the use of Medicaid waiver funds in assisted living and other types of residential care.




The anticipated increase in the population aged 65 and older in the coming decades, particularly those aged 85 and older, will lead to an increase in the number of people who need long-term care services. Virtually all individuals who need long term care services prefer to receive them in their own homes. However, some people with long term care needs cannot live in their own homes, often because they live alone and need unscheduled assistance and protective oversight on a 24 hour basis.

Residential care settings have traditionally provided such assistance and oversight to persons with physical and mental impairments who cannot live at home alone but do not require a nursing home level of care. As such, residential care lies on the long term care continuum between home care and nursing home care.

Since the mid-seventies, states have had the option to use Medicaid to cover services in residential care settings under the personal care option, and since 1981, under the home and community-based services (HCBS) waiver program. Until the 1990s, most states used the waiver program to pay for services in residential care settings only for persons with mental retardation and other developmental disabilities, as an alternative to intermediate care facilities for persons with mental retardation. By 2002, however, 36 states had amended their Medicaid waiver programs to permit payment for services in residential care settings for elderly persons, and 13 states covered personal care in these settings under the state plan, together serving approximately 102,000 elderly Medicaid clients.

Historically, states have licensed two general types of residential care: (1) adult foster care, which typically serves five or fewer residents in a provider's home, and (2) congregate care, which typically serves six or more residents in a range of settings -- from large residential homes to settings that look like commercial apartment buildings or nursing homes. These settings have been in existence for a long time. But with Medicaid funding, they are getting increased attention.

To date, there has been little research on how states use Medicaid to pay for services for elderly persons in these settings. This report is intended to fill that gap, by describing in depth how six states use their Medicaid programs to fund residential care services for elderly persons. These states are Florida, Minnesota, North Carolina, Oregon, Texas, and Wisconsin.


Our findings are based on three sources: (1) an extensive review of published and unpublished information about the six states' long term care systems, with a focus on their residential care systems and Medicaid programs; (2) consultation with Medicaid program staff and policy makers and other key staff to obtain additional information and to clarify information obtained through the Internet and other sources; and (3) interviews with current and former state staff and policy makers, residential care providers, representatives of provider and consumer organizations, and academic experts and policy analysts. Appendix A contains additional information about the qualitative methodology we used to conduct this study.


A primary purpose of the study was to gain an understanding of how state staff and policy makers and key stakeholders view Medicaid coverage of services in residential care for elderly persons.

Using Medicaid in Residential Care

All of the respondents we interviewed believed that their states' decision to use Medicaid to provide services in residential care settings was the right one. In states using the personal care option in their state plan, respondents felt that Medicaid had brought much needed revenues to a residential care sector that historically had been under-funded for Supplemental Security Income (SSI) recipients. In states using the waiver program, respondents felt that by providing an alternative to nursing homes for waiver clients who cannot be served at home, Medicaid funding had both afforded consumers additional long term care options and saved the states money.

Public Confusion about the Residential Care System

At the same time, the individuals interviewed for this report, who were typically quite candid in their comments, cited a range of concerns about the residential care system generally. With the exception of Oregon, stakeholders in each state said that public confusion about residential care options was a problem. The confusion is due primarily to the use of the term "assisted living" to market very different types of facilities, both in terms of the housing and the services offered.

Licensing and Regulatory Issues

Stakeholders also raised concerns about both overly prescriptive regulations and the lack of enforcement of existing regulations. Respondents in every state had concerns that providers were keeping residents longer and that regulatory changes were needed to address the increased nursing needs and acuity levels of residents in residential care settings.

Whatever their views on specific regulations, nearly everyone interviewed believed that licensing and regulation were state functions and there should be no national regulations for residential care.


Almost every person we interviewed had concerns about staffing levels in residential care settings, both the quality and quantity. Several noted that even with highly trained, competent staff, insufficient staffing would compromise the quality of care. All acknowledged that low pay, lack of benefits, lack of a career ladder, poor management and oversight, and, in some cases, an unpleasant work environment made it very difficult to recruit and retain staff and that general workforce shortages exacerbated the problems.

Admission and Retention Requirements

Most of those we interviewed felt that their state's admission and retention requirements were appropriate, but many expressed considerable concern about how these requirements worked in practice. While very few had concerns about admissions, nearly everyone we interviewed had concerns related to discharge and agreed that issues related to the ability to age in place were far from settled.

Barriers to Expanding Medicaid Coverage

Respondents in all states cited similar barriers to expanding Medicaid coverage of services in residential care settings, including a lack of funding for long term care programs generally and insufficient funding for waiver programs in particular. In the two states that do not limit the amount that providers can charge Medicaid clients for room and board, several noted that room and board charges were unaffordable for Medicaid clients.

Inadequate service rates were cited by some in every state as a disincentive for providers to serve Medicaid beneficiaries, particularly in states that restrict room and board payments to SSI levels. On the other hand, in states with relatively high rates, such as Wisconsin, some were concerned that providers are making too much of a profit. In states with relatively low rates, such as Florida and North Carolina, there are concerns about inadequate care.

Suggestions to Improve the Residential Care System

Those we interviewed had numerous suggestions for improving the Medicaid funded residential care system. The most frequent suggestion was increased funding for both the service component of residential care and the housing component. Several suggested that states allow long term care funding to "follow the person." Texas is using this approach by allowing money from its nursing home budget to pay for waiver services for people transitioned to home and residential care settings.

There was consensus among those we interviewed that states need to pay more attention to quality of care issues generally, and staffing issues specifically. To increase the recruitment and retention of direct care staff, many respondents noted a need for better pay and benefits, more training, career ladders, improved management, and better work environments.

In light of the older ages, higher levels of impairment, and chronic health conditions characteristic of residential care residents, several noted the need to increase both the quantity and quality of health and nursing services provided in residential care settings.

There was agreement among state staff, providers, and consumer advocates that service rates must reflect actual costs and that reimbursement systems need to better match payment rates to residents' needs.

Finally, at least one person in each state felt that the state needed to help consumers better understand the long term care system generally and the differences between different services options. Several said that consumers and their families needed some method to help them compare residential care options and choose those that were best suited to their needs and preferences.

Concluding Remarks

In each of the six states, there is very strong interest in developing affordable residential alternatives to nursing homes that will provide quality care. The individuals interviewed for this report were typically quite candid in their comments, which frequently reflected their frustration in coping with the challenges of developing affordable residential care. State staff, in particular, find themselves grappling with a number of issues that require the reconciliation of what appear to be inherently contradictory goals. These issues are:

  • finding ways to cover the actual costs of serving frail older individuals with chronic care needs in residential care settings, when Medicaid is not permitted to pay for room and board and the payment sources available to cover room and board are insufficient;

  • finding ways to meet expectations for privacy, amenities, and quality services that have been set by the private pay dominated model of "assisted living" when Medicaid cannot afford to pay private pay rates;

  • finding ways to make it possible for individuals to "age in place" without making residential care settings into de facto nursing homes by virtue of having to meet the needs of ever older and more impaired residents;

  • finding ways to give consumers a sense of what they should reasonably be able to expect from a setting that calls itself "assisted living" or "adult foster care" or some other name, without imposing uniform definitions through state regulation; and

  • finding ways to assure a minimally acceptable quality of care without imposing rules that stifle improvements and without the regulated "floor" becoming the "ceiling."

The appropriate balance point between these goals will vary depending on the unique characteristics of each state's long term care system and residential care systems. While the states may face the same challenges, the tradeoffs in attempting to reach the balance will also differ based on the states' characteristics. However, states can gain valuable insights by examining the experiences of other states as they work to develop affordable residential care alternatives to nursing homes for low income and Medicaid-eligible elderly persons.

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