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:http://aspe.os.dhhs.gov/daltcp/reports/primer.htm

• Target Population

  • Determining what population will be served will depend in large part on the state's current long-term care system and its policy goals. Is assisted living intended to fill a gap in the current set of options? Will the target population be different from the population usually served in board and care facilities? Is assisted living intended to enable people who cannot be served in their homes to avoid institutionalization? Once these questions are answered, the state must decide which age groups will be served, and whether services will be designed to address the specialized needs of specific populations (e.g., persons with dementia). It is also crucial to make certain that licensing and other facility regulations in a given state match the target population. For example, if the state wants to target nursing home-eligible beneficiaries, the assisted living facilities will need to be able to serve a population with a nursing home level of need.

• Service Delivery Models

  • The definition of assisted living varies from state to state and sometimes from residence to residence. Some states have used regulations or licensing requirements to define assisted living services. States using Medicaid HCBS waivers define the service to suit the purpose of their particular program. A variety of service delivery models are possible. The assisted living residence may be the provider of services, for example, or the service provider may be a separate agency. Yet a third alternative is to consider the assisted living setting a person's home; this permits a state to provide home and community services to persons in assisted living through the existing delivery system. Whatever the model chosen, it is important to note that assisted living in no way compromises a person's right to receive other Medicaid services. The overriding criterion for receipt of services under any model is medical necessity.

• Personal Care Option or Waiver or Both?

  • States can cover assisted living services through either a waiver program or the personal care option under the state plan or both. The waiver approach is advantageous in that states can broaden eligibility by using the 300 percent of SSI rule to reach persons in the community who would not ordinarily meet the financial qualifications for Medicaid. However, since waiver services are available only to beneficiaries who meet the state's nursing home level-of-care criteria, serving people through a waiver will target a more severely impaired population than is generally served through the personal care option. The waiver program also offers the advantage of predictable costs for states concerned about utilization of a new benefit. The combination of nursing facility level-of-care eligibility criteria, a set number of slots (as is permitted in a waiver program), and expenditure caps will limit the number of people potentially eligible.

    The personal care option is advantageous in that it will broaden eligibility by allowing a less severely impaired population to be served. This is because states may impose reasonable medical necessity criteria but may not restrict the benefit to persons who require a nursing home level of care. One disadvantage of using the personal care option is that it lacks the higher income eligibility standard used for waiver programs. When deciding which approach to use--or whether to use both--states may want to estimate how many people would be served under the different options in order to judge both the reach of the potential service and its likely cost.

• Type of Waiver

  • When using the waiver program approach, should states add assisted living as a new service to an existing waiver program or implement it under a separate waiver program? From one perspective, adding to an existing waiver program is simple and minimizes reporting and tracking requirements. However, advocates for home and community services may perceive the addition of assisted living to the list of waiver services already covered as increased competition for a limited number of slots available for home services more generally. Coverage under a separate waiver program may be a better approach, not only for this reason but also because it enables a state to test the demand for and cost-effectiveness of assisted living per se. Separate waiver programs designed by a state to expand the total number of people served under waiver programs may also make it easier to reassure facilities in that state that they will have access to a sufficient number of consumers. Since providers receive Medicaid payments based on the number of beneficiaries they serve, facilities may be reluctant to participate in the Medicaid program at all if they are unsure they will have a reliable source of potential residents.

• Level of Care and Licensing Rules

  • HCBS waiver regulations require that any facility in which waiver services are furnished must meet applicable state standards. When services are furnished by the assisted living facility, the facility must meet the standards for service provision that are set forth in the approved waiver documents. Thus, states planning to cover assisted living through a waiver program need to be sure that the admission/retention provisions of state licensing requirements permit assisted living facilities to serve individuals who meet Medicaid's nursing home level-of-care criteria. Licensing must also address a facility's qualifications to provide assisted living services. In a few states, the facilities do not themselves provide these services. Instead, outside agencies come into the facility to provide them. For example, Minnesota covers assisted living provided by outside agencies to residents of facilities that provide only room and board and limited supervision. In such cases, the facility may need to meet only minimal housing standards, while the outside agency may be held to state licensing and program standards for home care providers. Residents in such settings may be personally responsible for making arrangements with an outside agency for service delivery, or, more typically, the state may provide case management services to assist the resident in doing so.

    States that use a waiver program to provide assisted living need to contract with facilities that are willing and able to provide the services needed by someone who meets the state's Medicaid nursing facility level-of-care criteria. The assisted living industry is perceived as generally serving people with lighter needs. For example, about one-quarter of assisted living residents need no assistance with ADLs, according to a recent study by the National Center for Assisted Living. The same study found that 43 percent of residents who move out of assisted living enter nursing homes. To the extent that these statistics suggest an orientation toward serving a population that is less impaired than Medicaid waiver clients, facilities may not be capable of or willing to serve residents with greater needs.

• Licensing and Contracting Issues

  • State licensing rules set the minimum requirements for Medicaid providers. The Medicaid program may set more stringent standards if desired, however. For example, some states allow facilities to offer rooms shared by two, three, or more residents. But since one of the purposes of assisted living is to foster independence and autonomy, some state Medicaid programs will only contract with facilities that offer private occupancy unless the resident chooses to share a room/unit. Some states also require facilities contracting with Medicaid to offer apartment-style units rather than bedrooms. (These include Oregon, Washington, and North Dakota.) Further, if licensing rules do not include sufficient requirements for facilities serving people with Alzheimer's disease, the Medicaid contracting requirements may specify additional training or other requirements.

• Enabling Beneficiaries to Pay for Room and Board

  • Payment for room and board is one of the critical issues for states seeking to expand assisted living for Medicaid beneficiaries. Surveys by national associations have found that care in assisted living facilities may be unaffordable for many low-income individuals. Monthly fees in market rate facilities range from $800 to over $3500--with the majority in the $800-$2000 range. These fees vary by facility design and size of units and encompass amenities in addition to room and board. But assisted living facilities are marketed as a total package and people who are eligible for Medicaid cannot afford these fees.

    Medicaid can be used to pay for assisted living services, but cannot pay for room and board. Except in very limited circumstances (such as a weekend stay provided as respite care under an HCBS waiver), the Medicaid beneficiary is responsible for room or board costs, whether paid through pensions, savings, Social Security, or SSI.

    States can and do use a number of approaches to ensure that the room and board rate for assisted living does not exceed the income available to Medicaid beneficiaries. These approaches include the following:

    • States can examine the facility's monthly room and board charges to identify any coverable services--such as laundry assistance, light housekeeping, or food preparation--that can be reimbursed by Medicaid for a beneficiary who requires assistance with these IADLs. Including all coverable services in the state's assisted living service payment reduces the beneficiary's monthly payment solely to room and board and any other charges that Medicaid does not cover.

    • Some states set only the service rate, leaving determination of the room and board rate to the facility. Florida and Wisconsin are examples of state Medicaid programs that set only the service rate. Beneficiaries choose among the assisted living facilities they can afford. Other states limit the room and board amount that can be charged to Medicaid beneficiaries. One option is to limit these costs to the amount of the Federal SSI payment rate. In the year 2000, that amount is $512 a month, which may be too low to provide a sufficient incentive for assisted living facilities to serve Medicaid beneficiaries.

    • If the state has a State Supplemental Payment (SSP) program to supplement SSI payments, the assisted living room and board rate can be set at the amount that represents the Federal payment plus state payment. A few states have developed a supplemental payment rate specifically for beneficiaries in assisted living facilities, to provide them with sufficient income to afford the room and board component. Massachusetts has done this, for example, setting a payment standard of $966. The state uses its own funds to raise the Federal SSI payment to an amount sufficient for assisted living residents.

    • States are also exploring ways to provide assisted living services to residents of subsidized housing. Because subsidized housing is developed with tax credits and other specialized financing mechanisms, the rent component may be much lower than market rate and the resident may receive rental assistance that covers room and board costs. However, housing subsidy programs and Medicaid operate under very different rules. Careful planning and close collaboration is necessary to enable the programs to work together.

• Assisted Living and the Medically Needy

  • Medically needy beneficiaries are persons who, except for income, would qualify in one of the other Medicaid eligibility categories (such as being over age 65 or meeting the SSI disability criteria). Medicaid payments can begin for this group once they have spent down--that is, incurred expenses for medical care in an amount at least equal to the amount by which their income exceeds the medically needy income levels.

    The medically needy eligibility option can allow people who have income greater than 300 percent of SSI to become eligible for Medicaid services. But Federal law imposes two significant constraints on the use of this option: The state must cover medically needy children and pregnant women before it can elect to cover any other medically needy group. Additionally, the state may not place limits on who is eligible for Medicaid by using such characteristics as diagnosis or place of residence. Thus, it cannot use medically needy policies to extend Medicaid services only to HCBS waiver or assisted living beneficiaries.

    The maximum income eligibility limit that a state medically needy program may use is based upon its welfare program for families--levels that are typically lower than SSI. The income level must be the same for all medically needy groups in the state (i.e., states are not permitted to establish higher income eligibility levels for selected subsets of the medically needy, such as beneficiaries in assisted living settings).

    These rules have several implications that states need to consider when trying to make the medically needy eligibility option work for higher income individuals in assisted living. (1) These individuals may find it more difficult to incur sufficient medical expenses to meet the spend-down requirements while living in the community than they would in a nursing home. The higher their "excess" income, the higher the amount of their spend-down--with the implication that only those with extremely high medical expenses may qualify. (2) Community providers are less willing to deliver services during the spend-down period, since payment cannot be guaranteed and collection may be difficult. (3) Spend-down rules combined with low medically needy income-eligibility levels mean that individuals may not have enough total income to pay both the bills they incur under the spend-down provision and the room and board component of assisted living. This is ironic since they start off with more income relative to other eligibility groups. As of the publication date, HCFA is actively examining this issue to find possible solutions (watch the HCFA website for updates).

• Service Payment Rates: Adequacy Concerns

  • Unless the monthly rate is considered reasonable by assisted living facilities, they will not be willing to contract with Medicaid. In some states, rates in the $1500-$2500 a month range may be needed to attract enough facilities to serve Medicaid beneficiaries. When considering what rate might be necessary and reasonable, states might sample the rates charged by facilities (excluding very high end facilities) to assess (a) how they compare with Medicaid nursing home rates and (b) how many facilities might potentially contract with Medicaid at rates the state might be willing to pay.

    It is also important for the state to be sensitive to the potential need to set payment levels that vary based on the assisted living residents' current needs. Doing so will enable people whose condition deteriorates to stay in the assisted living facility rather than having to move to a nursing home. A number of states use such tiered rates (including Arizona, Delaware, Oregon, and Washington). Rates set by case mix (as used in Minnesota, Maine, Wisconsin, and New York) also create incentives to accept people with high needs and retain people whose needs increase. Flat rates, in contrast, tend to force facilities to discharge residents whose needs exceed what can be covered under the rate. As a final point, instead of reimbursing facilities on the basis of specific services delivered, states are permitted to develop a bundled monthly rate. A bundled rate is easier to administer for the state under a waiver program, and for providers under any coverage option.

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