DEPARTMENT OF HEALTH & HUMAN SERVICES

Centers for Medicare & Medicaid Services

Disabled and Elderly Health Programs Group

7500 Security Boulevard, Mail Stop S2-14-26

Baltimore, Maryland 21244-1850

Center for Medicaid and State Operations 
Letter Summary 
This letter clarifies some methods by which HCBS waivers under section 1915(c) may aid in the 
transitioning of individuals from institutional settings to their own home in the community 
through coverage of one-time transitional expenses. This clarification was promised in the HHS 
New Freedom Report to the President. 
SMDL #02-008 
May 9, 2002 
Dear State Medicaid Director: 
Medicaid home and community-based services (HCBS) waivers are the statutory alternative to 
institutional care.  Many states have found in HCBS waivers a cost-effective means to implement 
a comprehensive plan to provide services in the most integrated setting appropriate to the needs 
of individuals with disabilities. 
However, individuals seeking a return to the community from institutions are faced with many 
one-time expenses, and many states are unclear about the extent to which waivers cover 
transition costs. Examples of those expenses include the cost of furnishing an apartment, the 
expense of security deposits, utility set-up fees, etc. Other states have expressed interest in 
having the waivers pay for apartment/housing rent. This letter is designed to answer such 
questions. 
Federal funding under Medicaid HCBS waivers is not available to cover the cost of rent. States 
may offset rental expenses from state-only funds that augment federal HCBS resources, but 
federal financial participation (FFP) for such a purpose is not available for any 
apartment/housing rental expenses. 
As the HHS Report for the Presidents New Freedom Initiative stated, however, states may 
secure federal matching funds under HCBS waivers for one-time, set-up expenses for individuals 
who make the transition from an institution to their own home or apartment in the community, 
such as security deposits, that do not constitute payment for housing rent.  Page 2  State Medicaid Director 
States may pay the reasonable costs of community transition services, including some or all of 
the following components: 
  Security deposits that are required to obtain a lease on an apartment or home; 
	 Essential furnishings and moving expenses required to occupy and use a community 
domicile; 
  Set-up fees or deposits for utility or service access (e.g. telephone, electricity, heating); 
	 Health and safety assurances, such as pest eradication, allergen control or one-time cleaning 
prior to occupancy. 
By reasonable costs, we mean necessary expenses in the judgment of the state for an individual 
to establish his or her basic living arrangement. For example, essential furnishings in the above 
context would refer to necessary items for an individual to establish his or her basic living 
arrangement, such a bed, a table, chairs, window blinds, eating utensils, and food preparation 
items. We would not consider essential furnishings to include diversional or recreational items 
such as televisions, cable TV access or VCRs. 
States that choose to include community transition services in their HCBS waivers must 
demonstrate that this service, in combination with other services furnished under the waiver, 
would be cost-neutral to the Medicaid program. (In the streamlined HCBS waiver format, this 
cost neutrality is demonstrated in appendix G.) To be eligible for FFP, the service must be 
included in the individuals written plan of care (service plan) and fit within the service 
definitions established by the state. 
For more than three years CMS has awarded Nursing Facility Transition Grants to states in 
which transition costs have been paid from grant funds. Those states found that coverage of 
transition expenses has been manageable, cost-effective and has greatly facilitated the 
expeditious integration of individuals into their communities from prior institutional living 
arrangements. Contacts and other relevant information about those states may be found on the 
CMS website. 
Any questions concerning this letter may be referred to Mary Jean Duckett at (410) 786-3294. 
Sincerely, 
/s/ 
Dennis G. Smith 
Director  Page 3  State Medicaid Director 
cc: 
CMS Regional Administrators 
CMS Associate Regional Administrators

for Medicaid and State Operations

Lee Partridge

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

Acting Director, Health and Human Services Task Force 

American Legislative Exchange Council

Trudi Matthews

Senior Health Policy Analyst

Council of State Governments