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Creating Comprehensive Cost-Effective Systems: System Design Issues 153revolve around two tests: budget neutrality andcost-effectiveness:• The budget neutrality test involves comparingtotal spending for long-term care serviceswith and without offering home and communityservices. In other words, it asks the question:If home and community services areoffered, will there be an offsetting decline inspending for institutional services or willoverall spending increase?• The cost-effectiveness test involves comparingper recipient spending on furnishing institutionalservices to per recipient spending onfurnishing home and community services tothe same group of individuals. A home andcommunity service program is said to be costeffectiveif its per recipient expenditures areno greater than the per recipient expendituresin institutional settings.Budget neutrality is complex to assess, because itdepends on determining how people who needand would benefit from long-term care servicesand supports will react when home and communityservices become available. Most individualsstrongly prefer to remain in their homes and communities,even though many have functional limitationsjust as severe as those of individuals whoreceive institutional services. Thus, when institutionalservices are the only long-term servicesoffered, many individuals will not seek formallong-term services and supports at all unless theyare impossible to avoid (e.g., when a person's conditiondeteriorates to the point where constantcare is required or overwhelms the informal caregivingthe person has available).For this reason, the number of individuals whomeet institutional admission criteria is far greaterthan the number who actually seek institutionalservices. When home and community services areoffered, however, people who would not acceptinstitutional services will come forward to obtainhome and community services, because such servicesmatch up better with their desires. That is, theoverall expressed demand for long-term servicesand supports is greater when home and communityservices are offered in addition to institutionalservices than when they are not.The budgetary impact of this increase in expresseddemand depends on whether offeringhome and community services will lead to a sufficientreduction in demand for institutional services(typically much more expensive to provide)that is large enough to underwrite the costs ofmaking home and community services available.Only when one completely offsets the other isbudget neutrality achieved. For more than twodecades, researchers have been analyzing theeffect of newly offered home and community serviceson demand. Not surprisingly, this researchaffirms that more people will seek services whenstates make available services and supports in thehome and community. Further, this researchseems to show that achieving budget neutralityhinges on employing one of two strategies.The first is to impose very stringent eligibility testsfor receipt of home and community services. Thesetests do narrow the demand for home and communityservices. But they also make ineligiblemany individuals with severe disabilities whocould benefit from home and community services.The second strategy is to provide residential alternatives(e.g., assisted living) that divert demandaway from institutional services. In home andcommunity services programs for people withdevelopmental disabilities, for example, moststates offer a variety of residential alternatives.This reduces demand for ICF/MR (institutional)services, which are very costly (approximately$78,000 per individual for a full year's services in1998). Due at least in part to the rapid expansion ofHCBS waiver programs for people with developmentaldisabilities, overall utilization of ICF/MRservices has been declining steadily since 1993.It is, in fact, extremely difficult to achieve budgetneutrality when offering or expanding home andcommunity services as an alternative to institutionalservices. A state's ability to achieve budgetneutrality is tied in large part to its historical willingnessto tolerate numbers of people with unmetneeds. As unmet need is reduced, the pressure onstates to increase the total number of personsserved (in all long-term service settings, bothinstitutional and HCBS) is correspondingly lessened.7 However, budget neutrality is but one ofmany policy objectives states pursue with respectto long-term services and supports. Other objec-
154 UNDERSTANDING MEDICAID HOME AND COMMUNITY SERVICES: A PRIMERDemand for ICFs/MR in KansasIn 1993, about 2800 individuals with developmentaldisabilities in Kansas were receiving either ICF/MRor HCBS waiver services. About 1800 were servedin ICFs/MR (including 900 individuals in large stateoperatedfacilities). By January 2000, about 6000individuals were receiving either ICF/MR or HCBSwaiver services. The number served in ICFs/MRhad dropped to fewer than 850 (with 380 of those inlarge state-operated facilities). During this period,the state closed one of its large public facilities andconsiderably reduced the number of personsserved in the remaining two. Some privately operatedstate facilities also closed down because of highvacancy rates.tives include ensuring that individuals with disabilitieshave a good quality of life, are able toremain in their homes and contribute to their communities,and remain as independent as possible.The narrowness of the budget neutrality test obviouslydoes not take into account these otherimportant policy objectives and considerations.In recognition of these other objectives, Federalpolicy does not dictate that states manage Medicaidlong-term services (institutional and/orhome and community services) in a way thatachieves budget neutrality, except in very specialcircumstances (associated with the use of somespecial waiver authorities). When cost tests areemployed (as in HCBS waiver programs), they arecost-effectiveness rather than budget neutralitytests. As a consequence, states are free to expandhome and community services to whatever extentthey desire in pursuit of their policy aims. Indevelopmental disabilities services, for example,many states (e.g., New York, Maryland, Montana,Pennsylvania) have launched multi-year initiativesto reduce the number of individuals whohave been wait-listed for home and communityservices. These states expect to finance the cost ofthese substantial expansions through their HCBSwaiver programs for people with developmentaldisabilities.State strategies to expand availability of home andcommunity services include leveraging currentstate and local funds as matching dollars to secureadditional Federal Medicaid dollars. It is notunusual, for example, for a state to combine existingand newly appropriated state dollars to underwritethe costs of home and community servicesexpansion. This type of leveraging is permissible.The main practical questions that arise when astate desires to expand availability of home andcommunity services concern whether to use Medicaidstate plan coverages or provide such servicesthrough an HCBS waiver program. Either optionallows a state to impose various limitations inorder to keep per recipient costs to pre-establishedtargets. The main difference between the two isthat an HCBS waiver program provides stateswith authority to limit the number of people whomay receive benefits, whereas state plan servicesmust be available to all individuals who meetwhatever service eligibility criteria a state mayhave established—making utilization of a newstate plan benefit (and its associated costs) hazardousto predict, and potentially costly to implement.One reason states are employing HCBS waiverprograms so extensively as a means to underwritethe expansion of home and community services isthat the authority states have to limit the numberof beneficiaries permits them to better predictspending and keep it within available state dollars.With respect to some policy objectives, especiallyin terms of making benefits broadly available,state plan coverage of home and communityservices is the best choice.As has been said, the HCBS waiver program containsan explicit cost-effectiveness test. It must beemphasized, however, that concerns about bothbudget neutrality and cost-effectiveness permeateall state strategic planning with respect to longtermservices and supports (whether in an institutionalor a home and community context).Managing Dollars:HCBSWaiver ProgramsFederal law requires a state to ensure that itsHCBS waiver program is cost effective. 8 Costeffectivenessin this context is defined by compar-
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Understanding MedicaidHome and Comm
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Gary Smith, the Primer’s principa
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viiiUNDERSTANDING MEDICAID HOME AND
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IntroductionPeople of all ages with
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Introduction 31998—is the group m
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Introduction 5This Primer has been
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CHAPTER 1Medicaid Coverage of Home
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Medicaid Coverage of Home and Commu
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CHAPTER 2Financial Eligibility Rule
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Financial Eligibility Rules and Opt
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Options for Designing Service Cover
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Factors to Consider WhenChoosing Co
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