Using Medicaid to Cover Services for Elderly Persons in Residential Care Settings: State Policy Maker and Stakeholder Views in Six States. Introduction


The anticipated increase in the population aged 65 and older in the coming decades, particularly those aged 85 and older, will lead to an increase in the number of people who need long term care services. Virtually all individuals who need long term care services prefer to receive them in their own homes. However, some people with long term care needs cannot live in their own homes, often because they live alone and need unscheduled assistance and protective oversight on a 24 hour basis.

Residential care settings have traditionally provided such assistance and oversight to persons with physical and mental impairments who do not require a nursing home level of care. As such, they are often viewed as the midpoint of the long term care continuum between home care and nursing home care. These settings are licensed, regulated, and monitored at the state level, and serve both private pay and publicly subsidized residents. The public subsidy is typically through the Supplemental Security Income (SSI) program and, in many states, a state funded SSI supplement. SSI and state supplement recipients can use the payments to pay for room and board and custodial care.

Every state's long term care system includes two major types of out-of-home residential care:

  • adult foster care in private or corporate-owned homes that serve a small number of residents (typically five or fewer), and

  • congregate care settings with bed sizes greater than foster care, which vary from 6 to 200 or more.

Congregate care settings traditionally have been known by a variety of names, which vary by state. The more common names are domiciliary care homes, board and care homes, adult care homes, and rest homes.

In the U.S., between 800,000 and 1,000,000 aged persons live in licensed residential care settings. An equal number are thought to live in unlicensed boarding homes.1

In the late 1980s, a new model of residential care for elderly persons was introduced in Oregon and spread rapidly across the country.2 This model, called assisted living, differed from the other two types of residential care in that it was based on a philosophy that emphasized privacy and a homelike environment; services and oversight available 24 hours a day to meet both scheduled and unscheduled needs; services provided or arranged to promote independence; and an emphasis on consumer dignity, autonomy, and choice.3 In the assisted living model, privacy and a homelike environment is assured by providing residents with, at a minimum, a private room and bath with a lockable door. The original model as piloted in Oregon provided a full apartment with separate living space for sleeping and a full kitchen or kitchenette. Assisted living potentially combines ordinary accessible housing with services so that people who need long term care services can receive them without the lifestyle sacrifices required by nursing home admission.4

A national survey of residential care facilities in 1998 found that while basic rates ranged from $16,000 to $26,000 per year, persons seeking high privacy and high service levels can expect to pay about 30 percent more.5 Considering these rates, assisted living serves a predominantly private pay clientele. The popularity of the assisted living residential care model in the private pay market has led to increased interest among aging services providers, consumer advocates, and states in developing affordable versions of the model for low income and Medicaid-eligible persons.

States in particular are interested in the potential of this model of residential care to serve as an alternative to nursing home care for some Medicaid waiver clients who cannot safely be served in their own homes but do not need the skilled care provided in nursing homes. Unlike Medicaid coverage of nursing home care, which includes payment for all services and room and board, Medicaid does not cover room and board in residential care settings. However, states have the option to use Medicaid to cover services in these settings. Paying only for services in a residential care setting and not for room and board can potentially reduce state spending for nursing home eligible individuals.

From the inception of the waiver program, states have used waivers to pay for services in residential care settings as an alternative to intermediate care facilities for persons with mental retardation (ICF-MRs). Apart from Oregon, few states used waivers to pay for residential care services for the elderly population until the 1990s. By 2002, however, 36 states had amended their Medicaid waiver programs to permit payment for services in out-of-home residential care settings, and 13 states covered personal care under the state plan in these settings. However, relatively few persons in these settings receive services through the waiver program compared to the number receiving personal care services through the state Medicaid plan.

To date, there has been little research on how states use Medicaid to pay for services for elderly persons in residential care settings.6 A recent publication on Medicaid home and community services briefly discussed options for Medicaid coverage of assisted living and the factors states need to consider when deciding whether and how to cover services in assisted living (see Appendix H for this information.)7 This report builds on that discussion by examining in depth how six states are using Medicaid to pay for services for elderly persons in residential care settings. The states are Florida, Minnesota, North Carolina, Oregon, Texas, and Wisconsin.8

A primary purpose of the study was to gain an understanding of how state staff and policy makers and stakeholders view Medicaid coverage of services in residential care for elderly persons. As stated earlier, the names used to describe residential care settings have historically varied, both within and among states. In the past several years, many states have begun to use the term "assisted living" generically to cover all three types of residential care: adult foster care, congregate care, and the new assisted living model. Minnesota defines assisted living as a program and not a place. At the same time, some consumers, providers, and states view assisted living as a distinct model of care. Therefore, to prevent confusion about which type of residential care is being referred to, this report uses the generic term "residential care setting" to include all types of residential care, including adult foster homes, small board and care homes, large domiciliary care homes, and private assisted living apartments. We will use different terms only when needed to distinguish between the three specific residential care models and when describing specific settings in a given state.

Our findings are based on three sources: (1) an extensive review of published and unpublished information about the six states' long term care systems, with a focus on their residential care systems and Medicaid programs; (2) consultation with Medicaid program staff and policy makers and other key staff to obtain additional information and to clarify information obtained through the Internet and other sources; and (3) interviews with current and former state staff and policy makers, residential care providers, and representatives of provider and consumer organizations. These interviews occurred between June 2002 and February 2003.

This report is organized as follows. The next section provides information on the two Medicaid options for covering services in residential care settings and a brief description of the six states' reasons for using specific options. The following two sections present the views of state staff and policy makers and key stakeholders about Medicaid coverage of services in residential care settings and their suggestions for improving the Medicaid-funded residential care system. The final section presents concluding remarks.

Appendix A contains a discussion of the qualitative methodology we used to conduct this study. Appendices B through G contain a description of each state's long term care system focused on its Medicaid program and residential care system. The state descriptions provide background and technical information, as well as summaries of the views of those we interviewed. Appendix H provides technical information about factors for states to consider when choosing to cover Medicaid services in residential care settings.

  1. Newcomer, R. and Maynard, R. (2002). Residential Care for the Elderly: Supply, Demand, and Quality Assurance. The California HealthCare Foundation.

  2. Kane, R.A. and Wilson, K.B. (2001). Assisted living at the crossroads: Principles for its future. Portland, Oregon: Jessie F. Richardson Foundation. (Discussion Paper).

  3. Hawes, C., Lux, L., Wildfire, J., Green, R., Packer, L. E., Iannacchione, V., and Phillips, C. (1995). Study of North Carolina domiciliary care home residents. Report submitted to the North Carolina Department of Human Resources.

  4. Kane, R.L. and Kane, R.A. (2002). Re-thinking housing with services in Minnesota: Interim evaluation report on demonstration projects on affordable housing with services for older people. A program conducted by the Minnesota Department of Human Services.

  5. Facilities can have either a single rate or multiple rates. Facilities with multiple rates have a base rate which includes a limited amount of services, and charge more for additional service. Hawes, C., Rose, M., and Phillips, C. D. (1999). A National Study of Assisted Living for the Frail Elderly: Results of a National Survey of Facilities. Prepared for the Office of Disability, Aging, and Long Term Care Policy, Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services. [Full HTML Report]

  6. A compendium prepared by Robert Mollica -- State Assisted Living Policy: 2002. Portland, Maine: National Academy for State Health Policy -- is the only source of descriptive information about Medicaid coverage of services in residential care facilities.

  7. Smith, G., O'Keeffe, J. , Carpenter, L., Doty, P., and Kennedy, G. (October 2000). Understanding Medicaid Home and Community Services: A Primer. U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging, and Long Term Care Policy. [Full HTML ReportFull PDF Report]

  8. A description of the study methodology, including site selection criteria, is presented in Appendix A.

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