Using Medicaid to Cover Services for Elderly Persons in Residential Care Settings: State Policy Maker and Stakeholder Views in Six States. Appendix H. Factors for States to Consider When Choosing to Cover Medicaid Services in Residential Care settings (1)


It has long been recognized that, in order to reduce institutionalization, it is necessary to develop a range of residential options that provide supportive services. Given a choice, most people with long-term care needs would prefer to receive services in their own homes. However, some people prefer to live in residential settings other than their homes for a variety of reasons--such as the desire to have someone available 24 hours a day to meet unscheduled or emergency needs because they feel safer in such a setting. This preference is reflected in the recent private-sector growth in various forms of supported housing arrangements (called assisted living or residential care) for persons age 65 and older.

Services covered by or in an assisted living facility are governed by state law and regulations. There are no applicable Federal statutes, other than the Keys Amendment to the Social Security Act, which is applicable to board and care facilities in which a "substantial number of SSI recipients" are likely to reside. State rules vary widely, and many are currently being updated because assisted living is a relatively new concept, not envisioned by many state legislatures or rulemaking bodies in the past.

Using Medicaid to pay for services in assisted living settings for elderly persons is of increasing interest to states looking to offer a full array of home and community services and to reduce nursing home use. By 2000, 35 states were using Medicaid to reimburse services to support assisted living for people with long-term service and support needs. Twenty-four states cover services in assisted living settings under 1915(c) waivers; six cover it in their state plans through the personal care option; three cover it in both the waiver and the personal care option; one covers it through an 1115 waiver; and one covers it under a 1915(a) waiver.

Assisted living may refer to a generic concept that covers a wide array of settings and services, or to a very specific model--or both--depending on who is using the term. Twenty-nine states have a licensing category called assisted living, each with its own definition. Assisted living is also often used as a marketing term for facilities that may be licensed under another category, such as residential care facilities and personal care homes. The term is even used by facilities that are not licensed to provide services but whose residents receive services provided by outside agencies. CMS includes a definition of assisted living in the standard HCBS waiver application, but states have the option to use a different definition.

Assisted living is used here to mean care that combines housing and supportive services in a homelike environment and seeks to promote maximal functioning and autonomy. Medicaid will pay for services provided in assisted living facilities as long as the "homelike environment" is preserved. Thus, Medicaid will not pay for assisted living services if the assisted living facility is located in the wing of a nursing home (or ICF/MR). Emergence of assisted living as a residential rather than an institutional model--combined with changes in state licensing regulations--has provided many people who need supportive and health services with an important alternative to the nursing home. This type of living arrangement is very popular among private-pay older persons and their families. Covering assisted living through Medicaid provides safety net funding for this group, many of whom may one day be unable to afford it out of their own resources.

The logistics of setting up an assisted living program can be quite complex. Most important is the recognition that assisted living is more than just a setting for potentially cost-effective service delivery. It represents a philosophical approach to residential services that supports independent living, autonomy, and consumer choice--a philosophy that should guide decision making for regulations and payment policy. In making such decisions, states must address a number of key issues, each of which is discussed in turn.

1. The information in this Appendix is taken verbatim from Chapter 5 of Understanding Medicaid Home and Community Services: A Primer. October 2000. U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation. The complete version of this chapter, with citations and an annotated bibliography can be found at the following website:

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