DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop C2-21-15 
Baltimore, Maryland 21244-1850 
 
Center for Medicaid and State Operations 
 
SMDL # 04-005 
 
August 17, 2004 
 
 
Dear State Medicaid Director: 
 
The Centers for Medicare & Medicaid Services (CMS) has supported states in the 
implementation of the principles of money follows the person (MFP) by providing resources and 
technical assistance.  We are committed to continuing to assist states in implementing the 
principles of MFP under existing authorities. 
 
A number of states have pursued strategies under existing authority that can be useful models to 
states interested in making immediate changes to their delivery systems. Previously, we 
highlighted MFP in two State Medicaid Director letters on August 13, 2002, and September 17, 
2003, and provided technical assistance to states through the dissemination of promising 
practices on our Web site.  In particular, we have highlighted innovative states including 
Arizona, Colorado, Indiana, Texas, Florida, New Jersey, Oregon, Utah, Vermont, Washington, 
and Wisconsin.  Still other innovations are occurring under current law with the support of Real 
Choice Systems Change Grants for Community Living (Attachment #1). 
 
As you know, the term Money Follows the Person refers to a system of flexible financing for 
long-term services and supports that enables available funds to move with the individual to the 
most appropriate and preferred setting as the individuals needs and preferences change.  It is a 
market-based approach that gives individuals more choice over the location and type of services 
they receive.  A system in which money follows the person is also one that can incorporate the 
philosophy of self-direction and individual control in state policies and programs.   
 
We are committed to continuing to assist states in implementing the principles of MFP under 
existing authorities and hope to address areas of confusion that may be impeding efforts to 
rebalance long-term support systems.  This letter intends to clarify a few issues that have been 
brought to our attention. 
 
Issues Identified to Date 
 
Home and Community-based Services (HCBS) Waiver Capacity and Cost Neutrality:   
Although states may implement MFP strategies without a waiver context, states that anticipate 
using HCBS waivers as part of their rebalancing strategy may be concerned about waiver 
capacity and demonstrating the cost neutrality of proposed waiver services.  States may request 
to amend their current HCBS waiver program to include additional participants.  States that do so 
are still required to demonstrate the continued cost-neutrality of those programs;  
 
 
  Page 2State Medicaid Director 
 
however, most states have found that in the aggregate waiver programs continue to demonstrate 
cost neutrality even with the addition of waiver participants.  Any state that has concerns in this 
area is asked to work with CMS to assess the underlying assumptions and structural issues of its 
cost neutrality estimates.  
 
Backfilling of Nursing Home Beds: 
States that implement MFP strategies will begin to achieve a more equitable balance between the 
proportion of total Medicaid long-term support expenditures used for institutional forms of 
service and the proportion of combined funds used for home health and personal care services 
under the state plan and waiver services.  We anticipate that as individuals have greater choices 
in service delivery, a smaller proportion of individuals will choose institutional care.  We 
encourage states to reduce nursing facility beds to assist a state in rebalancing its long-term care 
service system, but this is not a requirement.  
 
Self-Directed Models: 
Over the past several years, individuals and families have advocated for directly involving 
persons who receive Medicaid funded services and supports in the decisions that affect their 
lives, and providing those individuals with greater choices and control of their services and 
supports.  For individuals to naturally select community services over institutional services, 
states must ensure that a broad array of quality services are provided under a long-term care 
system that recognizes service delivery options that are diverse and flexible.  CMS is committed 
to supporting and further implementing models such as those contained in the Cash and 
Counseling Demonstration and Evaluation Project and the Independence Plus initiative.  These 
programs not only realize MFP principles but use an individual budget to provide participants 
direct opportunities to make personalized decisions about the allocation of available resources.  
While CMS continues to encourage states to consider these system reforms, we also recognize 
other strategies for the provision of HCBS that expand the level of individual choice and control 
without making major modifications to state infrastructures.  Quality community programs offer 
not just one model of delivering community services but rather a continuum of options in order 
to allow individuals to select the service delivery method that best meets their preferences, 
desires, and personal outcomes.  The selection as to which option is best may vary depending on 
the level of other community supports available, or simply the inclination of the individual.  
Along this continuum, CMS has identified the following four basic service delivery models 
related to services and supports of personal attendant: 
  
1.  Traditional Model 
2.  Traditional Model Supporting Choice 
3.  Agency with Choice Model 
4.  Fiscal/Employer Agent 
 
A description of these models and examples of state innovation is included in Attachment #2.  
 
 
 
 
 
 
  Page 3State Medicaid Director 
 
We will continue to help provide opportunities for people to live in the communities of their 
choice.  We welcome your input and hope you find this information useful.    
 
 
Sincerely, 
 
/s/ 
 
Dennis G. Smith 
Director 
 
Enclosures 
 
cc:   
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
   for Medicaid and State Operations 
 
Kathryn Kotula 
Director, Health Policy Unit 
American Public Human Services Association 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Brent Ewig 
Senior Director, Access Policy 
Association of State and Territorial Health Officials 
 
Jim Frogue 
Director, Health and Human Services Task Force  
American Legislative Exchange Council 
 
Trudi Matthews 
Senior Health Policy Analyst 
Council of State Governments 
 
  Attachment #1 
 
Examples of State Innovation  
Under the Real Choice Systems Change Grants for Community Living: 
Money Follows the Person Rebalancing Initiative 
 
 
California 
The California Department of Health Services (DHS) is developing models and systems that 
enable money to follow the person from institutional to home and community-based settings.  
Specifically, it is developing standardized protocols and processes, including a consumer-
focused quality assurance model, a standardized consumer-oriented nursing facility transition 
care planning model, and a uniform assessment tool and protocol.  A pilot project will test the 
developed tools and protocols, and inform statewide policy decisions about a Money Follows the 
Person Initiative in California using individual and aggregate data and fiscal analysis based on 
case examples. 
 
Maine 
The Maine Department of Behavioral and Developmental Services is adopting a standardized 
assessment and budgeting process for mental retardation waiver services that results in 
consistent, predictable, and truly portable budgets.  The State is directing resources toward more 
person-centered, consumer-driven services offered in the most integrated and appropriate setting 
and identifying cross-system performance measures that enable Maine to comprehensively and 
coherently assess its success at achieving a balance of services across systems.  Maine is piloting 
an individual budget tool and assessing its impact on consumer satisfaction, providers, budget 
neutrality, staffing requirements, and Medicaid management information systems. 
 
Nevada 
The Nevada Department of Human Resources is rebalancing the States long-term services 
programs so that community services and supports are the primary source of support for people 
with disabilities.  It is identifying individuals for community integration, implementing their 
transitions, and using peer advocates to assist in the transition process.  In addition, Nevada is 
establishing a Housing Specialist at the Nevada Developmental Disabilities Council to help 
individuals locate affordable housing and access State and local housing assistance programs.  
The State is also revitalizing the Nevada Home of Your Own program, an initiative to help 
people with disabilities secure housing, and developing and maintaining a registry of affordable, 
accessible housing in Nevada. 
 
Additional examples can be found on the CMS Web site at www.cms.gov/newfreedom. 
  Attachment # 2 
 
Service Delivery Models for Attendant Care 
 
 
Service delivery models have been evolving over the last decade and continue to be refined and 
clarified.  The following are four basic models that CMS has identified based on state 
experiences.  Each of these design approaches can be used by states to enable them to employ 
money follows the person principles.  States are not limited in the various strategies they may 
employ.   
 
Traditional Agency Model  
Under a traditional agency model, an agency assumes responsibility for recruiting, hiring, 
managing, training, and dismissing employees who are hired to provide, at a minimum, basic 
assistance with activities of daily living to individuals living in the community.  The agency sets 
the wages and hours, and directs the actions of the employee while in the participants home and 
provides necessary back-up as needed.  Services are provided based on a standardized 
assessment of needs typically performed by a medical professional.  A Medicaid agreement 
executed with the Medicaid agency, and the provider agency, clearly articulates the scope of the 
services and identifies allowable tasks that may be performed.  The agency is paid by the 
Medicaid agency to provide personal assistance services.             
 
Traditional Model Supporting Choice  
 
Many traditional provider agencies honor the principles of choice, control, and the person-
centered planning process.  These progressive agencies allow, or even encourage, participants to 
identify and refer to the agency, attendants they have selected and offer training in the 
philosophy of self-direction.  Many agencies also provide a list of potential attendants that 
participants may interview.  Back-up is provided by the agency.  Attendants are expected to 
respect participant preferences.  States implementing this model may do so without modifying 
their state plan or waiver services since the provider agency continues to operate under a 
traditional Medicaid Provider Agreement to provide personal assistance services and is 
reimbursed for providing these services.  The agency continues as the responsible entity over the 
provision of personal assistance services and over the attendants who provide this service.  While 
the participant has the ability to select his or her attendant, the agency continues its role as the 
employer of the attendant and retains responsibility for the oversight of the personal attendant 
service.  The Trinity Respite Care in Lawrence, Kansas is an example of a Medicaid provider 
agency that gives its clients the opportunity to select their own attendants. 
 
Agency with Choice
This model, first described in a research document entitled Consumer-Directed Personal 
Assistance Services: Key Operational Issues for State CD-PAS Programs Using Intermediary 
Service Organizations (1997) by Susan Flanagan and Pamela Green, provides an increased level 
of responsibility by designating the participant as the managing employer without becoming the 
common law employer (employer of record) of his or her attendant.  For IRS purposes and other 
employment considerations, including making payment to the provider, the agency is the 
common law employer.  The participant recruits, interviews, and selects the attendant care 
provider and refers him or her to an agency for the completion of payroll responsibilities.  An 
individual budget may or may not be used to determine the available resource allocation.  The  participant generally establishes the wages and sets the working hours.  Once hired, the 
participant manages the attendant including the approval of timesheets.  The participant may 
elect to train the individual or may direct the agency to provide training on his or her behalf.  The 
agency may offer additional services to support the participants ability to self-direct.  These 
supports may include making other purchases (included in the individualized budget) on behalf 
of the participant, assisting with managing the individual budget or providing training on how to 
hire and manager attendants.  While the agency and the participant share employer 
responsibilities, the agency executes a Medicaid Provider Agreement with the Medicaid agency 
to provide the personal care services and any supportive services. The agency may offer a 
traditional service model along with Agency with Choice services model, but clearly there is a 
formal distinction between the two models.  The New Hampshire Independence Plus initiative, 
In-Home Supports Wavier for Children with Developmental Disabilities, adopts the Agency with 
Choice model.   
          
Fiscal/Employer Agent Model: 
 
The Fiscal/Employer Agent model provides Medicaid program participants with the greatest 
level of flexibility and empowerment.  In this model, the participant or participants designated 
representative is recognized as the common-law employer of his or her individually hired 
attendant(s).  However, the representative generally delegates the employer-related 
responsibilities related to payrolling and filing of employer-related payroll taxes to an 
organization that serves as the program participants employer agent.  The agency may offer a 
broad host of services that support the participant as he or she experiences self-direction, 
including skills training, brokering other benefits such as Workers Compensation or health 
insurance, or other support functions including assistance with managing the individual budget.  
The agency may be reimbursed for financial management services as a waiver service or as an 
administrative function.  Many states, including all but one of the Cash and Counseling and 
Independence Plus waiver states (Arkansas, Florida, New Jersey, Louisiana, North Carolina, 
and South Carolina), use this model to allow Medicaid program participants and their families to 
self-direct.