State Assisted Living Policy: 1998. State Approaches to Reimbursement


As in any reimbursement system, the amount of the payment and the approach to reimbursement create incentives for provider behavior. Five primary approaches are used by states in setting rates for assisted living and/or board-and-care services:

  • Flat rates,
  • Flat rates that vary by type of setting,
  • Tiered rates,
  • Case mix rate systems, and
  • Care plan or fee-for-service based rates.

Table 7 summarizes the rate-setting approaches used by states that reimburse assisted living services.

TABLE 7. State Rate-Setting Approaches

  Flat Rates   Vary by Setting Tiered Rates Case Mix Care Plan
New Mexico
North Carolina
Rhode Island
South Dakota
New Jersey1  
New York
North Carolina1  
North Dakota  
  1. Alaska, Florida, New Jersey, and North Carolina are exploring new rate-setting approaches. Maine plans to implement a case mix system in 1998 for residential care facilities. Note that Florida, Maine, and North Carolina appear under more than one category.
  2. Delaware and Vermont are also developing tiered rate systems as waivers are developed for new assisted living regulations.

1. Flat Rates

As in the health care system, flat rates in the assisted living system create incentives for facilities to admit tenants who need lighter care. Facilities receive the same monthly payment regardless of the level of care and staff assistance needed. Facilities may tend not to admit tenants with multiple impairments in activities of daily living.

Thirteen states currently use flat rate reimbursements. Florida, which is exploring a tiered payment system, pays facilities $1350 a month, a fee that includes a service payment and a room and board component. Massachusetts uses Group Adult Foster Care (GAFC), which is listed as a Medicaid state plan service, to reimburse for services to Medicaid recipients in assisted living. The service payment averages $33.70 per day for Medicaid recipients. The program was developed prior to passage of the assisted living legislation and combines two approaches: services in conventional elderly housing projects and purpose-built assisted living sites.

Massachusetts, recognizing that high development costs create barriers for low-income residents, is the only state that has set a separate SSI payment for assisted living of $924 a month. This payment is considerably higher than the community standard (the payment for an aged person living alone in the community) or the board-and-care standard. The increased rate reflects the higher real estate and development costs in the state and provides access for Medicaid recipients to many market rate and mixed-income developments.

The state Medicaid agency prefers to retain coverage of assisted living through the GAFC program as a state plan service rather than as a waiver service. Although spending would be capped under the waiver, the state plan approach allows Medicaid to serve people who are frail but are not eligible to enter a nursing home following a tightening of the level of care criteria.

Four states--Colorado, Nevada, South Dakota, and Georgia--cover services in licensed board-and-care settings that are sometimes referred to as assisted living. Colorado's Medicaid rules limit room and board charges for Medicaid recipients to $448 a month. Effective July 1998, the Medicaid rate for services will be $29.88 a day ($896.40 a month). The rate covers oversight, personal care, homemaker, chore, and laundry services. The total monthly rate for an SSI recipient is $1344.40.

In Nevada, personal care services are reimbursed through a Medicaid HCBS waiver in group residential settings if the resident meets the SSI eligibility criteria. Facilities receive a total payment of approximately $1000 a month which includes $781 from SSI for room and board and $9.09 a day ($277.20 a month) for personal care.

The SSI payment, including state supplement, in South Dakota for assisted living facilities is $910 per month. Residents retain a personal needs allowance of $30 a month. If the Department of Social Services determines that a Medicaid eligible individual also needs medication administration, the facility receives $150 per month through the Medicaid HCBS waiver for a total payment of $1,030 per month.

Georgia has implemented a small Medicaid HCBS waiver that reimburses two models of personal care homes: (1) group homes serve 7-24 people, and (2) family homes serve 2-6 people. Group homes which are more comparable to assisted living, are reimbursed at $23.49 per day. Family homes, also called assisted living, are called adult foster care in other states.

Under its assisted living regulations, North Carolina licenses adult care homes, family care homes, group homes for the developmentally disabled, and multi-unit assisted housing with services. All are considered variations of assisted living under state law although some observers would consider adult care homes as a board-and-care model.

North Carolina uses a modified flat rate with add-ons for tenants with specific ADL impairments. In 1998, the SSI payment for room and board is $893 a month (plus a $43 personal needs allowance), and the state covers personal care in adult care homes as a Medicaid state plan service. Providers receive a flat rate for basic personal care. Residents with extensive or total impairments in eating, toileting, or both eating and toileting qualify for a higher rate. In 1998, the basic payment is $8.07 a day which assumes each resident receives one hour of personal care a day. Providers receive higher payments for residents with extensive or total impairments in three specific ADLs: eating, toileting, or both. The rate for residents with extensive or total impairments in eating is $16.00 per day, toileting $10.87 per day, and impairments in both eating and toileting are reimbursed at $18.80 per day. These three payment levels include the basic rate of $8.07 per day. Eligibility for the added payment is based on an assessment by the adult care home which is then verified by a county case manager. North Carolina is developing a case mix payment system using assessment data and cost report data for tenants in adult care homes.

TABLE 8. North Carolina Medicaid Rates--Monthly (1998 data)

    Basic Rate   Eating   Toileting     Eating and  
Room and board   $893.00 $893.00 $893.00 $893.00
Personal care $242.70 $480.00 $326.10 $564.00
Total $1135.70   $1373.00   $1219.10 $1457.00

2. Flat Rates that Vary by Setting

Flat rates that vary by setting generally reflect a state's preference for apartments and private occupancy without excluding facilities offering rooms or shared occupancy. However, unless the reimbursement also takes into account the differing service needs of the residents, the total amount of the payment may be more important to provider participation than the differential rates facilities receive based on the type of units offered (apartments or rooms) or occupancy arrangements (private or shared).

In some cases, varying rates by setting may reflect differences in the average acuity level of residents in each setting. For example, a state may reimburse for services in conventional elderly housing buildings and purpose-built assisted living facilities. Generally, tenants in elderly housing sites are less impaired than those in purpose-built assisted living facilities. Unlike purpose-built assisted living facilities, elderly housing sites typically do not have 24-hour staffing and the capacity to meet the unscheduled needs of tenants. Elderly housing facilities, therefore, receive a lower rate than purpose-built assisted living facilities with 24-hour staffing.

Texas has developed flat rates that vary by location rather than acuity. Separate service rates are based on the setting and the number of occupants. Single occupancy assisted living apartments receive $29.39 a day for services. Residential care units receive $22.96 a day for double occupancy and $18.99 a day for non-apartment, double occupancy models. The SSI rate for room and board is $11.88 a day for all settings.

New Jersey licenses assisted living as a service provided in a range of settings. Rates have been developed for each of three settings rather than level of service or other factor. Newly constructed assisted living residences receive $571 for room and board and $1800 a month for Medicaid services. Comprehensive personal care homes receive $571 for room and board and $1500 a month for services. Assisted living programs (subsidized housing) receive $1200 a month for services. Residents are charged a percentage of their income for rent with the remaining amount subsidized by the project. State officials plan to review the methodology and develop a new rate structure.

TABLE 9. New Jersey Rate Schedule

    Assisted Living  
  Assisted Living  
  Personal Care  
Room and board $571.55 NA $571.55
Medicaid waiver services   $1800.00 $1200.00 $1500.00
Total $2371.55   $2071.55

3. Tiered Rates

Tiered Rates Based on Acuity Levels

Tiered rates have been developed to more fairly reimburse facilities for the care provided to frailer residents. Tiered systems usually include 3-5 tiers based on the type, number, and severity of ADL and/or cognitive or behavioral impairments. They create incentives to serve higher acuity tenants who are more likely to enter a nursing home.

Arizona has developed three rate classes based on the needs of the resident. Ohio was also planning to use a service rate structure with five tiers ranging from $200 to $1400 a month that varies based on the number and type of ADL impairments, skilled nursing needs, and behavior needs. The room-and-board payment was proposed to be $700 a month. The service rate was developed after consultation by the Department of Aging with assisted living providers.

TABLE 10. Oregon Reimbursement Categories

  Impairment Level     Service Priority   Service R&B   Total Rate  
Level V Service priority A or priority B and dependent in the behavior ADL.   $1643.48     $420.70   $2064.18
Level IV Service priority B or priority C with assistance required in the behavior ADL. $1330.48 $420.70 $1751.18
Level III   Service priority C or priority D with assistance required in the behavior ADL. $1016.48 $420.70 $1437.18
Level II Service priority D or priority E with assistance required in the behavior ADL. $767.48 $420.70 $1188.18
Level I Service priority E or F or priority G with assistance required in the behavior ADL. $579.48 $420.70 $1000.18

Oregon reimburses facilities using five levels based on the type and degree of impairments of residents. The total rate includes a room and board payment of $420.70 and a service rate. The levels are assigned based on a service priority score determined through an assessment. ADLs include eating/nutrition, dressing/grooming, bathing/personal hygiene, mobility, bowel and bladder control, and behavior. Service priority ratings are assigned based on the number and type of impairments in ADLs. Service priority A is assigned to people who are dependent in 3-6 ADLs; priority B those dependent in 1-2 ADLs. (See table.) About 60% of the Medicaid residents are in Level IV.

Vermont has developed a unique three-tiered system that was developed using MDS 2.0 and assessment data. Residents receive a score in five areas: ADLs, bladder and bowel control, cognitive and behavior status, medication administration, and special programs (behavior management, skin treatment, or rehabilitation/restorative care). Residents are assigned to a level (1 or 2) based on the extent of ADL impairments. Scores of 6-18 are assigned to level 1 and scores between 19-29 are assigned to level 2. The four remaining areas are rated, and additional points are assigned. The payment tier is determined by combining the ADL level and the additional points. Payment rates have not been devised. The Department of Aging and Disability has piloted the classification system and will be developing rates for each tier.

TABLE 11. Vermont Payment Areas and Scoring System (proposed)

Area   Maximum  
ADLs 29 Eating, toileting, mobility, bathing, dressing
Continence 13 Bladder and bowel
Cognitive/behavior status   65 Sleep pattern, wandering, danger to self/others
Medication 5 Administration
Special programs 49 Mood, behavior, cognitive loss. Skin: Turning/repositioning, nutrition or hydration, dressings, ulcer care, surgical wound care. Rehab: range of motion, skin brace assistance, transfer, walking, dressing/grooming, eating/swallowing, prosthesis care, communication.

TABLE 12. Vermont Rating System (proposed)

Tier 1 Tier 2 Tier 3
  Level     Points     Level     Points     Level     Points  
1 0-30 1 31-59 1 60+
    2 0-35 2 36+

Tiered Rates with Geographic Variations

Washington has developed a unique approach to developing rates. The state initially offered contractors a flat per diem rate of $47.37 a day in 1995 consisting of $27.06 for services and $20.31 for room and board. In 1995, the state Aging and Adult Services Administration (AASA) initiated development of a tiered rate structure based on three levels of care needs. AASA sought information from facilities on rate related costs. Working with assisted living facilities and the state Housing Finance Agency, model rates were constructed based on staffing, operations, and capital costs. The model assumed an average size facility of 60 units and variations in levels of care. Each level of care assumed residents would receive some nursing services though not every resident necessarily receives such services. Nursing services are differentiated by licensing category. RNs or LPNs may provide insertion of catheters, nursing assessments, and glucometer readings. Unlicensed staff may provide the following under supervision by an RN or LPN: stage-one skin care, routine ostomy care, enema, catheter care, and wound care. Unlicensed staff may provide assistance with transfer, mobility, hygiene and incontinence.

The process set the rate for nursing costs in King County at $15.16 a day for Level 1 residents, $21.24 for Level 2 residents, and $27.82 for Level 3 residents. Operating costs were $32.28, $32.72, and $33.16 respectively. Capital costs were $8.30, $8.36, and $8.44 respectively. Capital costs varied because of changing assumptions about occupancy rates across levels. In addition, a capital add-on was created for new construction. The rates are increased for new facilities by $4.49 a day in King County. (See Table 13).

The methodology sets upper limits that facilities may charge to Medicaid residents. Since Medicaid may only reimburse for services, the room and board portion of the rate is paid by the resident from his or her social security, pension, or SSI benefit. Residents who rely solely on SSI will pay $14.79 a day for room and board. The rates in the table represent total rates that include $14.79 per day for room and board.

TABLE 13. Washington Rate Structure

Level I Level II Level III
Component King
MSA   Non-MSA   King
MSA   Non-MSA   King
MSA   Non-MSA  
Nursing $15.16   $13.44   $12.75 $21.24   $18.72   $17.75 $27.82   $24.47   $23.21
Operations   $32.28 $29.97 $30.24 $32.72 $30.35 $30.65 $33.16 $30.73 $30.78
Capital $8.30 $7.95 $6.94 $8.36 $8.01 $6.99 $8.44 $8.09 $7.06
Total $55.74 $51.36 $49.93 $62.32 $57.07 $55.39 $69.41 $63.29 $61.05
Add-on $4.49 $4.08 $4.34 $4.49 $4.08 $4.34 $4.49 $4.08 $4.34
Total $60.23 $55.44 $54.26 $66.81 $61.15 $59.72 $73.90 $67.37 $65.38

Under the new system, case managers use a comprehensive assessment to measure the person's level of need. Three sections of the assessment are used to determine the payment level: health status, psychological/social/cognitive status, and functional abilities and supports. A three-step process is used to determine the appropriate rate. Six ADLs are weighted and measured: eating, toileting, bathing, ambulation, body care, and transfer. Eating, toileting, bathing and ambulation are assigned a weighted value of 2, while body care and transfer a given a value of 1. Residents must be substantially or totally impaired in an ADL to receive a score. Scores of 0-4 are assigned to level 1; 5-10 level 2.

The second step measures speech, sight, hearing, disorientation, memory impairment, impaired judgement, wandering, disruptive behavior, and medication administration. Ten points are assigned to people who have impairments in speech, sight, and hearing. Points are assigned based on the number of medications and a weighting which gives higher scores as the number of medications increase. In addition, points are assigned for disorientation (12), memory impairment (16), impaired judgement (17), wandering (15) and disruptive behavior (20).

Step three combines the scores from each section to arrive at a payment level. A computer program reviews the assessment and determines the residents "level" and payment amount. Prior to the new system, a survey of facilities showed that Medicaid residents were "light care" and had relatively fewer ADL impairments. Since its implementation in January 1996, very few complaints have been received. While some facilities were worried that their rates might be reduced, most responded to the incentives created and began seeking residents who required higher levels of care.

4. Rates Linked to Nursing Home Case Mix Systems

Several states have adopted, or are developing, systems based on their nursing home case mix methodology approach. Like tiered rate approaches, the case mix approach also creates incentives to serve more impaired tenants by linking reimbursements to levels of care needs, but case mix approaches have more groupings. In addition, the case mix approach requires extensive functional and health data on residents. Both tiered rates and case mix rates are subject to "category creep" or "gaming;" that is, a tendency for facilities to interpret assessment data to support payment of the next higher rate or to request an adjustment because the resident has become more impaired and requires more staff support than upon admission. States may use an assessment by an independent case management agency to determine the original payment level. Subsequent requests to adjust the payment level can be reviewed by either the case management agency or the state agency before being approved.

Minnesota and New York have modeled their reimbursement rates on their case mix system for paying nursing homes. In New York, the service reimbursement is set at 50% of the resident's Resource Utilization Group (RUG) which would have been paid in a nursing home. The state has created RUG rates for 16 geographic areas of the state. The reimbursement category is determined through a joint assessment by the Assisted Living Program and the designated home health agency or long-term home health care program. The assessment and the RUG category are reviewed by the Department of Social Services' district office. The residential services (room, board, and some personal care) are covered by SSI, which also varies by region. In 1998, the SSI rates are $827 to $857 a month.

Service rates in Minnesota are negotiated between the client and the provider with caps based on the client's case mix classification. Service rates under the Alternative Care program, a state funded program for people who do not meet the Medicaid eligibility criteria, cannot exceed the state's share of the average monthly nursing home payment. The client pays for room and board (raw food costs only; meal preparation is covered as a service). The room and board payment standard under the SSI and state supplemental payment is $667 a month less a $54 personal needs allowance. To determine cost effectiveness, costs for assisted living and all other waiver services are combined. Residences receive a payment for assisted living services, and any other waiver services used are billed by the provider directly to the county.

TABLE 14. Minnesota Case Mix Categories and Maximum Statewide Rate Limits for Assisted Living and All Other Waiver Services--Effective 10/1/971

  Case Mix     Assisted Living  
Monthly Limits
  Total Maximum Payment2   Description
  AC Program     Elderly Waiver  
A $684 $1072 $1429 Up to 3 ADL dependencies3
B $771 $1209 $1612 3 ADLs + behavior
C $871 $1356 $1820 3 ADLs + special nursing care
D $962 $1507 $2010 4-6 ADLs
E $1023 $1654 $225 4-6 ADLs + behavior
F $1029 $1663 $2217  4-6 ADLs + special nursing care
G $1105 $1786 $2382 7-8 ADLs
H $1249 $2020 $2693 7-8 ADLs + behavior
I $1300 $2102 $2803 7-8 + needs total or partial help eating (observation for choking, tube or IV feeding & inappropropriate behavior)
J $1380 $2320 $2974 7-8 + total help eating (as above) or severe neuro-muscular diagnosis or behavior problems
K $1546 $2500 $3333 7-8 + special nursing
  1. The maximum rate limits vary by region of the state but cannot exceed the maximum statewide limits.
  2. Rates include assisted living and all other waiver services which the residence is responsible for providing or arranging but are billed by the provider to the county. The residence does not receive payment for the non-assisted living waiver services.
  3. ADLs include bathing, dressing, grooming, eating, bed mobility, transferring, walking, and toileting.

The total cost of all waiver services, including assisted living, may not exceed 75% of the average nursing home payment for the case mix classification. Under the HCBS waiver, rates for assisted living services are capped at the state share of the average nursing home payment and the total costs, including skilled nursing and home health aide, cannot exceed 100% of the average cost for the client's case mix classification.

The average statewide rate for assisted living services ranges from $684 a month for case mix A to $1595 for case mix K. About 70% of the participants were assessed as Category A and 96% fall between A and D. The Alternative Care program rates for all services including assisted living range from $1072 to $2500 a month. The Medicaid waiver statewide maximum rates for assisted living services and all other waiver services for elderly recipients ranged from $1429 a month to $3333 a month depending upon the case mix classification. Rates in a particular county could be higher or lower than the averages.

5. Care Plan and Fee-for-Service Rates

A few states use a system that is more like an in-home service system. This approach has three components: an assessment, a care plan, and the payment. Rates are determined by the number of hours of service identified in a care plan or a point system based on the assessment. For example, Kansas considers assisted living facilities as providers of home care services, and they are reimbursed on a fee-for-service basis. This approach may be cumbersome for some facilities to implement. Facilities are used to receiving a regular monthly payment and providing services as needed by the tenant pursuant to a plan of care. If the services are reimbursed fee-for-service, facilities must track service delivery and prepare and submit bills to the payment agency. Depending on the pricing structure, assisted living facilities may not be set up to prepare and submit itemized bills for each increment of service delivered to a tenant.

Service delivery in assisted living facilities is also very different from the delivery pattern of 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 tenants typically receive services in 15-minute increments at various times during each day of the week including nights and weekends when home care programs usually do not offer services. Tracking, aggregating, and billing become cumbersome and time consuming, especially for facilities used to charging one, all-inclusive fee for services. However, the pricing structure of many facilities includes a basic package of services with additional charges based on the increments of service used by tenants. Facilities with this policy for market-rate or private-pay tenants may be better able to participate in the fee-for-service approach.

In Missouri, personal care and advanced personal care services are reimbursed as a Medicaid state plan service in residential care facilities. The payment varies by resident based on an assessment and a plan of care completed by a case manager from the Division of Aging. Facilities are reimbursed at an hourly rate for the number of hours authorized in the plan of care. The maximum payment is $1700 a month which is tied to the state's Medicaid nursing home costs. The actual number of hours authorized ranges from 5-6 hours to 70 or 80 hours a month. The average number of hours authorized is 25-30 hours a month. The payment rate is $10.07 an hour for personal care aides, $14.61 for advanced personal care aide services and $25.00 an hour for nursing visits. No more than one nursing visit a week can be authorized. Very few residents receive advanced personal care and nursing visits.

The room and board rate is paid through the federal SSI payment and a state "cash grant" or SSI supplement payment. Type I facilities receive a combined payment of $645 a month and Type II facilities receive a combined payment of $752 a month. With an average personal care payment of $302.10, the total payment would equal $947 in Type I facilities and $1054 in Type II facilities. Type I facilities provide room and board, supervision and protective oversight. Type II facilities also provide personal care and supervision of diets and health care.

Montana and North Dakota use payment systems that have elements of a tiered methodology but lack the structure and limited number of payment levels of tiered approaches. However, payment is based on an assessment. Assessment data in Montana is converted to points and the facility receives so much per point. The Medicaid waiver reimburses adult foster care home and personal care facilities between $520 and $1800 a month depending on the level of care needed by residents. State agency field staff complete the assessment and determine the payment rate. In addition to the room-and-board component, the basic service payment for residents is $520 a month. Additional payments are calculated based on ADL and other impairments. Points are calculated for each impairment. The functions measured are: bathing, mobility, toileting, transfer, eating, grooming, medication, dressing, housekeeping, socialization, behavior management, executive cognitive functioning, and other. Each function is rated:

  1. With aides/difficulty: Individual needs consistent availability of mechanical assistance or expenditure of undue effort;
  2. With help: Individual requires consistent human assistance to complete the activity, but the individual participates actively in the completion of the activity;
  3. Unable: individual cannot meaningfully contribute to the completion of the task.

Each point equals $33 a month. For example, a resident consistently needing help with toileting would be scored a two and would earn $66 a month for that impairment. Residents with severe impairments, totally dependent in more than three ADLs can receive $44 a month for each point. The room and board payment under SSI is $564 a month. The total payment (services and room and board) ranges from $1084 to $2363 a month, although very few participants have been approved at the highest rate.

North Dakota uses a rate classification system that is derived from a point system measuring a person's level of service need. Systems in Montana and North Dakota have some similarities to tiered systems, but they do not have as defined a structure or a limited number of categories as the tiered approaches. The amount of payment varies widely based on the number and type of impairments which have more in common with care plan and fee for service systems.

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