Understanding Medicaid Home and Community Services: A Primer, 2010 Edition. Program Evolution and Current Spending Allocations


When enacted, Medicaid was the medical care extension of Federally-funded programs providing cash assistance for the poor, with an emphasis on dependent children and their mothers, elderly persons, and persons with disabilities. Legislation in the 1980s expanded Medicaid coverage of low-income pregnant women and poor children, and extended coverage to some low-income Medicare beneficiaries who were not eligible for cash assistance. From its beginnings as a health care financing program primarily for welfare recipients, the Medicaid program has been amended and expanded to cover a wide range of populations and services.

When first enacted, Medicaid’s main purpose was to cover primary and acute health care services, such as doctor visits and hospital stays. Mandatory coverage for long-term care was limited to skilled nursing facility (SNF) services for people age 21 or older. States were given the option to cover home health services and private duty nursing services. In response to the high costs of nursing facility care, combined with criticism of Medicaid’s institutional bias, states and the Federal government began to look for ways to provide long-term care in less restrictive, more cost-effective ways. In 1970, home health services for those entitled to nursing home care became mandatory. Since that date, Medicaid has evolved into a program that allows states considerable flexibility to cover virtually all long-term care services and supports that people with disabilities need to live independently in their homes and in a wide range of community residential care settings.

The Federal Medicaid statute (Title XIX of the Social Security Act) generally requires states to specify the amount, duration, and scope of each service they provide, which must be sufficient to reasonably achieve its purposes. States may not place limits on services or arbitrarily deny or reduce coverage of required services solely because of diagnosis, type of illness, or condition--called the comparability requirement.

Generally, a State Plan must be in effect throughout an entire state (i.e., the amount, duration, and scope of coverage must be the same statewide--called the “statewideness” requirement). The Social Security Act has some exceptions, notably (1) states operating Section (§)1915(c) home and community-based services (HCBS) waiver programs (hereafter called HCBS waiver programs) are permitted to target services by age and diagnosis and can offer them on a less than statewide basis, and (2) targeted case management services offered as an optional benefit under the State Plan are not subject to the statewideness requirement. (§1115 Research and Demonstration waivers can also operate on a less than statewide basis.)

By 1999, the year of the Olmstead decision, every state was providing home and community services under one or more of the available options except for §1915(i) (which did not become effective until 2007). By then, Medicaid had become the nation’s major public financing program for long-term care for low-income persons of all ages with all types of physical and mental disabilities.3

Since 1988, Medicaid spending for home and community services has increased dramatically. In that year, expenditures for all long-term care services totaled $23 billion. Nearly 90 percent of those dollars paid for institutional services in nursing facilities and intermediate care facilities for persons with intellectual disabilities (ICFs/ID). Only 10 percent was spent on home and community services (i.e., HCBS waivers, personal care, home health, and targeted case management).4

In 2008, total Medicaid spending for all long-term care services had increased to $106.4 billion. Institutional spending had dropped to 57.3 percent and HCBS spending increased to 42.7 percent. The latter percentage, however, masks large variations among states in the share of spending devoted to home and community services and among different populations. For example, in 2008 only 10 states spent 50 percent or more of their long-term care budgets on home and community services. New Mexico and Oregon ranked at the top with over 70 percent; Mississippi was at the bottom with 13.9 percent.5

Expansion of home and community services relative to institutional services has been particularly pronounced for individuals with intellectual disabilities and other developmental disabilities (ID/DD, hereafter called developmental disabilities). In 2008, only four states (New Mexico, Washington, Oregon, and California) spent more than 50 percent of their Medicaid long-term care budgets on home and community services for the aged and disabled population, while 42 states spent at least half of their Medicaid long-term care budgets on home and community services for individuals with developmental disabilities. As an example, Oregon’s spending on home and community services for the ID/DD population was 100 percent compared with 53.6 percent for the aged and disabled population.

Nationally, in 2008, 35.5 percent of Medicaid’s total long-term care expenditures for persons with developmental disabilities were allocated to institutional services and 64.5 percent to home and community services. The allocation for elderly persons and younger persons with physical disabilities was the opposite--68.4 percent of total long-term care expenditures for institutional services and 31.6 percent for home and community services.6

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