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


Inadequate service rates were cited by some respondents in every state as a disincentive for providers to serve Medicaid beneficiaries. They said that service rates have not kept pace with the cost of doing business, noting that if the state restricts room and board payments to SSI or SSI plus a state supplement, then the service rates had to be high enough to cover not only the cost of services, but other costs such as training and, in Florida in particular, liability insurance.

Florida. One respondent noted that while the payment rate was 62 percent of the nursing home rate when the state started the Assisted Living for the Elderly waiver program in 1994, it had dropped to 37 percent in 2002. Another noted that the number of providers was decreasing because they couldn't afford to be in a program that pays so far below the industry standard that it becomes impossible to make a living.

Minnesota. Most respondents felt that Medicaid rates for residential care services are generally adequate; while lower than market rates, some providers accept Medicaid in order to fill empty beds. A few, however, voiced concerns that the state set a maximum rate but gave counties the discretion to negotiate lower rates. They felt that this led to inequities in payment rates. Several said that the state needs to develop tools to help counties determine the number of service hours needed by each resident, which would enable them to better match the reimbursement level to the services needed. One respondent noted that the state is working on developing a service rate that will vary according to the services provided and a more effective contracting mechanism for the counties to use, which will tie the service rate to the care plan.

North Carolina. A few respondents mentioned the need for a different rate system than the current one. There was consensus that the Medicaid payment rates are inadequate, particularly for residents with high service need, noting that Medicaid pays for only one hour of service a day and the rate for that hour -- $8.00 -- is inadequate to cover costs. Several noted that under the current payment system, there is no incentive to take heavy care residents and no incentive for providers who aspire to a higher level of care.

However, the low service rate was not perceived as a barrier to serving Medicaid clients in adult care homes because the state supplement for room and board was so high. But one respondent said that inadequate rates for dementia Special Care Units was a disincentive for providers to accept Medicaid residents. This respondent said that Special Care residents do not qualify for the enhanced personal care rate because Medicaid only pays this rate for hands-on physical assistance. He noted that because cueing a person to perform a task takes more time than doing the task for them, the reimbursement policy encouraged dependence. He felt that a case mix system would solve this problem.

Oregon. Most respondents did not believe that low service rates posed a barrier to residential care for Medicaid waiver clients. A few noted that because Oregon had capped room and board rates for Medicaid eligibles, the state had to pay sufficient service rates to attract providers. One noted that when the program began, setting the assisted living rate at 80 percent of nursing home payment was a clear signal to the industry that the state was encouraging assisted living development and the availability of assisted living for Medicaid waiver clients.

Others felt differently, noting that while rates had been sufficient for a while to get providers to participate, they had not kept pace with inflation and, in particular, rising insurance costs. One noted that acuity levels have gone up but the rates have not. Many felt that the proposed Medicaid budget cuts would lead some facilities to close, especially those that are highly dependent on Medicaid.

A few noted that if the state wants providers to enable people to age in place, the reimbursement rate structure has to take into account that it takes more time to take care of certain people, particularly those who need a two-person transfer or who have behavioral problems.

Texas. A few respondents thought that low rates were a barrier to the expansion of residential care for Medicaid clients. However, one respondent disagreed, noting that waiver payment rates used to be much lower, but that there had been increases to make the rates more competitive with private pay rates. This respondent said that there are now enhanced rates in exchange for the provision of better wages, workers' compensation coverage, and benefits to facility staff, but these rates might be at risk given the state's large budget deficit.

Wisconsin. There were major differences in views regarding the adequacy of service rates. Most respondents felt that market charges for room, board, and services were too high, and that the variation in these charges did not appear to be correlated with the quality of care. A few providers cited the state's payment policies as a problem, saying that Medicaid rates were too low or "wholly inadequate" to cover costs. Some expressed concern that people who spend down in RCACs will not be able to remain there because the facilities will not accept the waiver rate.

One respondent said that a major barrier to serving waiver clients in RCACs is that the state's statutory limit on waiver rates, which is 85 percent of the state's average nursing home rate, is almost double the actual waiver rate of $43 a day. Another respondent strongly disagreed, saying that the counties pay what they are asked to pay and do not have the expertise to figure out from the facility's cost report if they are overcharging. Wisconsin limits the profit on services provided to public pay residents to 10 percent, and a financial audit is required of all providers receiving $25,000 per year or more in public reimbursement. Some felt that counties do not have the expertise to enforce the 10 percent limit, and many facilities exceed it.

A few respondents expressed concerns about the effect of high Medicaid rates on the overall amount of funding available for home and community services, stating that the more money spent in residential care settings, the less available for home care. One said that serving people in residential care settings should offer economies of scale but, in fact, does not, noting that it can cost more to serve people in these settings than it does to provide services in their own homes.

A few respondents stated that the rates are not just for the services themselves, but cover additional operating costs, particularly those incurred to meet regulatory requirements such as training. At the same time, most who were critical of the rates recognized that the state does not have the money to increase them. A few others stated that the problem was not the rate per se, but the lack of a payment system that offers incentives to provide good care. One noted that the state needs to get away from a cost-based program because it does not provide an incentive to be efficient: "when you get efficient your rate goes down."

There was a consensus that it is not possible to get residential care costs low enough to be affordable for people with low incomes. One noted that providers think $2000 is a fair price and that $1600 a month is the minimum for good residential care, but most elderly who need it have only $500 a month to spend.

View full report


"med4rcs.pdf" (pdf, 3.73Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®