The massive pandemic relief bill that the House is likely to approve by the end of this week includes billions of dollars in new funding for government long-term services and supports (LTSS) for frail older adults and young people with disabilities. But, paradoxically, the most far-reaching change may be from a temporary funding increase for Medicaid home and community-based services (HCBS).

The House bill would increase the federal contribution to Medicaid LTSS by 7.35 percent, or about $9 billion, for one year. But the bump would apply only for home and community-based services and excludes nursing home care.

While the extra federal funding is temporary, President Biden and congressional Democrats undoubtedly will want to make it permanent. And even as a temporary increase, it likely will accelerate an ongoing shift to home and community care that began long before the pandemic.

How Medicaid LTSS works

In 2016, about 57 percent of Medicaid LTSS spending went to home-based care, twice as much as in 2000. At the same time, the share of Medicaid spending for institutional care fell from 73 percent to 43 percent. However, the pace of change has slowed in recent years.

Medicaid is run by the states but funded jointly by the states and the federal government. Generally, the feds pay for about 60 percent of the program, though in some states the federal government pays two-thirds of the cost.

Nursing homes remain the default setting for Medicaid long-term care. States can get special permission to shift some of that care to people’s homes but their use of HCBNS varies widely.

Funding and flexibility

The House bill would give states plenty of flexibility in how they use the extra HCBS funds. They could increase payments to home care agencies and other Medicaid service providers; increase pay, training, or paid leave for direct care workers; and purchase emergency supplies such as personal protective equipment and testing. States also could use the funds to provide this equipment to family caregivers, purchase assistive technologies, or help nursing home residents move back into their homes.  Whatever they do, states must use the money to enhance their programs.

Separately, the House bill also would increase funding for the Older Americans Act by $1.4 billion. This chronically underfunded umbrella account finances programs critical to the infrastructure of home-based care including as Meals on Wheels and scores of related programs. It also would add $4.5 billion for a federal low-income energy assistance program, a critical support for low-income seniors living at home.

While some advocates would prefer to repeal Medicaid’s support of nursing homes, or at least end its bias toward institutional care, the House bill takes a more modest approach. It would create new financial incentives for states to embrace more robust home-based care without cutting nursing home funding or tinkering with the basic design of Medicaid LTSS.

A new blueprint

That overall approach also has been endorsed by the consulting firm ATI Advisory, which has close ties to the Biden administration. In its new “blueprint” for reforming Medicaid LTSS, ATI recommends permanently increasing the federal match for Medicaid HCBS, as well as other broader reforms such as setting national minimum eligibility standards for Medicaid HCBS participants, setting a minimum personal needs allowance for those living at home, and adjusting state HCBS waiting lists to focus on level of need.

ATI’s most ambitious proposal contemplates the federal government paying all costs for catastrophic HCBS costs that exceed a specified threshold. In effect, such a model would bring Medicaid closer to becoming a federal program without actually nationalizing it and while still allowing states to tailor specific benefits  to their populations.

Like the House Democrats’ approach,  ATI initially would use the carrot of new financial incentives to encourage states to expand their HCBS programs rather than the stick of forcing them to scale back nursing home benefits. This approach may not have much impact in some nursing home heavy states such as Louisiana but it could boost Medicaid home care in much of the nation.

The minimum wage conundrum  

In this presidential campaign, Biden supported more aggressive use of home and community care, proposing to spend about $450 billion over 10 years to improve those state programs. By increasing the federal contribution for Medicaid’s home-based long-term care—even temporarily– the House is sending a strong signal that it supports this shift.

Biden and congressional Democrats will have to confront one challenge: The effects of a $15-an-hour minimum wage on Medicaid. Direct care workers desperately need a pay raise and better working conditions, especially in the wake of the pandemic. But a raise to $15 an hour for home care workers, who average about $11, would likely eat up a big piece of the increased federal contribution to Medicaid HCBS, and leave little for other enhancements.

On its own, the tragedy of COVID-19 in long-term care facilities was likely to accelerate the shift to home-based Medicaid LTSS on its own. But the House bill, and the broader efforts it signals, may speed up that change even more.