States have several options for using Medicaid to fund services in residential care settings (see Table 1-8): the Medicaid state plan, HCBS waivers (also called 1915(c) waivers), and Section 1115 demonstration programs. States most often use the HCBS waiver. See Table 1-9 for the sources of funding each state uses to pay for services in residential care settings. There has been no increase in the total number of states actually using Medicaid to cover service in residential care settings since 2004. States that did not implement approved waivers were dropped from Table 1-9.
TABLE 1-8. States Using Medicaid to Cover Services in Residential Care Facilities
Congress authorized HCBS waivers in 1981 under Section 1915(c) of the Social Security Act. Under this provision, states may apply to HHS for a waiver of certain federal requirements to allow states to provide home and community services to individuals who would otherwise require services in an institution.
Under the HCBS waiver authority, states can provide services that are not covered by a state’s Medicaid program, such as personal care not covered by the state plan, home delivered meals, ADC, personal emergency response systems, respite care, environmental accessibility adaptations, and other services that are required to keep a person from being institutionalized. The waiver authority also allows states to provide waiver participants a greater amount, duration, and scope of services than are provided under the state plan.
Additionally, the waiver authority allows states to limit services to specific counties or regions of a state and to target services to certain groups -- strategies that are not normally allowed under Medicaid. State Medicaid agencies must ensure that waiver programs have provisions to ensure the health and welfare of participants. In addition, states must establish in advance how many people they will serve during the course of a year. Thus, in contrast to the regular Medicaid program, states may establish waiting lists for waiver programs.
TABLE 1-9. Sources of Public Funding for Services in Residential Care Settings
- A waiver was approved by CMS but not implemented.
- Limited pilot program.
- Waiver services can be delivered to residents in unlicensed buildings that are called ALRs. The state is considering a waiver amendment to provide services in licensed settings.
- Waiver coverage was authorized by the legislature.
Finally, average expenditures for waiver beneficiaries must be the same or less than they would have been without the waiver (no more than average Medicaid nursing home costs).25 Importantly, while Medicaid may cover services in residential care facilities, it will not cover room and board. Medicaid can cover room and board only in institutions, such as nursing homes, ICFs-MR, and hospitals.
From the inception of the waiver program, states have used waivers to pay for services in residential care settings as an alternative to ICFs-MR. In 1981, Oregon became the first state to use the waiver program to fund services in residential care settings for elderly persons, but few states followed suit until the 1990s.
In the revised HCBS waiver application (version 3.4), assisted living is no longer listed as a separate service.States may list assisted living or services in assisted living and other residential settings under “other.” The guidelines CMS uses to review waiver applications ask the following questions about services in larger residential settings: “Is a home-like character maintained in larger settings (i.e., the facility is community-based) provides an environment that is like a home, provides full access to typical facilities in a home such as a kitchen with cooking facilities, small dining areas, provides for privacy and easy access to resources and activities in the community?” States may also choose to provide waiver services in congregate housing even if the waiver does not specifically cover a service category called “assisted living.”
25. States can use either a fixed per capita amount for each beneficiary or they can average expenditures across waiver beneficiaries. The latter method provides more flexibility because it allows some beneficiaries to exceed the nursing facility cost as long as costs for others in the program are lower and the average waiver cost does not exceed the average nursing facility cost. States have the option of setting a cap on waiver services at a percentage of nursing home costs (e.g., 80 percent).
Differences Between State Plan and Waiver Services
HCBS waivers and state plan services differ in several important ways. First, waiver services are available only to beneficiaries who meet the state’s nursing home LOC criteria; that is, they would be eligible for Medicaid payments in a nursing home if they applied. Nursing home eligibility is not required for beneficiaries using state plan services.
Second, states may set limits on the number of beneficiaries that can be served through waiver programs. The limits are defined as expenditure caps that are part of the cost neutrality formula required for CMS approval. Waivers are only approved if the state demonstrates that Medicaid long-term care expenditures under the waiver will not exceed expenditures that would have been made in the absence of the waiver. States do not receive federal reimbursements for any waiver expenditures that exceed the amount stated in the cost neutrality calculation. In contrast, state plan services are an entitlement, meaning that all beneficiaries who meet the eligibility criteria must be served. Federal funding matches state expenditures without any cap.
Perhaps the most significant difference between the two options is the ability under HCBS waivers to use more generous income-eligibility standards. To be eligible for personal care under the state plan, individuals must meet Medicaid’s community-based eligibility standards, which (depending on the state) are: (1) the Supplemental Security Income (SSI) level of income ($623 per month in 2007), (2) an amount above the SSI standard up to 100 percent of the federal poverty level, or (3) the state’s medically needy income standard.26
For nursing home and HCBS waiver applicants, states may use the special income standard (SIS), an optional eligibility category that allows individuals with income up to 300 percent of the federal SSI benefit ($1,869 in 2007) to be eligible. However, states can only offer this option in HCBS waivers if they offer it to nursing home applicants. Offering the higher income-eligibility standard in the waiver program “levels the playing field” between institutional and non-institutional services.
Table 1-10 summarizes the major differences between waiver services and state plan services.
Although the majority of states use Medicaid to cover services in residential care settings, the number of Medicaid beneficiaries who receive such services is considerably lower than might be expected because many states limit the number of people served under waivers. States using personal care under the state plan to cover services have higher participation rates than states using the waiver because state plan services cannot be capped.
TABLE 1-10. Differences Between State Plan and Waiver Services
For example, roughly 37,000 Medicaid beneficiaries living in residential settings are served under the state plan in North Carolina (20,442), Michigan (10,300), and Missouri (6,000). Waiver participation is highest in Wisconsin (8,542), Washington (6,193), Oregon (5,983), and Arizona (4,034). Florida serves 3,623 beneficiaries in its waiver program and 11,389 through the state plan.
States do not report the number of Medicaid beneficiaries in residential care settings by age or type of disability. The vast majority of the individuals served are age 65 and older but some may be under age 65. Some may have serious mental illness, acquired brain injuries, or MR/DD. Whatever their age or diagnosis, to be eligible for Medicaid coverage they must meet either the state’s nursing home LOC criteria for waiver services or the state’s service criteria for Medicaid state plan personal care services.
Participation figures are under-reported since a few states do not track and report the number of Medicaid beneficiaries by home or community settings. A few states reported the annual unduplicated number of Medicaid beneficiaries served in residential care settings, but most reported the number of people for a given month. Based on available data, participation is estimated to be just over 115,000 in 2007, down from 121,282 in 2004.
26. Except in 209(b) states which have a Medicaid income-eligibility threshold that is lower than the federal SSI payment.
Limitations of Using Waiver Programs to Cover Services in Residential Care and How States Have Addressed Them
A major challenge facing policymakers who support a comprehensive range of home and community services is finding the resources to expand their availability. Waiver services are not an entitlement and most waiver programs operate with a specific appropriation based on a number of budgeted “slots.” Although states may cover services in residential care settings through a waiver program, limited slots may lead to a waiting list for services. On the other hand, nursing home care is an entitlement, and its budget is likely to rise each year through rate increases. In the event of a budget deficit, non-entitlement services are the most vulnerable to budget cuts. States are addressing this issue in several ways.
Colorado, Oregon, Vermont and Washington have shifted resources from institutions to home and community services by creating a single appropriation for long-term care services, sometimes called a global budget.
Arizona, Florida, Massachusetts, Minnesota, New York, Texas, Wisconsin and states with PACE programs have capitated funding for long-term care services, which gives contracting organizations the flexibility to approve the most appropriate service for beneficiaries.
Kansas, Maryland, Texas, and Wisconsin have implemented a Money Follows the Person (MFP) policy, which allows funding appropriated for nursing homes to be spent on home and community services for individuals who relocate from a nursing home.
Illinois uses funds from its nursing home appropriation in a waiver program that provides services for residents of SLFs. The program was built on the premise that about 10 percent of nursing home residents could be served in residential care settings with access to supportive services 24-hours-a-day. Because the program is funded from the nursing home budget rather than the waiver budget, the state is able to fund all approved SLF slots and there is no waiting list.
All of these financing strategies give states a mechanism to ensure that people who can be served in the community are not required to stay in nursing homes because of a waiting list for waiver services. To create incentives for states to support nursing home residents wanting to relocate to the community, the Deficit Reduction Act of 2005 authorized a MFP Demonstration. Thirty-one states received awards from CMS to carry out the demonstration. However, to be eligible for an enhanced federal match for HCBS, individuals can not relocate to a licensed residential setting that serves more than four individuals. This restriction may limit relocation for nursing home residents who cannot live alone and do not have family members to live with. For example, since Texas began its MFP policy in 2001, 25-30 percent of the individuals who relocated moved to a residential care setting.
Enabling Medicaid Beneficiaries to Pay for Room and Board
Medicaid beneficiaries with limited income may not be able to pay residential care facilities’ room and board rates. As noted earlier, Medicaid pays for room and board only in institutions, except in limited circumstances such as for the provision of respite care and for meals served as part of a day care program. For Medicaid purposes, room and board comprises real estate costs (debt service, maintenance, utilities, and taxes) and food.The costs of preparing, serving and cleaning up after meals can be covered as a waiver service.
Although Medicaid beneficiaries are responsible for room and board costs, states have a range of options to make them affordable.
- Limit the amount facilities can charge Medicaid clients for room and board to the federal SSI benefit, which in 2007 is $623 per month minus a small personal needs allowance (PNA);
- Provide a state supplement to the SSI payment for persons living in residential care settings, and limit the amount that can be charged to the combined SSI plus state supplement payment;
- Use the 300 percent of SSI standard for waiver eligibility and set the participants’ maintenance allowance at a level that allows residents to retain sufficient income to pay for room and board;
- Provide housing subsidies for low income persons;
- Allow family supplementation to increase the funds available for room and board, particularly to pay the difference in cost between a shared and a private room; and
- Use the federal Food Stamp Program, when possible, to reduce board costs.
Each of these options is discussed below.
Limiting the Amount Facilities Can Charge for Room and Board
States can limit the amount that can be charged for room and board by setting a combined “rate” for Medicaid beneficiaries that includes service costs and room and board costs, but the state only pays for services. This approach essentially caps the room and board rate that Medicaid beneficiaries pay. Other states simply limit by policy the amount that facilities can charge Medicaid beneficiaries for room and board. See Table 1-11 for a list of states that limit room and board charges. Medicaid programs that specify how much facilities may charge Medicaid beneficiaries for room and board usually limit the charges to the state’s SSI payment for a single elderly beneficiary living in the community, plus a state supplement, if any. This approach guarantees that Medicaid beneficiaries can afford room and board costs in facilities that accept Medicaid. If providers feel that the room and board rate is too low to cover costs, they may decide not to admit Medicaid beneficiaries. Only New Jersey has passed a law requiring that facilities licensed after September 2001 set aside 10 percent of their units to serve Medicaid residents within three years after licensing.
* The limit is “suggested.”
Persons in residential care settings who qualify for SSI receive a basic federal SSI payment ($623 per month in 2007). In settings that do not have housing subsidies, they retain a PNA, typically $30 or higher as determined by the state, and the remaining income is paid to the facility for room and board. If the resident lives in a HUD 202 subsidized unit in which the tenant’s share of the costs for rent and utilities is limited to 30 percent of the resident’s income, the resident may have additional income that could be used to pay for services. If a person is SSI eligible and received $623 a month, they will pay 30 percent of this amount for rent ($186.90), and have $436.10 left over to pay for services or other costs depending on the state’s cost sharing provisions.
Impact in Subsidized Housing
HUD’s housing subsidy rules do not allow residential care settings to impose an additional charge for rent and utilities, but they can charge the resident for board (i.e., meal costs), or for services that are not covered by the Medicaid state plan or waiver program in a residential care setting. The amount of the permitted meal charge depends on the scope of the Medicaid service payment (i.e., whether it includes the cost of meal preparation). In all cases, Medicaid may not pay for food.27
Under HCBS waivers, the cost of preparing and serving food may be covered under the service payment. If preparing and serving meals is covered, the meal cost charged to tenants would be lower. If not, charges for a meal program would include the food, its preparation, serving, and cleaning up after meals. States covering personal care in residential care settings under the state plan may also allow payment for the preparation and serving of meals but not for the cost of food.
Medicaid beneficiaries with incomes over the SSI level must contribute income above the amount of room and board (minus a small PNA) to pay for services. Medicaid then pays the difference between the resident’s payment and the maximum service rate. Because beneficiaries in this category have more income than SSI beneficiaries, when they live in subsidized units, they will pay a higher rent, because the rent is calculated as a percentage of income. They also may have more income available to pay for services after the rental payment is made.
27. Capitated programs have more flexibility to pay for room and board costs than is allowed under standard Medicaid rules).
Providing State Supplements to the SSI Payment
To increase access for SSI beneficiaries in areas with high development costs, states can create a special SSI state supplement for persons in residential care facilities and limit what providers may charge to the amount of the federal payment plus the state supplement.28 Many states have such State Supplemental Payment (SSP) programs to supplement the federal SSI payment, which in 2007 is $623 a month; the payment is adjusted each January based on the cost of living. Individual states may use a specific term to refer to their supplement and some use the term SSI to refer to both the federal payment and any state supplement.
State supplements are totally state-determined and vary widely.29 States may pay different supplements based on a person’s living arrangement. A few states have developed a supplemental payment rate specifically for SSI recipients in residential care settings to provide them with sufficient income to pay for room and board.
Some policymakers might question the fiscal benefit of providing 100 percent state funding to enable residents to pay for room and board. However, it is important to consider the net state cost of services in a residential care setting compared to a nursing home. If the program diverts people from entering a nursing home or allows individuals to move from a nursing home to the community, states may fund a fairly substantial supplement to the federal SSI payment and still reduce their net cost. For example, the net cost for a state with an average nursing home payment of $3,000 a month and a 50 percent federal match is $1,500. A state could use a portion of the state match that would normally pay for nursing home care to raise the payment standard for residential care settings. Policymakers would have to determine how many people would be covered if the supplement were increased in order to calculate whether the change is “budget neutral” (or better) relative to the amount of the supplement.
Many states have a state supplement for residential care settings that may be too low to cover more intense services needs and higher capital costs in some residential care settings.
Providing Housing Subsidies for Low Income Persons
Many states are exploring ways to combine Medicaid funding and subsidized housing to develop residential care options for low income persons. Housing subsidies can reduce housing costs for Medicaid beneficiaries and other low income persons, and are available through a number of programs:
- Low Income Housing Tax Credits;
- HUD Section 202 Assisted Living Conversion Program;
- Section 8 Rental Assistance Vouchers;
- HUD Fair Housing Act (FHA) Section 232 Mortgage Insurance Program;
- Federal Home Loan Bank Affordable Housing Program;
- Low Interest Bonds;
- U.S. Department of Agriculture (USDA) Housing Services Programs;
- Community Reinvestment Act; and
- State, City and other Local Programs.30
Some federal housing programs either provide direct grants to public housing agencies and to developers or they reduce the debt incurred by the owner and, therefore, the revenue that needs to be raised through tenant rental fees. Others provide rental assistance directly to low income tenants who would otherwise be unable to afford even reduced rents.
The HUD Section 8 Housing Choice program contains some provisions that states can use to subsidize housing costs for waiver clients in residential care settings. Housing Choice offers two broad voucher programs: Fair Share and Special Purpose.
Fair share vouchers are allocated to serve people on waiting lists for Section 8 assistance. They are awarded through a competitive process and an additional 15 points are given to proposals that set aside 15 percent of the vouchers for people with disabilities. In addition, proposals qualify for five points if they demonstrate collaboration with Medicaid waiver programs and set aside 3 percent of the vouchers for waiver participants. Special purpose programs offer mainstream vouchers to help people with disabilities find affordable private housing, which can include residential care settings.
Typically, multiple public programs are needed to provide an adequate housing subsidy. For example, one affordable assisted living development in Vermont was financed by a combination of funds from HUD’s Section 202 Assisted Living Conversion Program, the Vermont Housing and Conservation Board, the Community Development Block Grant and City Trust, HUD Special Purpose Funding, and tax exempt bond financing through the Vermont Housing Agency. However, because housing subsidy programs and Medicaid operate under different requirements, including those related to eligibility, extensive planning and collaboration is needed to enable multiple programs to work together.
30. For further information, see: “A Technical Assistance Guide for Housing Resources and Strategies,” prepared by the Technical Assistance Collaborative Inc. for the Rutgers Center for State Health Policy Community Living Exchange Collaborative, funded by CMS to assist Real Choice Systems Change Grantees. http://www.nashp.org/Files/Final_Regional_Forum_guide.pdf. Also, Ruth A. Gulyas. How States Have Created Affordable Assisted Living: What Advocates and Policymakers Need to Know. AARP. Washington, DC.
Using the 300 Percent of SSI Standard and Providing an Adequate Personal Maintenance Allowance
States have the option to use more liberal income-eligibility criteria for the waiver program -- up to 300 percent of the federal SSI payment -- ($1,869 per month in 2007). This option is attractive for waiver programs that cover services in residential care settings, because it expands the program to include beneficiaries who are better able to afford room and board costs. To make this option effective, however, states must allow eligible persons to retain enough of their income to cover “maintenance needs” including the room and board charges in residential care settings. Setting a higher maintenance allowance may allow more beneficiaries to be served in residential care settings; however, it will increase Medicaid’s service payment since it reduces the “excess income” that is applied to the cost of services.
Under Medicaid’s post-eligibility treatment of income rules for HCBS waivers, states are allowed to use “reasonable standards” to establish the maintenance allowance, and may vary the allowance based on the beneficiary’s circumstances. For example, states can permit Medicaid beneficiaries to keep sufficient income to pay for the needs of a dependent, health care costs not covered by Medicaid, and other necessary expenses.
Beneficiaries living in residential care settings may have different income needs depending on the type of facility: private market-rate facility or subsidized housing facility. The “rent” component of the monthly fee charged by facilities built with low income housing tax credits will be lower than the rent charged by privately financed facilities. Through tax credits, rents in assisted living can be reduced to around $400 a month. Setting the maintenance allowance based on the area’s average monthly charge for room and board may be overly generous when applied to residents in subsidized units. On the other hand, setting the maintenance allowance based on the amount paid by residents in subsidized units may be too low for private market facilities and create access barriers. If a state wants to improve access to both private and subsidized ALFs, it can set a separate maintenance allowance for each setting.
Interaction with housing subsidies. Under HCBS waivers using the 300 percent of SSI income-eligibility option, treatment of the additional income retained by residents because of rent subsidies depends upon the threshold set by the state for the maintenance allowance. If the state sets the maintenance allowance at the SSI level, all income above that amount is applied to the cost of Medicaid services. If the person has income between SSI and 300 percent of SSI ($1,869 in 2007), residents receiving housing subsidies may have additional income that is protected. For example, a person with $1,000 a month in social security and other income would have a maintenance allowance of $623 (the SSI monthly benefit in 2007) and apply the excess income ($377) to the cost of services. However, instead of paying $623 (less the PNA) for rent and utilities, if the resident is living in HUD Section 202 subsidized housing, the resident pays 30 percent of his or her income ($333.33) and keeps $103 for other expenses.
If the maintenance allowance is higher than $103, the resident can retain the higher amount and use it to pay for other expenses. For example, if the resident is allowed to keep the entire $1,000 a month, the resident’s portion of the rent and utility charge would be $333.33 a month and the resident keeps $667.67.
Separate maintenance allowance. States typically set a single maintenance allowance for all waiver participants. However, Medicaid rules allow states to set different maintenance allowances for each individual, or for groups of individuals, if they believe that different amounts are justified by the needs of the individuals or groups. For example, states can set a lower allowance for beneficiaries whose rent is subsidized. A lower maintenance amount for individuals with rent subsidies means more income is available to share the cost of services.
States face many challenges in their efforts to expand the supply of affordable assisted living by combining subsidized housing and Medicaid funding. Housing subsidies may not be available in a particular area or, as is often true with waiver services, waiting lists may exist for rent vouchers. To be effective, a rent subsidy voucher must be available when a waiver participant applies and at the same time that a facility is available that will accept the voucher as well as Medicaid payment. From application to implementation, close collaboration is needed between public housing agencies, waiver programs, and service providers. These challenges require knowledgeable housing operators and local housing authorities and state policymakers who are able to identify and address the barriers.
Family members may be able and willing to help with room and board costs when the beneficiary is unable to pay them. States set their own rules governing family supplementation.
As presented in Table 1-12, 25 states reported that they allow family supplementation, 12 states do not allow supplementation, and eight states have no policy. The remaining states either do not cover services in residential care settings or did not report whether they have a policy on supplementation.
Since Medicaid does not pay for room and board in residential care settings, rules regarding supplementation in nursing facilities do not apply (i.e., families of nursing home residents may not supplement Medicaid payments, which cover room and board and services). Several states indicated that they permit supplementation to enable beneficiaries to upgrade to a private unit.
In states that allow supplementation, family members need to understand that the amount of the supplement is considered in determining financial eligibility for SSI. Federal SSI regulations contain provisions for treating unearned income during the eligibility determination process. Because a family contribution paid directly to an SSI beneficiary is counted as unearned income, supplementation can lead to a reduction in the SSI payment or the loss of SSI altogether, and with it, potentially Medicaid as well.
TABLE 1-12. Family Supplementation Policy
If, however, the family contribution is paid directly to a RCF on the beneficiary’s behalf, it is treated differently, as an “in-kind” payment, and reduces the monthly SSI benefit by one-third or, if documented, by the actual amount of support provided if it is lower than one-third of the federal benefit. The maximum reduction is one-third even if the payment exceeds one-third of the SSI payment.
For example, a facility may have a room and board rate of $800, and because the SSI payment is not high enough to cover the charge, family members agree to help pay the cost. If the payment is made to the resident, it is considered unearned income and the federal SSI payment is reduced $1 for every $1 in unearned income, after a $20 per month exclusion. If the payment is made directly to the facility, the amount of the payment is considered “in-kind,” and the one-third reduction rule applies, that is, the federal benefit is reduced by one-third (or less if documented).
If the room and board rate is $800, the difference between that rate and the SSI benefit of $623 (in 2007) is $177. If the family pays $177 directly to the facility, then the individual’s SSI benefit is reduced by one-third of the SSI payment (i.e., $207). The family would then have to pay the facility an additional $207. The consequence of the reduction rule for in-kind payments, then, is that the family must increase its supplementation from $177 to $384.
Because the federal rule states that the SSI payment will be reduced by up to one-third, there is no limit on the amount of money that can be paid to a facility on behalf of an SSI beneficiary. If a family chooses, they could pay for room and board in a more expensive facility without jeopardizing an individual’s eligibility for SSI.
Family supplementation also has implications for Medicaid eligibility. Since Medicaid income and resource rules follow SSI rules, payment to a residential care setting would be considered in-kind income to the beneficiary. If the individual still receives SSI, and therefore remains a Medicaid beneficiary, there is no impact.31 Beneficiaries who are eligible through spend-down or the 300 percent of SSI special income level might be affected if the supplementation raises their income above the medically needy standard or 300 percent of SSI.
To prevent beneficiaries from losing Medicaid eligibility, states could amend their state plan, with approval from CMS, to exempt in-kind income that supports a person’s accommodations or services not covered by the Medicaid payment in residential care settings. Section 1902(r)(2) of the Social Security Act allows states to use less restrictive income and resource methodologies in determining eligibility for most Medicaid eligibility groups than are used by SSI. States can elect to disregard different kinds or greater amounts of income and/or resources than SSI, giving states more flexibility to design and operate their Medicaid programs.
31. Payments in 209(b) states might affect Medicaid eligibility since it is not linked to SSI eligibility.
The use of food stamps to pay for meals subsidizes the board component of the room and board cost, making it more affordable for Medicaid beneficiaries and others with low incomes. USDA regulations allow meals provided in certain group living arrangements to elderly, blind, or disabled residents to be supported by food stamps (7 CFR §271.2). Group living arrangements are defined as a public or non-profit residential care setting that serves no more than 16 residents. Facilities that can participate as food stamp vendors receive stamps from beneficiaries, which are used as payment toward meal costs.
Wisconsin officials are working with USDA to allow RCACs to become approved food stamp vendors for eligible residents. SLFs in Illinois and Community-Based Residential Care Facilities in Wisconsin have been approved as food stamp vendors. Supportive Living Facilities in Illinois that participate in the program receive about $97 a month for eligible beneficiaries.
One final approach states can use to make room and board costs more affordable is to examine the facility’s monthly room and board charges to identify any coverable services -- such as laundry assistance, light housekeeping, or food preparation -- that Medicaid can reimburse for beneficiaries who require assistance with these IADLs. Including all coverable services in the state’s assisted living service payment reduces the beneficiary’s monthly payment solely to room and board and any other charges that Medicaid does not cover.
Effect of Medically Needy Rules on the Ability to Pay for Room and Board 
States have the option of covering medically needy beneficiaries under their Medicaid programs. The medically needy are persons who, except for income, would qualify in one of the other Medicaid eligibility categories (such as being over age 65 or meeting SSI disability criteria). Medicaid payments can begin for this group once they have “spent down” -- that is, incurred expenses for medical care in an amount at least equal to the amount by which their income exceeds the medically needy income level. Any family supplementation is considered part of the excess income that must be spent down.
The medically needy eligibility option can allow people who have income greater than 300 percent of SSI to become eligible for Medicaid services. But federal law imposes two significant constraints on the use of this option:
The state must cover medically needy children and pregnant women before it can elect to cover any other medically needy group. Additionally, the state may not place limits on who is eligible for Medicaid by using such characteristics as diagnosis or place of residence. Thus, it cannot use medically needy policies to extend Medicaid services only to HCBS waiver beneficiaries in residential care settings.
The maximum income-eligibility limit that a state medically needy program may use is based upon its welfare program for families -- levels that are typically lower than SSI. The income level must be the same for all medically needy groups in the state (i.e., states are not permitted to establish higher income-eligibility levels for selected subsets of the medically needy, such as beneficiaries in residential care settings).
These rules have several implications that states need to consider when trying to make the medically needy eligibility option work for higher income individuals in residential care settings. First, these individuals may find it more difficult to incur sufficient medical expenses to meet the spend-down requirements while living in the community than they would in a nursing home. The higher their “excess” income, the higher the amount of their spend-down -- which means only beneficiaries with extremely high medical expenses may qualify. Second, community providers are less willing to deliver services during the spend-down period, since payment cannot be guaranteed and collection may be difficult. Third, spend-down rules combined with low medically needy income-eligibility levels mean that individuals may not have enough total income to pay both the bills they incur under the spend-down provision and room and board.
In summary, room and board costs may present a barrier to residential care living for Medicaid beneficiaries unless states take specific steps to make them affordable. Several observers have suggested that the Medicaid program be allowed to pay for room and board in residential care settings as it does in nursing homes, which would require Congressional approval.
32. Some of the information in this section is taken directly from Smith, O’Keeffe, et al., Understanding Medicaid Home and Community Based Services: A Primer. HHS, Office of Disability, Aging and Long-Term Care Policy. Washington, DC. October 2000. Available at:http://aspe.hhs.gov/daltcp/reports/primer.htm.