State Residential Care and Assisted Living Policy: 2004. Medicaid Financing for Services in Residential Care Settings

03/31/2005

Medicaid is a significant payer of long-term care services, comprising about 64 percent of all nursing home care expenditures and 33 percent of Medicaid spending overall (see Table 1-6). States are steadily shifting the balance of long-term care spending from institutional to home and community settings. Although Medicaid spending for institutional care in nursing homes and intermediate care facilities for persons with mental retardation (ICFs-MR) rose from $35.4 billion in 1993 to $56.1 billion. In 2003, spending for home and community services (state plan personal care, home health, and HCBS waivers) grew from $6.7 billion to $27.8 billion during the same time period.20 Consequently, Medicaid spending for institutional care dropped from 86 percent of all Medicaid long-term care spending in 1991 to 67 percent in 2003.

Service 1993 2003
TABLE 1-6. Medicaid Long-Term Care Spending (in billions)
Home Health $1.4 $2.9
Personal Care State Plan   $2.5 $6.3
HCBS Waiver $2.8 $18.6
ICF-MR $9.3 $11.3
Nursing Home $26.1 $44.8
Total Long-Term Care $42.1 $83.8
Total Medicaid   $126.4     $259.6  

Much of the growth in HCBS spending has been for services for persons with mental retardation and other developmental disabilities, which account for 75 percent of all spending.21

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 elders 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 to nursing homes at greater expense to the states.

  State     NF Supply/  
1000 65+
  Occupancy  
Rate
Residential
  Care Supply/  
1000 65+
  State     NF Supply/  
1000 65+
  Occupancy  
Rate
Residential
  Care Supply/  
1000 65+
TABLE 1-7. Nursing Home and Residential Care Supply Data, 2003
US 50.0 85.6   US 50.0 85.6  
AL 44.8 90.0 16.8 MT 60.9 77.0 30.4
AK 20.6 83.9 12.3 NE 70.5 86.7 39.4
AZ 23.4 82.7 34.9 NV 21.6 83.6 16.7
AR 78.6 73.3 21.3 NH 51.0 92.4 26.3
CA 35.8 85.5 41.7 NJ 45.1 87.8 14.3
CO 46.3 81.9 31.7 NM 33.6 85.4 n.a.
CT 66.1 93.4 7.9 NY 49.6 92.7 17.6
DC 45.4 91.8 2.7 NC 43.1 89.0 17.6
DE 44.4 91.0 16.5 ND 69.4 93.5 30.3
FL 28.9 88.0 26.2 OH 79.3 86.0 27.7
GA 49.1 90.9 31.3 OK 71.1 67.3 21.0
HI 22.4 95.0 23.3 OR 28.8 67.8 47.5
IA 93.2 83.2 12.1 PA 47.6 89.9 40.0
ID 41.4 76.0 40.8 TN 52.8 92.0 19.3
IL 71.0 80.1 9.7 SC 36.4 91.8 33.1
IN 72.9 83.2 15.5 SD 68.0 92.4 31.0
KS 76.2 85.7 22.4 TN 52.8 89.3 19.3
KY 50.3 91.1 14.5 TX 56.4 77.5 19.6
LA 73.1 77.2 9.6 UT 37.4 72.7 22.5
MA 60.2 91.2 12.3 VA 38.5 89.9 42.3
MD 47.7 86.1 27.8 VT 44.5 92.4 30.4
ME 40.8 93.0 48.4 WA 35.0 85.7 36.2
MI 39.9 87.2 38.6 WI 60.2 86.6 38.9
MN 65.2 92.5 n.a. WV 40.7 89.9 11.9
MO 71.9 75.7 28.8 WY 51.7 80.8 21.7
MS 52.4 88.6 14.2        
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)

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."

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. As nursing homes compete with assisted living facilities for market share, these facilities are competing among themselves for residents. Low occupancy rates in assisted living facilities may lead to greater interest in serving low-income beneficiaries, thereby increasing the availability of this service option for Medicaid beneficiaries.

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