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By Terence Ng, Charlene Harrington, and Martin Kitchener

doi: 10.1377/hlthaff.2009.0494

Medicare And Medicaid In Long-


HEALTH AFFAIRS 29,
NO. 1 (2010): 22–28
©2010 Project HOPE—
The People-to-People Health
Foundation, Inc.

Term Care

Terence Ng is a senior
research analyst in the ABSTRACT Medicare and Medicaid, two publicly funded health programs,
Department of Social and both cover populations in need of long-term care, but they are poorly
Behavioral Sciences,
University of California, San coordinated. Gaps often exist in some services while there is overlap in
Francisco. others. This can lead to inefficient delivery of services and confusion
Charlene Harrington (charlene among program recipients and providers alike. Spending on postacute
.harrington@ucsf.edu) is
services in Medicare and long-term care services in Medicaid has grown
professor emeritus of
sociology and nursing in the more rapidly than enrollment in either program since 1999. Although
Department of Social and
Behavioral Sciences,
growing numbers of people receive home and community-based services
University of California, paid for by the two programs, there are wide variations across states and
San Francisco.
among target groups. The system of long-term care is in need of
Martin Kitchener is a structural reform.
professor of public sector
management and policy,
Cardiff Business School,
Cardiff University, in Cardiff,
Wales.

L
ong-term care refers to a broad range Medicare paid for 25 percent, Medicaid and
of services and supports for people other public funds paid for 42 percent, out-
who need assistance for ninety days of-pocket funds paid for 22 percent, and pri-
or more, including those with vate insurance and other sources paid for 11 per-
chronic illnesses and a variety of dis- cent (excluding hospital-based nursing home
abilities. The need for long-term care spans the spending).3
age range from children to older people.1 Growth Medicare and Medicaid together pay for the
in the aged population, especially those age majority of long-term care.Yet the programs had
eighty-five and older, has contributed to a grow- different origins, and covered populations were
ing need for long-term care. At the same time, added at different times and for different rea-
older people may have lower disability levels sons. Medicare operates at the federal level only;
than those in previous generations and may in contrast, Medicaid has both federal and state
use fewer institutional services than elders used components. The resulting variation among
in the past.2 states’ budgets and coverage decisions adds to
Most long-term care services are provided by the overall complexity of public programs’ ser-
informal (unpaid) family caregivers: such people vices and spending within and across states. The
provided assistance to 10–11 million people liv- system of providing and paying for long-term
ing at home in 2007.1 Formal long-term care in- care in the United States reflects this piecemeal
volves two main types of services: (1) home and developmental history and shared federal-state
community-based services, such as personal responsibility. The result can be confusion
care; and (2) institutional care in nursing homes among patients and providers, amid seemingly
and intermediate care facilities for the develop- illogical patterns of insurance coverage and
mentally disabled. available services.
Most formal long-term care services are paid In this paper we explore the patterns in ser-
for by government sources. In 2007, of the total vices and spending under each program for in-
$190.4 billion in estimated spending for nursing stitutional, home care, and other long-term care
home and home health care in the United States, services. We examine the rise in home and com-

22 H E A LT H A F FA I R S J A N UA RY 2 0 1 0 2 9: 1
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munity-based services, the existence of waivers of public spending for home health remained
from federal and state coverage requirements, about 80 percent during the same period (data
and the changing population groups who use not shown). Home health users made up 63 per-
long-term care services. We conclude with a dis- cent of beneficiaries and 41 percent of expendi-
cussion that points toward the need to reduce the tures of total Medicare postacute services in
fragmentation and lack of coordination in long- 2007 (Exhibit 1), which was about the same dur-
term care services by removing the divide be- ing the 1999–2007 period.
tween Medicare and Medicaid programs in favor
of a structurally different system of providing
long-term care. Medicaid Long-Term Care Trends
MEDICAID LONG - TERM CARE SPENDING AND PARTICIPA-
TION Medicaid, as a joint federal and state pro-
Medicare Long-Term Care Trends gram managed by the states, is the primary payer
POSTACUTE CARE AND HOSPICE SERVICES Medicare for long-term care services for individuals with
provides short-term postacute care (after hospi- low incomes and assets.7 Eligibility is generally
talization) to beneficiaries who are aged and dis- automatic for the categorically needy (those re-
abled.4 To be eligible for Medicare postacute nur- ceiving Supplemental Security Income federal
sing home and home health services, people cash benefits), although eleven states have more
must require skilled care or therapy services restrictive standards.7,8 In addition, thirty-five
for short periods.4 In addition to postacute care, states plus the District of Columbia have so-
the Medicare hospice benefit covers hospice care called medically needy programs, which cover
at the end of life, in nursing homes, at home, or those who spend down their assets by incurring
in residential settings. Many nursing homes and medical expenses and meet the state’s income
home health agencies provide both short-term and asset requirements.8 Nursing home care and
postacute care as well as long-term care. home health are mandatory benefits, while other
After Medicare benefits are exhausted, some long-term care services are optional.
individuals need long-term care services that Overall Medicaid spending grew by 48 percent,
must be paid for out of pocket, by private insur- while total long-term care spending grew by
ance, or by the Medicaid program for those with 39 percent between 1999 and 2007 (Exhibit 2).9,10
low incomes and assets. Medicare also provides Long-term care represented about one-third of
acute care, medical care, and other services to total Medicaid spending in 2007, which was
people with chronic care or long-term care about the same as in 1999. For details, see Ap-
needs, or both. Examining these services is be- pendix Exhibit 2.6
yond the scope of this paper. There was no change in the number of Medic-
An estimated 4.9 million (15 percent) Medi- aid institutional participants (residents), while

39
care beneficiaries received short-term postacute institutional spending increased by 15 percent
services, out of a total of 32 million beneficiaries between 1999 and 2007 (Exhibit 2). The stagna-
who used Medicare services in 2007 (Exhibit 1).5 tion in the number of participants reflects a re- %
During 1999–2007, the total number of Medi- duction in the use of intermediate care facilities
Medicaid Long-Term
care beneficiaries grew by 10 percent, but total for the developmentally disabled balanced by
Care Spending
Medicare spending growth grew by 39 percent. small growth in nursing facility participants
39 percent of institutional
The total number of Medicare postacute benefi- (see Appendix Exhibit 3).6 Nursing home use recipients used 61 percent
ciaries grew by 21 percent, while their expendi- has not kept pace with growth in the aged popu- of total Medicaid long-
tures increased by 75 percent. For details, see lation over the period (about 17 percent among term care spending
in 2006.
Appendix Exhibit 1.6 those age sixty-five and older and 30 percent
From 1999 to 2007, the number of Medicare among those age seventy-five and older between
nursing facility users increased by 32 percent, 2000 and 2007).11 In spite of the constraints on
home health users by 15 percent, and hospice Medicaid institutional participants and spend-
users by 110 percent, compared to spending ing, 39 percent of institutional recipients used
growth rates of 88 percent, 59 percent, and 61 percent of total Medicaid long-term care
229 percent, respectively (Exhibit 1). For these spending in 2006.
three services, Medicare cost increases were MEDICAID HOME AND COMMUNITY - BASED SERVICES
more than double the increases in beneficiary Three major state Medicaid home and commu-
use during the period. nity-based services programs are as follows:
Medicare is paying for a growing portion of (1) waivers, (2) home health, and (3) personal
total public nursing home spending. Medicare care services. The waiver program (under Sec-
nursing home spending increased from 23 per- tion 1915[c] of the Social Security Act) allows
cent in 1999 of total nursing home spending to states to waive Medicaid requirements in order
32 percent in 2007, while the Medicare portion to target specific population groups, limit the

JA N UA RY 2 0 1 0 2 9 :1 HE A LT H A FFA IR S 23
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EXHIBIT 1

National Medicare Postacute And Hospice Care Spending And Beneficiaries, Adjusted For Inflation, Selected Years
1999–2007
Percent change,
Program/measure 1999 2003 2007 1999–2007
Total Medicare beneficiaries (thousands) 29,363a 32,587 32,223 10%
Total Medicare spending (millions of dollars) $207,408 $262,360 $288,504 39
Total Medicare postacuteb beneficiaries (thousands) 4,074 4,347 4,924 21
Total Medicare postacuteb spending (millions of dollars) $21,626 $28,255 $37,829 75
Nursing facility beneficiaries (thousands) 1,390 1,662 1,828 32
Nursing facility spending (millions of dollars) $11,785 $16,818 $22,152 88
Home health beneficiaries (thousands) 2,684 2,685 3,096 15
Home health spending (millions of dollars) $9,840 $11,437 $15,677 59
Home health beneficiaries as percent of Medicare 66% 62% 63% −5
postacute beneficiaries
Home health spending as percent of Medicare 46% 40% 41% −9
postacute spending
Hospice beneficiaries (thousands) 474 729 996 110
Hospice spending (millions of dollars) $3,142 $6,346 $10,345 229

SOURCE Centers for Medicare and Medicaid Services. Medicare data compendium, 2008. Baltimore (MD): CMS; 2008 [cited 2009
Nov 16]. Available from: http://www.cms.hhs.gov/DataCompendium/. NOTES Consumer Price Index (CPI)–adjusted spending reported
in constant 2007 dollars. See Technical Appendix 1 for full details (Note 6 in text). aEstimated data. bIncludes nursing facilities
and home health. See Technical Appendix 1.

number of waiver slots, limit geographical areas, 6 percent annually. In 2007, total Medicaid
limit services, and provide services otherwise not spending on home and community-based ser-
covered by the state Medicaid plan.12 Home and vices had risen to $41.8 billion, representing
community-based services waivers are limited to an increase of about 95 percent over 1999 levels.
people who meet the state eligibility require- The number of Medicaid hospice participants
ments for institutional care, and program costs rose by three times to 187,000 over the study
cannot be higher than costs for institutional ser- period, and hospice spending climbed from
vices (that is, must be cost-neutral). The waiver $393 million in 1999 to $1.9 billion in 2007.
programs give states greater control over the For details, see Appendix Exhibits 2 and 3.6
number of participants and spending than the The large growth in Medicaid home and com-
personal care program allows, and they provide munity-based services has occurred for several
wide flexibility in the benefits offered.12 reasons. First, there is growing demand by in-
Personal care services, actively offered by dividuals to remain in their homes rather than to
thirty-one states, provide assistance with activ- live in institutions.12 Second, the Supreme Court
ities of daily living (such as eating, bathing, and ruled in the Olmstead case in 1999 that indivi-
using the toilet) and must be offered statewide to duals have the right to live at home or in the
all age and population groups who meet the state community if they are able to and choose to do
need criteria.13 These programs are less costly per so, rather than to be placed in institutional set-
participant than the waiver programs because tings by the government.15 The court ruling, a
benefits are more limited and individuals do number of subsequent lawsuits against states
not need to meet the institutional-need crite- for failure to provide adequate home and com-
ria required for waiver programs. Many states munity-based services, and advocacy organiza-
have other home and community-based services tions have encouraged states to expand access to
waiver demonstrations and state-funded home such services.12 Finally, in the past decade, the
and community-based services programs.14 federal government has provided a number of
TRENDS IN MEDICAID HOME AND COMMUNITY - BASED initiatives and resources to assist states in com-
SERVICES In 2006, almost 2.9 million people re- plying with Olmstead to increase access to home
ceived Medicaid home and community-based and community-based services.16
services, including waivers, home health, and VARIATIONS IN ACCESS FOR WAIVER TARGET
personal care (Exhibit 2). (Data for 2006 are GROUPS Although the Medicaid personal care
the most recently available for such partici- and home health programs are required to cover
pants.) Between 1999 and 2006, the number all age and population groups, home and com-
of participants grew steadily by an average of munity-based services waiver programs are re-

24 H E ALTH A FFA IRS J AN UARY 2 0 10 2 9 :1


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EXHIBIT 2

National Medicaid Long-Term Care (LTC) And Hospice Care Spending And Participants, Adjusted For Inflation, Selected Years
1999–2007
Percent change,
Program/measure 1999 2003 2007 1999–2007
Total Medicaid participants (thousands)a 40,300 51,971 56,825b 41%
Total Medicaid spending (millions of dollars)a $211,156 $275,566 $311,848 48
Total Medicaid LTCc participants (thousands) 3,641 4,359 –d 29e
Total Medicaid LTCc spending (millions of dollars) $72,079 $89,603 $100,118 39
Institutionalf participants (thousands)a 1,745 1,805 1,747b 0.1
Institutionalf spending (millions of dollars)g $50,684 $57,744 $58,301 15
Home and community-based servicesh participants 1,896 2,554 d
51e
(thousands)i
Home and community-based servicesh spending (millions of $21,395 $31,859 $41,817g 95
dollars)i
d
Medicaid home and community-based services participants 53% 59% 15f
as percent of Medicaid LTC participants
Medicaid home and community-based services spending as 30% 36% 42% 40
percent of Medicaid LTC spending
Hospice participants (thousands)a 60 125 187b 212
Hospice spending (millions of dollars)a $393 $1,005 $1,901b 384

SOURCES See below. NOTES Consumer Price Index (CPI)–adjusted spending reported in constant 2007 dollars. Medicaid LTC includes
institutional care, hospice, and home and community-based services. aCenters for Medicare and Medicaid Services MSIS data.
Available from: http://msis.cms.hhs.gov/ bEstimated data for Hawaii, North Dakota, Maine, Ohio, and Utah. cLTC includes
institutional care and home and community-based services. dNot available. ePercentage change, 1999–2006. fInstitutional data
include intermediate care facilities for the developmentally disabled and nursing facilities. gBurwell B, Sredl K, Eiken S. Medicaid
LTC expenditures in FY 2007. Eagan (MN): Thomson Medstat; 2008 Sep. hIncludes waivers, home health, and personal care services
(PCS) state plan. iUniversity of California, San Francisco (UCSF), Annual Waiver Program Survey; and UCSF Annual Survey of State
Medicaid Home Health and PCS state plan programs.

quired to establish target groups for each waiver. which account, in part, for state variations in
In 2006, 90 percent of waiver participants either participants and spending, especially for the
were in the aged or combination aged and dis- waiver programs to meet the cost-neutrality re-
abled waiver groups, or were individuals with quirements. For example, 5 percent of waivers
mental retardation/developmental disabilities used more restrictive functional eligibility criter-
(Exhibit 3). Spending per participant for mental ia than for institutional care, and 32 percent used
retardation or developmental disability waivers more restrictive financial eligibility standards
was $40,952, compared to $9,644 for the com- than for nursing facilities.10 Many states used a
bination aged and disabled waivers in 2006.10 combination of fixed expenditure ceilings, ser-
VARIATIONS IN ACCESS AND SPENDING ACROSS vice limits, hourly limits, and geographic limits
STATES Rates of participation in Medicaid home for waivers.10 Overall, state spending for home
and community-based services vary widely and community-based services depends on an-
across states. In 2006, the average number of nual state budget allocations, which are then
participants was 9.59 per 1,000 U.S. population matched by the federal government.
(see Appendix Exhibits 3 and 4 for details).6 Iowa UNMET NEED FOR HOME AND COMMUNITY - BASED
had the highest participation rate of 16.8 per SERVICES In spite of the growth in Medicaid home
1,000 state population, while Virginia had the and community-based services and new federal
lowest rate of 3.21 per 1,000. Average home initiatives, there is unmet need for such services,
and community-based services spending per ca- even in states that have expanded their pro-
pita was $128 in 2006: New York State had the grams. State officials have reported a variety of
highest per capita spending ($384), while Ver- program needs for specially targeted groups that
mont spent only $42 per capita (Appendix Ex- are not met by existing programs, especially pro-
hibit 4).6 Average spending per participant was grams for children, the mentally ill, and those
$13,320 in 2006, although this ranged from with traumatic brain injuries. In 2008, thirty-
$4,336 in Vermont to $33,862 in Rhode Island eight states reported that 122 waiver programs
(data not shown). had waiting lists of 393,096 people.10 The num-
States use a range of cost containment strate- ber of people on waiting lists increased by more
gies in home and community-based services, than 30 percent between 2007 and 2008. In

JA N UA RY 2 0 1 0 2 9 :1 HE A LT H A FFA IR S 25
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EXHIBIT 3

Section 1915(c) Waiver Participants And Spending, By Target Group, 2006

Participants (1,107,358) Spending ($25 billion)

Disabled Disabled
6% 4% Aged and
Others Others
3% aged/disabled
4%
21%

Aged and
aged/disabled
Mentally retarded/ 51% Mentally retarded/
developmentally
developmentally
disabled
disabled
40%
72%

SOURCE Authors’ analysis of data from Centers for Medicare and Medicaid Services, Form 372. NOTES Other waivers include those
serving children, and people with traumatic brain injuries, mental disabilities, and HIV/AIDS.

2008, the average length of time spent on a wait- and assessment procedures, provider recruit-
ing list ranged from nine months for aged waiv- ment and management, reimbursement struc-
ers to thirty-two months for mental retardation/ tures, and quality oversight procedures. The
developmental disability waivers.10 many state home and community-based services
COMPLEXITY AND FRAGMENTATION OF HOME AND programs are administratively costly and confus-
COMMUNITY - BASED SERVICES PROGRAMS During ing to consumers and providers.
the past decade, there have been many federal
initiatives to expand home and community-
based services in the states. These programs in Improving Coordination Between
states include the following: (1) Real Choice Sys- Medicare And Medicaid
tems Change grants, (2) Medicaid Section 1115 IMBALANCE IN SPENDING BETWEEN INSTITUTIONAL
research and demonstration projects, (3) Man- AND COMMUNITY PROGRAMS Overall home and
aged Care/Freedom of Choice Waivers (1915(b) community-based services spending per partici-
waivers), (4) Money Follows the Person grants, pant was about $13,300 in 2006, compared with
(5) Program of All-Inclusive Care for the Elderly the average of about $33,000 for institutional
(PACE) programs, and (5) Cash and Counseling participants in 2006 (spending divided by parti-
demonstration projects.16 In addition, the Deficit cipants in Exhibit 2; also see Technical Appen-
Reduction Act (DRA) of 2005 gave states in- dix 2).6 Institutional spending includes room
creased flexibility in delivering LTC services in and board, whereas home and community-based
community-based settings.17 services spending does not. Nursing home par-
The new initiatives, along with the Medicaid ticipants often spend down their income (such as
home and community-based services programs, that from Social Security benefits), and Medicaid
are frequently located in multiple departments pays the remainder of costs. The average Medic-
within states and are closely related to other state aid nursing home rate was estimated to be $151
programs such as aging, social services, mental per day, or about $55,000 annually in 2006.18
health, developmental disabilities, housing, and The disproportional spending on Medicaid in-
vocational rehabilitation. Some states have more stitutional services compared to home and com-
than ten home and community-based services munity-based services has been the focus of state
waivers; when all Medicaid waivers were con- and federal policymakers’ efforts to shift institu-
sidered, some states reported twenty-four to tional to home and community-based services
twenty-seven total waivers in 2008.9,10 Home spending (called “rebalancing” long-term care).
and community-based services programs often In spite of the steady growth in home and com-
have different administrative structures, finan- munity-based services, participants made up
cial eligibility criteria, need criteria, screening 61 percent of the total long-term care population

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but accounted for only 39 percent of total long- ferences for Medicare short-stay patients,23 and
term care spending in 2006 (see Appendix Ex- growth in home and community-based services
hibit 4).6 Variations in states’ home and commu- options12 and providers.21
nity-based services spending were wide, ranging Although Medicaid home and community-
from Oregon, which spent 32 percent on institu- based services have expanded rapidly, wide var-
tional long-term care and 68 percent on home iations in participants and spending are evident
and community-based services, to Mississippi, across states, and large waiting lists for services
which spent 88 percent on institutional long- hint at inequities across states and limited access
term care and only 12 percent on home and com- in many states. Variations in participants and
munity-based services in 2006. For details, see spending rates for different target groups also
Technical Appendix 5.6 suggest that inequities in access exist within and
COORDINATION OF MEDICARE AND MEDICAID FUND- across states. Of greater concern is that the pro-
ING Although Medicare and Medicaid pay for portion of total state home and community-
67 percent of nursing home and home care in based services spending continues to be well be-
the United States,3 these programs are generally low institutional spending. States vary greatly in
not coordinated or integrated (the PACE pro- their efforts to shift spending from institutional
gram and some managed care waiver demonstra- to home and community-based services, which
tions are the exception). Hospitals, with an in- may reflect differences in state resources, state
centive to discharge patients as soon as possible policies, and commitments to rebalancing.
to reduce costs, often discharge them before ap- In spite of the state savings reported on home
propriate postacute or long-term care services and community-based services waivers over in-
can be arranged. They may encourage nursing stitutional care,24 policymakers are concerned
home placement if home and community-based that Medicaid participants who use waiver ser-
services are not available.19 High rates of expen- vices may not have been willing to use institu-
sive rehospitalization are now recognized as a tional services. The result is a “woodwork effect”
serious problem for Medicare.20 The problems of higher overall state costs as previously un-
after hospital discharge have been the subject cared-for people seek care—in effect, coming
of various intervention studies, but a review of “out of the woodwork.”25 On the other hand,
clinical trials found little improvement, which a recent study found that states with well-
indicates a need for greater efforts to design ef- established home and community-based services
fective discharge planning and posthospitaliza- programs had less overall long-term care spend-
tion follow-up programs.21 ing growth than did those with low home and
community-based services spending, because
these states were able to reduce institutional
Discussion spending over time.25 Most demonstration stud-
Medicare postacute spending grew more rapidly ies, however, have found that new home and
than the number of users between 1999 and community-based services programs were asso-
2007. Moreover, Medicare is paying for a grow- ciated with increased costs, along with greater
ing portion of total public spending on nursing satisfaction among both clients and caregivers.26
home care. The growth in Medicare short-term The current financial crises at the national and
postacute service use, in part, reflects short state levels threaten the continued access to and
hospital stays and a growing demand for reha- spending on Medicaid home and community-
bilitation services. Many nursing home, home based services, while Medicaid enrollment has
health, and hospice providers prefer the higher been increasing.27 These financial issues pose
rates from Medicare for postacute services than serious challenges to the future expansion of
those received for Medicaid long-term care home and community-based services programs.
services.20,21 In this paper we have emphasized the com-
Medicaid institutional participants and spend- plexity and multiplicity of state Medicaid long-
ing had much lower growth rates than Medicare term care programs and Medicare postacute ser-
postacute care and Medicaid home and commu- vices. Consolidation or improved coordination
nity-based services spending over the study per- of Medicaid long-term care programs within
iod. Medicaid has made rapid progress during states may be one approach to improving effi-
the past decade in expanding home and commu- ciency and access while controlling costs.
nity-based services programs to a growing num- Although Medicare postacute and Medicaid
ber of target groups and participants. These long-term care services are intricately related,
trends probably reflect a combination of changes they are poorly coordinated and have competing
in consumers’ preferences,12 state policies to re- incentives. Medicare focuses on limiting hospi-
duce institutional use,22 state limitations on tal and postacute use and costs, resulting in
Medicaid reimbursement rates,18 provider pre- shifts in care to the Medicaid long-term care

JA N UA RY 2 0 1 0 2 9 :1 HE A LT H A FFA IR S 27
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program. That program, in turn, has little incen- incentives for the two programs. These findings
tive to reduce Medicare hospital and emergency suggest the need for structural reform of the
room use. Policy changes are needed to align the long-term care system. ▪

This research was supported by the by the National Institute on Disability H133B080002.
Kaiser Commission on Medicaid and the and Rehabilitation Research (U.S.
Uninsured, Grant no. 09-1018-400, and Department of Education), Grant no.

NOTES

1 Kaye HS, Harrington C, LaPlante 10 Ng T, Harrington C, O’Malley M. www.cms.hhs.gov/


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2 Vladeck BC. Economic and policy 11 U.S. Census Bureau. Growth in aged North Texas; 2008.
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