Medicaid is a significant payer of long-term care services. Medicaid expenditures on long-term care comprise 33.2 percent of Medicaid spending (see Table 1-6). States are steadily shifting the balance of long-term care spending from institutional to home and community settings. Medicaid spending for institutional care in nursing homes and ICFs-MR rose from $41.5 billion in 1996 to $60.2 billion in 2006.20During the same period, spending for home and community services (state plan personal care, home health, and HCBS waivers) grew from $11.2 billion to $38.5 billion.21 Consequently, Medicaid spending for institutional care dropped from 79 percent of all Medicaid long-term care spending in 1996 to 61 percent in 2006 for all populations. The percentage of Medicaid long-term care spending on home and community services was higher for individuals with development disabilities (60.7 percent) than for adults with physical disabilities and elders (28.6 percent.)
TABLE 1-6. Medicaid Long-Term Care Spending (in billions)
Much of the growth in HCBS spending has been for services for persons with MR/DD, which account for 75 percent of all spending.
The expansion of home care programs, home health services, and residential care options has afforded persons with long-term care needs a number of alternatives to nursing homes. People with fewer ADL impairments are less likely to enter a nursing home.22 Thus, while the absolute number of nursing home beds increased from 1.8 million in 1985 to 1.9 million in 1999, the rate per thousand persons over age 75 declined from 141 beds to 117 beds, and nursing home occupancy rates dropped from 92.3 percent in 1987 to 87.0 percent in 1996,23 and further declined to 85.6 percent in December 2003.24 See Table 1-7 for occupancy rates in each state.
Declining nursing home occupancy rates create some concerns for states. First, as higher income individuals choose assisted living, the proportion of nursing home residents who are Medicaid beneficiaries increases. Increased reliance on Medicaid creates pressure to raise payment rates to replace revenue formerly received from private-pay residents. Second, excess capacity creates a greater likelihood that Medicaid nursing home expenditures will rise if Medicaid beneficiaries do not have access to sufficient home and community services and must rely on nursing homes at greater expense to the states.
State officials thus have an interest in ensuring that the supply of nursing facilities declines as the supply of home and community services expand. The 1999 U.S. Supreme Court Olmstead decision gives further impetus for shifting spending from institutions to home and community settings. That decision, and guidance to states from CMS, requires that states have plans for serving people with disabilities in the most integrated setting. Additionally, the ruling states that if states have a waiting list for services, the list must move at a “reasonable pace.”
TABLE 1-7. Nursing Home Supply and Occupancy Rates and Residential Care Supply, 2003
SOURCES: Population Division, U.S. Census Bureau. Annual Estimates of the Resident Population by Selected Age Groups for the United States and States: July 1, 2003. American Health Care Association: December 2003. The supply of residential care settings was calculated by NASHP using Census data and data reported by state licensing agencies. (n.a. -- not available).
While some areas of the country, particularly rural areas, have an inadequate supply of residential care facilities, in other areas, developers have over-built facilities. In over-built areas, nursing homes compete with ALFs for market share and residential care facilities compete among themselves for residents. Low occupancy rates in ALFs may lead to greater interest in serving Medicaid beneficiaries, thereby increasing the availability of this service option for low income individuals.
Data provided by Brian Burwell, Steve Eiken, et. al. The MedStat Group. Memorandum, 2006.
Medicaid spending for services delivered in residential care settings is not reported separately.
Jones, A. “The National Nursing Home Survey: 1999.” National Center for Health Statistics. Vital Statistics 13(15) 2002.
Rhoades, Jeffrey A. and Krauss, Nancy A. Nursing Home Trends, 1987-1996. Rockville, MD: Agency for Health Care Policy and Research; 1999. MEPS Chartbook No. 3. AHCPR Pub. No. 99-0032.
American Health Care Association. Based on CMS-OSCAR form 671:F41-F43. 2003.
Medicaid Financing for Services in Residential Care Settings
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).
State Approaches to Reimbursing Services
The extent to which low income older people have access to residential care settings as an alternative to nursing homes depends in large part on the extent to which states use Medicaid to cover services in these settings, and providers’ views on the adequacy of Medicaid’s service reimbursement rates. In addition to the amount of the payment, the reimbursement approach can also serve as an incentives or disincentives for providers.
Data from the 2004 report suggested that states increased their payments over the prior four years, although they are still quite low relative to private-pay rates, and may not fully cover services to meet residents’ needs. However, key informants suggested that providers’ willingness to accept Medicaid rates is increasingly driven by an over-supply of facilities and difficulty finding private-pay residents.
States face a number of major challenges in developing Medicaid payment methodologies for residential care services, including: (1) defining and distinguishing between types of services, (2) collecting data on which to base payments while avoiding complex and burdensome new data collection requirements, (3) developing rates that support quality care and aging-in-place, and (4) providing reimbursement that is sufficient to ensure provider participation within state budget constraints.
States use five primary approaches to set rates for Medicaid services provided in residential care settings:
- Flat rates;
- Flat rates that vary by type of setting;
- Tiered rates;
- Case-mix rates; and
- Cost-based reimbursement and fee-for-service rates.
Table 1-13 lists the states that use Medicaid to cover services in residential care settings according to their rate-setting approach. Descriptions of each state’s reimbursement approach and rates can be found in Section 3 under the heading public financing.
TABLE 1-13. State Rate-Setting Approaches
- Illinois’ rates vary by region.
- New Jersey has flat rates that vary by setting.
- Texas has tiered rates that vary by setting.
- Minnesota uses a combined case-mix and cost-based approach. Counties have basic payment rates that are based on case-mix, and a variable payment rate that is based on each client’s service plan. The variable payment is negotiated with providers.
- Maine’s reimbursement system combines fee-for-service and case-mix components, depending on the type of residential care setting. ALPs are paid based on a service plan, and residential care facilities are paid on a cost-based system. North Carolina has a modified case-mix payment system.
- Arkansas uses tiered rates for its waiver program and a fee-for-service system for state plan services.
Cost-Based Reimbursement and Fee-for-Service Rates
Cost-based reimbursement pays the facility for aggregate costs incurred by Medicaid eligible residents for allowable services.
Fee-for-service rates are determined by the number of hours of service identified in a care plan or a point system based on an assessment. For example, Kansas treats ALFs as providers of home care services, and reimburses for the services delivered. This approach may be cumbersome for some facilities to implement because they are used to receiving a regular monthly payment and providing resident services as needed pursuant to a plan of care. If services are reimbursed on a fee-for-service basis, facilities must track service delivery and prepare and submit bills to the payment agency. Depending on the pricing structure, ALFs may not be set up to prepare and submit itemized bills for each increment of service delivered to each resident.
Service delivery in ALFs also differs significantly from in-home service programs. Participants in home care programs typically receive services in block authorizations (e.g., two hours of care, five days a week). Assisted living residents typically receive services in 15-minute increments at various times seven days a week including nights. Home care programs typically do not cover services at night, and, of course, cannot meet unscheduled needs.
Tracking, aggregating, and billing can become cumbersome and time consuming, especially for facilities used to charging a single all-inclusive service fee. However, the pricing structure of many facilities includes a basic package of services with additional charges based on the increments of service used by residents. Facilities with this policy for private-pay residents may be better able to participate in Medicaid programs that reimburse using a fee-for-service approach.
Eleven states use fee-for-service rates, examples of which are described below.
Arkansas allows personal care services to be provided through the state plan in a person’s home “or other setting” such as a RCF. RCFs can be reimbursed for up to 64 hours of personal care per month at a rate of $13.84 an hour.
In Missouri, personal care and advanced personal care services are reimbursed as a Medicaid state plan service in RCFs. Facilities receive a unit rate (15 minutes) for services that are authorized in the care plan. The unit rate is $4.02 for personal care aides (PCAs), $5.03 for advanced PCA services, and $39.97 for nursing visits. The maximum payment is $2,379 a month, which is equal to the state’s Medicaid cost for nursing home care. No more than one nursing visit a week can be authorized. Very few residents receive advanced personal care and nursing visits.
The state limits the room and board rate for Medicaid beneficiaries to the federal SSI payment plus the state supplement, also called a “cash grant,” which varies depending on the type of facility. Type I facilities provide room and board, supervision, and protective oversight and receive a monthly payment of $754, comprising the SSI payment and a state supplement. Type II facilities provide personal care, dietary supervision, and health care in addition to Type I services, and receive a combined monthly payment of $850 a month. Residents can retain $25 a month for their personal needs.
Montana uses a payment system that has elements of a tiered system but lacks the structure and limited number of payment levels of tiered approaches. The payment amount varies widely based on the number and type of impairments, a structure more like a fee-for-service reimbursement approach. Montana’s payment is based on a point system. Agency field staff determine the number of points based on an assessment of impairments, and the provider receives $33 a month per point.
Monthly waiver reimbursement rates for personal care facilities vary depending on the residents’ LOC needs. Additional payments are calculated based on ADL and other impairments. The points determine the actual payment within a range. The state limits monthly room and board payments for Medicaid beneficiaries to $495. The maximum monthly payment for services is $63.34 per day or $1,900.20 for a 30 day month.
Expanding the Supply of Assisted Living for Low Income Individuals
Both federal and state governments recognize that, in order to reduce costly institutionalization, a range of supportive housing and service options is needed. An increasing number of persons 65 and older who can no longer live independently view assisted living as a preferred alternative to nursing home care, or as a means to forestall admission to a nursing home. But market-rate assisted living that provides private rooms and a high level of services is generally far beyond the means of most low income elderly persons.
There are several sources of funding available to finance the development or renovation of housing to create affordable assisted living. The Federal Government’s main vehicle for creating affordable housing is the low income housing tax credit program. Other sources of funding are programs in the U.S. Department of Housing and Urban Development (HUD) and USDA, and state programs. These departments provide funds to both finance new housing units and provide rental assistance in existing housing. However, not all programs that create and/or support affordable housing can be used for affordable assisted living.
Developing affordable assisted living is a complex undertaking. Different statutory authorities and administrative structures, and a lack of communication among those who manage housing and service programs, present major difficulties. A major issue for some housing subsidy programs is that the lenders and investors they depend on require evidence of a stable revenue source over the life of their commitment to protect their investment -- typically 15-30 years. But state service programs may be unable to provide a stable revenue source because they are subject to annual appropriations that depend on the state’s budget.
Additionally, despite targeting the same or similar populations, housing and service programs have different and often conflicting income, age, and functional eligibility rules that make it difficult to create the supportive housing plus services arrangements that frail elderly persons need. Medicaid program requirements can also pose barriers to the receipt of services in residential care settings (e.g., Medicaid’s rules regarding financial eligibility and post-eligibility treatment of income may limit an individual’s ability to pay for room and board).
Housing programs also have conflicting requirements. Yet, successful projects often need to combine funding from multiple housing finance programs (e.g., low income housing tax credits, HUD’s HOME program, the Federal Home Loan Bank’s Affordable Housing Program, conventional debt, and Housing Choice Vouchers), with two or more service subsidy programs (e.g., Medicaid state plan or waiver programs, state supplements to the SSI program, state-funded service programs).34
At the state level, some agencies that manage Medicaid waiver programs have begun working with state and local housing agencies and non-profit housing organizations to explore ways to combine housing subsidies with Medicaid services. At the federal level, HUD and HHS are currently looking at ways in which the agencies can work together to expand housing and service choices for people with disabilities.
34. Robert Jenkens, Deputy Director, Coming Home Program, Vice President, NCB Development Corporation. Personal communication, June 2004.
Medicaid Policy Issues for Housing Investors, Developers, and Operators
The growth of assisted living has sparked interest in developing or expanding assisted living for elderly persons with low incomes. However, facilities may be reluctant to participate in the Medicaid program if they are not sure that they will have a reliable source of potential residents and payments. Housing providers and lenders need to project revenues to determine the feasibility of each project. Public agencies that provide subsidies to developers to build affordable assisted living need assurances that there will be a stable source of funding for residents’ service needs. Consequently, in addition to being knowledgeable about the Medicaid program generally, assisted living investors, developers, owners, and operators need to be aware of several Medicaid policy and program issues.