Long-Term Care Financing

Medicaid, the federal/state health insurance program for the poor, is the major public program covering long-term care for older adults. Elderly persons with low incomes and few assets (or those who deplete their assets paying for long-term care) are entitled to nursing home coverage and home health care, and, depending on state program rules, they may have access to home and community-based services. Since the mid-1970s, states have had the option to offer personal care services (assistance with activities of daily living such as bathing, dressing, and eating) under their Medicaid state plans. In 2000, twenty-seven states offered this option to eligible older adults. In 1981, Congress authorized the waiver of certain federal requirements to enable a state to provide home and community-based services (other than room and board) to individuals who would otherwise require nursing home care. This allows states to fund a range of services, including case management, homemaker services, home health aide services, personal care, adult day health care, rehabilitation, and respite care to help keep older adults and younger people with disabilities out of institutions. All states have waiver programs which are subject to approval by CMS, the federal agency that administers Medicaid. In 2000 there were 242 such programs. It is important to note, however, that two-thirds of the 11 billion dollars in waiver services in 1999 were spent on people with mental retardation and developmental disabilities. The remaining third supported services for older adults, younger people with physical disabilities, and other populations.

Despite the public's tremendous interest in, and preference for, care in the home, Medicaid continues to exhibit a strong bias toward institutional care. Out of the 59 billion dollars spent by Medicaid on long-term care in 1997, a little less than one quarter was spent on home and community-based services. Three quarters of the states devoted less than 15 percent of their long-term care resources to noninstitutional services, and in half the states the home and community-based share was less than 8 percent.

The home and community-based care sector, however, has experienced tremendous growth, with spending on these services increasing much faster than spending on nursing home care. Between 1993 and 1994, for example, total Medicaid spending for long-term care increased by just 9 percent, while spending for waivers and the personal care option benefit increased by 26 percent. Much of the growth in these services is due to the implementation and expansion of Medicaid waiver programs. A small but growing number of states are spending at least 20 percent of their long-term care resources on home and community-based services.

Several states, notably Oregon and Washington, have explicitly recognized nursing homes as the setting of last resort, and have intentionally reduced the number of nursing home beds. They have successfully used Medicaid waivers to place many elderly persons with serious disabilities in alternative assisted-living facilities and adult foster homes. Both states also use Medicaid dollars to support extensive care-management programs that help to keep many older adults in their own homes.