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Medicaid Spending on HCBS Continues to Outpace Institutional Care

Updated: Mar 21, 2022

According to a new analysis from the Kaiser Family Foundation (KFF), Medicaid spending on home-and-community based services (HCMS) outpaced Medicaid spending on nursing homes and other institutional care for a seventh year in a row. Medicaid is the primary funder of HCBS payments.

Medicaid requires states to cover healthcare services that are deemed “mandatory benefits” while giving states the option to choose whether to cover “optional benefits.” Nursing home services are deemed mandatory, while the vast majority of HCBS are optional (in 2020, for example, 96% of the $116 billion in joint federal and state Medicaid HCBS spending was for optional services).

The KFF report found that out of all Medicaid spending for long-term services and supports the share of HCBS spending in 2019 was 59%, whereas 41% of all such spending went toward institutional care. According to the report, the trend of increasing HCBS spending in recent years was given a further boost by the COVID-19 pandemic, which resulted in an expansion of HCBS as an alternative to institutional long-term services and supports.

The $1.9 trillion economic stimulus bill passed by Congress in early 2021, which is known as the American Rescue Plan Act and was designed to address the economic impact of the COVID-19 pandemic, increased federal funding to support Medicaid HCBS payments in recognition of the importance of HCBS in tackling pandemic-related health issues.

Biden’s proposed Build Back Better Act would provide $150 billion in additional federal funds for HCBS, including a permanent increase in the federal matching rate, but this bill has been stalled in the Senate after passing in the House.

There are two ways patients receive HCBS— through waivers and as part of state plan benefit packages. Waivers were established in 1981, when President Reagan signed into law the HCBS Waiver Program, which was incorporated into the Social Security Act. The legislation allows states to provide certain healthcare services to people in their own homes and communities, recognizing that many individuals who are at risk of being placed in medical facilities can be cared for in their homes and communities at a cost comparable to long-term care facilities, and that HCBS preserve patients’ independence and connections with family and friends. Prior to these waivers, basically the only option for long-term care was nursing homes.

It’s difficult to determine the total number of people who receive HCBS because some people receive such care through both waivers and state plans, and for some reason the KKF survey didn’t account for how many people received both. The KKF survey found that 3 million people receive HCBS through waivers, while over 2.5 million people receive HCBS as part of their state plan benefit package, the latter of which primarily includes home health and personal care services.

The services provided by HCBS Waivers include the following: case management, community transition services, private duty nursing, family training, home health aides, life-sustaining utility reimbursement, habilitation services, respite care, and other services designed to promote the health of eligible participants in the community setting of their choosing.

Most states can limit enrollment in HCBS waivers, and as a result there are HCBS waiver waiting lists in most states. A total of 665,000 people are on these waiting lists nationwide. Yet the trend towards HCBS services accounting for an increasing share of Medicaid payments for long-term services is likely to continue because many actors in this space, including the American Council on Aging as shown in this report, believe that long-term care benefits through waivers help prevent or delay the need for nursing home care.

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