AARP Public Policy Institute INSIGHT on the Issues Taking the Long View: Investing in Medicaid Home and Community-Based Services Is Cost-Effective Targeting Medicaid home and community-based services (HCBS) for budget cuts may be shortsighted. Recent evidence indicates that the cost savings from HCBS manifest in the long run; over time, states that invest in HCBS experience slower Medicaid expenditure growth than states with low HCBS spending. Key findings and policy commit to comprehensive reforms recommendations can realize cost savings over time if they increase HCBS and, at the same The current fiscal crisis is causing most time, decrease their reliance on states to make deep budget cuts. In this nursing home use.1 climate, many state policymakers are  LTC services do not drive Medicaid targeting Medicaid home and spending growth. Between FY 1997 community-based services (HCBS) and FY 2007, Medicaid LTC because they are optional Medicaid spending increased by 80 percent, benefits. But this approach may be while spending other than LTC shortsighted. Recent evidence indicates increased by 102 percent.2 that the cost savings from HCBS  Vermont’s Choices for Care manifest in the long run; over time, demonstration created an entitlement states that invest in HCBS experience to HCBS for “highest need” clients. slower Medicaid expenditure growth It reduced the number of Medicaid than states with low HCBS spending. nursing facility residents by 9 With declining revenues, states should percent and increased HCBS take the opportunity to focus on longer- caseloads by 155 percent, which term and more cost-effective reform included extending services to 1,183 options for their long-term care (LTC) “moderate need” individuals. The systems, such as promoting HCBS over state used a global LTC budget, institutional care. Doing so has the dual which allowed it to eliminate the benefit of not only slowing the growth in institutional bias inherent in Medicaid LTC spending but also Medicaid eligibility. Vermont improving consumer choices. Key facts reduced spending growth to less than about HCBS investment include: half of what the state projected when the program was designed.3  Over time, states that invest in  A 1994 Government Accountability HCBS programs experience slower Office (GAO) study of LTC Medicaid spending growth than programs in Oregon, Washington, states with low HCBS spending. and Wisconsin found that these Although Medicaid spending states were able to serve more generally increases during a beneficiaries with available dollars transitional period, states that and slow the rate of growth in LTC Taking the Long View: Investing in Medicaid Home and Community-Based Services Is Cost-Effective expenditures by expanding HCBS entry points to screen and/or provide and limiting supply and use of options counseling to all individuals nursing facility beds.4 before they are admitted to a nursing  A Lewin Group study found that home. HCBS programs produced savings  Recognize that cuts in HCBS will from what would have been spent in affect the balance between 1994 of $43 million in Colorado, $49 institutional and HCBS spending and million in Oregon, and $75 million may increase nursing facility in Washington. admissions.  Provide services and supports for family caregivers, whose unpaid “Despite the fears of critics assistance is a major factor in that it would expand Federal preventing or delaying nursing home spending, the HCBS program use. actually contained institu- What is cost-effectiveness? tional costs and helped States moderate the growth of Most Medicaid HCBS spending is Medicaid spending overall.” authorized through programs that Thomas Hamilton, Director, Survey “waive” federal rules. By law, these and Certification Group, CMS, programs are approved by the Centers for Medicare & Medicaid Services 2009 testimony to the Senate (CMS) only if the state demonstrates that Special Committee on Aging spending will not exceed what would have been spent on LTC services in the absence of the waiver. HCBS waiver As state policymakers consider LTC beneficiaries must meet the same budget and policy decisions, it is functional eligibility criteria as nursing important that they do so in the context home residents. States do not receive of an LTC philosophy that supports federal reimbursement for waiver consumer choice and control. If budget expenditures that exceed the amount reductions are necessary, they should be stated in the cost neutrality calculation consistent with this philosophy and approved by CMS. As a result, the term avoid increasing Medicaid’s institutional cost-neutrality often is used to refer to bias. States should: cost-effectiveness.  Establish measurable goals to However, the above definition ignores achieve balance between institutional the equally compelling consideration of services and HCBS and make policy meeting consumer preferences. An and funding decisions relative to overwhelming majority of consumers these goals. prefer to remain in their home or  Facilitate Medicaid savings by community. If states establish goals that establishing effective care support consumer choice and eliminate management and HCBS institutional bias, the evaluation of cost- infrastructure to transition nursing effectiveness would include an home residents into community assessment of whether the LTC system settings. provides services that meet the needs  Support consumer choice and control and preferences of people with by using Aging and Disability disabilities at the lowest possible cost. Resource Centers or other single Researchers have, therefore, looked at 2 Taking the Long View: Investing in Medicaid Home and Community-Based Services Is Cost-Effective alternate definitions of cost-effectiveness programs. The report stated that the beyond simply cost-neutrality. They expansion of HCBS “appears to entail a have asked: short-term increase in spending, followed by a reduction in institutional  Does expanding HCBS reduce spending and long-term cost savings.” overall Medicaid spending? The authors found that total LTC  Does expanding HCBS slow the rate spending in states with established of Medicaid spending growth? programs declined 8 percent between  Do HCBS programs serve more 1995 and 2005, adjusted for inflation. people than nursing homes for the Spending in states with low HCBS same amount of spending? spending increased 9 percent during the same period. However, states that were Does expanding HCBS reduce overall in the process of expanding their HCBS Medicaid spending? programs increased spending by 24 A review of the literature by Grabowksi5 percent.8 The study did not determine found inconclusive evidence that state whether other factors might explain spending was actually reduced when these differences in state Medicaid HCBS expanded because: spending over time. Program administrators have found it very difficult to structure coverage such that only individuals who “Expansion of HCBS appears otherwise would have entered nursing to entail a short-term increase homes use non-institutional services. in spending, followed by a States have employed targeting (or screening) mechanisms in an attempt reduction in institutional to limit care to only those individuals spending and long-term cost who otherwise would have accessed nursing home care. savings.” H. Stephen Kaye, et al., 2009. Although this level of targeting could reduce overall costs, this focus is somewhat unrealistic given that many Do HCBS programs serve more people low-income older people living in the than nursing homes for the same amount community have unmet LTC needs.6 of spending? Their welfare would improve A 1994 GAO study of LTC programs in significantly with HCBS. States should, Oregon, Washington, and Wisconsin instead, be applauded for addressing found that HCBS program were able to these unmet needs through HCBS manage expected growth in demand and expansion. control overall expenditures. It found the programs to be cost-effective Does expanding HCBS slow the rate of because of savings that resulted from Medicaid spending growth? control on the number and use of nursing A new study by Kaye et al. found that facility beds. A Lewin Group study states with established HCBS programs found that HCBS programs produced reduce their LTC spending over time.7 savings in 1994 of $43 million in Based on an analysis of Medicaid Colorado, $49 million in Oregon, and expenditures from 1995 to 2005, the $75 million in Washington.9 This study authors concluded that aggregate also pointed to decreased use of nursing spending growth was greater in states homes as an important factor. with limited HCBS programs than in states with large, well-established 3 Taking the Long View: Investing in Medicaid Home and Community-Based Services Is Cost-Effective Thus, while expanding HCBS may not Medicaid spending increases $3.4 billion reduce overall Medicaid LTC spending for every 1 percent increase in the in absolute terms, there is significant unemployment rate.11 As evidence that it can effectively slow the unemployment continues to rise, a rate of growth-- a more realistic goal, majority of states are “scrambling to find given the aging of the population. ways to get through the rest of the year without hacking apart vital services or Moreover, states that shift their mode of raising taxes.”12 Growing demand for service delivery away from institutional Medicaid services will increase spending services and toward HCBS can serve at a time when state revenues decline. As more people at a lower aggregate cost. a result, states generally look to cut back This outcome is possible because, on on Medicaid services that are considered average, the cost of providing HCBS to optional. Medicaid beneficiaries are an individual is lower than the cost of entitled to nursing home services providing institutional services. One (provided they meet their state’s study found that, compared with nursing eligibility criteria) but not to HCBS facility care in 2002, HCBS waivers for (whether provided through a waiver of older people and adults with disabilities federal rules or as personal care services saved $15,210 in public spending per offered at state option); thus, HCBS are participant10 This estimate included at risk. non-Medicaid public spending for waiver participants’ room and board. State policy makers usually turn to three primary options to reduce Medicaid Why is this issue critical now? spending: Limit eligibility, reduce provider reimbursement rates, and Economic recessions tend to increase reduce the services that Medicaid covers. Medicaid spending when families lose Already, 22 states and the District of employer-sponsored health insurance. Columbia have cut a range of services, including those aimed at low-income older people and people with disabilities, Figure 1 according to a report by the Center on Medicaid non-LTC spending increased Budget and Policy Priorities (CBPP).13 faster than LTC spending 1997–2007 Citing the CBPP, media reports note that +120% at least 15 states are cutting personal +100% care services to Medicaid beneficiaries.14 Spending (% increase from 1997) Presciption drug spending moved to Medicare beginning 2006 +80% HCBS may be particularly vulnerable because some policymakers are +60% concerned that paying for HCBS will +40% create a “woodwork” effect; that is, people who would not use Medicaid to +20% enter a nursing facility would be willing Long-Term Care 0% to move to assisted living or receive Non-Long-Term Care services at home if they are available -20% through Medicaid. However, the 1995 1997 1999 2001 2003 2005 2007 2009 experiences of Oregon, Washington, and Year Wisconsin indicate that states can Source: S. Eiken, B. Burwell, and K. Sredl, Medicaid control overall spending if they reduce Long-Term Care Expenditures FY 2007. Thompson their use of nursing homes while they Reuters, 2008. expand HCBS. 4 Taking the Long View: Investing in Medicaid Home and Community-Based Services Is Cost-Effective Thus, a fourth option is available to How are different states affected? states: Reduce the use of institutional services by expanding HCBS. Declining States differ in terms of their relative revenues pose challenges to state investment in HCBS, as shown in figure policymakers who want to offer older 2. The map illustrates how the people and adults with physical percentage of Medicaid LTC spending disabilities the services they need to for older people and adults with physical support their independence. But disabilities going to HCBS varies by declining revenues also offer states an state. States’ response to the budget opportunity to reorganize their LTC crisis may vary depending on their systems to promote effective HCBS existing investment in HCBS. alternatives. States with mature systems already have As policymakers consider budget cuts, it made substantial investments in HCBS is important to note that although and have reduced their reliance on Medicaid costs have been on the rise, institutional services. Their challenge is LTC spending has increased more to maintain HCBS funding to continue slowly than non-LTC spending over the the progress they have achieved. A key last 10 years and particularly since 2002 question for states that spend 40 percent (see figure 1). Between FY 1997 and or more of their LTC funds on HCBS FY 2007, Medicaid LTC spending (one measure of a mature system) is increased by 80 percent, whereas non- what impact will cuts in HCBS programs LTC spending increased by 102 have on institutional spending? HCBS percent.15 cutbacks may result in more admissions to nursing facilities or more hospital Figure 2 Percentage of Medicaid LTC spending for older people and adults with physical disabilities going to HCBS, 2007 Source: A. Houser, W. Fox-Grage, M. Gibson, Across the States 2009: Profiles of Long-Term Care and Independent Living, AARP Public Policy Institute, 2009. 5 Taking the Long View: Investing in Medicaid Home and Community-Based Services Is Cost-Effective admissions and emergency room use. Vermont HCBS cutbacks also will shift additional Vermont’s Choices for Care costs and burdens to already overtaxed demonstration program creates an family caregivers. entitlement to HCBS for participants that States with developing systems may meet “highest need” criteria.18 It uses a need to increase HCBS spending before global LTC budget, which allows the they have lowered their use of nursing state to overcome Medicaid’s facilities. Obtaining new revenues to institutional bias in LTC eligibility. offer a broader array of services, build A recent report by the Kaiser single entry points to manage access, Commission on Medicaid and the and expand HCBS participation is Uninsured found that, over three years, difficult when policymakers have yet to spending growth in Choices for Care reduce institutional spending through was between half and two-thirds of what diversion or relocation initiatives. the state had projected when the program However, states that spend less than 20 was designed.19 The report also noted percent of their Medicaid LTC dollars on that “spending growth was just 1.3 HCBS (one measure of a less mature percent in FY 2006 and grew to 5.5 system) may have the greatest percent in FY 2007, putting the state on opportunities to shift funds to par with national spending growth for community services because there are nursing home and home health services” likely to be more people living in even though beneficiaries are entitled to nursing facilities who could be served in HCBS.20 the community. Case studies illustrate cost containment Table 1 Washington Medicaid long-term Washington care caseload, 2004–2011 Washington is one example of a state HCBS Number % Change that is taking the long view on reforming from 2004 its LTC system. It has worked to reduce its Medicaid nursing facility caseload June 2004 34,987 - and direct resulting available funds to June 2008 40,335 15.3 support HCBS growth. Currently, an June 2009* 41,590 18.9 independent Caseload Forecasting Council projects the need for LTC June 2011* 43,636 24.7 services. These forecasts are used to Nursing Facility Number % Change determine the appropriation for both from 2004 nursing facility and HCBS services. June 2004 12,259 - Washington spends more Medicaid June 2008 10,880 - 11.2 funds on HCBS, 55 percent in FY 2007, June 2009* 10,508 - 14.3 than on services provided by nursing facilities.16 Because of its continuing June 2011* 9,792 - 20.1 investment in HCBS, Washington can * Projected. serve a greater number of older persons Source: Washington Aging and Disability Services and adults with disabilities in the Administration. community, as illustrated in table 1.17 6 Taking the Long View: Investing in Medicaid Home and Community-Based Services Is Cost-Effective The number of beneficiaries served in consider the impact on the entire system, nursing facilities dropped 9 percent since reductions in one service may under Choices for Care between October cause increases in other areas. 2005 and January 2009 while the HCBS in-home caseload grew 155 percent (see States that have not established a figure 3).21 The increase included philosophy that supports balance and extending new services to 1,183 choice between institutional and beneficiaries with moderate needs who community-based LTC services should do not meet the nursing facility level of not take the shortsighted “quick fix” of care. The statute authorizing the cutting Medicaid HCBS programs. demonstration requires that any savings Rather, states should take the long view from lower nursing facility use be and make needed investments in LTC invested in HCBS. reform. Achieving balance may require states to Figure 3 build an infrastructure with single entry Vermont Choices for Care points; inform nursing home applicants Participants, 2005–2008 about the option to receive HCBS; adopt flexible budgeting; strengthen transition 3500 care management for individuals 3000 interested in relocating from nursing facilities to the community; and support Number of Participants 2500 family caregivers, who provide the 2000 majority of assistance. Between 2003 and 2008, the number of Medicaid 1500 beneficiaries living in nursing facilities 1000 Total HCBS dropped 7 percent nationally. In Nursing Facilities Minnesota and Wisconsin, nursing home 500 beneficiaries fell by 20 percent – due in part to the expansion of HCBS.22 These 0 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 data illustrate that the national trend is Year moving toward greater system balance. Reducing spending on HCBS programs Source: J. Senecal, Commissioner, Vermont Department of Disabilities, Aging and Independent Living, may reverse this trend and, ultimately, presentation at the 2009 Money Follows the Person have the undesirable effect of increasing conference. overall Medicaid LTC spending. By compiling and analyzing the best available data, this report concludes that Conclusion: Take the long view HCBS is cost-effective. States that and make needed LTC reforms invest in HCBS can, over time, slow their rate of Medicaid spending on LTC. These are critical times for states that are Federal incentives to assist states in trying to develop or maintain balance expanding HCBS could accelerate between HCBS and institutional LTC progress in this area. services. Declining state revenues may lead budget staff to focus spending cuts on Medicaid HCBS programs that are optional and, in some cases, growing rapidly. When considering budget reductions, policymakers should 7 Taking the Long View: Investing in Medicaid Home and Community-Based Services Is Cost-Effective 10 Savings were realized for other target groups in the HCBS waiver as well. On average, the HCBS waiver saved $43,950 in public spending Insight on the Issues I26, March 2009 per person. M. Kitchener, T. Ng, N. Miller, and C. Harrington, “Institutional and Community- Written by Robert L. Mollica, National Based Long-Term Care: A Comparative Academy for State Health Policy and Enid Estimate of Public Costs,” Journal of Health and INSIGHT on the Issues Kassner, Lina Walker, and Ari Houser, Social Policy 22, no. 2 (2006). AARP Public Policy Institute, Kaiser Commission on Medicaid and the 601 E Street, NW, Washington, DC 20049 Uninsured, Medicaid Facts: State Fiscal www.aarp.org/ppi Conditions and Medicaid (Washington, DC: 202-434-3890, ppi@aarp.org Kaiser Commission, November 2008). 12 © 2009, AARP. Jennifer Steinhauer, “Facing Deficits, States Reprinting with permission only. Get Out Sharper Knives,” New York Times, November 13, 2008. 13 Center on Budget and Policy Priorities. “States in Trouble Due to Economic Downturn,” 1 /www.cbpp.org/policy-points10-20-08.pdf. H. S. Kaye, M. LaPlante, and C. Harrington, 14 “Do Non-Institutional Long-Term Care Services Philip Shishkin, “States Cut Services for Reduce Medicaid Spending?” Health Affairs 28, Elderly, Disabled,” Wall Street Journal, no. 1 (January/February 2009). November 20, 2008. 2 15 Calculated from data compiled by S. Eiken, B. Calculated from data compiled by S. Eiken, B. Burwell, and K. Sredl, Medicaid Long-Term Burwell, and K. Sredl, Medicaid Long-Term Care Expenditures FY 2007, (Thompson Care Expenditures FY 2007 (Thompson Reuters, Reuters, 2008). 2008). 3 16 J. Senecal, Commissioner, Vermont Dept. of A. House, W. Fox-Grange, and M. Gibson, Disabilities, Aging and Independent Living, Across the States: Profiles of Long-Term Care presented at the Money Follows the Person and Independent Living, 8th ed. (Washington, conference (Baltimore, MD: March, 2009). DC: AARP, 2009). 4 17 Government Accountability Office, Successful Data are available from the Caseload State Efforts to Expand Home Services While Forecasting Council Web Site, Limiting Costs, GAO-HEHS-94-167 http://www.cfc.wa.gov/#. (Washington, DC: GAO, August 1994). 18 Entitlement means that all Medicaid 5 beneficiaries who are eligible for the service D. Grabowski, “The Cost-Effectiveness of must be served if providers are available. Noninstitutional Long-Term Care Services: 19 Review and Synthesis of the Most Recent J. Crowley and M. O’Malley, Vermont’s Evidence,” Medical Care Research and Review Choice for Care Medicaid Long-Term Services 63, no 1 (February 2006). Waiver: Progress and Challenges as the 6 Program Concluded Its Third Year (Washington, Harriet L. Komisar, J. Feder, and J. D. Kasper, DC: Kaiser Commission on Medicaid and the “Unmet Long-Term Care Needs: An Analysis of Uninsured, November 2008). Medicare–Medicaid Dual Eligibles,” Inquiry 42 20 (Summer 2005): 171–82. Ibid., page 2. 7 21 See end note 1. See end note 3. 8 22 Data are for the non-MR/DD population, which Calculations from tabulations by the American includes nursing home, personal care, and home- Health Care Association using CMS OSCAR health spending. Ibid. Form 672: F75-F78 data for June 2003 and 9 December 2008. (Available at Alecxih et al., Estimated Cost Savings from the www.ahcancal.org/research_data/oscar_data/ Use of Home and Community-Based Alternatives NursingFacilityPatientCharacteristics/Forms/ to Nursing Facility Care in Three States, AllItems.aspx). (Washington, DC: AARP, 1996). 8