Understanding Medicaid Home and Community Services: A Primer, 2010 Edition. 2. HCBS Waiver Authority


Under the provisions of §1915(c) of the Social Security Act, a state may obtain Federal waivers to furnish home and community services to participants who require the level of care that is provided in a Medicaid-reimbursable institutional setting but choose to be supported in the community. All states except Arizona and Vermont operate HCBS waivers.25 (For more information about this authority, see Chapter 1 and Chapter 4.)

Participant Direction of Waiver Services

Since the inception of the HCBS waiver program in 1981, some states allowed participants to exercise the employer authority (e.g., Oregon, Wisconsin, Washington). As previously noted, in 2002 the CMS Independence Plus initiative spelled out for the first time the essential features for incorporating participant direction into the delivery of waiver services.26 As part of the initiative, CMS issued a stand-alone Independence Plus HCBS waiver application template for states interested in implementing participant direction of waiver services.27

In 2004, CMS undertook a major revision of the standard HCBS waiver application.28 The revised application, released in 2005 (and the most recent update, released in 2008), requires states to describe in detail the critical operational features of their HCBS waivers and places a stronger emphasis on waiver service quality assurance/quality management than did the previous application.29 In conjunction with the release of the new application, CMS also released comprehensive technical guidance to states concerning various dimensions of the design and operation of HCBS waivers30

An important feature of the revised HCBS waiver application is the inclusion of a distinct part (Appendix E) that is devoted to participant direction of waiver services.31 Appendix E is designed to permit a state to incorporate participant direction into the operation of any HCBS waiver.

When states elect to include a participant direction option in an HCBS waiver, they have the latitude to shape the option along several dimensions, including

  • Limited Implementation of Participant Direction. A state may elect to offer the participant direction option in all parts of the state or limit it to specific areas or regions, for example, to create a pilot in a specific geographic area to evaluate the program design before expanding it statewide.

  • Availability of Participant Direction by Types of Living Arrangement. A state may decide to make its participant direction option available to all waiver program participants (hereafter called participants) or limit the option to specified groups of participants, such as persons who live with their families or in their own homes.32

  • Direction by a Representative. A state may allow services to be directed by a representative selected by the participant.

  • Limitation of Services That May Be Participant Directed. A state may specify which waiver services--some or all--may be directed by participants.

  • Election of Employer and/or Budget Authority.A state may elect to offer participants the employer authority or the budget authority--or both--over the services they may direct. In each instance, a state may limit the extent of the authority that participants may exercise.

  • Employer Authority. A state has the option to offer two models of the employer authority: (1) “co-employer” model--also known as the “agency with choice” model, where a third party serves as the primary or legal employer of workers that the participant selects to furnish services and the individual or representative serves as the secondary or managing employer; and/or (2) a “common law employer” model, where the participant or his/her representative is the legal employer of workers.33 Regardless of the employer authority model used, the state may not permit payment to individuals who are ineligible to participate as providers in the Federal Medicaid program.34

  • Budget Authority. A state has the option to allow participants to exercise decision-making authority and management responsibility for an individual budget to purchase goods and services authorized in the service plan. When a state offers budget authority, it may specify whether participants are afforded the flexibility to shift funds among authorized services within the total amount of the budget without prior review and approval; desired purchases that are not in the service plan, however, must be formally added.

  • Coverage of Individual Directed Goods and Services. A state may elect to include the coverage of non-traditional “individual directed goods and services” in its waiver.35 Under this service coverage, participants may identify and purchase goods and services from their individual budgets that are not otherwise covered under the HCBS waiver or the Medicaid State Plan; for example, appliances that substitute for or reduce the need for paid assistance, such as a microwave oven. Coverage of non-traditional goods and services is only an option for waiver participants who exercise budget authority.36 The criteria for allowable goods and services is articulated in a State Medicaid Director Letter.37

As part of its design of an HCBS waiver participant direction option, a state must also address the following topics:

  • Information About Participant Direction. A state must describe how it will inform waiver participants about the benefits, responsibilities, and potential risks of directing their services as compared to continuing to receive services in the traditional service system.38

  • Financial Management Services. A state must provide for the provision of financial management services on behalf of participants who direct their waiver services. The HCBS waiver statute does not permit the payment of Medicaid dollars directly to waiver participants through the use of a “cash option.” Thus, the use of an intermediary to perform financial transactions on behalf of participants is required under the HCBS waiver authority. States have the latitude to contract for financial management services as a Medicaid administrative function or to offer them as a waiver service.39

  • Information and Assistance to Support Participant Direction.Similarly, a state must make information and assistance available to participants who direct their services and wish to avail themselves of such assistance. This assistance may take the form of a distinct waiver service or it can be covered as an administrative activity.40 For example, assistance might be provided to help participants locate workers or to develop the service plan. The type and extent of the supports that must be available to participants depends on the nature of the participant direction opportunities provided under the waiver.

  • Budget Safeguards. A state must put mechanisms in place to flag situations when a waiver participant might overspend and prematurely deplete the individual budget, and intervene as appropriate. It is also important that states monitor budgets to identify under-spending, as this may be an indication of inadequate service delivery.

  • Transition. A state must allow waiver participants who voluntarily decide to discontinue participant direction to transition to traditional models of service delivery, which can include agency-delivered services. In particular, a state must ensure that such participants continue to receive critical services during the transition period.

  • Termination from Participant Direction Option. Finally, a state must describe the circumstances under which it will terminate participants’ use of the participant direction option and provide for their transition to traditional modes of service delivery. As with voluntary transitions, a state must ensure the participants continue to receive critical services during the transition period.

States have considerable latitude in determining how they will address these requirements.

Additional HCBS waiver operational dimensions relate to participant direction of waiver services. These include service planning (and associated risk assessment processes) and some elements of quality management. CMS does not require states to develop processes concerning these generic dimensions of waiver operations that are specifically keyed to participant direction. However, when a state offers a participant-directed services option, CMS expects that such processes will take into account any special considerations related to participant direction. For example, when participants assume the role of employer and a professional service provider is no longer overseeing service delivery, participants themselves must assume the responsibility of managing staff and assessing quality.

Some states have elected to deliver HCBS in tandem with the provision of State Plan services by operating a §1915(b)/§1915(c) concurrent waiver program.41 Such waivers use a managed care model to coordinate the provision of services to Medicaid participants. Participant direction may be incorporated into this type of waiver program.42 (See Chapter 8 for a discussion of Medicaid managed care authorities.)

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