Interstate Variation and Progress Toward Balance in Use of and Expenditure for Long-Term Services and Supports in 2009. I. Background and Objectives


Expanding the role of community care relative to institutional care has been a goal of long-term care (LTC) policy almost before LTC policy can be said to have existed. As Vladeck(1980), among others, has noted, the Social Security Act of 1935 prohibited federal matching payments for Old Age Assistance (OAA) to "inmates of public institutions." Such institutions were understood at the time to include public almshouses, where many poor and frail elders had resided. A precursor to today's Supplemental Security Income (SSI) for the elderly and younger, OAA payments were often referred to as "outdoor relief" in contrast to the "indoor relief" provided by municipal and county-owned and operated almshouses. Thus, OAA was intended to provide elders with an income that would permit them to live in the community, away from the often dreadful conditions of the almshouse. As it happened, the prospect of receiving OAA payments may have encouraged poor elderly people to leave almshouses, but it did little to meet the care needs of those whose functional limitations or disabilities prevented them from caring for themselves. As such people turned increasingly to private institutions as a source of care, they stimulated the growth of what became the private nursing home industry.

These events paralleled substantial increases in United States life expectancy. Since 1930, the life expectancy of a 65-year-old has increased by 5.6 years (to 82.3) for men and by 7.2 years (to 85.0) for women (Arias 2008). Over the same period, the life expectancy of people with developmental disabilities grew by nearly 40 years (Lightfoot 2006). These changes led to increased reliance on institutions to house and provide care for the elderly and those with physical disabilities and/or cognitive impairment. Previously, institutional care, especially at public expense, had been for the indigent elderly and disabled who lacked family to care for them at home, although some religious and charitable institutions served the "genteel poor" (mostly childless spinsters and widows who had outlived their inheritances). The 1950s saw the rise of a new phenomenon, termed "medical indigence," which referred to elderly people who entered private nursing homes and paid out-of-pocket but exhausted their resources and sought public assistance. During the 1950s and 1960s, children born with Down's syndrome or other conditions associated with intellectual, as well as physical developmental, disabilities were routinely institutionalized at birth and were expected to remain in the institutionfor life. Most nursing homes for the elderly were privately owned and operated, but most institutions for the developmentally disabled were state-run and entirely state-funded.

During the 1950s, federal funding for nursing home care was expanded under the Kerr-Mills Act, which included coverage for the medically indigent, as well as the long-time poor elderly (Moore and Smith 2006). In 1965, Kerr-Mills was replaced by Medicaid, which established an individual entitlement to state/federal assistance to pay for "skilled" nursing home care for individuals too poor to pay privately, again including residents who entered nursing homes as private payers and "spent down" to means-tested eligibility after exhausting their personal financial resources. This nursing home coverage was one of five "required" services (along with coverage of hospital care, physician services, x-ray and laboratory services, and "skilled" home health services provided by home health agencies (HHAs) certified to provide Medicare as well as Medicaid coverage) that states were federally mandated to include in their Medicaid state plans. Additional services could be included at state option. In 1972, Medicaid's coverage of institutional long-term care (ILTC) was expanded to encompass, at state option, care in intermediate care facilities. These included a category of nursing homes that were not required to employ registered nurses, but only licensed practical nurses and nurses' aides, and intermediate care facilities for the mentally retarded (ICF/MR) (most of which were state-run institutions). By fiscal year (FY) 1978, expenditures on long-term services and supports (LTSS) -- almost entirely ILTC -- accounted for 40 percent of total annual Medicaid expenditures (HHS 1981).

By the 1970s, policymakers had become increasingly concerned, not only by the growth and cost of ILTC, but also by scandals involving poor quality of care and the abuse, neglect, and mistreatment of residents in some facilities -- both nursing homes for the elderly and state facilities for the developmentally disabled. Congress began to consider allowing and encouraging states to pay for home and community-based alternatives to institutional care. In 1975, non-institutional personal care services were added to the list of optional benefits that states could elect to offer, although few states chose to do so at first. By 1978, only 13 states and the District of Columbia offered "personal care services" at home as an optional Medicaid benefit to low-income elderly and disabled beneficiaries who required help with basic activities of daily living such as bathing, dressing, transferring, eating, and toileting. Although Medicaid coverage required that a physician prescribe these services, the services were provided by unlicensed home care aides. Unlike "skilled" home health services, personal care services could be provided by non-certified agencies or by individually employed "independent providers," rather than by Medicare/Medicaid-certified agencies. New York State alone (mostly New York City) accounted for 75 percent of Medicaid personal care services expenditures. Other states, most notably California, chose to provide in-home personal care services to low-income people with disabilities with federal Title XX grant funding, supplemented by state social services dollars. The cost of these Medicaid and other publicly-funded home care programs was miniscule compared to Medicaid nursing home expenditures (Health Care Financing Administration 1981).

During the late 1970s and early 1980s, the Federal Government sponsored controlled experimental design research and demonstration projects to test the cost effectiveness of home and community-based alternatives to institutional care for the elderly (Kemper et al. 1987). Although these experiments largely failed to show that increased spending on home and community-based services (HCBS) significantly reduced nursing home use, Congress nevertheless amended Medicaid law to permit states to request federal approval to offer HCBS alternatives to institutional care (long-stay hospital, nursing home, or care in institutions for the developmentally disabled) under so-called 1915(c) waivers to people judged to be at high risk for admission to institutions.

During the first 15 years after HCBS waivers became available, spending on Medicaid-financed HCBS remained low compared to spending on ILTC. Federal and state officials were concerned that many elderly and younger physically disabled adults who qualified for nursing home admission were not likely to enter such facilities. Increased access to HCBS under 1915(c) waivers that did not generate offsetting reductions in nursing home expenditures would cause growth in total Medicaid spending on LTSS.

To control costs, enrollment in HCBS waiver programs was restricted by requiring states to obtain federal approval for a limited number of 1915(c) HCBS waiver "slots." The Executive Office of Management and Budget and the U.S. Department of Health and Human Services (HHS) Centers for Medicare and Medicaid Services (CMS) enforced what was termed the "cold bed" rule, under which states could not be approved for more waiver slots than available institutional beds (Shirk 2006). In addition, to be granted HCBS approval for the number of waiver slots requested, states often were required to submit assurances that they planned to close existing facilities or not expand institutional bed capacity as previously planned. During these years, HCBS programs frequently targeted children and adults with developmental disabilities because states had begun to close or downsize state-run facilities for the developmentally disabled. Mildly and moderately intellectually developmentally disabled adult residents of institutions began to be "de-institutionalized" to small-group homes. When federal special education funding became available and states were mandated to provide special education (1975), admission of all but the most severely disabled children with developmental disabilities into institutions ceased.

In 1994, at the request of the National Governor's Association, the Clinton Administration agreed to abandon the cold bed rule. In 1995, despite the availability of the state plan personal care services optional benefit and 1915(c) HCBS waiver authority, only 17 percent of Medicaid LTSS expenditures were for HCBS. In the mid-1990s, however, the United States economy was doing well, and states became increasingly willing to spend more on HCBS without being concerned about whether savings from reduced institutional care offset growing expenditures for HCBS. In addition, in 1997, Congress passed provisions of the Balanced Budget Act that were intended to put a stop to overuse of the Medicare home health services benefit to finance long episodes and large numbers of aide visits. This put pressure on some states where utilization of Medicare-funded home health services had been especially high to expand Medicaid coverage of in-home aide services. Expanded funding for HCBS was further stimulated by the U.S. Supreme Court's 1999 Olmstead decision that the Americans with Disabilities Act (ADA) required states to offer home and community-based alternatives to ILTC whenever feasible. To encourage states to comply with the ruling and "re-balance" their LTSS systems away from reliance on institutional care toward HCBS, Congress voted funding, and CMS awarded $289 million for Real Choice/Systems Change grants to 39 states between 2001 and 2010.

The Deficit Reduction Act (DRA) of 2005 expanded options for Medicaid coverage of HCBS by allowing states to offer services similar to those provided under 1915(c) waivers under their state plans (that is, without requiring federal "waiver" approval). Moreover, the requirement that HCBS be a cost effective substitute for institutional care was dropped. The DRA established 1915(i) HCBS services, which could be offered to individuals who did not meet "level-of-care"need criteria for coverage of ILTC. The DRA also provided "Money Follows the Person (MFP)" grant funding that gave states a financial incentive (enhanced federal matching funds) to transition nursing home residents back to community living with HCBS. A further DRA provision expanded opportunities for states to offer consumer-directed HCBS that allowed disabled Medicaid beneficiaries and their families to exercise more choice and control over the type and amount of HCBS they received by managing budgets or receiving cash payments -- and also expanded state flexibility to allow spouses and parents of minor children to become paid service providers.

In 2010, the Affordable Care Act (ACA) amended the 1915(i) HCBS state plan optional benefit to require states choosing it to provide the benefit on an entitlement basis to all who meet coverage requirements. States were prohibited from setting a cap on enrollment, which often resulted in waiting lists for HCBS waiver programs. The ACA also extended the MFP grant program and provided enhanced federal matching funds, called "Balancing Incentive Payments (BIP)," to encourage states to increase spending on HCBS. These payments targeted states that were not yet devoting more than one-quarter (more than one-half in some cases) of their Medicaid expenditures on LTSS to HCBS, as long as states agreed to meet the required spending targets by the end of FY 2015. Finally, the ACA also authorized yet another optional state plan benefit, called "Community First Choice," which provided states with a financial incentive (six additional percentage points of federal funding) to offer personal assistance services at home to all beneficiaries meeting "level-of-care" need criteria for nursing home coverage.

Since 1999, Medicaid HCBS use and expenditures have more than doubled (Eiken et al. 2011; KFF 2012), and the use of nursing homes and intermediate care facilities for people with intellectual disabilities (ICFs/IID) has declined substantially (Alecxih 2006; Wiener et al. 2009; Lakinet al. 2009). This general shift masks wide variation in the levels of re-balancing across states (Howes 2010; Kassner et al. 2008; KFF 2012; Wenzlowet al. 2011). Efforts to re-balance LTSS systems from their traditional reliance on institutional care to HCBS have also been achieved more widely for some populations (enrollees under age 65 with disabilities) than others (people over 65) (Wenzlow et al. 2008, 2011).

In this report, we examine patterns in LTSS use across states and subgroups of enrollees in 2009, just after many states began to experience fiscal constraints and increased demand for services from the national recession. This analysis updates findings from a previous study based on 2006 data and expands upon state-level factors linked to LTSS systems that are more balanced toward HCBS use.

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