Understanding Medicaid Home and Community Services: A Primer, 2010 Edition. Medicaid Financing for Services in Residential Care Settings


Medicaid provides several authorities for financing services in residential care settings: HCBS waivers,28 Section 1115 research and demonstration waivers (hereafter referred to as §1115 waivers), and the Medicaid State Plan. State Plan services include personal care (through the Personal Care optional benefit), rehabilitation services, and services offered under the §1915(i) HCBS benefit, including personal care and habilitation services. Each of these Medicaid authorities has specific eligibility, application, and approval requirements. (See Chapter 1 and Chapter 4 for more information about all of these authorities.)

However, Medicaid will pay for services furnished in residential care settings only if a “homelike environment” is preserved. Thus, Medicaid will not pay for services in residential care settings if they are located in the wing of a nursing home or an ICF/ID. As discussed earlier, CMS has provided guidance as to what constitutes a home-like character, particularly in regard to what CMS defines as “larger” facilities--those serving four or more unrelated individuals.

States may provide HCBS waiver services only in residential care settings that are permitted under state regulations to serve individuals who meet institutional level-of-care criteria. Some states, such as Oregon, license both adult foster care providers and residential care facilities to serve persons who meet the state’s nursing home level-of-care criteria. Others, such as North Carolina, use the State Plan Personal Care option to provide personal care services to individuals in residential care settings, because these facilities are not permitted to serve individuals who meet the nursing home level-of-care criteria. Some states use both the HCBS waiver and State Plan Personal Care option to provide services in different types of settings.

In 1981, Oregon was the only state to use the HCBS waiver authority to fund services in residential care settings for older adults. Few states followed suit until the 1990s, when the growth in private pay assisted living focused attention on residential care alternatives to nursing homes. In 2009, 46 of the 50 states and the District of Columbia used either a waiver or State Plan optional services (or both) to provide services in residential care settings for older persons and/or younger persons with physical disabilities.29Table 5-1 lists the states that use each authority for these populations. The HCBS waiver is the most frequently used authority and the largest source of financing for Medicaid services in residential care settings, but more individuals in residential care settings receive personal care services through the State Plan than through an HCBS waiver.

Only four states use a §1115 waiver to cover services in residential care settings for older adults and younger adults with disabilities, and no states currently use the new §1915(i) HCBS authority for this purpose, although it is possible to do so as several of the services under this authority (e.g., personal care and habilitation) can be provided in such settings.

From the inception of the waiver program in 1981, states have used HCBS waivers to pay for services for individuals with developmental disabilities in group homes and foster homes as an alternative to ICFs/ID. As a result, every state now uses the HCBS waiver (or a §1115 waiver as in Arizona and Vermont) to provide services and supports in residential care settings for individuals with developmental disabilities. No states use the State Plan Personal Care option to cover personal care in residential care settings for this population because this benefit is very limited compared to residential habilitation services provided under HCBS waivers.

TABLE 5-1. Medicaid Authorities States Use to Provide Services in Residential Care Settings for Older Adults and Younger Adults with Physical Disabilities
  Waiver Only1     State Plan   State Plan
  and Waiver  
Arizona (§1115)
California (AL)
Connecticut (AL)
Delaware (AL)
District of Columbia  
Hawaii (§1115)
Illinois (AL)
Nevada (AL)
New Hampshire
New Jersey
New Mexico
North Dakota
Ohio (AL)
Rhode Island (AL and §1115)  
Virginia (AL)
Wyoming (AL)
New York
North Carolina  
South Carolina
Arkansas (AL)
Florida (AL and BW)  
Missouri (AL)2
South Dakota
Vermont (§1115)
AL: Waiver services are provided only in residential care settings (13 states). §1115: Services covered under a §1115 waiver (4 states).
  1. Unless indicated as an §1115 or AL waiver, the states provide coverage under a broad HCBS waiver (BW) that covers services in participants’ homes and in residential care settings (24 states and the District of Columbia).
  2. Missouri’s waiver was approved by CMS but had not been implemented by the end of 2009.

Because all states use HCBS waivers--and none use the State Plan Personal Care option--to cover services and supports in residential care settings for persons with developmental disabilities, the following discussion regarding which Medicaid authority to use focuses primarily on considerations when serving older adults and younger adults with physical disabilities. However, the discussion regarding considerations when using HCBS waivers is also relevant for the ID/DD population.

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