The Biden Administration has given the green light for states to begin to tap into about $12 billion in additional funding for Medicaid home-based long-term supports and services. In guidance issued to state Medicaid directors late last week, the federal Centers for Medicare and Medicaid Services (CMS) granted the states broad flexibility in how they use the money. The funds, included in the American Rescue Plan Congress passed in March, reflect a one-year 10 percentage point increase in the federal contribution to Medicaid home and community-based services (HCBS).
The big immediate question is how will states use the money, and how many will take it at all.
Just as important, the guidance also may signal how the Biden Administration would use a much larger, $400 billion increase in federal Medicaid HCBS spending that it included in the American Jobs Plan that currently is being considered on Capitol Hill.
Medicaid is funded jointly by the federal government and the states, but operated individually by each state. States are required to provide long-term care in nursing homes but home-based care is optional and can only be provided with CMS permission. Every state has requested such a federal waiver for home-based care, but states vary widely in the kinds and amount of home care they provide. The payment bump will come on top of the federal contribution that ranges from 50 percent in Colorado and other states to 78 percent in Mississippi.
“Expand, enhance, and strengthen”
In 26 pages of guidance, CMS opened the door to a long list of benefits and services that states could buy with the extra dollars. They range from short-term initiatives such as higher wages or COVID-19 testing for home care aides to longer-term structural reforms.
However, the guidance explicitly requires states “expand, enhance, and strengthen” Medicaid HCBS and to “supplement, not supplant” existing programs. In other words, Medicaid won’t allow a state to simply offer the same services but with federal dollars replacing state funds.
To provide a check on state activity, CMS will require states to develop a funding proposal within 30 days and report quarterly on how the funds are used. However, states will be allowed to revise their proposals as needs change. In addition, while the law allows CMS to boost funding for HCBS programs only through March of 2022, states will have until March, 2024 to spend the money. This could give them time to develop new programs.
A home run
The states also will be allowed to use the extra funds to increase payments to Medicaid managed long-term care programs, but only if the plans increase approved services.
One close observer called the guidance, “a home run.” But it remains uncertain how many states will take the extra funding and what they will do with it.
CMS urged states to build long run reforms to their systems, such as expanding available services, increasing eligibility, and building partnerships with state housing and other programs to develop more coordinated services.
However, because the extra federal contribution is for only one year, many states may think more short term. State officials tell me they are more likely to use the funds to provide one-time enhancements to existing services rather than trying to stand up new long-range initiatives with federal money that could dry up after a couple of years.
How will states respond?
Given wide state variation that already exists in Medicaid HCBS , states are likely to respond very differently to the feds’ offer. Some, such as Oregon and Minnesota, may continue to be extremely creative. Others such as Alabama and Louisiana, which tilt heavily toward nursing home care, may not—and some may not take the money at all.
CMS is anxious to get the extra dollars out the door. It gave states just 30 days to develop an initial plan and the agency promises to respond within an additional 30 days. Thus, funds could be out the door by mid-July.
States, providers, and advocates anxiously awaited the guidance for two reasons. They want to use the new funding as quickly as possible, of course. But they also see it as a clue about how the Biden Administration would use its proposed $400 billion increase in the federal contribution to Medicaid HCBS.
Any increase in the federal payment for Medicaid HCBS has to walk a narrow line. Too much flexibility and states will find ways to divert the funds to non-Medicaid programs, something they regularly do now. Too little flexibility and one benefit of Medicaid—the ability of states to innovate—would be lost. And, worse, states would be unlikely to even take the money if it comes with too many strings.
CMS has done a good job finding that balance. The question now: How will the states use the money? Will they increase pay for direct care workers? Increase home-based benefits for current enrollees? Or expand eligibility? Even with $12 billion, they won’t be able to do it all.