Interstate Variation and Progress Toward Balance in Use of and Expenditure for Long-Term Services and Supports in 2009. B. Challenges to Re-Balancing


It can hardly be surprising that adoption of HCBS has varied strongly from state to state. For obvious reasons, community-based care is easier to implement in urban areas, where care providers can more easily reach elderly people and people with disabilities in their homes. In contrast, in highly rural states or areas, even people who are largely independent may sometimes receive care in nursing homes simply because community care is impractical in remote localities. Moreover, implementing new modes of care requires the development of new systems of initiating, arranging, and managing care, much of it paid for by third parties. This implementation, difficult in itself, also creates new economic winners and losers who invariably will attempt to influence legislatures and regulatory bodies to alter the process. These influences can be hard to discern and virtually impossible to measure, making it difficult to assess their importance on progress in re-balancing.

Until recently, a major barrier to re-balancing toward greater reliance on HCBS was concern that open-ended "entitlement" funding of HCBS would give rise to a phenomenon referred to as the "woodwork effect" -- a more colorful way to describe what economists more commonly term "induced demand." The argument held that institutional care is so unpleasant that eligible individuals and their families often are willing to incur significant private cost (mainly in the form of unpaid family caregiving) to avoid it. When publicly-funded HCBS becomes available, they no longer have a reason to pay the price of unpaid family caregiving to avoid institutionalization, accessing paid home care instead. Moreover, when Medicaid and other public payers pay family members to provide aide and attendant care, which has increasingly been allowed, demand for HCBS may be further stimulated. Accordingly, many people who qualified for institutional care but would not have sought admission or would have postponed admission for as long as possible will "come out of the woodwork" to claim these far more desirable HCBS benefits. This will result (even if there is substitution of HCBS for nursing home care by some), in far greater demand for publicly-funded LTSS that translates into higher total expenditures -- and increased burden on federal/state budgets -- than would have been the case if institutional care remained the only option.

Although much of the research literature on "woodwork effect" dates back to the 1980s (see, for example, Kemper et al. 1988), academics have continued to debate its magnitude (Grabowski 2006; Kaye 2009). In 2013, a special issue of the Journal of Aging and Social Policy was devoted to the topic. Edited by Frank Caro, it contains articles by Mitchell La Plante, Robert Kane, Steve Eiken, and William Weissert. Although these authors attempt to measure the effect using different data sets and methods, all have generally concluded that the growth in the number of users of Medicaid-funded HCBS has greatly exceeded the reduction in numbers of users of Medicaid-funded nursing home care. They further agree that, whereas increased funding for HCBS apparently had only a modest effect on decreasing nursing home use among the elderly, there is no strong evidence that it has led to either an increase or decrease in total Medicaid LTSS expenditure. Where they disagree is on the importance of doing a better job of targeting HCBS spending so that it will have a greater likelihood of reducing nursing home use.

Absence of a clear link between increased funding for HCBS and increased Medicaid LTSS costs may help explain the diminished concern about "woodwork effect" among federal and state policymakers. There are other possible reasons as well. First, Medicaid means-testing places an upper limit on how many disabled individuals -- especially elderly people with pension income and life savings -- can meet Medicaid's strict financial eligibility test. The allowable asset limit ($2,000 for an individual in nearly all states) is particularly restrictive and has not been raised in nearly three decades. Second, states have a mechanism to control the flow of access to HCBS, if they choose to use it. Although more than half the states provide HCBS (personal care services) as individual entitlement to all who qualify financially and on the basis of disability-related need, the remaining states rely exclusively on 1915(c) waivers to finance HCBS. Medicaid law allows states to cap enrollment into HCBS waivers and establish waiting lists. In 2012, the number of people on waiver waiting lists for elderly/disabled HCBS waiver programs nationally exceeded the total number of approved "slots" by 22 percent (Ng 2013). However, examination of unpublished waiting list data shows that nearly half of all states using 1915(c) waivers were operating their elderly/disabled waiver programs as virtual entitlements because they had requested and obtained CMS approval for enough slots to enroll all who qualified and reported no waiting lists. More than half of those waiting on HCBS elderly/disabled waiver waiting lists in 2012 were concentrated in three southern states (Florida, Louisiana, and Texas).

Waiting lists for HCBS, particularly those that require enrollees to wait a year or more, admittedly exist in a state of tension with the ADA and Olmstead. The Olmstead decision itself explicitly recognized that "a waiting list that moved at a reasonable pace not controlled by the state's endeavors to keep its institutions fully populated" would meet the standards of the ADA if it existed within the context of "a comprehensive, effectively working plan for placing qualified persons with mental disabilities in less restrictive settings." Neither the Supreme Court nor lower courts adjudicating similar cases since have taken the position that states cannot control HCBS access by establishing waiting lists, and they have left the definition of "reasonable pace" vague. Courts typically have not questioned waiting lists in states that have a so-called "Olmstead Plan."2

Although initial policy research on the "woodwork effect" focused almost exclusively on the elderly (probably because of concerns about the potential cost impact of an aging population), states have experienced far greater difficulty meeting demand for HCBS waiver services for individuals with intellectual and developmental disabilities (ID/DD). Medicaid's means-test does not serve to restrict eligibility among adults with ID/DD as it does for the elderly, because almost all adults with ID/DD severe enough to qualify for HCBS as an alternative to institutional care are receiving SSI, which gives them automatic Medicaid eligibility.

Mitchell LaPlante (2013) asserts that the existence of a "woodwork effect" in terms of growth of users of Medicaid-funded services for people with ID/DD is clear because there are now many times more Medicaid beneficiaries with ID/DD receiving HCBS via waiver programs than there ever were residents in ICFs/IID: "In 1992, there were about 145,000 persons in Medicaid-funded ICFs/IID, and 62,000 received community LTSS. From 1992 to 2009, there were 50,000 fewer people in ICFs/IID, but greater than 500,000 more persons being served in the community. This would appear to be a classic woodwork scenario…". Waiting lists for HCBS waiver services are far more common and wait time is longer for people with ID/DD than for the elderly and physically disabled. In 2012, the number of those waiting for HCBS ID/DD waiver services exceeded existing enrollment by 58 percent, and the average time spent on the waiting list, nationally, was 47 months (Ng 2012). Nevertheless, more than a quarter of states (14) reported that they had no individuals waiting for HCBS ID/DD waiver services.

Overall, in 2011 and 2012, even though the United States had yet to fully recover from the Great Recession and its negative impact on state budgets, about 20 percent of states were fully able to meet the demand for HCBS among all Medicaid LTSS subgroups (for example, elderly, adults with physical disabilities, children and adults with developmental disabilities, and others with special needs, such as those with HIV/AIDS or traumatic brain injury). What explains why some states have no or very short waiting lists for HCBS waiver programs, whereas others have very long waiting lists? One recent study of waiver waiting lists for HCBS waivers serving physically disabled people in Iowa casts doubt on whether maintaining first-come, first-served waiting lists is an effective way to control Medicaid LTSS costs. The study found that, in Iowa, long waiting periods for high-risk beneficiaries increased nursing home use and costs enough to fully offset savings from delaying access to HCBS (Peterson et al. 2013).3 These questions clearly deserve further research. In this report, we explore only whether a statistically significant relationship exists between HCBS waiver waiting lists and "re-balancing" toward higher levels of spending on HCBS compared to institutional care.

2 A ruling of the Third Circuit Court, for example, stated that "When such a plan exists, a remedy that would force the agency to abandon or alter its long-term compliance efforts could sacrifice widespread compliance for immediate, individualized relief. Imposing such a remedy would be penny-wise and pound foolish." (Pennsylvania Protection and Advocacy v. Pennsylvania Department of Public Welfare, 2005).

3 The authors also found that, among high-risk cases, estimated LTC costs over the two years following application were higher for those facing long wait lists than for those facing shorter wait lists, although this result was not statistically significant.

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