Roadmap for Medicaid Reform 
New Options to Support Individuals With Disabilities and Long-Term Care Needs 
 
States can use the DRA as well as other programs, as a strategy to align the Medicaid 
Program with todays health care environment to: 
 
  Expand coverage for individuals with disabilities 
  Increase access to community supports 
  Promote personal responsibility, independence, and choice 
 
For more than a decade, States have been asking for the tools to modernize their Medicaid 
programs.  With the enactment of the Deficit Reduction Act of 2005 (DRA) States now have 
new options to create programs that are more aligned with todays Medicaid populations and the 
health care environment.  Medicaid should keep pace with the people it serves, and nowhere is 
this more clear than in supporting individuals with disabilities and long-term care needs.  About 
one-third of Medicaid spending is for long-term care (projected to be approximately $100 billion 
in FY 2007). 
 
The DRA reflects a growing consensus on transforming the long-term supports provided under 
Medicaid--reforming State programs from being institutionally-based and provider-driven, to 
person-centered and consumer-controlled.  It recognizes the role of Medicaid in supporting 
individuals in their desire to attain and retain independence and self-care in their own homes and 
communities.  It renews the promise of freedom for every individual with a disability or long-
term illness.   The DRA is a long-awaited commitment to independence, choice, and dignity for 
countless Americans who want to have control of their lives, and gives States many of the tools 
they need to rebalance their long-term support programs. 
 
The 8.4 million individuals with disabilities who are enrolled in Medicaid account for 44 percent 
of total Medicaid expenditures ($102 billion in 2003) and the 5.1 million low-income elderly in 
Medicaid account for 24 percent of expenditures ($55.5 billion in 2003).  Of the Medicaid funds 
spent on behalf of individuals with disabilities, 37 percent of Medicaid dollars are for long-term 
care services.  Of the Medicaid funds spent on behalf of aged individuals, 69 percent of Medicaid 
dollars are for long-term care.  Helping individuals remain in their own homes and allowing 
them to make their own choices of providers has been demonstrated to increase consumer 
satisfaction that translates into lower utilization of less appropriate (and higher cost) emergency 
rooms and institutional care.  Helping individuals with disabilities return to the workforce has 
been demonstrated to increase their earnings, while maintaining their access to vital coverage. 
 
Medicaid has absorbed a significant share of the cost of deinstitutionalization, but what are 
provided are more accurately characterized as social services  that are provided under Home and 
Community-Based Services (HCBS) waiver programs. And even in the cases of  HCBS, 
Medicaid is provider-driven with much of the decision-making in the hands of others, who 
through case management determine what services available, the amount of services to be 
provided, and from whom the individual will receive those services. Quality services are more 
likely to be delivered where there is true access and choice.  
  1 Nationally, institutional-based care still accounts for 70 percent of long-term care spending in 
Medicaid.  HCBS waiver programs have been an interim solution of expanding choices while 
creating value.  Between 1999 and 2002, the average nursing home payment increased from 
$19,688 to $22,247, or 13 percent.  By comparison, the average cost per participant in a home 
HCBS waiver increased from $16,083 to $16,437, or 2.2 percent.  But the historical focus on a 
medical model for the provision of HCBS has still often resulted in less efficient and less 
effective service delivery. 
 
To assist individuals with disabilities and our seniors in need of longer term care services and 
supports, with the tools added by the DRA, a State can: 
 
1.  Expand coverage for individuals with disabilities: 
 
  Allow families with disabled children to purchase Medicaid; 
  Adopt health coverage options for working individuals with disabilities; and 
  Help individuals with disabilities return to the workforce and remain independent. 
 
2.  Increase access to community supports so that disabled and elderly individuals have 
true choice of a range of quality options: 
 
  Offer HCBS without waivers;  
  Apply for grants to rebalance their long-term support systems; 
  Apply for Real Choice Systems Change (RCSC) Grants for Community Living; and 
  Apply for demonstration projects to offer home and community-based alternatives to 
psychiatric residential treatment facilities for children. 
 
3.  Promote personal responsibility, independence and choice by helping individuals to 
take control of their long-term support needs, including planning for the future; and to 
make rational, informed choices about all types of health care needs; such as: 
 
  Offering a State plan benefit for self-directed personal care services without a waiver; 
and 
  Opting to participate in the State Long-Term Care Partnership Program. 
 
To expand coverage for individuals with disabilities, a State can:  
 
  Expand coverage to allow families with disabled children to purchase Medicaid 
coverage.  Beginning January 1, 2007, States may choose to allow families (with family 
income up to 300 percent of the Federal poverty level) to buy Medicaid coverage for their 
disabled children.  This flexibility allows States to help working families have access to 
the critical supports Medicaid provides without further financial strain.  States can extend 
this critical life-line to families struggling to make ends meet by charging a sliding-scale 
premium based on family income.  
 
  Create new health coverage options for working individuals with disabilities.  States 
can apply for Ticket to Work and Work Incentives Improvement Act Medicaid 
  2 Infrastructure Grants each year through 2011.  These grants allow working individuals 
with disabilities to buy-in to Medicaid and receive access to critical personal assistance 
and other health and employment services. 
 
  Help individuals with disabilities return to the workforce and remain independent.  
States can continue to apply for a Demonstration to Maintain Independence and 
Employment.  This demonstration, created by section 204 of the Ticket to Work and 
Work Incentives Improvement Act of 1999 (P.L. 106-170), allows States to provide 
benefits to workers who have physical or mental impairments.  The purpose of the 
demonstration is to determine whether and how the provision of medical assistance and 
related services can assist individuals with potentially disabling conditions to remain 
employed and independent of the income assistance programs: Social Security Disability 
Income or Supplemental Security Income.  Applications will be accepted from States 
through June 30, 2006.  
 
As States adopt benchmark plans for non-disabled populations described in the acute care  
roadmap document, States are likely to re-examine their State plan and improve acute care 
benefits for people with disabilities.  The new ability to target benefits that more accurately 
reflects the needs of people with disabilities should result in moving some acute care benefits 
(i.e., additional therapies, higher limits on prescription drugs, durable medical equipment) from 
Home and Community-Based Waiver programs into the State plan.  It should also create new 
opportunities for disease management and care management to improve outcomes for individuals 
with chronic conditions.  
 
To increase access to community supports, States can: 
 
  Offer home and community-based services without waivers.  Beginning January 1, 
2007, States can amend their State plans to offer home and community-based services as 
a State plan optional benefit.  This significant step towards ending the institutional bias 
allows States to offer community-based services to individuals based on their functional 
need, not on their need for institutional care.  This option breaks the eligibility 
requirement that an individual can receive community services only if he or she needs an 
institutional level of care.  Entry into an institution would be more stringent.  This 
fundamental shift in the program recognizes that not everyone wants or needs 
institutional care.  Individuals will be provided individualized care plans based on an 
assessment of needs and may be offered the option of self-directing their care.  States will 
be able to establish the number of individuals served under the home and community-
based State plan option and thus will have necessary control over the development and 
growth of their systems so that they can ensure the success of the programs.  At the same 
time, States will be able to tighten the standard for admission to institutions and refine 
eligibility for home and community-based waiver services without having to request an 
1115 demonstration.  
 
  Apply for grants to rebalance their long-term support system.  The Money Follows 
the Person (MFP) Rebalancing Demonstration supports State efforts to rebalance their 
long-term care support systems by offering $1.75 billion in competitive grants to States 
  3 over 5 years.  With this critical assistance, States will be able to make targeted reforms in 
their State to shore up the community-based infrastructure so that individuals have a 
choice of where they live and receive services.  Specifically, the Federal Government will 
give an MFP-enhanced Federal Medical Assistance Percentage rate for a period of 1 year 
for each person that the State transitions from an institution to the community.  
Demonstration grants will be awarded beginning January 1, 2007, through 2011.  These 
grants will also encourage States to adopt a strategic approach to improving quality in 
both HCBS and nursing homes as the State designs and implements its rebalancing 
initiative. 
 
  Apply for Real Choice System Change (RCSC) Grants for Community Living.  This 
spring, States and other eligible organizations, in partnership with their disability and 
aging communities, may submit proposals to design and construct systems infrastructure 
that will result in effective and enduring improvements in community long-term support 
systems.  With this solicitation, CMS invites proposals for grants totaling more than $20 
million to address critical elements of successful systems transformation, including 
improved access to Long Term Care support services, comprehensive quality 
management, information technology, increased choice and control, and increased access 
to safe and affordable housing.  Since FY 2001, CMS has awarded over 297 grants to all 
50 States, the District of Columbia, and 2 territories, totaling approximately $240 million.   
 
  Apply for demonstration projects to offer home and community-based alternatives 
to psychiatric residential treatment facilities for children.  States can keep families 
together by expanding the availability of HCBS to children under age 21 with serious 
emotional disturbances.  These children would otherwise be removed from their families 
and placed in a psychiatric residential treatment facility in order to receive needed 
services.  In the past, States were unable to develop home and community-based waiver 
programs as an alternative to this institutional care because the law had only permitted 
such programs as an alternative to care in a hospital, nursing facility or intermediate care 
facility, for the mentally retarded.  The Secretary is now authorized to conduct five-year 
demonstration projects in up to 10 States during the period from FY 2007 through FY 
2011.  The proposal appropriates $218 million for the project period, and, of that amount, 
$1 million is made available for required interim and final evaluations and reports.  
 
To promote personal responsibility, independence and choice, States can: 
 
  Offer a State plan benefit for self-directed personal care services without a waiver.  
Individual-controlled budgets provide for the transparency and informed choice believed 
to be vital to improve quality and value.  Self-directed personal care services are 
currently provided through HCBS and section 1115 demonstration waiver programs.  
Indeed, nearly half the States now offer self-direction in some capacity, although self-
direction is still available to only limited numbers of people.  With this new option, self-
directed personal care services, including self-directed personal care services provided by 
family members, can be provided under the State plan.  States will also be able to provide 
items that increase independence or substitute for human assistance.   
 
  4 Thus, States become partners with individuals and their families, friends, and health care 
professionals in creating individualized plans and budgets that will give individuals 
control of their lives.  The persons preferences, choices, and abilities drive how they 
receive services.  In addition, States can incorporate participant direction into an existing 
or a new home and community-based waiver program.  The new application walks States 
through a step-by-step process that enables the use of program design strategies that 
afford participants increased independence, choice, and responsibility for their services.  
 
While States may be concerned that self-direction may be subject to fraud or replace 
parental care with paid care, experiences to date and program evaluations dispel both 
concerns.  The evidence shows that needs assessment tools and use of fiscal agents assure 
accountability and cost effectiveness. 
 
  Opt to participate in the State Long-term Care Partnership Program.  This program 
was established to help individuals take more responsibility in planning for and financing 
their future long-term care needs by purchasing long-term care insurance.  The program 
allows an individual who purchased a qualified policy, but who eventually uses all its 
benefits, to apply for Medicaid without having to spend most of his or her assets first.  
Specifically, an individual will be able to qualify for Medicaid while retaining assets in 
the amount of insurance benefit payments made on their behalf under their insurance 
policy.  These newly protected assets will also be exempted from Medicaid estate 
recovery provisions. 
 
Conclusion 
 
In adopting the new options available under the DRA, States will help families and individuals 
attain or retain capability for independence and self-care and rebalance their long-term support 
programs to make their Medicaid programs more sustainable. 
 
 
 
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