How Could $400 Billion New Federal Dollars Change Medicaid Home and Community-Based Services?

The Biden Administration recently announced that its next round of COVID-19 relief, the American Jobs Plan, includes $400 billion to expand access to Medicaid home and community-based services (HCBS) for seniors and people with disabilities. HCBS assist with self-care, such as eating and bathing, and household activities, such as preparing meals, for people who need help with these tasks due to health or functional needs. Most HCBS are provided through Medicaid and are not covered by other payers, including Medicare. States can offer Medicaid HCBS as state plan benefits, which must be provided to all enrollees who qualify, and waivers, which allow states to target services to specific populations, expand income and asset limits, and set enrollment caps. The new proposal responds to growing demands for HCBS stemming from the disproportionate number of COVID-19 cases and deaths among people in nursing homes and other congregate settings, the growing elderly population, and the unmet need for community-based care that preceded the pandemic. This issue brief places the American Jobs Plan in the context of current Medicaid HCBS spending and considers how policymakers might allocate the new funding (Figure 1), as the proposal to date includes little detail.

Figure 1: How Might an Additional $400 Billion in Federal Medicaid Home and Community-Based Services Funding Be Used?

How much does Medicaid spend for HCBS?

Medicaid HCBS spending is estimated to be about $114 billion in FY 2021, before the increase from the American Rescue Plan Act (ARPA) (discussed below). Medicaid funds the majority (57%) of HCBS, with private insurance covering 12% and 7% paid out-of-pocket .1 State Medicaid programs must cover long-term services and supports (LTSS) in nursing homes, while most HCBS are optional, resulting in substantial variation across states. State HCBS programs face a number of challenges, including waiting lists for waiver services, direct care workforce shortages (which predated and have been exacerbated by the pandemic), and a lack of affordable, accessible community-based housing. Nationally, more than half of Medicaid LTSS spending is for community-based care. Like other Medicaid services, costs are shared between the states and the federal government.

The recently enacted ARPA provides an additional 10 percentage point increase in federal matching funds for state spending on HCBS from April 2021 through March 2022, an estimated $11.4 billion increase in federal spending nationally. Under the ARPA, states must maintain their current spending levels and use the increased funds “to enhance, expand, or strengthen” HCBS. Due to the 1-year time limit on ARPA funds, states may be more likely to adopt policies to directly address the pandemic, such as providing hazard or overtime pay to direct care workers or offering targeted services such as home-delivered meals or assistive technology, as opposed to dedicating funds to serving more HCBS enrollees over the longer-term.

The new $400 billion in federal funds from the American Jobs Plan proposal could increase annual spending for HCBS in Medicaid by roughly 33% annually. If the new funding were evenly spent over the next 10 years and allocated entirely through the Medicaid program, that would equate to new federal HCBS spending of $40 billion per year on top of the $114 billion baseline plus the $11.4 billion from the ARPA.

How could new HCBS funds be used?

Extending Medicaid’s Money Follows the Person (MFP) program is the one specific policy proposal in the American Jobs Plan. MFP provides enhanced federal matching funds that, from 2008 through 2019, have helped over 101,000 seniors and people with disabilities across 44 states and DC moving from nursing homes to the community. States can fund services, such as first month’s rent and household set-up costs, and staff to help enrollees locate community housing. Program evaluations have found improved enrollee quality of life and cost savings after moves from institutions to the community, though repeated short-term extensions have created uncertainty for states. Affordable and accessible housing for low-income seniors and people with disabilities remains in short supply and presents a barrier to deinstitutionalization. While Medicaid does not pay for housing, many states have used MFP funds to hire housing coordinators to collaborate with affordable housing agencies and assist enrollees with locating community-based housing. A federal evaluation of MFP showed about 5,000 new participants in each six month period from December 2013 through December 2016, indicating a continuing need for the program. The aging of the population will also increase demand for the program. MFP currently expires in September 2023, with federal funding since 2007 totaling just under $6 billion over the entire period2 (a relatively small amount compared to the proposed $400 billion). It is unclear whether additional federal funds under the American Jobs Plan would be used to extend MFP at current funding levels, expand the program to serve more people, or increase federal matching funds to states operating programs currently.

The American Jobs Plan also aims to expand and strengthen caregiving jobs supported by Medicaid HCBS. Like people who rely on LTSS, direct care workers who provide HCBS have been disproportionately affected by the pandemic. The workforce is predominantly female, low-wage, and people of color. Home care workers earned on average $11.52 per hour, or $16,200 per year, in 2018. Despite the ongoing unmet need for HCBS, which is expected to grow with the increasing senior population, states regularly cite workforce shortages as a barrier to expanding HCBS. Making additional federal matching funds available under Medicaid could enable states to increase provider payment rates for covered services, which in turn would allow provider agencies to increase direct care worker wages and benefits. To ensure that this occurs, the federal government or states could require that provider rate increases be passed through to workers, as some states did during the pandemic. Such a requirement could be enforced by states in their contracts with and oversight of providers and/or health plans. Since Medicaid pays for the majority of HCBS, it could be an effective mechanism for increasing home care worker wages more broadly. The federal government also could authorize states to use new funding to invest in worker recruitment and training to expand and stabilize the workforce and provide paths for career advancement.

There are several other initiatives that policymakers might consider to achieve the American Jobs Plan’s goal of expanding access to Medicaid HCBS. With additional federal dollars available over a longer timespan, compared to the 1-year ARPA, states could be incentivized to expand HCBS eligibility by adopting new optional pathways, raising existing income or asset limits, or increasing waiver enrollment caps to serve more people and reduce waiting lists. States also could offer new optional HCBS, increase the scope of currently covered services, expand opportunities for enrollees to self-direct services, or offer supports to family caregivers such as respite care. Such initiatives could address Medicaid’s historical institutional bias by working to equalize access to HCBS. Expanding Medicaid HCBS also can help people with disabilities participate in the workforce, by offering services such as attendant care or supported employment, and help family members remain in the workforce instead of leaving paid employment to care for a child with disabilities or an aging relative.

Looking Ahead

If enacted, the American Jobs Plan could build on the American Rescue Plan Act by adding further federal support for HCBS, including state efforts to increase access through Medicaid. It also could be an incremental step toward a larger goal of eliminating Medicaid’s historical institutional bias and making HCBS mandatory. This would be the mechanism to achieve President Biden’s goal of eliminating HCBS waiting lists, which was included in his campaign proposals. A group of Democratic lawmakers recently released a discussion draft of the HCBS Access Act, a bill that would provide increased federal funding and require states to offer a set of HCBS to all Medicaid enrollees who need those services. The Congressional Budget Office (CBO) has estimated that eliminating existing state caps on HCBS and requiring all states to provide full access to HCBS that are available only to a subset of enrollees under current law would increase the projected per-user cost of Medicaid HCBS in 2030 from about $30,000 to about $50,000. CBO did not estimate how many additional people would become eligible for Medicaid HCBS under such a proposal. While waiting lists are one measure of unmet need, they are imperfect because not all states screen people for eligibility prior to placing them on a waiting list, and circumstances can change while people are waiting.

In the near term, a number of questions remain to be answered as the American Jobs Plan is further developed. For example, to what extent would the new funds be spent directly federally, or directed to states? Would they be allocated to states through an increase in the federal matching rate or as grant dollars or another mechanism? It also is not yet known whether states would be required to maintain or increase their current level of HCBS spending to qualify for the new funds. Finally, many details around specific policy proposals and the impact of increased funds on access to HCBS through an expansion in the workforce and better wages, more people served, and/or new benefits remain to be determined.

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