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Creating Comprehensive Cost-Effective Systems: System Design Issues 155ing the overall per capita costs to the Medicaidprogram of furnishing services to individuals inhome and community settings with the overallper capita costs of serving individuals in an institutionalsetting. This test is spelled out inMedicaid regulations by the formula:D + D’ < G + G’where:D is the average per capita cost of HCB waiverservicesD’ is the average per capita cost of otherMedicaid services furnished to HCBS waiverbeneficiariesG is the average per capita cost of furnishinginstitutional servicesG’ is the average per capita cost of otherMedicaid services furnished to institutionalizedpersons. 9Institutional costs are defined as those incurred inthe type of institutional setting to which the HCBSwaiver program in question serves as an alternative.In an HCBS waiver program for people withdevelopmental disabilities, for example, waivercosts would be compared to the costs of servicesfurnished in an ICF/MR. In the case of an HCBSwaiver program for medically fragile children, inpatienthospital costs might serve as the point ofcomparison.The formula takes only Medicaid expendituresinto account. It does not include public outlays onany non-Medicaid benefits that might be availableto individuals in the community but not to institutionalizedpersons (e.g., public assistance, housingassistance, food stamps, and similar benefits).The formula does include the costs of otherMedicaid services, both for people who participatein an HCBS waiver program and for peopleserved in institutional settings. The main reasonwhy these other costs are included is to make surethat like is being compared with like. Usually,institutional reimbursements include health careservices. When individuals are not institutionalized,the same services are obtained through thestate's regular Medicaid program. Including otherMedicaid costs also recognizes differences amongstates in the benefits available through the stateMedicaid plan for people in the community. If astate provides extensive personal assistance servicesunder its state plan, for example, not includingthe costs of such services would result in a distortedcomparison between the costs of supportinga person in the home and community versusthe costs of serving that individual in an institutionalsetting.The present formula took effect in 1994. It replaceda much more complicated formula requiringthat a state demonstrate not only that its HCBSwaiver program would be cost effective but alsothat it would be budget neutral, upon implementation,with respect to the projected costs of furnishingonly institutional services to the targetpopulation. 10The cost-effectiveness formula has no caseloadfactor. A state may limit the number of individualswho may receive benefits through an HCBSwaiver program, however, by specifying a maximumnumber of beneficiaries for each year theprogram will be in operation. A state may changethis maximum number at any time by notifyingHCFA of the change.HCFA evaluates HCBS waiver cost estimates interms of unduplicated beneficiary counts. 11 Oncethe specified maximum is reached, a state is permittedto deny enrollment to individuals andplace them on a waiting list until "slots" open upunder the enrollment cap (due, as already noted,to ineligibility of current beneficiaries, beneficiariesmoving to another state, institutionalization,people voluntarily leaving the program, or death).Furthermore, a state may tie its enrollment limitdirectly to appropriations made by the state legislaturefor HCB waiver services.The HCFA standard HCBS waiver applicationformat has an entire section, Appendix G, for statedocumentation of its estimates of the formula values.The values for institutional costs are alreadyknown or readily obtained. Factor D is estimatedby projecting the extent to which individuals areexpected to use the various services the program
156 UNDERSTANDING MEDICAID HOME AND COMMUNITY SERVICES: A PRIMERwill offer and how much the state expects to payfor such services. Often these estimates are basedon the state's experience in operating home andcommunity services with state or local funds.Factor D’ is estimated in various ways, includinglooking at the costs of services for Medicaid beneficiariesin the same eligibility categories, or costsin HCBS waiver programs that serve similar populations.Splicing together the figures needed tocomplete Appendix G can be complicated in thecase of a brand new program. Once a program isin operation, however, preparing the figures inconjunction with a renewal request is less complicatedbecause there is cost experience on which tobase estimates.Always keep in mind that the estimates a statemakes in submitting an application (or a renewal)are just that: estimates. Once a program goes intooperation, use of particular types of services maybe different than expected and it may be necessaryto pay different rates than originally expected. Inaddition, each request (whether to start a brandnew waiver program or renew an existing one)covers a multi-year period. The longer the periodcovered by the request, the more likely it is thatestimates will be off the mark one way or another.The state incurs no penalty if, upon actual implementation,the figures for the various factors inthe formula turn out to be different than the estimates,provided that the program is cost-effectiveaccording to the statutory test. If a state estimatesthat the average cost of furnishing HCB waiverservices will be $15,000 per individual, for example,but the cost turns out to be $16,000, the statewill not be penalized so long as that test is met.Similarly, if a state estimates that 45 percent of allindividuals will use personal assistance servicesbut 53 percent actually do, Federal payments willnot be reduced provided that the program stillmeets the overall cost-effectiveness test. In otherwords, the figures a state uses to come up with itsestimate of Factor D in the formula are not considered"line item" budgets. 12Federal policy gives states various options withrespect to managing per recipient costs. In particular,a state may impose a "hard" or absolute limiton the maximum dollar value of HCB waiverservices that will be authorized for any beneficiary,or it may decide not to impose such a limitbut, instead, to manage its program to meet a targetaverage cost per beneficiary (sometimes calledan aggregate cost limit). States may also take othermeasures designed to keep HCBS waiver outlaysat targeted per recipient levels.Hard cost limitsA hard limit sets a maximum dollar ceiling on thebenefits an individual may receive. A state may setthis limit equal to the costs of institutional services,but it may also set it higher or lower. 13 The mainadvantage to a state of a hard dollar limit in operatingan HCBS waiver program is that the state canbe more confident that it will achieve its targetedper recipient spending level, since there is a ceilingon maximum expenditures. The main problem inoperating a program with a hard dollar limit isthat individuals who need services and supportsthat require outlays in excess of the limit (even bya little) will be denied admission to the programand, hence, be able only to receive institutionalservices to meet their needs. This poses problemsbecause it is often these individuals who are mostat risk of institutionalization in the first place.Hard limits set well below the costs of institutionalservices lead to heightened demand for institutionalservices. Hard caps set nearer to institutionalper recipient costs enable the needs of moreindividuals to be met in the home and community.A state may soften the impact of a hard dollar capby providing for approval of plans of care thatexceed the dollar cap in specific situations (e.g.,when an individual's condition requires provisionof services in excess of normal levels). A state mayalso exempt certain services from being countedagainst the dollar cap. For example, the costs offurnishing home modifications may push an individualover the limit. But since home modificationsare usually a one-time expenditure, a statemay decide not to count these costs and insteadlook solely at the costs of services provided on acontinuing basis.More than one dollar cap is permitted when astate designs a waiver with multiple serviceoptions. A state may also place reasonable limitson the amount, scope, and duration of particularwaiver services. A state may even operate multipleHCBS waiver programs for the same target
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Understanding MedicaidHome and Comm
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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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