2010 Edition

U.S. Department of Health and Human Services

Office of the Assistant Secretary for Planning and Evaluation

Understanding Medicaid 

Home and Community Services: 

A Primer

Office of the Assistant Secretary for Planning and Evaluation

The Office of the Assistant Secretary for Planning and Evaluation (ASPE) is the principal advisor to the Secretary of the Department of Health and Human Services (HHS) on policy development issues, and is responsible 

for major activities in the areas of legislative and budget development, strategic planning, policy research and 

evaluation, and economic analysis.

ASPE develops or reviews issues from the viewpoint of the Secretary, providing a perspective that is broader 

in scope than the specific focus of the various operating agencies. ASPE also works closely with the HHS 

operating divisions. It assists these agencies in developing policies, and planning policy research, evaluation 

and data collection within broad HHS and administration initiatives. ASPE often serves a coordinating role for 

crosscutting policy and administrative activities.

ASPE plans and conducts evaluations and research—both in-house and through support of projects by external researchers—of current and proposed programs and topics of particular interest to the Secretary, the 

Administration and the Congress.

Office of Disability, Aging and Long-Term Care Policy

The Office of Disability, Aging and Long-Term Care Policy (DALTCP), within ASPE, is responsible for the development, coordination, analysis, research and evaluation of HHS policies and programs which support the independence, health and long-term care of persons with disabilities—children, working aging adults, and older 

persons. DALTCP is also responsible for policy coordination and research to promote the economic and social 

well-being of the elderly.

In particular, DALTCP addresses policies concerning: nursing home and community-based services, informal 

caregiving, the integration of acute and long-term care, Medicare post-acute services and home care, managed care for people with disabilities, long-term rehabilitation services, children’s disability, and linkages 

between employment and health policies. These activities are carried out through policy planning, policy and 

program analysis, regulatory reviews, formulation of legislative proposals, policy research, evaluation and data 

planning.

This report was prepared under contract #HHS-100-03-0025 between HHS’s ASPE/DALTCP and RTI International. 

For additional information about this subject, 

you can visit the DALTCP home page at 

http://aspe.hhs.gov/_/office_specific/daltcp.cfm

or contact the ASPE Project Officer, 

Emily Rosenoff, at HHS/ASPE/DALTCP

Room 424E, H.H. Humphrey Building, 

200 Independence Avenue, S.W., Washington, D.C. 20201

Her e-mail address is: Emily.Rosenoff@hhs.gov

Understanding Medicaid

Home and Community Services: A Primer

2010 Edition

Project Director

Janet O’Keeffe

Co-Authors

Janet O’Keeffe

Paul Saucier

Beth Jackson 

Robin Cooper

Ernest McKenney

Suzanne Crisp

Charles Moseley

Managing Editor

Christine O’Keeffe

ASPE Project Officer

Emily Rosenoff

Dear Reader, 

We are pleased to present this updated version of the Medicaid Home and Community 

Services Primer. Over the past 10 years, the Primer has fulfilled its primary purpose of informing key stakeholders about the statutes and regulations governing the financing and 

provision of Medicaid home and community services. Specifically the Primer was designed:

• To explain how the Medicaid program can be used to expand access to a broad range 

of home and community services and supports for people of all ages with disabilities, 

and to promote consumer authority and control over their services; and

• To encourage a fundamental approach to the support of people with disabilities that 

minimizes reliance on institutions and maximizes community integration in the most 

cost-effective manner.

Medicaid policy has continued to evolve over the last 10 years to better support options 

for community living by people of all ages with disabilities and/or chronic health conditions. The Deficit Reduction Act of 2005 and the Patient Protection and Affordable Care 

Act of 2010 both created new options for states to provide home and community services 

without having to secure a federal waiver. In addition, the Centers for Medicare & Medicaid 

Services (CMS) has made numerous changes to the program to make it easier for individuals to live in the community, such as authorizing coverage of one-time transition expenses 

for home and community-based services (HCBS) waiver participants. 

The current edition of the Primer has been updated to include all relevant statutory, regulatory and other policy changes that have occurred in the last 10 years. Given the significance 

of the recent changes in Medicaid, I believe the Primer will be an ever more useful tool for 

all those working to ensure that people with disabilities can live in the most integrated settings appropriate to their needs. 

This updated version of the Primer would not have been possible without the commitment 

and hard work of many people. In particular I want to recognize and thank the CMS staff 

who took time out of their busy schedules to review each chapter of the Primer to ensure 

that the content was accurate and consistent with current policy. 

As the Medicaid program continues to evolve to better meet the needs of its beneficiaries, 

new policy and clarifications of existing policy will be made subsequent to the publication 

of the Primer. Information about policy changes will be disseminated through State Medicaid Director Letters, the Federal Register, and the State Medicaid Manual, which are available on the CMS website. 

Richard Frank

Deputy Assistant Secretary for Planning and Evaluation 

Disability, Aging, and Long-Term Care Policy

DEPARTMENT OF HEALTH & HUMAN SERVICES Office of the Secretary

Washington, D.C. 20201

Acknowledgments

ASPE acknowledges with gratitude the assistance 

of the Centers for Medicare & Medicaid Services 

in completing the revised Primer. In particular, we 

would like to thank CMS staff who reviewed each 

chapter to ensure technical accuracy and consistency: Mary Sowers, Roy Trudel, Dan Timmel, Kathy 

Poisal, Carey Appold, Peggy Clark, Carrie Smith, Ellen Blackwell, Melissa Harris, Anita Yuskauskas, and 

Kenya J. Cantwell. We also thank CMS for funding 

the development of the appendix on quality management systems.

Table of Contents 

Introduction 

The 2010 Edition of the Primer........................................................................................................................13

Chapter 1

Medicaid Coverage of Home and Community Services: Overview...................................................19

Chapter 2

Financial Eligibility Rules and Options..........................................................................................................37

Chapter 3

Determining Service Eligibility........................................................................................................................63

Chapter 4

Options for Designing Service Coverage: General Considerations....................................................85

Chapter 5

Providing Medicaid Services in Community Residential Settings....................................................123

Chapter 6

Transitioning People from Institutions to the Community.................................................................151

Chapter 7

Participant-Directed Services and Supports............................................................................................175

Chapter 8

Medicaid Authorities for Delivering Home and Community 

Services through Risk-Based Managed Care Systems..........................................................................211

Appendix:

Medicaid HCBS Quality ....................................................................................................................................231

Introduction to the 2010 Edition of the Primer 11

Dedication

Gary Smith, the principal author of the original Primer, 

died in November 2007.

Gary was the preeminent expert on Medicaid Policy and 

was a resource to hundreds of people all over the country: 

researchers, policymakers, Centers for Medicare & Medicaid Services staff, state staff, and advocates. He was always 

generous with his time and his expertise and never let a 

request for help go unanswered. He is greatly missed—as 

a colleague and a friend.

Although millions of people with disabilities have never 

heard his name, his work in public policy has made an 

ongoing positive difference in their lives.

We dedicate this edition of the Primer to his memory.

Introduction to the 2010 Edition of the Primer 13

Introduction to the 2010 Edition of the Primer

The Primer was first published in 2000—one year after the Supreme Court decision in Olmstead v. L.C. affirmed the right of persons with disabilities to live in the most integrated setting (see Box).1

 A major purpose of 

the original Primer was to provide information about how the Medicaid program could be used to assist states 

in meeting the principles set out in the Olmstead decision. 

In the 10 years since the Primer was published, Medicaid policy regarding the provision of home and community services has evolved considerably. During this period, the Centers for Medicare & Medicaid Services (CMS) 

awarded hundreds of grants to support states’ efforts to improve access to—and the availability and quality 

of—home and community services. The grants were also aimed at increasing Medicaid participants’ control 

over their services and supports.2 

The Olmstead Decision3

The Supreme Court ruled that “Unjustified isolation . . . is properly regarded as discrimination based on disability.” 

It observed that (a) “institutional placement of persons who can handle and benefit from community settings 

perpetuates unwarranted assumptions that persons so isolated are incapable or unworthy of participating in 

community life,” and (b) “confinement in an institution severely diminishes the everyday life activities of individuals, including family relations, social contacts, work options, economic independence, educational advancement, 

and cultural enrichment.” 

Under the Court’s decision, states are required to provide community-based services for persons with disabilities 

who would otherwise be entitled to institutional services when (a) the state’s treatment professionals reasonably determine that such placement is appropriate; (b) the affected persons do not oppose such treatment; and 

(c) the placement can be reasonably accommodated, taking into account the resources available to the state and 

the needs of others who are receiving state-supported disability services. The Court cautioned, however, that 

nothing in the Americans with Disabilities Act (ADA) condones termination of institutional settings for persons 

unable to handle or benefit from community settings. Moreover, the state’s responsibility, once it provides 

community-based treatment to qualified persons with disabilities, is not unlimited. 

Under the ADA, states are obliged to “make reasonable modifications in policies, practices, or procedures when 

the modifications are necessary to avoid discrimination on the basis of disability, unless the public entity can 

demonstrate that making the modifications would fundamentally alter the nature of the service, program or activity.” The Supreme Court indicated that the test as to whether a modification entails “fundamental alteration” of 

a program takes into account three factors: the cost of providing services to the individual in the most integrated 

setting appropriate, the resources available to the state, and how the provision of services affects the ability of 

the state to meet the needs of others with disabilities.

The first edition of the Primer emphasized that people of all ages with disabilities want the same opportunities 

that every American wants: to thrive, not just survive. They want to live in their own homes and make decisions about daily activities; they want to go to school, attend church services, work, and participate fully in 

recreational and other community activities. People with disabilities have not always been allowed this birthright; society has too often focused on their disabilities rather than their abilities. 

Over the past 2 decades, and particularly since the Olmstead decision, progress has been made. People with 

disabilities are now recognized as being able to live in their own homes and other community settings, and to 
14 Understanding Medicaid Home and Community Services: A Primer

lead satisfying and productive lives when provided 

with appropriate services and supports. Much remains to be done to enable all persons with disabilities to do so. 

Medicaid: An Evolving Program 

with Considerable State Flexibility

Medicaid is the major source of public funding for 

long-term services and supports provided in home 

and community settings. Medicaid was enacted 

in 1965 as a companion program to Medicare.4 It 

was designed as a joint Federal-state entitlement 

providing primarily medical care to low-income 

Americans.5 When first enacted, Federal Medicaid 

funding for meeting long-term care needs was 

available mainly when individuals were placed in an 

institution (e.g., a nursing home), with few avenues 

for supporting them in their homes and communities. State funds were used to pay for “home care” 

programs, but only on a limited basis.6

In the 45 years since its enactment, Medicaid’s “institutional bias” has been steadily diminished through 

numerous amendments to Federal laws and policy. 

Since the early 1980s, there has been a steady 

increase in the options available to states to secure 

Federal Medicaid funding for comprehensive home 

and community services. The Deficit Reduction Act 

of 2005 (DRA-2005) authorized a new optional State 

Plan authority for states to provide home and community-based services (HCBS) without a waiver, and 

most recently, the Patient Protection and Affordable 

Care Act (hereafter referred to as the Affordable 

Care Act), enacted in 2010, authorized an additional 

optional State Plan authority to provide “Community-based Attendant Services and Supports”—called 

the Community First Choice Option. 

Over the past two decades, states have greatly 

expanded the availability of home and community 

services. The portion of Medicaid long-term care 

spending directed to home and community services has been increasing steadily by one to three 

percentage points each year as states continue to 

invest more resources in alternatives to institutional 

care. In 2009, home and community services accounted for 45 percent of total Medicaid long-term 

care spending.7 Many states are using innovative 

and fiscally responsible methods to enable more 

persons with disabilities to receive necessary services in their communities instead of in institutions.

The Medicaid program provides many options to 

increase the availability of home and community 

services while controlling costs. As states work 

toward the goal of integrating people of all ages 

with all types of disabilities into their communities, 

they may need to go through a process of fundamentally rethinking how programs serving people 

with disabilities are structured and how resources 

are allocated. 

The chapters in this Primer stress that when deciding how best to use the Medicaid program to 

expand the provision of home and community 

services, states need to consider their unique needs, 

resources, and social, political, and economic environments. Additionally, all of these factors must be 

considered in the context of the technological and 

demographic changes driving the need for publicly 

funded long-term care services and supports. 

Key among these changes are advances in medical 

technology that have enabled increasing numbers 

of people with congenital and acquired disabilities to both survive and live longer lives. A second 

change is that the nation’s population is aging. The 

group most likely to need long-term care—people 

over age 85—is estimated to grow from 5.3 million 

in 2006 to nearly 21 million by 2050.8

Moreover, the aging population includes individuals 

who have spent their lives providing informal care 

for adult children with intellectual disabilities and 

other developmental disabilities (ID/DD, hereafter 

referred to as developmental disabilities). Now that 

many individuals with developmental disabilities 

are outliving their parents, an increase in the number needing services and support is expected in the 

coming years.10 Finally, most assistance to people 

with disabilities is provided by informal caregivers, 

typically women. However, continued reliance on 

this support in the coming years may be unrealistic, 

given high rates of women’s labor force participation, smaller families, and geographic mobility. 
Introduction to the 2010 Edition of the Primer 15

Terminology and Definitions

In this Primer, the term “persons with disabilities” includes persons of all ages—young children, adolescents, 

and working age or older adults—with all types of disabilities due to physical and mental impairments and/or 

chronic illnesses. Because the Primer’s focus is on Medicaid home and community services, the term “people with 

disabilities” refers primarily to those individuals who need long-term care services. However, not all persons with 

disabilities need these services.

The service systems for different disability groups use different terms for the same or similar services. For example, the service system for older adults uses long-term care or long-term care services, whereas the service system for people with developmental disabilities uses long-term services and supports or just supports. States also 

vary in their use of terms: personal care is also called personal assistance or attendant care, which is provided by 

personal care providers, personal assistants, personal attendants, and direct care workers, among other names.

To eliminate confusion, the Primer uses terms consistently in all chapters and specifically notes when terms are 

used interchangeably. When discussing a particular state’s service system, or Federal statutes and regulations, 

the Primer uses the specific terms they use. For example, the term home and community-based services is used 

only when referring to Federal statutes, regulations, or programs that use this term. In general, the Primer uses 

the term home and community services or just services and supports.

A law enacted in October 2010 amended provisions of Federal law to substitute the term “an intellectual disability” for “‘mental retardation,” and “individuals with intellectual disabilities” for “the mentally retarded” or “individuals who are mentally retarded.”9

 Intermediate Care Facilities for Persons with Intellectual Disabilities (ICF/

ID) is the new title for the program formerly known as Intermediate Care Facilities for the Mentally Retarded. The 

Primer uses these new terms, except when the former terms are used in the titles of previously published books, 

reports, and articles. 

To ensure brevity without excessive use of acronyms when referring to systems of care, the Primer generally uses 

the shortest term (e.g., long-term care rather than long-term care services and supports).

Finally, many of the Medicaid provisions discussed in the Primer were enacted when the Centers for Medicare & 

Medicaid Services was known as the Health Care Financing Administration (HCFA). Throughout the Primer, the 

current name—CMS—will be used, even when referring to actions the agency made when it was named HCFA. 
16 Understanding Medicaid Home and Community Services: A Primer

Purpose, Audience, and

Organization of the Primer

Medicaid offers a complex and varied set of home 

and community service options—with similarly 

complex rules and regulations—that can be bewildering for policymakers, state officials, advocates, 

and consumers. Even people who have spent years 

working in Medicaid state agencies do not always 

understand its many provisions. The extensive 

flexibility states have to combine these options has 

resulted in considerable variation among states’ 

Medicaid programs. As some wit has put it, “What 

state Medicaid programs have most in common is 

that they are all different.” 

The Primer is designed to encourage states to use 

the Medicaid program to minimize reliance on 

institutions and maximize community integration for people with disabilities in a cost-effective 

manner. Its intended audience is policymakers, 

state Medicaid staff, and all stakeholders who wish 

to understand how Medicaid can be used—and is 

being used—to expand access to a broad range of 

home and community services and supports. In addition to providing comprehensive explanations of 

Medicaid home and community service options, the 

Primer presents examples of states that have used 

them to promote greater community integration of 

people with disabilities. 

The service options reviewed address program 

modifications that states can implement as a State 

Plan option (without a special waiver of Federal 

law), as well as those for which Federal waiver approval must be obtained. While each chapter has 

been written to cover a specific topic, and as such, 

can be read independently of the rest of the Primer, 

it also assumes an understanding of basic Medicaid 

terms and provisions, such as comparability and 

statewideness, mandatory and optional services, 

State Plan and waiver services. Those unfamiliar 

with these basic terms should first read Chapter 1. 

When a topic is covered in depth in one chapter, 

that chapter will be referenced in other chapters 

that address the topic.

Chapter 1 provides a brief overview of the legislative and regulatory history of Medicaid’s coverage of home and community services and current 

spending on these services. 

The next two chapters describe the basic elements 

of Medicaid’s financial and service eligibility criteria.

Chapter 2 provides an explanation of Medicaid’s 

financial eligibility criteria, a complex area of Medicaid law. It first discusses the general eligibility 

criteria that all Medicaid beneficiaries must meet. It 

then focuses on the financial eligibility provisions 

most important for receiving services in home and 

community settings. The chapter also reviews the 

options states can select to ensure that people with 

disabilities can support themselves in home and 

community settings.

Chapter 3 focuses on Medicaid provisions related 

to the health and functional criteria states use to 

determine eligibility for State Plan home health 

services, State Plan personal care services, State Plan 

home and community-based services, and HCBS 

waiver programs. The chapter also discusses how 

states can design service criteria to ensure that they 

appropriately and adequately measure the need 

for services and supports among heterogeneous 

populations.

Chapters 4 and 5 describe service coverage options. 

Chapter 4 presents the major service options for 

providing home and community services to people 

with disabilities. The factors states need to consider 

when choosing among the various options are also 

discussed.

Chapter 5 describes coverage options for providing 

services in a wide range of residential care settings 

that are provider-owned and/or operated, including 

foster care, group homes, and assisted living.

Chapters 6 and 7 focus on key policy goals related 

to coverage of home and community services.

Chapter 6 discusses factors states need to consider 

when developing initiatives to transition institutional residents to home and community settings. It 

also presents ways in which Medicaid can be used 

to facilitate transitions.
Introduction to the 2010 Edition of the Primer 17

Chapter 7 describes Medicaid options to increase 

participants’ choice and control of home and community services.

Chapter 8 describes options for states to provide 

Medicaid home and community services through 

managed care delivery systems. 

An appendix provides an overview of CMS requirements for quality management and improvement 

systems for HCBS waivers. 

To make the Primer as useful as possible, each chapter includes a Resources section that provides information about key publications and links to websites 

from which the reader can obtain more detailed 

information about the chapter’s topic. The endnotes 

for each chapter include not just source citations, 

but additional technical information and—in many 

cases—web links to these citations and information. 

Thus, while the Primer can be read either in hard 

copy or online, the online version enables readers to 

access a considerable amount of additional information.

This Primer has been prepared by the Office of the 

Assistant Secretary for Planning and Evaluation in 

the U.S. Department of Health and Human Services, 

and reviewed for accuracy by CMS staff. Designed 

to serve as a reference guide, it is written in easily 

understood language, but with sufficient annotation of source material to fulfill its technical support 

function. 
18 Understanding Medicaid Home and Community Services: A Primer

Endnotes

Citations, Additional Information, and Web Addresses

1 Olmstead v. L. C., 119 S.Ct. 2176 (1999).

2 The grants were implemented through several programs, primarily the Systems Change Grants for Community Living program.

3 The Olmstead decision interpreted Title II of the ADA and its implementing regulations, which oblige states 

to administer their services, programs, and activities “in the most integrated setting appropriate to the needs 

of qualified individuals with disabilities” (28 CFR 35.130(d)). Information about the application of the Olmstead decision to the Medicaid program is available from the CMS website in State Medicaid Director Letters. 

Available at http://www.cms.hhs.gov/SMDL/SMD/list.asp#TopOfPage. Use the word Olmstead to find the 

relevant letters.

4 P.L. 89-97, Title XIX of the Social Security Act.

5 The Federal Government provides matching funds on an open-ended basis for every dollar a state chooses 

to spend on Medicaid services.

6 Federal funding through specific programs was sometimes available.

7 Citation: Eiken, S., Sredl, K., Burwell, B., and Gold, L. (2010). Medicaid Long-Term Care Expenditures in FY 2009. 

Cambridge, MA: Thomson Reuters. Available at http://www.hcbs.org/moreInfo.php/doc/3326. 

8 U.S. Agency on Aging. Statistics available at http://www.aoa.gov/agingstatsdotnet/Main_Site/Data/2008_

Documents/Population.aspx. 

9 Called Rosa’s Law (Bill S.2781), signed October 5, 2010, by President Barack Obama.

10 Hubert, J., and Hollins, S. (2002). People with Intellectual Disabilities and Their Elderly Caregivers. 

Available at http://www.intellectualdisability.info/life-stages/people-with-intellectual-disabilities-and-theirelderly-carers/?searchterm=People%20with%20Intellectual%20Disabilities%20and%20Their%20Elderly%20-

Caregivers.
Chapter 1: Medicaid Coverage of Home and Community Services: Overview 19

Guide to Chapter 1

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Program Evolution and Current Spending Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Major Features of Medicaid’s Provisions for Home and Community Services. . . . . . . . . . . . . . 23

Mandatory State Plan Services: Home Health. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Mandatory State Plan Services: EPSDT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Optional State Plan Services: Personal Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Optional State Plan Services: Targeted Case Management. . . . . . . . . . . . . . . . . . . . . . . 26

Optional State Plan Home and Community-Based Services. . . . . . . . . . . . . . . . . . . . . . 27

Optional State Plan Services: Community Choice Option. . . . . . . . . . . . . . . . . . . . . . . . . 27

Other Optional State Plan Home and Community Services. . . . . . . . . . . . . . . . . . . . . . . 27

The HCBS Waiver Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

The Katie Beckett Provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

The Program of All-Inclusive Care for the Elderly (PACE). . . . . . . . . . . . . . . . . . . . . . . . . . 30

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . . 35

Chapter 1: Medicaid Coverage of Home and Community Services: Overview 21

Chapter 1

Medicaid Coverage of Home and Community Services: Overview

Long-term care includes a broad range of health and health-related services, personal care, social and 

supportive services, and individual supports. These services can be provided in institutions, an individual’s 

home, or in community settings. This chapter recounts the legislative, regulatory, and policy history of 

Medicaid coverage of long-term care services and supports. Both institutional care and home and community services are described, with the latter in greater detail.1

Introduction

Medicaid is a needs-based, entitlement program that is designed to help states meet the costs of necessary 

health care for low-income and medically needy populations. When a Medicaid State Plan is approved by the 

Centers for Medicare & Medicaid Services (CMS), states qualify to receive Federal matching funds to finance 

Medicaid services (see Box). States have substantial flexibility to design their programs within broad Federal 

requirements related to eligibility, services, program administration, and provider compensation. 

Federal Medical Assistance Percentage (FMAP)

The Federal government’s share of medical assistance expenditures under each state’s Medicaid program, known 

as the Federal medical assistance percentage, is determined annually by a formula that compares 

the state’s average per capita income level with the national average. States with higher per capita incomes are 

reimbursed smaller shares of their costs. By law, FMAP cannot be lower than 50 percent or higher than 83 percent. States are also reimbursed for 50 percent of administrative costs. For fiscal year 2009, the 

FMAP ranged from 50 percent in California and several other states to 75.84 percent in Mississippi.2

Program Evolution and Current Spending Allocations

When enacted, Medicaid was the medical care extension of Federally-funded programs providing cash assistance for the poor, with an emphasis on dependent children and their mothers, elderly persons, and persons 

with disabilities. Legislation in the 1980s expanded Medicaid coverage of low-income pregnant women and 

poor children, and extended coverage to some low-income Medicare beneficiaries who were not eligible for 

cash assistance. From its beginnings as a health care financing program primarily for welfare recipients, the 

Medicaid program has been amended and expanded to cover a wide range of populations and services.

When first enacted, Medicaid’s main purpose was to cover primary and acute health care services, such as doctor visits and hospital stays. Mandatory coverage for long-term care was limited to skilled nursing facility (SNF) 

services for people age 21 or older. States were given the option to cover home health services and private 

duty nursing services. In response to the high costs of nursing facility care, combined with criticism of Medicaid’s institutional bias, states and the Federal government began to look for ways to provide long-term care 

in less restrictive, more cost-effective ways. In 1970, home health services for those entitled to nursing home 

care became mandatory. Since that date, Medicaid has evolved into a program that allows states considerable 

flexibility to cover virtually all long-term care services and supports that people with disabilities need to live 
22 Understanding Medicaid Home and Community Services: A Primer

independently in their homes and in a wide range 

of community residential care settings. 

The Federal Medicaid statute (Title XIX of the Social 

Security Act) generally requires states to specify the 

amount, duration, and scope of each service they 

provide, which must be sufficient to reasonably 

achieve its purposes. States may not place limits on 

services or arbitrarily deny or reduce coverage of 

required services solely because of diagnosis, type 

of illness, or condition—called the comparability 

requirement. 

Generally, a State Plan must be in effect throughout 

an entire state (i.e., the amount, duration, and scope 

of coverage must be the same statewide—called 

the “statewideness” requirement). The Social Security Act has some exceptions, notably (1) states 

operating Section (§)1915(c) home and communitybased services (HCBS) waiver programs (hereafter 

called HCBS waiver programs) are permitted to 

target services by age and diagnosis and can offer 

them on a less than statewide basis, and (2) targeted case management services offered as an optional benefit under the State Plan are not subject to the 

statewideness requirement. (§1115 Research and 

Demonstration waivers can also operate on a less 

than statewide basis.)

By 1999, the year of the Olmstead decision, every 

state was providing home and community services 

under one or more of the available options except 

for §1915(i) (which did not become effective until 

2007). By then, Medicaid had become the nation’s 

major public financing program for long-term care 

for low-income persons of all ages with all types of 

physical and mental disabilities.3

Since 1988, Medicaid spending for home and community services has increased dramatically. In that 

year, expenditures for all long-term care services 

totaled $23 billion. Nearly 90 percent of those dollars paid for institutional services in nursing facilities 

and intermediate care facilities for persons with intellectual disabilities (ICFs/ID). Only 10 percent was 

spent on home and community services (i.e., HCBS 

waivers, personal care, home health, and targeted 

case management).4

In 2008, total Medicaid spending for all long-term 

care services had increased to $106.4 billion. Institutional spending had dropped to 57.3 percent and 

HCBS spending increased to 42.7 percent. The latter 

percentage, however, masks large variations among 

states in the share of spending devoted to home 

and community services and among different populations. For example, in 2008 only 10 states spent 

50 percent or more of their long-term care budgets 

on home and community services. New Mexico and 

Oregon ranked at the top with over 70 percent; Mississippi was at the bottom with 13.9 percent.5

Expansion of home and community services relative 

to institutional services has been particularly pronounced for individuals with intellectual disabilities 

and other developmental disabilities (ID/DD, hereafter called developmental disabilities). In 2008, only 

four states (New Mexico, Washington, Oregon, and 

California) spent more than 50 percent of their Medicaid long-term care budgets on home and community services for the aged and disabled population, 

while 42 states spent at least half of their Medicaid 

long-term care budgets on home and community 

services for individuals with developmental disabilities. As an example, Oregon’s spending on home 

and community services for the ID/DD population 

was 100 percent compared with 53.6 percent for the 

aged and disabled population.

Nationally, in 2008, 35.5 percent of Medicaid’s total 

long-term care expenditures for persons with developmental disabilities were allocated to institutional 

services and 64.5 percent to home and community 

services. The allocation for elderly persons and 

younger persons with physical disabilities was the 

opposite—68.4 percent of total long-term care 

expenditures for institutional services and 31.6 percent for home and community services.6
Chapter 1: Medicaid Coverage of Home and Community Services: Overview 23

Major Features of Medicaid’s Provisions 

for Home and Community Services 

The remainder of this chapter presents a brief overview of the Medicaid law, regulations, and policies 

that give states the flexibility to create comprehensive home and community service systems for people of all ages with all types of physical and mental 

impairments and/or chronic health conditions. To 

provide context for the discussion, Table 1-1 lists 

the major relevant provisions of Medicaid law. This 

chronological summary illustrates the historical 

expansion of Medicaid long-term care services away 

from a primary focus on institutional care. 

Key benefits for providing home and community 

services include both mandatory services such as 

Home Health and optional services such as Personal 

Care and Rehabilitation. Additional Medicaid provisions, such as the HCBS waiver authority, enable 

states to offer a comprehensive range of home and 

community services.

Mandatory State Plan Services:

Home Health 

Since 1970, services under the Home Health benefit 

have been mandatory for people entitled to nursing 

facility care.7 States are mandated to cover nursing 

home care for categorically eligible persons age 21 

or older. This mandate entitles persons age 21 or 

older to nursing facility care. States have the option to cover nursing home care for other Medicaid 

beneficiaries as well, such as persons under age 21. 

If a state chooses to cover persons under age 21, 

they would also be entitled to nursing home care. 

However, being entitled to nursing home care does 

not mean that one is eligible for nursing home care. 

In order to receive Medicaid-covered nursing home 

care, entitled persons must also meet nursing home 

eligibility criteria—called level-of-care criteria.8 (See 

Chapter 3 for additional information about eligibility for services under the Home Health benefit.)

Federal regulations require that Home Health services include nursing, home health aides, medical 

supplies, medical equipment, and appliances suitable for use in the home. States have the option of 

providing additional therapeutic services under the 

Home Health benefit—including physical therapy, 

occupational therapy, and speech pathology and 

audiology services.9 States may establish reasonable 

standards for determining the extent of such coverage using criteria based on medical necessity or 

utilization control.10 In doing so, a state must ensure 

that the amount, duration, and scope of coverage 

are reasonably sufficient to achieve the purpose 

of the service. 11 All Home Health services must be 

medically necessary and authorized by a physician’s 

order as part of a written plan of care.

In 1998, following the ruling of the U.S. Court of 

Appeals for the Second Circuit in DeSario v. Thomas, 

CMS sent a letter to State Medicaid Directors clarifying that states may develop a list of pre-approved 

items of medical equipment as an administrative 

convenience but must provide a reasonable and 

meaningful procedure for beneficiaries to request 

items that do not appear on such a list.12 Home 

Health services are defined in Federal regulation 

as services provided at an individual’s place of 

residence. In 1997, however, the Federal Court of 

Appeals for the Second Circuit ruled in Skubel v. 

Fuoroli that home health nursing services may be 

provided outside the home, as long as they do not 

exceed the hours of nursing care that would have 

been provided in the home.13 (See Chapter 3 for additional information on this ruling.)
24 Understanding Medicaid Home and Community Services: A Primer

TABLE 1-1 Medicaid’s Legislative Provisions Regarding Long-Term Care Services

1965 Establishment of Medicaid14

• Mandatory coverage of SNFs for categorically eligible persons age 21 or older.

• Optional coverage of Home Health services and Rehabilitation services.

1967 Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) mandate for children under age 21.15

States given the option to provide services not covered by their State Plans under EPSDT.

1970 Mandatory coverage of Home Health services for those entitled to SNF services.16

1971 Optional coverage of intermediate care nursing facilities and ICFs/ID.17

1972 Optional coverage of children under age 21 in psychiatric hospitals.18

1973 Option to allow people receiving supplemental security income (SSI) to return to work and maintain 

their Medicaid benefits.19

1981 Establishment of HCBS waiver authority.20

1982 Option to allow states to extend Medicaid coverage to certain children with disabilities who live at home 

but who, until this 1982 provision, were eligible for Medicaid only if they were in a hospital, nursing facility, or ICF/ID. Also known as the Katie Beckett or Tax Equity and Fiscal Responsibility Act (TEFRA) provision.21

1986 Option to cover targeted case management (TCM). States are allowed to cover TCM services without 

regard to statewideness and comparability requirements.22

Option to offer supported employment services through HCBS waiver programs to individuals who had 

been institutionalized some time prior to entering the HCBS waiver program.23

1988 Establishment of special financial eligibility rules for institutionalized persons whose spouse remains in 

the community, to prevent spousal impoverishment.24

1989 EPSDT mandate amended to require states to cover any service a child needs, even if it is not covered 

under the State Plan.25

1993/94 Removal of requirements for physician authorization and nurse supervision for personal care services 

provided under the State Plan. States explicitly authorized to provide personal care services outside the 

individual’s home.26 Personal Care added to the statutory list of Medicaid services. (Personal Care was an 

option since the mid-1970s, when it was established administratively under the Secretary of Health and 

Human Services’ authority.) 

1997 Removal, under the Balanced Budget Act of 1997, of the “prior institutionalization” test as a requirement 

for receiving supported employment services through an HCBS waiver program. Addition of first opportunity for states to create a Medicaid “buy-in” for people with disabilities. Establishment of the Program 

of All Inclusive Care for the Elderly (PACE) as a State Plan option.

1999 Additional options under the Ticket to Work and Work Incentives Act for states to create a buy-in program for people with disabilities and to remove employment barriers.27

2005 Establishment of a new Medicaid State Plan authority for providing HCBS under §1915(i) of the Social 

Security Act, under the Deficit Reduction Act of 2005 (DRA-2005), effective 2007. The DRA-2005 also 

expands options for Medicaid participants to direct their services under HCBS waivers and State Plan 

Personal Care programs, through §1915(j) of the Social Security Act.

2010 Establishment, under the Affordable Care Act of 2010, of a new authority under §1915(k) of the Social 

Security Act, effective October 2011. This authority allows states to provide “Community-based Attendant Services and Supports” under the Community First Choice Option.
Chapter 1: Medicaid Coverage of Home and Community Services: Overview 25

Mandatory State Plan Services: EPSDT

The Federally mandated Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program for 

children from birth until they turn age 21 entitles 

Medicaid-eligible children to services found necessary to diagnose, treat, or ameliorate a defect, 

physical or mental illness, or a condition identified 

by an EPSDT screen. The original 1967 legislation 

gave states the option to cover treatment services 

not covered under the Medicaid State Plan. In 

1989, Congress strengthened the EPSDT mandate 

by requiring states to cover all treatment services 

defined under §1905(a), regardless of whether or 

not those services are covered in their Medicaid 

State Plan.28 As a result, EPSDT programs now cover 

the broadest possible array of Medicaid services, 

including personal care and other services provided 

in the home. 

Optional State Plan Services:

Personal Care 

Since the mid-1970s, states have had the option 

to offer personal care services under the Medicaid 

State Plan. This option was first established administratively under the Secretary’s authority to add coverages over and above those spelled out in §1905 

of the Social Security Act, if such services would 

further the Social Security Act’s purposes. In 1993, 

Congress took the formal step of adding personal 

care to the list of services spelled out in the Medicaid statute.29 (See Chapter 4 for more information 

about the State Plan Personal Care benefit.)

When the Personal Care benefit option was created, 

it had a decidedly medical orientation. The services 

had to be prescribed by a physician, supervised by a 

registered nurse, and delivered in accordance with 

a service plan. Moreover, they could be provided 

only in a person’s place of residence. Generally, the 

personal care services a state offered were for assisting individuals to perform activities of daily living 

(ADLs)—bathing, dressing, eating, toileting, and 

transferring (e.g., from a bed to a chair). Personal 

care workers could provide other forms of assistance (e.g., housekeeping and laundry) only on a 

limited basis and only if they were incidental to the 

delivery of personal care services. 

Starting in the late 1980s, some states sought to 

broaden the scope of personal care services and 

provide them outside the individual’s home in order 

to enable beneficiaries to participate in community 

activities. In 1993, when Congress formally incorporated personal care into Federal Medicaid law, it 

gave states explicit authorization to provide personal care outside an individual’s home.30 Congress 

went even a step further in 1994, allowing states 

to (1) use means other than nurse supervision to 

oversee the provision of personal care services, and 

(2) establish means other than physician prescription for authorizing such services. In November 

1997, CMS issued new regulations concerning 

optional Medicaid State Plan personal care services 

to reflect these statutory changes.31

In January 1999, CMS released a State Medicaid 

Manual Transmittal that thoroughly revised and 

updated guidelines concerning coverage of personal care services. (See the Resources section of 

this chapter for web links to the Medicaid Manual.) 

New Manual materials make clear that personal care 

services may include assistance not only with ADLs 

but also with instrumental activities of daily living 

(IADLs), such as personal hygiene, light housework, 

laundry, meal preparation, transportation, grocery 

shopping, using the telephone, medication management, and money management. Additionally, 

the guidelines clarified that all relatives except 

“legally responsible relatives” (i.e., spouses, and parents of minor children) could be paid for providing 

personal care services to beneficiaries. 

The Manual further clarified that, for persons with 

cognitive impairments, personal care may include 

“cueing along with supervision to ensure the individual performs the task properly.” It also explicitly 

recognized that the provision of personal care services may be directed by the people receiving them. 

Direction by participants includes training and 

supervising personal care attendants. The ability of 

participants to direct their personal care services 

has been a feature of many personal assistance 

programs for many years (both under Medicaid and 

in programs funded only with state dollars). For example, participant direction was built into the Massachusetts Medicaid Personal Care program from its 

inception. Taken together, these ground-breaking 
26 Understanding Medicaid Home and Community Services: A Primer

changes in Federal policy can help pave the way 

for a state to broaden coverage of these services. In 

order to take advantage of these changes, a state 

must amend its State Plan. Neither the statutory 

provisions nor the revised Federal regulations and 

State Medicaid Manual guidelines dictate that a 

state must change the scope of its pre-1993 personal care coverage. 

In 2005, 36 states covered personal care services 

under their Medicaid State Plans.32 The most likely 

explanation for this less than national coverage is 

that some states have elected to cover personal 

care services through more flexible and easy to 

target HCBS waiver programs instead of adding the 

benefit to their State Plan. (See Chapter 4 for a discussion of the various options for covering personal 

care, including their advantages and drawbacks.)

The §1915(j) Authority. The DRA-2005 added 

§1915(j) to the Social Security Act, effective January 

2007.33 This authority permits a state to institute an 

option for participants to have individual budgets 

to purchase non-traditional goods and services 

other than personal care to the extent that expenditures would otherwise be made for human assistance. It also allows states the option to disburse 

cash prospectively to participants who direct their 

services under the State Plan Personal Care benefit 

or an HCBS waiver program. Participants may also 

determine rates of pay for their workers, accumulate 

funds earmarked for the purchase of a specific item 

designed to increase independence or substitute for 

human assistance, and work with a fiscal intermediary to perform payroll and tax functions—called the 

“budget authority.” Absent the §1915(j) authority, 

participant direction of Medicaid State Plan personal care services is limited to hiring, supervising, 

and dismissing (if needed) their workers—called the 

“employer authority.” 

States may use the §1915(j) authority only in programs already offered under its Medicaid State Plan 

or an HCBS waiver (i.e., states may not offer the specific participant-directed services options under the 

§1915(j) authority except in an existing State Plan 

Personal Care program or HCBS waiver program). 

(See Chapter 7 for a detailed description of this new 

authority and a discussion of participant-directed 

service options—also called self- or consumer-directed—that can be offered under several Medicaid 

authorities.)

Optional State Plan Services: 

Targeted Case Management

Until 1986, the only practical avenue available for a 

state to secure Medicaid funding for freestanding 

case management services (i.e., case management 

services not delivered as part of some other service 

or conducted in conjunction with the state’s operation of its Medicaid program) was through an HCBS 

waiver program. Coverage of case management services in HCBS waiver programs was nearly universal 

at that time. 

In 1986, Congress created an option for states to 

cover what were termed “targeted case management” services under their State Plan.34 The expressed statutory purpose of targeted case management is to assist Medicaid recipients in “gaining 

access to needed medical, social, educational, and 

other services.” This optional benefit is exempt from 

the comparability requirement to make services 

available to all recipients. A state is permitted to 

amend its State Plan to cover case management 

services for one or more specified groups of Medicaid recipients (hence the term targeted). It may also 

offer these services on a less-than-statewide basis 

(through a State Plan amendment instead of securing a waiver).35

Given the expressed statutory purpose of the benefit—to assist individuals to obtain services from a 

wide variety of public and private programs—the 

scope of services a state may furnish through the 

targeted case management option is relatively 

broad. In addition to assessment and service/

support planning, referrals, and monitoring the 

delivery of services and supports to ensure they are 

meeting a beneficiary’s needs, covered activities 

include assistance in obtaining food stamps, emergency housing, or legal services. (See Chapter 4 for 

more information about this benefit.) 
Chapter 1: Medicaid Coverage of Home and Community Services: Overview 27

Optional State Plan Home and

Community-Based Services36 

The DRA-2005 added §1915(i) to the Social Security 

Act, which was amended by the Patient Responsibility and Affordable Care Act of 2010. The §1915(i) authority gives states the option to offer a wide range 

of home and community-based services without 

having to secure Federal approval of a waiver. The 

§1915(i) authority provides states an opportunity to 

offer services and supports before individuals need 

institutional care, and also provides a mechanism to 

provide State Plan HCBS to individuals with mental 

health and substance use disorders.

Unlike other State Plan services, under §1915(i), 

states may design service packages without regard 

to comparability.37 States may offer HCBS to specific, 

targeted populations and offer services that differ in 

amount, duration, and scope to specific population 

groups, including eligibility groups as authorized 

under §1915(i)(6)(c), either through one or multiple 

§1915(i) service packages. Services must be available statewide. 

Optional State Plan Services:

Community Choice Option38

The Affordable Care Act added §1915(k) to the 

Social Security Act, effective October 2011, which 

allows states to provide “Community-based Attendant Services and Supports”—called the Community First Choice Option. Under §1915(k), states 

that provide home and community-based attendant services and supports through their State 

Plans under this option will receive a six percentage 

points higher Federal match. Individuals must be 

eligible for Medicaid under the State Plan and have 

an income that does not exceed 150 percent of the 

Federal Poverty Level, or, if their income is greater, 

they must meet institutional level-of-care criteria. 

CMS plans to issue a Notice of Proposed Rule Making related to this provision of the Affordable Care 

Act in early 2011.

Other Optional State 

Plan Home and Community Services

When Medicaid was enacted, states were given the 

option of covering a wide range of services, several 

of which can be provided in home and/or community settings. They include rehabilitation services, 

private duty nursing, physical and occupational 

therapy, and transportation services. In 2000, every 

state provided at least one optional service. 

The Rehabilitation option, in particular, offers states 

the means to provide a range of supportive services 

to people in home and community settings. Medicaid defines rehabilitation services as any medical 

or remedial services recommended by a physician 

or other licensed practitioner of the healing arts for 

maximum reduction of physical or mental disability, and restoration of a recipient to his or her best 

possible functional level.39 Rehabilitation services 

can be provided to people with either physical or 

mental disabilities. 

The Rehabilitation option is a very flexible benefit, 

because services may be furnished either in the 

person’s residence or elsewhere in the community. Many states cover psychosocial rehabilitation 

services, which—when combined with personal 

care and targeted case management services—can 

meet a wide range of service and support needs for 

persons who have a serious mental illness. In 2005, 

46 states used the Rehabilitation option to provide 

services for persons with a serious mental illness; 

33 states used the Rehabilitation option to provide 

other services.40
28 Understanding Medicaid Home and Community Services: A Primer

Optional Institutional Services

The 1971 addition of the option to cover services provided by intermediate care nursing 

facilities, called intermediate care facilities (ICFs), 

and ICFs/ID, moved the Medicaid program into 

financing additional nursing home care and 

institutional services for the ID/DD population. 

States adding optional institutional coverage of 

ICFs/ID could receive Federal matching funds to 

help finance services for persons with developmental disabilities, which had previously been 

supportable only with state funds. 

Likewise, states adding optional coverage of 

ICFs could receive Federal matching funds to 

help finance a non-skilled level of nursing care 

(which had previously been supportable only 

with state funds). Over the next few years, every 

state and the District of Columbia chose to cover 

ICFs and ICFs/ID in their State Plan. 

The option to cover nursing ICFs and ICF/IDs assumed greater importance after 1981, when the 

waiver authority was created. This was because 

§1915(c) waiver services can be provided only 

insofar as they provide an alternative to institutional care.41 (In 1987, Congress abolished the 

distinction between SNFs and ICFs. Nursing facilities were mandated to provide both a skilled 

and intermediate level of care.)

The Rehabilitation option is not generally used 

to furnish long-term care to individuals with disabilities or chronic health conditions other than 

mental illness. During the 1970s and 1980s, a few 

states secured approval to cover daytime services 

for persons with developmental disabilities under 

either the Clinic or the Rehabilitation option. However, CMS ultimately ruled that the services being 

furnished were habilitative rather than rehabilitative and consequently could not be covered under 

either option by additional states. The main basis for 

the ruling was that habilitative services could only 

be furnished to residents of ICFs/ID under the Medicaid State Plan or through an HCBS waiver program 

for individuals otherwise eligible for ICF/ID services. 

States with existing programs serving individuals 

with intellectual disabilities and other developmental disabilities were grandfathered under the 

Omnibus Reconciliation Act (OBRA) of 1989.

A few states have maintained their State Plan coverage of these services; others have terminated them 

in favor of offering similar services through an HCBS 

waiver program.42 With the creation of the new 

HCBS State Plan option under the §1915(i) authority, states may now cover habilitation as a home and 

community-based service under the State Plan. 

The HCBS Waiver Authority

In 1981, Congress authorized the waiver of certain 

Federal requirements to enable states to provide 

home and community services (but not room and 

board) to individuals who would otherwise require 

institutional services reimbursable by Medicaid (i.e., 

services in a skilled nursing facility, an intermediate care nursing facility, or an ICF/ID). The waiver 

programs are often called §1915(c) waivers (named 

after the section of the Social Security Act that 

authorized them), but are also called HCBS waivers, 

the term used in this Primer.43

Under the §1915(c) waiver authority, states can 

provide services not usually covered by the 

Medicaid program, as long as these services are 

required to prevent institutionalization. Services 

covered under waiver programs include case management, homemaker, home health aide, personal 

care, adult day health, habilitation, respite care, and 

“such other services requested by the state as the 

Secretary of Health and Human Services (HHS) may 

approve.” Services for individuals with a chronic 

mental illness were added in the late 1980s: “day 

treatment or other partial hospitalization services, 

psychosocial rehabilitation services, and clinic services (whether or not furnished in a facility).”

Neither the statute itself nor CMS regulations 

further specify or define the scope of the listed 

services. However, the law that created the waiver 

program expressly permits the Secretary of HHS to 

approve services beyond those specifically spelled 

out in the law, as long as they are necessary to avoid 

institutionalization and are cost-effective. In the 

29 years since the waiver authority became available, CMS has approved a wide range of additional 

services. 
Chapter 1: Medicaid Coverage of Home and Community Services: Overview 29

In the early 1990s, CMS first issued a standard HCBS 

waiver application format for states to submit 

requests to operate an HCBS waiver program. The 

standard format included definitions of services 

states commonly cover in their HCBS waiver programs. The services listed in the standard format appear there because they are included in the listing 

contained in the statute, or are additional services 

that states frequently offer. 

In 2005, CMS extensively modified its standard 

§1915(c) application to obtain greater detail about 

how the proposed program would operate. States 

must now provide specific information about how 

their programs comply with Federal standards, as 

well as detailed information about their quality improvement systems. Beginning in 2006, CMS began 

offering a web-based version of the application. The 

conversion to a web-based application streamlines 

the preparation of waiver applications and amendments, and improves communication between 

states and CMS about waiver requests. 

The Waiver Application Instructions represent the 

most current guidance related to HCBS waivers. The 

instructions provide CMS-suggested definitions 

of services that states may cover under their HCBS 

waiver programs—identified as Core Service Definitions. The services a state may offer are by no means 

limited to those that appear in the standard format, 

nor are the proposed definitions required. (See the 

Resources section of this chapter for a link to all approved HCBS waivers and a link to the online waiver 

application and technical guidance document.)

During Federal fiscal year (FFY) 2008, 48 states and 

the District of Columbia operated 314 HCBS waiver 

programs. This number includes waivers that CMS 

had approved but that had not yet been implemented as of September 30, 2008. The two states 

that did not have HCBS waivers—Arizona and Vermont—provided similar services as part of Research 

and Demonstration waivers authorized by §1115 of 

the Social Security Act.44

Expenditures for waiver services totaled $30 billion in 2008 and roughly three-fourths was used to 

purchase services and supports for persons with 

developmental disabilities, including persons with 

autism spectrum disorders or intellectual disabilities.45 Almost all other waiver expenditures in the 

same year were for older adults and younger adults 

with physical disabilities; a few smaller population 

groups accounted for the remaining waiver expenditures.46

The Katie Beckett Provision

The Katie Beckett provision is in a statute—the 

Tax Equity and Fiscal Responsibility Act 134—and 

was added to Medicaid in 1982. Katie Beckett is 

the name of the child whose parents petitioned 

the Federal Government for her to receive Medicaid services at home instead of in a hospital, and 

whose plight led the Reagan Administration to urge 

Congress to enact the provision. Prior to enactment, 

if a child with disabilities lived at home, the parents’ 

income and resources were automatically counted 

(deemed) as available for medical expenses. However, if the same child was institutionalized for 30 

days or more, only the child’s own income and resources were counted in the deeming calculation—

substantially increasing the likelihood that a child 

could qualify for Medicaid. This sharp divergence in 

methods of counting income often forced families 

to institutionalize their children simply to obtain 

medical care for them. 

TEFRA 134 amended the Medicaid statute to give 

states the option to waive the deeming (i.e., counting) of parental income and resources for children 

under 18 years old who were living at home but 

would otherwise be eligible for Medicaid-funded 

institutional care. Not counting parental income enables these children to receive Medicaid services at 

home or in other community settings. Many states 

use this option, which requires them to determine 

that (1) the child needs the level of care provided 

in an institution, (2) it is appropriate to provide care 

outside a facility, and (3) the cost of care at home is 

no more than the cost of institutional care. In states 

that use this option, parents may choose either 

institutional or community care for their Medicaideligible children. 
30 Understanding Medicaid Home and Community Services: A Primer

The Program of All-Inclusive Care 

for the Elderly (PACE)

The Program of All-Inclusive Care for the Elderly—

authorized by the Balanced Budget Act of 1997 

(BBA-97)—is a capitated program that features a 

comprehensive service delivery system that integrates Medicare and Medicaid financing. The 

BBA-97 established the PACE model of care as a 

permanent method for organizing service delivery 

within the Medicare program, and enables states 

to provide PACE services to Medicaid beneficiaries. 

Participants must be at least 55 years old, eligible 

for Medicare or Medicaid or both, and certified as 

meeting a state’s nursing home level-of-care criteria. 

For most participants, the comprehensive service 

package permits them to continue living at home 

rather than be admitted to an institution. 

In 2009, 72 PACE programs were operating in 30 

states. The State Plan must include PACE as a Medicaid benefit before the state and the Secretary of 

HHS can enter into program agreements with PACE 

providers. Participants must be at least 55 years old, 

live in the PACE service area, and be certified as eligible for nursing home care by the appropriate state 

agency. The PACE program becomes the sole source 

of services for persons dually eligible for Medicare 

and Medicaid who choose to enroll.

An interdisciplinary team, consisting of professional 

and paraprofessional staff, assesses participants’ 

needs, develops service plans, and delivers all 

services (including primary and acute health care 

services, home and community services, and when 

necessary, nursing facility services). Financing for 

these services is integrated to promote a seamless 

system of care. PACE programs provide social and 

medical services primarily in an adult day health 

center, supplemented by in-home and other services in accordance with participants’ needs. The 

PACE service package must include all Medicare 

and Medicaid covered services, and other services 

determined necessary by the interdisciplinary team 

for the care of the PACE participant. (See Chapter 8 

for more information about the PACE program and 

other Medicaid managed care options.)

This brief overview of Medicaid’s statutory, regulatory, and other policy provisions related to home 

and community services provides a context for 

more detailed discussions in the chapters to come. 

Some of the institutional bias that remains in the 

program can be changed only by Congressional 

amendment of Medicaid law (e.g., changing home 

and community-based services from an optional to 

a mandatory benefit). But numerous provisions give 

state policymakers considerable freedom in designing their home and community service system to fit 

their state’s particular needs. They have the option, 

in particular, to eliminate use of more restrictive 

financial criteria for waiver services than for institutional care. They also have considerable flexibility to 

create consumer-responsive systems that facilitate 

home and community living. 

In the next several decades, as already noted, the 

U.S. population will age dramatically. Even if disability rates among older persons decline, more 

people will need long-term care services than at any 

other time in our nation’s history. Institutional care 

is costly. Given the projected demand for long-term 

care, it is advisable for states to continue working 

to create comprehensive long-term care service 

systems that will enable people with disabilities 

and/or chronic health conditions—whatever their 

age or the severity of their condition—to live in 

their homes and community settings rather than in 

institutions. 

The Medicaid program can be the centerpiece of 

such a system—allowing states numerous options 

to provide home and community services that 

keep costs under control at the same time that they 

enable people of all ages with disabilities and/or 

chronic health conditions to retain their independence and dignity. 
Chapter 1: Medicaid Coverage of Home and Community Services: Overview 31

Resources

Since the Primer was first published in 2000, numerous reports and other resources have become available 

on the Internet. This section includes key publications and Internet resources regarding Medicaid longterm care generally and home and community services specifically. Most of the publications cite additional resources, and the websites also have links to other sources of information.

Publications

Houser, A., Fox-Grage, W., and Gibson, M. (2009). Across the States 2009: 

Profiles of Long-Term Care and Independent Living. Washington, DC: AARP Public Policy Institute.

This report is the eighth edition of the AARP Public Policy Institute’s state long-term care reference report. 

Published approximately every 2 years, the Across the States series was developed to help inform policy discussions among public and private sector leaders in long-term care throughout the United States. Across the 

States 2009 presents comparable state-level and national data for more than 140 indicators, drawn together 

from a wide variety of sources into a single convenient reference. This publication presents the most up-todate data available at the time of production, and is displayed in easy-to-use maps, graphics, tables, and state 

profiles.

Available at http://www.hcbs.org/moreInfo.php/doc/2536

Centers for Medicare & Medicaid Services. (2008). Application for a §1915(c) Home and Community-Based 

Waiver [Version 3.5]: Instructions, Technical Guide and Review Criteria. Baltimore, MD: USDHHS.

This publication contains extensive information concerning Federal policies that apply to the operation of an 

HCBS waiver as well as technical guidance for completing the application. 

Available at https://www.hcbswaivers.net/CMS/faces/portal.jsp under links and downloads, entitled §1915(c) 

Waiver Application and Accompanying Materials. 

CMS State Medicaid Director Letter (November 19, 2009). Implementation of §6087 of the Deficit Reduction 

Act of 2005 Regarding §1915(j) of the Social Security Act.

This letter provides guidance on the implementation of §6087 of the Deficit Reduction Act of 2005, Public 

Law Number 109-171. Section 6087, the “Optional Choice of Self-Directed Personal Assistance Services (Cash 
32 Understanding Medicaid Home and Community Services: A Primer

and Counseling),” amended §1915 of the Social Security Act by adding a new subsection (j). The guidance also 

applies to §1915(c) HCBS waiver programs when states offer a self-direction option and permit participants to 

purchase “individual directed goods and services.” The letter offers information on (1) Background, (2) Medicaid Authorities, (3) Criteria, (4) Support and Monitoring, and (5) Compliance with the Guidance. 

Available at http://www.cms.hhs.gov/SMDL/SMD/ItemDetail.asp?ItemID=CMS1230894

The Kaiser Commission on Medicaid and the Uninsured. (2009). Medicaid Home and Community-Based Service Programs: Data Update. Washington, DC: Kaiser Family Foundation.

This report presents a summary of the main trends to emerge from an analysis of the 2006 expenditures and 

participant data for the three main Medicaid home and community service programs: optional §1915(c) HCBS 

waivers, the mandatory Home Health benefit, and the optional State Plan Personal Care benefit. It also presents survey findings about various features of the three programs, such as eligibility criteria, waiting lists, and 

provider reimbursement rates for the Home Health benefit and the Personal Care benefit. 

Available at http://www.kff.org/medicaid/7720.cfm

National Association of State Medicaid Directors. (2007). State Perspectives on Emerging Medicaid LongTerm Care Policies and Practices. Washington, DC: American Public Human Services Association.

The purpose of this survey analysis is to provide states with an overview of state implementation of the DRA2005 options and other long-term care policies and practices. Findings address a range of issues, including 

eligibility, Children with Disabilities, Money Follows the Person, HCBS State Plan Amendments, Transition from 

Institutions, Managed Care, State Plan Amendment for Personal Care Services, Cash & Counseling, Care Coordination, Disease Management, and Long-Term Care Reform. 

Available at http://www.hcbs.org/moreInfo.php/doc/2094
Chapter 1: Medicaid Coverage of Home and Community Services: Overview 33

Websites

The following websites provide information about Medicaid, long-term care services and supports, or home 

and community services. This list is not inclusive of all the resources available on the Internet, but provides a 

good starting point for finding information. 

Federal Government

Centers for Medicare & Medicaid

General: Links to Programs and Information

Web address: http://www.cms.hhs.gov/default.asp

Specific: Links to Regulations and Guidance

1. Program transmittals are used to communicate new or changed policies and/or procedures that are 

being incorporated into a specific CMS program manual. The cover page (or transmittal page) summarizes the new changed material, specifying what is changed. 

Available at http://www.cms.hhs.gov/Transmittals/

2. The CMS Online Manual System is used by CMS programs, partners, contractors, and State Survey 

Agencies to administer CMS programs. It offers day-to-day operating instructions, policies, procedures 

based on statutes and regulations, guidelines, models, and directives. In 2003, CMS transformed the 

CMS Program Manuals into a web user-friendly presentation and renamed it the CMS Online Manual 

System. 

Available at http://www.cms.hhs.gov/Manuals/01_Overview.asp

3. Paper-based manuals are CMS manuals that were officially released in hardcopy. The majority of these 

manuals were transferred into the Internet-only manual or retired from the manual. The State Medicaid Manual is still an active paper-based manual. 

Available at http://www.cms.hhs.gov/Manuals/PBM/itemdetail.asp?filterType=none&filter

ByDID=-99&sortByDID=1&sortOrder=ascending&itemID=CMS021927&intNumPerPage=10

4. The State Medicaid Director and State Health Official letters are used to provide states with guidance 

and clarification on current information pertaining to Medicaid policy, Medicaid data issues, and State 

Children’s Health Insurance Program policy. The intent of these letters is not to establish policy, but to 

ensure consistency and better serve the states. 

Available at http://www.cms.hhs.gov/SMDL/

5. CMS maintains a database of every state’s approved waiver applications under various authorities, for 

example, §1915(c), §1915(b), and §1115. Users can access fact sheets, copies of proposals, approval 

letters, and other documents related to specific programs. 

Available at http://www.cms.hhs.gov/MedicaidStWaivProgDemoPGI/%2008_WavMap.asp
34 Understanding Medicaid Home and Community Services: A Primer

Administration on Aging, Home & Community Based Long-Term Care 

Web address: http://www.aoa.gov/AoARoot/AoA_Programs/HCLTC/index.aspx

Office of the Assistant Secretary for Planning & Evaluation, 

Office of Disability, Aging, and Long-Term Care Policy

Web address: http://aspe.hhs.gov/_/office_specific/daltcp.cfm

State Associations, Other Associations, and Foundations 

American Public Human Services Association

Web address: http://www.aphsa.org/Home/home_news.asp

Kaiser Family Foundation

Web address: http://www.kff.org

National Academy for State Health Policy

Web address: http://www.nashp.org/ 

National Association of State Medicaid Directors 

Web address: http://www.nasmd.org/Home/home_news.asp

National Association of State Mental Health Directors

Web address: http://www.nasmhpd.org/ 

National Association of State Directors of Developmental Disabilities Services 

Web address: http://www.nasddds.org/index.shtml

National Conference of State Legislatures

Web address: http://www.ncsl.org/default.aspx?tabid=14489

Robert Wood Johnson Foundation

Web address: http://www.rwjf.org/

State and Local Governments on the Web

Web address: http://www.statelocalgov.net/

The Clearinghouse for Home and Community Based Services promotes the development and expansion of 

home and community services by gathering resources and tools for research, policymaking, and program development into this one-stop website. The site has over 2,000 resources that users can browse using the site’s 

search engine. 

Web address: http://www.hcbs.org
Chapter 1: Medicaid Coverage of Home and Community Services: Overview 35

Endnotes: Citations, Additional Information,

and Web Addresses

1 Gary Smith and Janet O’Keeffe co-authored the original chapter. Janet O’Keeffe updated the chapter. In 

addition to the sources noted in the citations, a major source of historical information for this chapter is the 

Medicaid Source Book: Background Data and Analysis (1993). Washington, DC: U.S. Government Printing Office. 

2 Overall, the Federal Government finances an average of 57 percent of all Medicaid costs annually. National 

Health Policy Forum. (January 2009). The Basics, FMAP: The Federal Share of Medicaid Costs. Available at

http://www.nhpf.org/library/the-basics/Basics_FMAP_01-15-09.pdf.

3 The Olmstead Supreme Court decision increased state responsibility to provide a range of home and community service options. The Court ruled that states must provide services in the most integrated setting 

appropriate to the needs and wishes of people with disabilities. Failure to do so could constitute discrimination under the Americans with Disabilities Act. Information about the application of the Olmstead decision 

to the Medicaid program is available from the CMS website in State Medicaid Director Letters. Use the word 

Olmstead to find the relevant letters. Available at http://www.cms.hhs.gov/SMDL/SMD/list.asp#TopOfPage.

4 Burwell, B. (2000). Memorandum: Medicaid Long-Term Care Expenditures in FY 1999. Cambridge, MA: The 

MEDSTAT Group.

5 Burwell, B., Sredl, K., and Eiken, S. (2009). Medicaid Long-Term Care Expenditures in FY 2008. Cambridge, MA: 

Thomson Reuters. Available at http://www.hcbs.org/moreInfo.php/doc/2793.

6 Eiken, S., and Burwell, B. (2009). Medicaid HCBS Waiver Expenditures: FY 2003 through FY 2008. Cambridge, 

MA: Thomson Reuters. Available at http://www.hcbs.org/moreInfo.php/doc/2795.

7 Section 1902(a)(10)(d) of the Social Security Act. If a state chooses to cover nursing facility care for the medically needy, Home Health services become mandatory for this group as well.

8 The coverage criterion for Home Health services is often misunderstood because it is linked to the coverage 

criterion for nursing homes. The confusion has arisen because the term entitled to nursing facility care has 

sometimes been erroneously interpreted to mean that people must be eligible for nursing facility care—that 

is, they must meet a state’s nursing facility level-of-care criteria in order to receive the Home Health benefit. 

This erroneous interpretation has persisted, notwithstanding its conflict with Federal Home Health regulations prohibiting a state from conditioning eligibility for Home Health services on the need for or discharge 

from institutional care (42 CFR 441.15(c)).

9 42 CFR 440.70(b).

10 42 CFR 440.230(d).

11 42 CFR 440.230(b)

12 Health Care Financing Administration. (September 4, 1998). Letter to State Medicaid Directors. Available at 

http://www.cms.hhs.gov/smdl/downloads/SMD090498.pdf.

13 Skubel v. Fuoroli. (No. 96-6201). United States Court of Appeals, Second Circuit. Decided May 13, 1997.
36 Understanding Medicaid Home and Community Services: A Primer

14 Social Security Amendments of 1965 (P.L. 89-97).

15 Social Security Amendments of 1967 (P.L. 90-248).

16 P.L. 90-248, effective July 1970.

17 Act of December 14, 1971 (P.L. 92-223).

18 Social Security Amendments of 1972 (P.L. 92-603). This institutional coverage provides the “institutional alternative” for waiver services for this group.

19 Section 1619 P.L. 96-265 of the Social Security Act.

20 Omnibus Budget Reconciliation Act of 1981 (OBRA 81, P.L. 97-35).

21 P.L. 103-66. Section 13601 (a1/5)8. Section 134 of TEFRA contains the amendment.

22 Consolidated Omnibus Reconciliation Act of 1985 (P.L. 99-272). The provision became effective April 1986.

23 Ibid.

24 Medicare Catastrophic Coverage Act of 1988 (P.L. 100-360).

25 Omnibus Reconciliation Act of 1989.

26 Omnibus Reconciliation Act of 1993. Section 13601 (a1/5)8 (P.L. 103-66). The changes took effect on October 1, 1994. In November 1997, CMS issued new regulations (42 CFR 440.167) concerning optional Medicaid 

State Plan personal care services to reflect these statutory changes.

27 P.L. 106-170.

28 Omnibus Reconciliation Act of 1989.

29 The Omnibus Budget Reconciliation Act of 1993 (§13601(a)(5)); Social Security Act (§1905(a)(24)). 

30 Individuals who reside in institutions—nursing facilities, ICFs/ID, hospitals, and institutions for mental disease—cannot receive personal care services through the Personal Care benefit.

31 42 CFR 440.167.
Chapter 2: Financial Eligibility Rules and Options 37

Guide to Chapter 2

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Overview of Medicaid Financial Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Medicaid for SSI Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

General Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Exceptions to the General Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

State 209(b) Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Medicaid Exceptions to SSI Countable Income and Resources Rules. . . . . . . . . . . . . . . . . . . . . . 44

Eligibility Expansion Options Including, but Not Specific to, 

Home and Community Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

100 Percent of Poverty Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Medically Needy Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Eligibility Expansion Options That Can Be Targeted to 

Persons Needing Home and Community Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

State Supplemental Payments (SSPs). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

300 Percent of SSI Income Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Preventing Spousal Impoverishment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Income Protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Resource Protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Provisions Specific to Children with Disabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Zebley Kids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Katie Beckett Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Reducing Financial Barriers to Employment for Persons with Disabilities. . . . . . . . . . . . . . . . . 53

Federal Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

State Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Asset/Resource Transfers: Permissions and Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Structure of the Penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Permissible Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Estate Recoveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Disqualification for Long-Term Care Medicaid Coverage for Individuals with Substantial 

Home Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . . 60

Chapter 2: Financial Eligibility Rules and Options 39

Chapter 2

Financial Eligibility Rules and Options

This chapter describes Federal requirements and state options regarding financial eligibility for Medicaid, 

with a focus on eligibility for long-term care services and supports.1

Introduction

As originally conceived, the Medicaid program was to have served primarily the very poor and near poor who 

qualified or were close to qualifying for cash welfare programs. It was to have functioned much like private 

health insurance, with service coverage focused on primary and acute health care needs. Over time, Federal 

and state actions have expanded Medicaid’s authority, the scope of its coverage of long-term care services, 

and its eligibility options for beneficiaries who do not meet the traditional welfare-based definition of “poor.” 

By the end of its first decade, Medicaid had become a major source of public funding for institutional longterm care. By the end of its third decade, it had become the major public funder of home and community 

long-term care services as well. 

Medicaid’s role in financing long-term care has developed in sporadic increments—often in reaction to problems occupying center stage at a particular time. As a result of incremental policymaking combined with vast 

variations in how states cover long-term care, the various facets of Medicaid’s financial eligibility provisions 

may appear to be disjointed. In particular, there are many provisions with major eligibility discontinuities—

wherein a slight change in individuals’ personal circumstances can result in huge differences in the kinds (and 

levels) of benefits they are eligible for. As a result, individuals in similar circumstances can be treated differently. The purpose of this chapter is to present the relevant provisions in a way that is most useful to state 

policymakers and advocates.

Overview of Medicaid Financial Eligibility

Medicaid financial eligibility provisions are deeply rooted in two Federally financed cash assistance programs 

to help support low-income individuals and families: the former Aid to Families with Dependent Children 

(AFDC) program, which provided income support for low-income families with children, and the Supplemental 

Security Income (SSI) program for the “Aged, Blind, and Disabled.”2 (In 1996, welfare reform legislation replaced 

AFDC with a new program, Temporary Assistance for Needy Families [TANF].) 

Like AFDC/TANF and SSI, Medicaid is a means-tested entitlement program. That is, anyone qualifies for Medicaid if (a) their income and assets do not exceed the state thresholds specific to their eligibility group, and 

(b) they meet all other relevant eligibility criteria. Medicaid eligibility rules fall into two basic sets: categorical 

and financial. The categorical set defines particular categories of persons for whom Federal law permits coverage. Individuals needing long-term care services generally fall into one of three Medicaid categories: aged 65 

or older, blind, or under age 65 with a disability. 
40 Understanding Medicaid Home and Community Services: A Primer

Services for Medicaid-Eligible Persons

The highlights of Medicaid benefits listed here provide a general context for the financial eligibility discussion in 

this chapter. (For a more detailed discussion, see Chapter 4 and Chapter 5.)

• Once determined eligible for Medicaid, beneficiaries are entitled to the full range of health and long-term 

care Medicaid services covered in their state. To receive long-term care services, however, they must also 

meet service eligibility criteria. 

• Medicaid health care coverage (e.g., hospital, physician, or prescription drug services) can be extremely 

important to persons who need long-term care services, especially if they do not have Medicare or private 

health insurance to cover these expenses.

• Medicaid services for children can be more extensive than Medicaid services for adults or than services typically covered under private insurance policies.

• Medicare and Medicaid cover many of the same health services (e.g., hospital, physician, and home health 

services). Medicare beneficiaries eligible under any of their state-defined Medicaid eligibility groups typically 

receive Medicaid coverage of Medicare cost-sharing requirements, including premiums, deductibles, and 

coinsurance. They also receive Medicaid services covered by Medicaid but not Medicare. The most notable 

examples are more extensive coverage of mental health services, long-term care institutional services, and 

personal care services, as well as home health services with a less intense medical orientation than services 

covered under the Medicare Home Health benefit.3

• Nursing facility services are Federally mandated under Medicaid. States may provide other long-term care 

services at their option, which may be provided either to all eligibles under the Medicaid State Plan or to selected groups under a home and community-based services (HCBS) waiver. Under an HCBS waiver program, 

states can provide services not viewed as strictly medical (e.g., home modifications, habilitation, and respite 

care) if the services are required to prevent institutionalization. 

Medicaid criteria for determining who is blind or has a disability are generally the same as those used by the 

Social Security Administration for SSI. To qualify in a disability category, a person must have a long-lasting, 

severe, medically determinable physical or mental impairment. The person must also be unable to work—defined in 2010 in part as earning less than $1,000 per month (net of income-related work expenses), a level of 

earning considered by regulation as evidence of one’s ability to engage in Substantial Gainful Activity (SGA).4

Anyone not meeting these criteria cannot receive Medicaid through the disability eligibility category, even if 

they have extensive medical needs or high medical bills. (Special exceptions—allowing Medicaid eligibility for 

certain former child beneficiaries of SSI disability benefits and for persons who do not meet one or more of the 

usual SSI disability criteria because they earn more than $1,000 per month—are discussed later in this chapter.) 

Although Medicaid’s financial eligibility rules for people who are elderly or have disabilities are built on a 

foundation of SSI rules, many exceptions and variations enacted over the years make them work better for 

low-income persons who need health care but not cash assistance.
Chapter 2: Financial Eligibility Rules and Options 41

Medicaid for SSI Beneficiaries

SSI is the Federally-administered program that ensures a nationally uniform income floor for persons who are 

elderly, blind, or have other disabilities. To be eligible, both income and assets must be low. Thirty-nine states 

and the District of Columbia provide Medicaid to all individuals in any month in which they receive an SSI 

payment. Of these, 33 do so automatically, based on a list of SSI beneficiaries compiled by the Federal Social 

Security Administration. The other 7 require SSI beneficiaries to file a separate application with the state for 

Medicaid benefits. The remaining 11 states follow what is known as the 209(b) exception option that allows 

them to provide Medicaid to SSI beneficiaries only if they meet the state’s eligibility criteria, which may be 

more restrictive than those for SSI. (The 209(b) option is discussed in more detail below.

New Eligibility Group Established by the Affordable Care Act of 20105

Section (§)2001 of the Patient Protection and Affordable Care Act of 2010 (hereafter, Affordable Care Act) amended the Medicaid statute to create a new eligibility group that all states participating in Medicaid must cover as of 

January 2014. For the first time since the Medicaid program was established, states will receive Federal Medicaid 

payments to provide coverage for the lowest income adults in their states, without regard to disability, parental 

status, or most other categorical limitations, under their Medicaid State Plans.

For this new eligibility group, the Affordable Care Act raises the income eligibility threshold to 133 percent of 

the poverty line and eliminates the assets test. All rules applicable under the Medicaid program in general apply 

to this new eligibility group, including rules relating to cost sharing. States can phase in eligibility by income 

level, but if they do, they must cover individuals with lower incomes before covering those with higher incomes. 

Parents of children who could be covered under Medicaid but are not cannot be covered under this new group 

unless their children are also enrolled in Medicaid. 

The new group fills in the gaps in existing Medicaid eligibility coverage by making eligible very low-income 

individuals who are not otherwise eligible under mandatory eligibility categories. Thus, the law describes the 

individuals eligible under the new group as those who are not 

• Age 65 or older, 

• Pregnant, 

• Entitled to or enrolled in benefits under Medicare Part A, 

• Enrolled under Medicare Part B,

• Receiving SSI benefits, or 

• Described in any of the other mandatory groups in the statute.6

The medical assistance provided to an individual in the new eligibility group must consist of benchmark coverage described in §1937(b)(1) of the Affordable Care Act or benchmark-equivalent coverage described in 

§1937(b)(2)7 unless the individual is exempt from mandatory enrollment in a benchmark benefit plan.8

Certain states—depending on their income eligibility standards prior to the enactment of the Affordable Care 

Act—will receive enhanced Federal Financial Participation for services provided for newly eligible individuals: 

100 percent in 2014, 2015, and 2016; 95 percent in 2017; 94 percent in 2018; 93 percent in 2019; and 90 percent 

thereafter. 

For more detailed information about this new eligibility group, see the State Medicaid Director Letter issued April 

9, 2010 at http://www.cms.gov/smdl/downloads/SMD10005.PDF.

The Centers for Medicare & Medicaid Services (CMS) will be issuing additional guidance on other provisions contained in §2001 of the Affordable Care Act at a later date.
42 Understanding Medicaid Home and Community Services: A Primer

General Rule 

Neither SSI nor Medicaid determine eligibility by 

comparing a person’s total income and resources to 

the dollar thresholds that apply in the person’s eligibility category. Rather, they count only certain types 

and amounts. (This practice has a close counterpart 

in income tax rules, which exempt certain types or 

amounts of income from taxation and allow certain 

types or amounts to be deducted from otherwise 

taxable income.) For this reason, an individual can 

have total income or resources higher than the 

nominal eligibility limits (i.e., higher than $674 per 

month in total income or $2,000 in total resources 

for SSI) and still qualify for benefits.

The general income rule for SSI specifies the level of 

“countable income” at or below which an individual 

is financially eligible for benefits. Countable income 

includes cash income plus certain in-kind goods 

or services that an individual receives in a given 

month, minus certain types of exempted income 

(discussed more fully below). In the year 2010, 

the maximum monthly SSI benefit paid to people 

with no other income is $674 for an individual and 

$1,011 for a couple. Persons with income from other 

sources (e.g., Social Security or a pension) receive 

a lesser amount—equal to the difference between 

the full SSI benefit rate and the amount of their 

countable income from other sources after adjustments for income exclusions. For example, the SSI 

benefit for an individual with Social Security or pension income of $600 a month would be only $94 per 

month ($600 minus a $20 disregard on unearned 

income equals $580, which is deducted from the SSI 

maximum monthly benefit of $674).

Basic Medicaid Eligibility Rules

• Categorical criteria—Eligible persons must

• be age 65 or older, or 

• be blind, or

• be under age 65 and have disabilities 

(using the same criteria as for disability 

in SSI).

• Income and resources—Eligible persons must have incomes that are low or 

severely reduced by medical expenses. In 

addition, 

• thresholds vary by eligibility category 

and family size;

• some thresholds are established by 

Federal law, some by states within 

broad Federal guidelines; and 

• thresholds must apply statewide except under certain waivers. 

• Legal status, residence, and eligibility redetermination—Eligible persons must 

• be a citizen or in appropriate immigration status;

• be a resident of the state or, if not, eligible under an interstate compact; and

• report changes in circumstances and 

have eligibility periodically re-determined by the state.

SSI rules reduce a person’s gross income to get 

countable income in three important ways. First, 

SSI disregards the first $20 of every applicant/recipient’s unearned income. Second—and of great 

significance to people with disabilities who work—

SSI provides a disregard of earnings from work, 

amounting to the first $65 ($85 if the person has 

no other income in a month) plus one-half of the 

remaining earnings amount.8 However, if earnings 

exceed $1,000 a month in 2010 then the individual 

is considered to be engaging in Substantial Gainful Activity, and thus does not meet the statutory 

definition of being disabled.9 Since the individual is 

not considered to be disabled, he or she will probably have their SSI eligibility denied or terminated. 

However, there are exceptions to this rule, which are 
Chapter 2: Financial Eligibility Rules and Options 43

discussed below under “Reducing Employment Barriers for Persons with Disabilities.” 

Third, spouses or children with disabilities in families with other members who are ineligible can 

qualify for SSI at higher gross amounts of family 

income, because SSI counts only the portion of the 

non-disabled spouse’s or parent’s income that is 

left after SSI subtracts amounts used to pay for the 

basic needs of non-disabled family members. (SSI 

may apply several other special-purpose reductions 

also.)

The general rule defines countable resources as 

cash or other property, including real property, that 

(a) were acquired some time in the past, (b) the 

individual has the right to access, and (c) could be 

converted to cash and used to pay for current basic 

living needs. Individuals with up to $2,000 ($3,000 

for a couple) in countable resources can qualify for 

SSI. When determining whether resources are below 

the SSI $2,000/

$3,000 thresholds, SSI rules reduce gross resources 

by exempting the home (regardless of value) and 

(within limits) such things as an automobile, household goods, surrender value of life insurance, burial 

funds, and property essential to self-support. States 

often use SSI resource limits when determining 

eligibility for Medicaid. 

Exceptions to the General Rule

There are two major exceptions to the general rule: 

the 209(b) option and protection for certain former 

SSI beneficiaries. (Mandatory Medicaid protection 

for certain children with disabilities and certain 

working persons with disabilities is discussed later 

in this chapter.) 

State 209(b) Option 

Medicaid for the “Aged, Blind, and Disabled” had 

historically always been linked to receipt of cash 

assistance benefits. When SSI replaced state-only 

programs of aid for elderly persons and persons 

with disabilities, it was expected to lead to large 

increases in the numbers of SSI beneficiaries. The 

209(b) option was enacted along with SSI in 1972 

to enable states to avoid similarly large increases in 

Medicaid enrollment and costs. 

Many Medicaid eligibility rules in 209(b) states follow SSI. But states may choose, instead, to use some 

or all of the more restrictive Medicaid rules in effect 

in their state on January 1, 1972, shortly before SSI 

was enacted. Eleven states have retained at least 

some of their pre-SSI rules on countable income or 

resources, and some use more stringent criteria for 

determining blindness or disability.

To counterbalance the potential negative effects of 

the 209(b) option on SSI beneficiaries, Federal rules 

require 209(b) states to allow any residents who are 

elderly, blind, or have disabilities—including those 

with too much income for SSI—to spend down to 

the state’s Medicaid income standard if their expenses for medical and remedial services so erode 

their income that their “net” remaining income 

would be less than a standard set by the state. This 

requirement creates a medically needy-like program 

for this population, even in states that have not chosen specifically to cover the medically needy as an 

option. Spend-down rules for 209(b) states are virtually identical to spend-down rules for the Medicaid 

medically needy category (discussed below). 

Medicaid Protection for 

Certain Former SSI Beneficiaries

Federal law requires all states, including 209(b) 

states, to provide Medicaid to former SSI beneficiaries who would, but for increases in their Social 

Security benefits, continue to be eligible for SSI. 

Congress passed this provision to ensure that Social 

Security increases, intended to improve people’s 

lives, did not instead harm this group by causing 

them to lose Medicaid as well as SSI. Most of the 

individuals affected have incomes just marginally 
44 Understanding Medicaid Home and Community Services: A Primer

above the income levels at which they might qualify 

for SSI/Medicaid combined benefits. In fact, many 

people who could qualify for Medicaid under these 

provisions do not apply for the program, most likely 

because they are not aware of them. Improved 

understanding of these protections could possibly 

increase Medicaid enrollment of this group. 

Former SSI Beneficiary Groups 

with Medicaid Protection

• People who lost SSI when they received automatic cost-of-living adjustments (COLAs) 

in Social Security (sometimes nicknamed 

“Pickle people” after Congressman Pickle, 

one of the sponsors of the original COLA 

legislation).

• Adult children with disabilities who lose 

SSI because they become entitled to Social 

Security benefits based on a parent’s Social 

Security entitlement.

• Individuals ages 60–64 who lose SSI due 

to receipt of Social Security benefits for 

widows and widowers with disabilities.

Medicaid Exceptions to SSI Countable Income 

and Resources Rules

In general, states use SSI rules in determining what 

is countable income and resources for 

Medicaid eligibility. However, states have the option 

to liberalize their Medicaid rules regarding countable income or assets in such a way that the eligibility limits specified in law, while still theoretically 

required, can be greatly exceeded.11

It is important to note that this flexibility comes 

with certain restrictions. First, the different counting methods must not disadvantage anyone, even 

if relatively more people would benefit than would 

be disadvantaged. Second, although a state may 

restrict its more liberal counting method to one or 

more eligibility groups, those selected must be one 

of those specifically defined in the part of the Medicaid law that authorizes the use of this option—for 

example, working persons with disabilities, povertyrelated groups, or the medically needy (all of which 

are discussed more fully below). Thus, states are 

not permitted to carve out a subgroup of their own 

definition (e.g., one based on medical diagnosis or 

place of residence, such as residential care facilities). 

Examples of Provisions That Can Reduce 

Countable Income or Resources

• Allow more than the standard SSI income 

disregard of $20.

• Disregard higher amounts of work earnings.

• Disregard all or part of certain types of 

resources that are limited under SSI; for 

example, income-producing property 

essential to self-support, burial funds, and 

the cash value of life insurance.

Third, flexibility in counting income is highly limited 

for medically needy eligibility groups (described 

below), because Federal law imposes a ceiling on 

medically needy income levels (1331/3 percent of the 

highest amount paid to an AFDC family of the same 

size). States are not permitted to exceed this ceiling, 

which limits opportunities for states with medically 

needy income levels at or close to the ceiling.12

While Federal rules give states broad flexibility to 

expand eligibility, actual adoption of more generous alternative methods must, of course, conform to 

a state’s budget considerations and political decisions. 

Eligibility Expansion Options

Including, but Not Specific to,

Home and Community Services

Certain state Medicaid options for across-the-board 

eligibility expansions capture anyone who meets 

the criteria, including but not limited to persons 

needing long-term care services. Because these 

options cannot be targeted, their cost implications 

make them unlikely choices for states looking for 

limited HCBS expansions. However, states may be 
Chapter 2: Financial Eligibility Rules and Options 45

encouraged to adopt these eligibility expansions for 

other sensible reasons. For example, people eligible 

under any of these expansion options receive the 

full range of health and long-term care services covered under the State Plan. In addition, if they meet 

the state’s criteria for HCBS waiver participation 

(e.g., level of care, diagnosis, or place of residence) 

they can receive waiver services. 

100 Percent of Poverty Option 

States have the option of raising the income eligibility level for persons over age 65 and persons under 

age 65 with disabilities as high as 100 percent of 

the Federal poverty level ($10,830 for one person 

in calendar year 2010, increasing incrementally for 

additional family members).13 The state’s eligibility 

limits on countable resources must be at the SSI 

levels ($2,000 for one person, $3,000 for a couple), 

or at the state’s option, its medically needy resource 

levels if they are higher than SSI levels. 

It bears repeating here that what is compared 

to these eligibility levels is countable (not total) 

income and assets. At the very least, states must 

disregard the same kinds and amounts of income 

and resources that SSI disregards.14

Medically Needy Option 

States can cover people with too much income to 

meet financial eligibility criteria through the medically needy option. There is no specified ceiling 

on how much income a person can have and still 

potentially qualify if their medical bills are high 

enough. However, a number of requirements limit 

the attractiveness of the medically needy option 

for higher income people needing long-term care, 

especially home and community services, relative 

to the more narrowly targeted options discussed in 

the next section. Requirements include the following: 

• Individuals must fit into one of the Medicaid 

categories for coverage—for example, be age 

65 or older or meet the Social Security Administration criteria for disability. If not, they 

cannot qualify as medically needy no matter 

how low their incomes or how extensive their 

medical need. 

• At a minimum, states choosing this option 

must first cover medically needy pregnant 

women and children. Most states that cover 

the medically needy also extend coverage to 

elderly persons or persons with disabilities.

• States may not restrict eligibility based on 

medical condition, type of services needed, or 

place of residence.

• Eligibility limits on resources are typically the 

same as for SSI.15 

• States must use a single eligibility level for 

income and resources for all medically needy 

groups they elect to cover. In the case of 

income levels, this single level may not exceed 

1331/3 percent of the state’s pre-welfare reform 

AFDC payment levels. Where these are very 

low, the medically needy income levels may be 

less than the SSI level.

• Medically needy people with incomes above 

the state’s threshold must spend down before 

becoming eligible for Medicaid benefits. 

This last, the spend-down requirement, can be a 

major impediment for higher income people who 

wish to qualify for home and community services 

through the medically needy provision. The reason is that medically needy people with incomes 

above the state’s Medicaid income threshold must 

spend down to that threshold on a periodic basis in 

order to remain eligible for Medicaid funding of the 

services they need.16 Until their spend-down limit is 

reached, they are responsible for their own medical 

expenses. 
46 Understanding Medicaid Home and Community Services: A Primer

General Eligibility Expansion Options

100 percent of the Federal poverty level 

• Allows states to provide full Medicaid 

benefits to all elderly persons or persons 

with disabilities with countable income up 

to the Federal poverty level and assets at 

or below state limits. 

Medically needy 

• Allows eligibility for those who would 

qualify except for income. 

• Higher income persons must spend down 

their income to Medicaid eligibility levels.

• States may not cover medically needy who 

are elderly or have disabilities without 

also covering medically needy pregnant 

women and children.

There is no Federal or state requirement that individuals spending down actually pay their bills. But 

as a practical matter, providers are unlikely to continue serving them if they fail to pay. Alternatively, 

states can offer people the opportunity to meet 

their spend-down obligation by paying it directly 

to the state in exchange for immediate coverage of 

all their medical expenses. In either case, however, 

people with incomes well above the state threshold 

may have a spend-down liability that leaves them 

insufficient income to cover all their expenses at 

their current living standards. 

Hypothetical Spend-Down Situation

Assume the state’s medically needy income 

level for an individual is $450 per month. For 

individuals with monthly countable income of 

$950, spend-down liability is $950 minus $450 

(= $500), which may be a manageable amount 

for those with high time-limited medical needs 

or those in nursing homes who do not need 

income to maintain a home and pay other community living expenses.

Because of these limitations, spend-down works 

best for people in three kinds of situations: (a) they 

have a one-time, short-term need for assistance; 

(b) they are permanently in an institution and no 

longer need income to maintain community residence; or (c) their income is low enough to result 

in a spend-down liability that is affordable to them. 

(Spend-down is discussed in Chapter 5 as it relates 

to payment of room and board in residential care 

facilities.) 

Eligibility Expansion Options That Can Be 

Targeted to Persons Needing Home and 

Community Services

This section discusses options states can use to apply income standards that allow people with higher 

incomes to qualify—and can be targeted more narrowly to people needing long-term care services in 

a variety of home and community settings. 

State Supplemental Payments (SSPs)

Many states supplement the basic SSI payment and 

pair these supplementary payments with automatic 

Medicaid eligibility. This combination of benefits enables beneficiaries to obtain the services they need 

in a range of community settings. 

The maximum monthly Federal SSI benefit ($674 

in 2010) is assumed to be minimally sufficient to 

enable recipients to pay for a basic level of ordinary 

living expenses (food, shelter, clothing). Many states 

have elected to spend state-only funds to supplement the basic SSI benefit in circumstances where 

they have determined that rate to be insufficient 

to cover living expenses necessary for minimally 

adequate living standards. These state supplements 

are state-determined and vary widely.17 Some individuals have too much income to qualify for SSI but 

may qualify for an SSP benefit only. States can elect 

to make such persons automatically eligible for 

Medicaid, just as they can for SSI beneficiaries. 
Chapter 2: Financial Eligibility Rules and Options 47

State Supplemental Payments

• States can supplement the basic SSI payment.

• States can pay across-the-board SSPs to all 

elderly persons or persons with disabilities 

in the state, or they can target them to 

persons in supported living settings.

• States can provide Medicaid to people 

receiving an SSP who are not eligible for 

SSI.

Few states provide across-the-board state supplements to SSI. Most target them specifically to 

persons who are unable to live independently but 

do not need an institutional level of care. The state 

supplement can be used to help pay for services 

provided in residential care settings such as foster 

care, group homes, assisted living, and other settings defined by the state. Services in these settings 

can vary widely—consisting of as little as housekeeping or general supervision, to various levels of 

assistance with activities of daily living. 

Automatic Medicaid eligibility for state supplement 

beneficiaries provides an additional measure of 

assistance in paying for needed medical services. 

States have broad flexibility with respect to not 

only the level of SSP support but also the kinds of 

settings to be supported, quality standards, and 

oversight. States can pay SSPs for as many different 

types of supported living settings as they wish. 

How a State Supplemental Payment 

Might Work

In the year 2010, the Federal SSI monthly benefit 

rate is $674 for an individual. Assume a state sets 

its supplemental benefit at $200 (making the 

SSP benefit $874). Then,

• a person receiving Federal SSI would receive an additional SSP of $200 per month.

• a person with countable income of 

$774—from, say, Social Security or a pension—would have $80 ($100 minus $20 

disregard) too much income to qualify 

for SSI, but would still qualify for a $100 

SSP benefit, and at the state’s option, for 

Medicaid.

As with many other Medicaid options, the option 

states have to provide Medicaid to SSP beneficiaries 

not eligible for SSI is subject to certain conditions. 

The SSP must be based on need, and the state must 

pay the SSP on a regular basis to anyone in the supported living setting to which the SSP applies who, 

but for income, would qualify for SSI. There is no 

rule obligating the state to establish such settings 

throughout the state. If the particular type of living 

setting supported by a state’s SSP happens to exist 

only in limited areas of a state, the state is permitted 

to pay SSPs just to persons in those settings. 

300 Percent of SSI Income Option

The 300 percent of SSI income option (hereafter 

called the 300 percent option) was originally created so that states not wishing to cover the entire 

category of medically needy could at least cover 

higher income persons residing in a medical institution. States electing this option may establish a 

special income threshold, applicable to a person’s 

gross income (all income, not just countable income), as high as 300 percent of the maximum SSI 

benefit—$2,022 per month and $24,264 per year in 

2010. Persons who qualify based on income must 

also have resources within Medicaid eligibility limits. 

States typically use the same asset limits as SSI, but 

they may use more liberal Medicaid exemption 

rules.18
48 Understanding Medicaid Home and Community Services: A Primer

Overview of the 300 Percent of SSI Income Rule

• Allows eligibility for persons with gross 

incomes at or below 300 percent of the 

current SSI benefit—$2,022 per month in 

2010.

• Allows states to use the option for persons 

residing in institutions, such as a nursing 

home or intermediate care facility for persons with intellectual disabilities (ICF/ID). 

If they do so, states can also extend the 

300 percent of income rule to eligibility for 

HCBS waiver applicants. 

• Allows states to provide waiver services to 

children without regard to their parents’ 

income or assets and to married individuals without regard to their spouse’s 

income.

• Requires states to impose a post-eligibility 

cost-sharing requirement (discussed further below).

• When the 300 percent rule is a state’s only 

option for providing Medicaid to higher 

income persons in institutions (i.e., the 

state does not have a medically needy program), allows persons to become eligible 

by diverting excess income into a Miller 

trust (discussed below).

When originally created, the 300 percent option was 

limited to persons in institutions, because home 

and community service alternatives to nursing 

homes were extremely limited. However, when the 

HCBS waiver authority was enacted in 1981, states 

were allowed to extend the 300 percent option to 

waiver applicants. The goal was laudable: to enable 

states to neutralize incentives for individuals to 

choose a nursing home over home and community 

services simply because of Medicaid financial eligibility rules. 

However, the effectiveness of the 300 percent option in increasing access to home and community 

services is limited by two important factors. First, it 

can be used only for HCBS waiver participants, not 

for those receiving personal care or home and community-based services under the State Plan. Second, 

individuals eligible under this option, whether in an 

institutional setting or in an HCBS waiver program, 

are subject to a post-eligibility share-of-cost obligation (described below).

Miller Trusts 

In states where the eligibility of higher income 

persons is limited to those qualifying under the 300 

percent option, individuals with too much income 

to qualify for Medicaid even under this rule may still 

qualify by diverting their income into what is known 

as a Miller trust. Miller trusts are not limited to persons needing Medicaid for nursing home care or for 

services provided under an HCBS waiver. State Medicaid agencies may choose, but are not required, to 

play a role in helping establish these trusts. 

To qualify as a Miller trust, contributions must 

consist solely of the individual’s funds (income such 

as monthly Social Security or pension benefits, 

but not resources) and must be used solely for the 

benefit of the individual. There are no limits on how 

much income can be placed in the trust. However, 

if amounts paid out of the trust exceed the fair 

market value of goods and services on behalf of 

the individual, then the individual may be at risk 

of a penalty for an uncompensated asset transfer, 

resulting in loss of Medicaid coverage for needed 

services. Additionally, amounts paid out of the trust 

may count as income—whether paid directly to the 

beneficiary or paid to purchase something on their 

behalf (other than medical care).19 This “income” 

must be under the eligibility level in the state and is 

subject to post-eligibility share-of-cost rules. Finally, 

the trust must specify that the state will receive any 

amounts remaining after the person’s death, up to 

the amount the state paid in Medicaid benefits for 

the Miller trust owner.20
Chapter 2: Financial Eligibility Rules and Options 49

Protected Amounts in Calculating 

Post-Eligibility Share-of-Cost Obligation

(an obligation that applies only to

certain beneficiary groups)21

People who become eligible for Medicaid under 

the 300 percent option, whether in a nursing home 

or an HCBS waiver program, are typically expected 

to pay a share of their income toward the cost of 

their care, which they pay providers directly.22 This 

post-eligibility share-of-cost obligation can be quite 

high, depending on the individual’s circumstances 

and the options the state has chosen. However, unlike nursing home care, which requires beneficiaries 

to contribute all but a personal needs allowance 

and other amounts described below, state waiver 

programs have greater flexibility to determine how 

much income HCBS waiver participants can retain; 

some states require little or no cost sharing. As with 

the medically needy spend-down provision, Federal 

rules do not require the individual to actually pay 

the share-of-cost amount but service providers can 

ensure payment through their usual bill collection 

policies. 

The share-of-cost calculation is made by subtracting 

from total income certain amounts that are protected for the individual’s personal use. The remaining 

income is the individual’s share-of-cost obligation. 

The Medicaid program reduces the amount it pays 

for Medicaid services by the amount the individual 

is expected to pay. Protected amounts include 

Amounts to cover basic needs. States must allow 

persons in nursing facilities and ICFs/

ID to keep a minimum of $30 per month to cover 

personal needs. States also have the option to 

establish a higher amount across the board, or to 

establish higher amounts for reasonable groups. 

The personal needs allowance is set at a low level 

because the institution provides for most of the individual’s basic living needs. The institution receives 

Medicaid payment for services it provides as part of 

its daily payment rate. 

States establish higher allowance amounts for 

people eligible under the 300 percent option in 

HCBS waiver programs, because waiver participants 

must have sufficient funds to cover their community 

living expenses. A state can set the allowances for 

this group equal to the income eligibility thresholds 

that apply to other Medicaid eligibility groups in 

the state (e.g., at the SSI or medically needy income 

levels). The most generous HCBS waiver programs 

allow eligible individuals to retain all their income 

for personal use, thereby effectively eliminating any 

beneficiary liability for a share of cost and making 

Medicaid pay the entire cost of covered services. 

State decisions depend in part on budget concerns, 

because the less beneficiaries spend as their share 

of cost, the more the state must contribute.

Allowance for a spouse or other dependents. States 

must deduct income to provide for a spouse of 

an individual in an institution. The amounts protected for spouses of institutionalized persons are 

governed by the rules designed to protect against 

spousal impoverishment. States have the option to 

implement spousal impoverishment protections 

when one spouse is an HCBS waiver program (discussed in the next section). 

Home maintenance allowance (at state option). 

Persons in an institution can, at state option, retain 

an additional amount for up to 6 months if needed 

for maintenance of a home. This allowance is limited 

to those who can reasonably be expected to return 

to their homes. This optional allowance is not available to individuals receiving waiver services since 

their basic needs allowance (discussed above) is 

intended to include maintenance of a home.

Amounts to cover other medical expenses. States 

must allow nursing home and ICF/ID residents, as 

well as HCBS waiver participants, to retain enough 

income to pay for additional medical costs they 

incur that are not paid for by Medicare, Medicaid, 

or any other payer. Long-term care expenses (e.g., 

home health aides, personal assistants, and adult 

day care) can be counted toward required medically 

needy spend-down amounts as long as the individual rather than some third party is responsible 

for paying the expense.
50 Understanding Medicaid Home and Community Services: A Primer

Preventing Spousal Impoverishment 

In 1988, Congress mandated that states allow married couples separated by the institutionalization 

of one spouse to protect a certain amount of assets 

and income for the non-institutionalized spouse. 

This mandate applies regardless of how the institutionalized person establishes eligibility. Prior to this 

law, states protected no assets, and the amounts 

of income they protected for the support of the athome spouse were at welfare-like levels—a devastating event for middle-class couples facing, perhaps for the first time in their lives, a need for public 

assistance because of the high cost of nursing home 

care. 

States have the option to implement spousal 

impoverishment protections when one spouse is 

an HCBS waiver program. Doing so enables states 

to protect the income and assets of the spouses of 

waiver participants to the same extent they do for 

spouses of Medicaid residents in institutions. 

How spousal impoverishment protection works 

is described here for states that wish to use it for 

HCBS waiver participants. There are two decisions 

states make within the Federal limits: (a) how much 

income to protect, and (b) what amount of assets 

(resources) to protect. 

Income Protection 

Income is protected for the spouse after the person 

needing long-term care has been determined eligible for Medicaid. The minimum monthly protected 

spousal income amount is $1,821 in the year 2010 

(see Table 2-1). Additional amounts, up to a maximum of $2,739, are protected if the spouse has unusually high housing costs or if the state has chosen 

to protect more than the mini-mum amount for all 

spouses. If income belonging to the spouse is less 

than the protected level, the Medicaid beneficiary 

can transfer his or her own income to the spouse to 

make up the shortfall. States count any remaining 

income of the Medicaid beneficiary, less the allowance for the spouse, in calculating the share of the 

Medicaid service costs for which the beneficiary is 

responsible. 

Temporary Expansion of Spousal 

Impoverishment Protections23 

The Affordable Care Act amended the spousal 

impoverishment statute to mandate that states 

include spousal impoverishment protections in 

their HCBS waiver programs; all spouses of HCBS 

waiver participants, including those who qualify 

as medically needy, are covered. The mandate 

also extends to the spouses of participants 

in the HCBS State Plan benefit, as well as the 

new Community First Choice Option State Plan 

benefit (effective October 2011). The mandate 

will be effective from January 1, 2014 through 

December 31, 2019, at which point the current 

language of the statute will become effective 

again (i.e., spousal protections will be optional 

for spouses of HCBS waiver, HCBS State Plan, and 

Community First Choice Option participants).

Spousal impoverishment protections, at least as 

they pertain to income, are generally part of the 

unique Federal post-eligibility income treatment 

rules applicable to Medicaid-enrolled nursing 

facility residents and HCBS waiver participants. 

When applying these rules, states allocate specific portions of an enrollee’s monthly income 

between a personal maintenance allowance, a 

community spouse maintenance allowance, and 

the enrollee’s share of the cost of the covered 

services. However, Medicaid enrollees not in a 

nursing facility or HCBS waiver but receiving 

other State Plan services, may have co-pays for 

services they receive but will not be subject to 

the same income allocations as nursing facility or HCBS waiver participants. Thus, CMS will 

have to provide guidance to states for applying 

spousal protections for the spouses of State Plan 

service recipients.
Chapter 2: Financial Eligibility Rules and Options 51

Table 2-1. Examples of Spousal Income Protection 

Assume the minimum protection allowance ($1,821) applies

Example 1: 

Beneficiary’s income

Spouse’s income

Beneficiary income protected for spouse

Beneficiary income for calculating share-of-cost obligation

$2,000

None

$1,821

$179 ($2,000 – $1,821)

Example 2: 

Beneficiary’s income

Spouse’s income

Beneficiary income protected for spouse

Beneficiary income for calculating share-of-cost obligation

$2,000

$1,000

$821 ($1,821 – $1,000)

$1,179 ($2,000 – $821)

Example 3: 

Beneficiary’s income

Spouse’s income

Beneficiary income protected for spouse

Beneficiary income for calculating share-of-cost obligation

$2,000

$2,000

None

$2,000

Resource Protection 

The resource amount protected for the spouse is determined as part of the process of determining Medicaid eligibility of the person needing services. Countable resources belonging to either or both spouses are 

combined and divided in half. The amount protected for the spouse is either that half, or the level the state 

has chosen to protect, whichever is higher. In 2010, the amount protected is subject to a Federal minimum 

($21,912) and maximum ($109,560). 

Any resources not protected for the spouse are considered available to the person needing care, who is not 

eligible until such resources are within Medicaid eligibility limits. 

Minimum and maximum amounts of both income and resources increase every year based on the cost-of-living increase as published by the Department of Health and Human Services. In addition, Federal law requires 

states to have administrative and judicial procedures in place that allow petitioners to seek higher protected 

amounts of the spouse’s assets. For example, spouses can petition for higher protected assets if the income 

those assets produce is needed for their reasonable living expenses. 

Provisions Specific to Children with Disabilities

Two eligibility provisions—one mandatory and the other at states’ option—were enacted specifically to serve 

children with disabilities. The mandatory provision—sometimes called Zebley Kids or 4913 Children—relates 

to children rendered no longer eligible by a 1996 change in the SSI definition of disability for children. The Zebley designation comes from a court case, contesting the 1996 change.24 The optional provision—some-times 

called the Katie Beckett or Tax Equity and Fiscal Responsibility Act (TEFRA) option—allows for eligibility for a 

child with severe disabilities living at home, regardless of the financial circumstances of the child’s parents. 
52 Understanding Medicaid Home and Community Services: A Primer

Zebley Kids 

The welfare reform legislation of 1996 made it 

more difficult for children to qualify as disabled SSI 

beneficiaries by changing the definition of disability for children. The major impact of this change 

was on children with mental disorders. In 1997, a 

new Federal requirement was enacted protecting 

Medicaid eligibility for former child beneficiaries of 

SSI who lost it due to this definitional change. This 

protection is retroactive to the original SSI change 

in 1996. However, it cannot produce actual eligibility changes unless both state and family follow 

through and take all necessary administrative steps 

to get the child enrolled specifically in the state’s 

Medicaid program. It is important to note that 

children who apply for SSI for the first time and are 

found ineligible might still qualify for Medicaid or 

for their state’s Children’s Health Insurance Program, 

based on the family’s income. 

Katie Beckett Option 

States typically follow Federal SSI rules on whether 

or not to count (deem) the income and resources 

of a parent in determining a minor child’s financial 

eligibility.25 These rules impart a substantial institutional bias by ignoring parental income/resources 

when assessing eligibility for long-term care services if a minor child is living in an institution, but 

counting them if the minor child lives at home.26

These different deeming rules make it much more 

likely that a minor child will meet Medicaid’s financial eligibility test when living in an institution than 

at home. Thus, families considering how to get 

long-term care services for a minor child with disabilities may find that these deeming rules leave no 

realistic alternative to institutionalization. 

States can overcome this institutional bias through 

two options. The first, the Katie Beckett or TEFRA 

option, was enacted permanently into law in 1982. 

This option enables states to provide Medicaid to 

certain children with disabilities living at home who 

need extensive care but who would, without the 

option, be unable to qualify because their parents’ 

income or resource levels put them above the financial eligibility cutoff.27

Before this option became available, children with 

disabilities were typically eligible for SSI—and, thus, 

Medicaid—only if they lived in institutional settings. 

This was because of deeming rules discussed above. 

Most state Medicaid programs followed SSI deeming rules on how income and resources are counted. 

Under these rules, institutionalized children were 

not considered part of their parents’ households. 

Parental income and assets were therefore ignored, 

regardless of their magnitude. But children living with their parents were considered part of the 

parental household, making parental income and 

assets deemed available to the children, and substantially reducing the likelihood that children with 

disabilities would be eligible for Medicaid services, 

no matter how great the children’s service needs 

might have been. This arrangement made it possible for children with disabilities in non-poor families 

to get Medicaid for institutional care but not for 

equivalent care provided at home. 

The TEFRA option, which was enacted to create 

equity between the two settings with regard to 

financial eligibility, is limited in the following ways. 

First, home care for the child must be appropriate. 

Second, the estimated cost of community services 

for the child may not exceed the cost of institutional care. Third, the child must require the level 

of care normally provided in an institution, making 

the TEFRA option unavailable for children whose 

disabilities do not require this level of care. In states 

that use the TEFRA option, parents may choose 

either institutional or community care for their 

Medicaid-eligible children, subject to the above 

requirements. 

Alternatively, states can elect to use institutional eligibility rules when determining a minor’s eligibility 

for an HCBS waiver program. Using institutional eligibility rules means, among other things, choosing 

not to deem the income and resources of parents 

available to minor children eligible under an HCBS 

waiver program. Doing so provides access to home 

and community services on the same financial basis 

as long-term care services provided in an institution. 

States need to consider the following points when 

choosing between the TEFRA option and the HCBS 

waiver option for covering children with disabilities. 
Chapter 2: Financial Eligibility Rules and Options 53

First, states may not impose enrollment caps under 

the TEFRA option, as they can under the HCBS 

waiver option. If elected, the TEFRA option must 

be available to anyone who qualifies anywhere in 

the state. Second, states must provide to children 

eligible under both the TEFRA option and the HCBS 

waiver option the same Early, Periodic, Screening, 

Diagnosis, and Treatment benefits provided to 

all other Medicaid children in the state. However, 

the HCBS option allows states to offer additional 

services of a non-medical nature. Finally, states may 

impose a share-of-cost obligation on children in an 

HCBS waiver program but not on children eligible 

under the TEFRA option. 

Reducing Financial Barriers to Employment for Persons with Disabilities

Any benefit program that uses an income cutoff to 

determine eligibility contains a major disincentive 

for beneficiaries to work, if the earnings from that 

work would put them above the financial eligibility 

level for benefits. To the extent that Medicaid coverage is needed for essential health care, the problem 

becomes an absolute barrier to employment rather 

than simply a “disincentive.” 

In order to preserve the incentive for persons with 

disabilities to work as much as they are able without fear that doing so will cause them to lose their 

medical coverage, Federal law mandates states to 

disregard certain earnings amounts in determining 

eligibility for Medicaid. States have additional options to protect the earnings of people with disabilities who have higher earning potential. 

Federal Provisions28

Since 1982, certain SSI disability beneficiaries 

who are able to work and earn more than the SGA 

amount ($1,000 per month for 2010) have been 

permitted to keep their SSI and Medicaid benefits, 

provided their countable income is within SSI qualifying limits. Under this provision, individuals with 

earnings up to $1,433 per month in 2010 are typically able to continue receiving SSI cash benefits.29

Former SSI beneficiaries with even higher earnings 

may continue to qualify for Medicaid, as long as 

their earnings are below a state-specified level that 

is roughly equivalent to the value of the total SSI 

and Medicaid benefits they would receive if they did 

not work.30 The Medicaid component of this amount 

is the average amount spent by Medicaid for beneficiaries with disabilities in the relevant state. States 

must provide Medicaid to individuals with earnings 

above even this level, if they can show that their 

medical expenses are higher than the state average used to establish the cutoff. The Social Security 

Administration administers both provisions. 

Little use was made of these protections at first 

because they were not widely understood. Thus, the 

number of working persons with disabilities whose 

earnings were protected in this manner in 1982, 

the first full year of implementation, was just under 

6,000. By September 1999, however, the number 

had risen to nearly 100,000.31 In December 2008, 

there were 355,762 SSI disabled beneficiaries who 

were working—only 5.5 percent of the total SSI 

blind and disabled caseload—with average earnings of $605 a month; 23 percent earned $65 or less 

per month.32 

State Options 

Advocates for persons with disabilities argue that 

the work incentive provisions have not been widely 

used for several reasons. First, receipt of SSI benefits 

is the gateway to Medicaid—both for health and 

long-term care services. Because there is an absolute income cap for Medicaid eligibility—however 

high that limit may be—there is an absolute dropoff point at which increased additional earning will 

result in a loss of Medicaid. Second, low asset limits 

mean that working persons with disabilities are unable to increase their savings without jeopardizing 

their Medicaid eligibility.

Congress addressed some of these Medicaid access 

problems with laws enacted in 1997 and in 1999.33

The 1997 provision allows states the option of expanding eligibility for persons with disabilities who 

have countable income from all sources up to 250 

percent of the Federal poverty level—$27,075 for 

an individual, $55,125 for a family of four in the year 
54 Understanding Medicaid Home and Community Services: A Primer

2010. These individuals need not ever have received 

SSI but they must—except for the level of their 

work earnings—meet SSI disability criteria. 

The 1999 provision gives states the option to cover 

individuals with disabilities who currently work 

without regard to their earnings, and to raise or 

even eliminate eligibility limits on income from 

other sources and/or limits on assets. States that 

have elected this option can also elect to continue 

coverage for persons (eligible under this option) 

whose disability remains severe—but whose medical condition has improved to a point that they no 

longer meet the usual Medicaid eligibility criteria 

defining disability. For these higher income enrollees, states have the option to impose a monthly 

premium or other cost-sharing obligations for their 

Medicaid benefits using a sliding scale based on income. States choosing the 1999 option are required 

to charge 100 percent of the premium for those 

with an adjusted gross income (AGI) greater than 

$75,000 (AGI as defined for Federal income tax purposes).34 The term “buy-in” is used to describe these 

options. The state, not the Social Security Administration, makes the eligibility determination for these 

state work incentive options. 

Asset/Resource Transfers: Permissions 

and Penalties

Federal law imposes a penalty on persons who give 

away savings or transfer ownership of their assets 

for less than fair market value (termed uncompensated transfers) in order to meet Medicaid’s financial 

eligibility criteria. The penalty applies to all eligibility groups in all states.35 The purpose of the penalty 

is to preclude the payment of benefits to individuals 

who can afford to pay for them. States must apply 

this penalty to people seeking Medicaid coverage 

for nursing homes, other institutions, and HCBS 

waiver programs for individuals eligible under what 

are known as “institutional” rules. The penalty is 

mandatory for individuals in institutions and those 

eligible for HCBS waivers under institutional rules, 

but is optional for those eligible under community 

rules. 

Structure of the Penalty 

Both SSI and Medicaid deny benefits for people 

making uncompensated asset transfers. The nature 

and effective duration of the penalty, however, 

differ between the two programs.36 The following 

discussion relates to the Medicaid provisions. 

Terminology

The terms “assets” and “resources” are used 

interchangeably to refer to savings, stocks and 

bonds, and other property. However, Medicaid 

law specifically related to asset transfers includes “income” in the definition of assets.

The general Medicaid rule is that states must determine whether an applicant, beneficiary, or someone 

acting on their behalf transferred assets (including 

the home) at any time during the 36 months prior 

to applying for Medicaid.37 For assets transferred after February 2006, the Deficit Reduction Act of 2005 

(DRA-2005) extended the timeframe to 60 months. 

If a person did not receive fair market compensation, then states presume the transfer was made 

to qualify for Medicaid. States are required to have 

procedures in place that allow applicants to challenge that presumption. 

Permissible Transfers 

Certain transfers can be made without penalty: 

Transfers made to a spouse or a third party for the 

spouse’s benefit.

Transfers of a home to a minor child or child with 

disabilities, or siblings or adult children who have 

lived in the home before the beneficiary was admitted to an institution or the waiver program, and 

who meet certain other conditions.38

Transfers by Medicaid applicants/recipients to their 

blind children or children with disabilities or to a 

trust for those children’s benefit, regardless of the 

child’s age.
Chapter 2: Financial Eligibility Rules and Options 55

Assets transferred into a trust solely for the benefit 

of a person under age 65 with a disability. Eligible 

trusts include special needs trusts and pooled trusts 

established by a nonprofit association that manages 

multiple accounts.39 These trusts are not counted in 

Medicaid’s resource eligibility determination. 

When a state has determined that an impermissible 

transfer has taken place, it must deny coverage for 

long-term care services in an institution or through 

an HCBS waiver program. Coverage may also be denied at state option for long-term care services such 

as home health or personal care provided through 

the State Plan for individuals who are not residing in 

institutions. For the most part, such penalties do not 

affect the person’s eligibility to receive any other 

services under the Medicaid State Plan. 

States calculate the duration of the penalty based 

on private pay nursing facility rates—whether the 

person who has transferred assets is actually in a 

nursing home or seeking home and community 

services—even though the monthly cost of services 

in the community is likely to be substantially lower. 

The duration of the penalty is calculated by dividing 

the uncompensated value of the transferred assets 

by the monthly cost of care in a private nursing facility. The same formula is used for people applying 

for services through an HCBS waiver program. 

The penalty calculation is the same regardless of 

(a) whether the person was living at home or in a 

facility at the time of transfer, and (b) whether the 

person was actually using or paying for services. 

However, Federal law requires that states make 

exceptions in cases of undue hardship. 

Prior to February 2006, the rule regarding the penalty start date—the month the transfer occurred—

reduced or eliminated the effect of the penalty, 

depending on the amount of the transfer and the 

amount of time that passed between the date of 

the transfer and the date of application to Medicaid. 

Thus, if a transfer was modest and occurred relatively early in the 3-year look-back period before 

the individual applied for Medicaid, it often had no 

effect. 

To correct this situation, the DRA-2005 changed 

the start date for the penalty period for all transfers 

made after February 2006 and extended the lookback period from 3 to 5 years. A penalty for transfers 

made after February 2006 now begins the month an 

individual becomes eligible for 

Medicaid and is in a nursing facility or other institution or who is eligible for an HCBS waiver based on 

institutional rules.40

Effect of Transfer on Benefit Loss: 

Example for Transfers

• A person withdrew $20,000 from savings 

and gave it to an adult child on January 1, 

2005.

• The person is receiving an institutional level 

of care—that is, she is either in a nursing 

home or is eligible for waiver services based 

on institutional rules—on April 1, 2009. 

• The monthly cost of nursing facility services 

is $4,000.

• The penalty period is 5 months ($20,000 

divided by $4,000).

• The 5-month penalty period begins 

on the date the person is eligible for Medicaid; in this example, from April 1 through 

August 31, 2009. During the 5-month penalty period, a person who is eligible for Medicaid can receive services other than longterm care services. Once the penalty period 

is no longer in effect (beginning September 

1), the person can receive coverage for 

long-term care as well as other services.41
56 Understanding Medicaid Home and Community Services: A Primer

Estate Recoveries 

Federal law requires all states to recover assets from 

the estates of two groups of Medicaid beneficiaries 

after their deaths: those who were age 55 or older 

when they received Medicaid benefits, and those 

who received Medicaid nursing facility or ICF/ID 

benefits regardless of age. At a minimum, states 

must use the same definition of estate used under 

their probate laws. They are permitted to use a 

broader, state-established definition that captures 

additional assets. 

States are mandated to recover any amounts they 

have paid on the individual’s behalf for any type of 

long-term care services, as well as any hospital costs 

and prescription drug benefits related to the condition requiring long-term care services. They also 

have the option of recovering all amounts spent on 

other Medicaid benefits. But state recovery actions 

must be delayed if there is a surviving spouse or, in 

certain cases, a child or sibling living in the home. 

States have the option of not pursuing recovery in 

the case of very small estates, if the cost of doing 

so is likely to exceed the amount that can be recovered. (See the Resources section of this chapter 

for links to several publications about states’ estate 

recovery policies.)

Disqualification for Long-Term Care 

Medicaid Coverage for Individuals with 

Substantial Home Equity

Under Medicaid, an applicant’s home, regardless of 

its value, is generally an exempt resource for eligibility purposes. The DRA-2005 does not change 

this basic rule, but for applications filed on or after 

January 1, 2006, it limits the exemption to individuals whose equity interest in their homes is $500,000 

or less, or at state option, a higher amount not to 

exceed $750,000. For those with home equity above 

the amount the state has set, the state must deny 

Medicaid payment for long-term care services (including those provided through HCBS waiver programs). States that choose to use an amount higher 

than $500,000 need not use this amount on a statewide basis, recognizing potentially wide variations 

in the cost of housing statewide. Also, states need 

not apply the higher amount to all eligibility groups. 

The new limits on home equity do not apply to an 

individual if the individual’s spouse, child under age 

21, or blind or disabled child is living in the individual’s home. If the home equity exceeds the maximum 

amount, individuals may use reverse mortgages or 

home equity loans to reduce their total equity interest in the home. Beginning in 2011, the limits on 

equity will increase from year to year based on the 

percentage increase in the consumer price index for 

urban areas, rounded to the nearest $1,000.
Chapter 2: Financial Eligibility Rules and Options 57

Resources

Since the Primer was first published in 2000, numerous reports and other resources have become available 

on the Internet. This section includes key resources relevant to financial eligibility for Medicaid generally 

and for long-term care services specifically. Most of the publications cite additional resources, and the 

websites also have links to other sources of information.

Publications

Herz, E.J. (2007). CRS Report for Congress, Medicaid: A Primer. Washington, DC: Congressional Research 

Service.

This report describes the basic elements of Medicaid, focusing on Federal rules governing who is eligible; what 

services are covered; how the program is financed and how beneficiaries share in the cost; how providers are 

paid; and the role of special waivers in expanding eligibility and modifying benefits. The Deficit Reduction Act 

of 2005, as amended by the Tax Relief and Health Care Act of 2006, includes many provisions affecting Medicaid. The DRA-2005 provides states with opportunities to make fundamental changes in Medicaid program 

design, including covered benefits and beneficiary cost-sharing. This report summarizes these and other major 

DRA-2005 changes.

Available at http://aging.senate.gov/crs/medicaid1.pdf

Wood, E.F., and Klem, E.M. (2007). Protections in Medicaid Estate Recovery: Findings, Promising Practices, and 

Model Notices. Washington, DC: AARP, Public Policy Institute; American Bar Association; ABA Commission 

on Law and Aging. 

Concentrating primarily on current state practices for clarifying Medicaid beneficiary protections, this study focuses attention on promising practices and model notifications that can be replicated throughout the country 

for the benefit of both estate recovery programs and the people affected by them. The site includes both the 

full version and a brief summary of the report. 

Available at http://www.aarp.org/health/medicare-insurance/info-2007/2007_07_medicaid.html
58 Understanding Medicaid Home and Community Services: A Primer

Hearne, J. (2005). CRS Report for Congress: Medicaid Eligibility for Adults and Children. Washington, DC: Congressional Research Service.

This report describes Federal Medicaid eligibility rules for children and adults under age 65 but does not address eligibility pathways for individuals qualifying on the basis of having a disability or for persons who are 

age 65 or older. Also, the eligibility provisions pertain to eligibility for all Medicaid benefits, not just home and 

community services.

Available at http://www.chn.org/pdf/crsmedicaid.pdf

Thomson/MEDSTAT (2005). Medicaid Estate Recovery. Washington, DC: U.S. Department of Health and Human Services (HHS), Office of Assistant Secretary for Planning and Evaluation.

This policy brief—one of six commissioned by HHS—provides an overview of state Medicaid Estate Recovery 

programs, which enable states to recoup public spending from the estates of Medicaid long-term care recipients after their death. The other briefs address the following topics: Medicaid Treatment of the Home, Spouses 

of Medicaid Long-Term Care Recipients, Medicaid Liens, Medicaid Estate Recovery Collections, and a case 

study of the Massachusetts Medicaid Estate Recovery Program. These are available through links at the end of 

the document.

Available at http://aspe.hhs.gov/daltcp/reports/estaterec.pdf

Stone, J.L. (2002). CRS Report for Congress: Medicaid Eligibility for the Aged and Disabled. Washington, DC: 

Congressional Research Service.

This report describes Medicaid eligibility rules for persons with disabilities. Many in this group become eligible 

because they cannot work and are dependent on welfare assistance from SSI. However, Medicaid provides 

incentives for other disabled persons to work and retain Medicaid coverage.

Available at http://assets.opencrs.com/rpts/RL31413_20020705.pdf

Websites

Centers for Medicare & Medicaid Services

This site provides an overview of Medicaid eligibility (e.g., income and resource guidelines, spousal impoverishment, estate recovery) and includes a link to contact information for state Medicaid offices.

Web address: http://www.cms.hhs.gov/MedicaidEligibility/

The State Medicaid Manual makes available to all state Medicaid agencies informational and procedural 

material needed by the states to administer the Medicaid program. The material is organized into major parts, 

which are divided into chapters and sections. (Chapter 3 is about Eligibility). The manual is structured as 
Chapter 2: Financial Eligibility Rules and Options 59

closely as possible to the codification of Medicaid regulations. A crosswalk of manual sections and regulations 

is also included. 

Web Address: http://www.cms.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&

sortByDID=1&sortOrder=ascending&itemID=CMS021927&intNumPerPage=10

Kaiser Commission on Medicaid and the Uninsured

The Kaiser Commission on Medicaid and the Uninsured provides information and analysis on health care coverage and access for the low-income population, with a special focus on Medicaid’s role and coverage of the 

uninsured. The Commission is a major initiative of The Henry J. Kaiser Family Foundation and is based at the 

Foundation’s Washington, DC office. 

Web address: http://www.kff.org/about/kcmu.cfm

Specific information about Medicaid financial eligibility by state using the latest Kaiser data is available at 

http://www.kff.org/medicaid/8048.cfm.
60 Understanding Medicaid Home and Community Services: A Primer

Endnotes: Citations, Additional Information, 

and Web Addresses

1 Letty Carpenter is the original author of this chapter. Ernest McKenney and Janet O’Keeffe updated the 

chapter. 

2 This Primer uses person-first language when referring to persons with disabilities and elderly persons, 

unless referring to the specific language used in statutes, regulations, or programs, as in this instance.

3 Additional information about the Medicare program can be obtained from the CMS website at http://

www.cms.gov/home/medicare.asp.

4 The amount of monthly earnings considered as SGA depends on the nature of a person’s disability. 

The Social Security Act specifies a higher SGA amount for statutorily blind individuals ($1,640 per 

month in 2010); Federal regulations specify a lower SGA amount for non-blind individuals ($1,000 per 

month in 2010). Both SGA amounts generally increase with increases in the national average wage 

index. Additional information is available at http://www.ssa.gov/OACT/COLA/sga.html.

5 State Medicaid Director Letter, April 9, 2010 at http://www.cms.gov/smdl/downloads/SMD10005.PDF.

6 Subclauses (I)–(VII) of §1902(a)(10)(A)(i) of the Social Security Act.

7 As amended by §2001(c) of the Affordable Care Act.

8 Benchmark rules apply to the new group whether or not the state has otherwise elected the option 

to provide benchmark benefit coverage under its State Plan. Individuals in the new group who are 

exempt from mandatory enrollment in a benchmark benefit plan must receive medical assistance 

under the state’s currently approved plan. Others must be provided with benchmark or benchmarkequivalent coverage, including Secretary-approved benchmark coverage described in §1937(b)(1)(D). 

Consistent with the provisions of §1937, children covered under the new group must receive all Early 

and Periodic Screening, Diagnostic, and Treatment services.

9 If individuals have only work earnings (i.e., they do not have any unearned income), and they do not 

pay for any work expenses, they can earn up to $1,433 per month in 2010 before their SSI federal cash 

payments stop. Additional information is available at http://ssa-custhelp.ssa.gov/cgi-bin/ssa.cfg/php/

enduser/std_alp.php?p_sid=n6qe7NWj.

10 See Endnote 4.

11 Section 1902(r)(2) of the Social Security Act.

12 This limitation applies only to income and only to certain optional eligibility groups. There are no such 

limits on using §1902(r)(2) to liberalize rules for resources.

13 Under §1902(r)(2) of the Social Security Act, a state can elect to disregard more generous amounts. 

Note: For the first time since the poverty guidelines began to be issued in 1965, the annual average 

Consumer Price Index has decreased from the figure for the previous year. Therefore, the Department 
Chapter 2: Financial Eligibility Rules and Options 61

of Health and Human Services poverty guidelines have been frozen until at least May 31, 2010 at 

2009 levels in order to prevent a reduction in eligibility for certain means-tested programs, including 

Medicaid, Supplemental Nutrition Assistance Program, and child nutrition. Additional information is 

available at http://aspe.hhs.gov/poverty/09extension.shtml.

14 This provision applies to §209(b) states as well, which cannot use more restrictive eligibility criteria for 

this group.

15 States can use higher levels or additional disregards under the §1902(r)(2) exception.

16 Typically this is every month. In some states it is every 6 months. But in the latter case, the person must 

be able to spend down an amount that equals six times their monthly “excess” income before becoming eligible.

17 State-by-state information concerning supplements for SSI beneficiaries may be found in State Assistance Programs for SSI Recipients, January 2009. (Released October 2009). Social Security Administration, Office of Policy, Office of Research, Evaluation, and Statistics. Available from Social Security Online 

at http://www.ssa.gov/policy/docs/progdesc/ssi_st_asst/2009/.

18 Under §1902(r)(2), described above.

19 Whether or not the income is counted depends on the specific nature of the transaction; for example, 

who the payment goes to and what the funds are used to purchase, as determined by additional Medicaid rules. 

20 A recent state survey found that of 43 states (7 did not respond), 19 allow Miller Trusts for institutionalized individuals. Of the 7 states that did not respond, based on 2000 data, 1 allows Miller Trusts; this 

adds up to 20 states. For states that use the 300 percent rule for HCBS waivers, of the 43 states that 

responded, 18 allow Miller Trusts. Of the 7 states that did not respond, based on 2000 data, 1 allows 

Miller Trusts, this adds up to 19 states. Lina Walker, AARP Public Policy Institute. Personal communication, March 24, 2010.

21 Post-eligibility rules apply to all individuals in institutions, regardless of their eligibility group.

22 Post-eligibility share-of-cost rules also apply to persons in ICFs/ID, long-term hospitals, and other medical institutions, regardless of eligibility category. Persons who become eligible by meeting a medically 

needy spend-down obligation also face an additional post-eligibility share-of-cost obligation based 

on their remaining income.

23 This description is condensed from the analysis provided by Coffey, G. (January 2010). The Medicaid 

Long-Term Services and Supports Provisions in the Senate’s Patient Protection and Affordable Care 

Act. 

24 In 1990, the Supreme Court ruled in Sullivan vs. Zebley, that in order to meet the standard of equal 

treatment, the initial disability determination process for children must include a functional limitation 

component just as it is used for adults. The decision in the case that successfully contested the 1996 

definitional change became moot in 1997, when §4913 of the Balanced Budget Act of 1996 (P.L. 105-

33) restored Medicaid to the children who had lost eligibility under SSI’s 1996 definitional change. See 

http://www.dhs.state.or.us/spd/tools/crew/blitz/protected/Protected-HO.pdf.

25 States may also use more liberal rules, such as not counting the parents’ income and resources under 

§1902(r)(2). 
62 Understanding Medicaid Home and Community Services: A Primer

26 This differential treatment comes about because SSI treats persons living in an institution as a separate 

household and eligibility unit than their family members. The §209(b) states are exceptions in that 

they continue to deem, even for persons who live in institutions.

27 The Tax Equity and Fiscal Responsibility Act of 1982, P.L. No. 97-248, 96 Stat. 324 (September 3, 1982). 

28 Section 1619 and, equivalently, §1905(q) of the Social Security Act.

29 The amount of the SSI benefit is decreased as earnings increase over the allowable amount. The 

Social Security Administration has published a rule to adjust the SGA level automatically each year for 

individuals with impairments other than blindness. The adjustment is based on any increase in the 

national average wage index. See http://www.ssa.gov/OACT/COLA/sgadet.html.

30 Section 1619(b).

31 Numbers from “Quarterly Report on SSI Disabled Workers and Work Incentive Provisions” (September 

1999), Social Security Administration, Office of Research, Evaluation, and Statistics.

32 Numbers from “SSI Disabled Recipients Who Work, 2008,” available from Social Security Online at 

http://www.ssa.gov/policy/docs/statcomps/ssi_asr/2008/sect07.html#table44.

33 The 1997 provision is in §4733 of the Balanced Budget Act of 1997 (P.L. 105-33). The 1999 provision is 

in §201 of the Ticket to Work and Work Incentives Improvement Act of 1999 (P.L. 106-170).

34 States are not permitted to use §1902(r)(2), described above, as a way to get to a higher effective 

income level at which full premiums are charged.

35 This includes §209(b) states.

36 The penalty for resource transfers in SSI, enacted in P.L. 106-169, is a loss of SSI benefits for a period of 

time. If the Social Security Administration finds that resources were transferred for less than fair market 

value in the 36 months prior to application, then a penalty period begins in the month the transfer 

occurred. The duration in months is calculated by dividing the amount transferred by the maximum 

monthly cash benefit otherwise payable.

37 The period is 60 months if assets were transferred into or out of certain trusts.

38 Social Security Act, §1917(c)(2)(iii) and (iv).

39 Unused assets in the trust must revert to the state on the death of the individual, up to the total Medicaid amount spent on the individual’s behalf.

40 The penalty does not apply to individuals who are eligible for HCBS waiver programs under community financial eligibility rules. 

41 The look-back period begins on the date someone applies for Medicaid. The penalty period begins on 

the date the person becomes eligible for Medicaid, not the date of application. In many instances they 

are the same date.
Chapter 3: Determining Service Eligibility 63

Guide to Chapter 3

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Service Criteria: General Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Home Health Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Misperceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Addressing Cost Concerns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Ensuring Correct Application of Eligibility Criteria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Personal Care Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

HCBS Waiver Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Misperceptions About Medical Bias in Nursing Facility Service Criteria. . . . . . . . . . . . . . . . . . . 75

HCBS State Plan Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Community First Choice Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Major Considerations in Setting Service Criteria: A Recap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . . 82

Chapter 3: Determining Service Eligibility 65

Chapter 3

Determining Service Eligibility

In addition to categorical and financial eligibility criteria required by Federal Medicaid law, states set additional eligibility criteria to determine who in the large group that is financially eligible and entitled to 

benefits is eligible to receive specific services, such as nursing home, home health, or personal care. These 

criteria are based on need and can include an assessment of medical/nursing needs, health and healthrelated needs, functional limitations, and/or other factors. The goal of these eligibility criteria is twofold: 

to define medical necessity and to manage overall utilization. This chapter discusses Federal provisions for 

determining eligibility for four major Medicaid benefits: the mandatory Home Health benefit, the Personal 

Care benefit, home and community-based services (HCBS) waiver programs, and the State Plan HCBS 

option (under the Section [§]1915(i) authority). It also discusses factors for states to consider when setting 

these criteria.

1

Introduction

Federal law and regulation specify the general eligibility and coverage requirements for mandatory and optional Medicaid home and community services. States use additional criteria to specify who, within the general 

eligibility group, will receive services. States use a number of different terms to describe these criteria: medical 

necessity criteria, health and functional criteria, level-of-care criteria, and service criteria. These terms are often 

used interchangeably, but, in fact, may have specific meanings in state usage, which may differ from usage 

in Federal requirements. When referring to any of these criteria, this Primer uses the term service criteria. The 

degree of flexibility states have in setting these criteria depends on whether the service is Federally mandated 

or a state option and, if optional, whether it is offered under the State Plan or through a waiver program.

Service Criteria: General Considerations 

The purpose of service criteria is to define medical necessity and to manage overall utilization. Controlling utilization is typically understood to mean placing limits on either the number of times a service may be provided, or the period over which it can be provided, for a given condition.2

 For a Federally mandated service, such 

as Home Health, states are required to define the service in the State Plan and may specify reasonable limitations to the defined service. States also develop the process by which they determine an individual’s medical 

necessity for a service, a process which is not contained in the State Plan and about which the Centers for 

Medicare & Medicaid Services (CMS) has historically issued little guidance. Some states have included medical 

necessity criteria in their State Plan, but these are considered by CMS to be part of the definition of reasonable 

limitations. 

These Federal requirements allow states considerable flexibility, because reasonable limitations and medical 

necessity are not defined further in Federal law or regulation (although limitations must be approved by CMS 

in the State Plan). States often interpret the medical necessity criterion to mean that pre-authorization by a 

medical professional is needed. But medically necessary services do not have to be medical services, that is, 

services provided by licensed medical personnel; they may be services and supports provided by personal 

assistants or home health aides to address functional needs. (See discussion of medical necessity under the 

heading Misperceptions, later in this chapter.) 
66 Understanding Medicaid Home and Community Services: A Primer

Service criteria generally include some measures of 

functioning, such as the ability to perform activities 

of daily living (ADLs) and instrumental activities of 

daily living (IADLs) without assistance. ADLs include 

eating, bathing, dressing, toileting, transferring 

(e.g., from a bed to a chair), and maintaining continence. IADLs include medication management, 

money management, light housework, laundry, 

meal preparation, transportation, grocery shopping, 

and using the telephone.3 While IADL performance 

requires higher cognitive functioning than does 

ADL performance, assistants who provide help with 

IADLS, other than medication and money management, generally need less training than those who 

provide help with ADLs. This is particularly true 

when ADL assistance requires tasks covered by a 

Nurse Practice Act, such as tube feeding.4

Optional benefits provided under the State Plan, 

such as personal care services, carry no Federal 

statutory or regulatory provisions regarding the 

type or level of impairment a person must have to 

receive benefits. The only Federal rule for optional 

benefits is that the state must make the service 

equally available to all beneficiaries who satisfy the 

service criteria that the state sets as defined and 

limited in the State Plan.

States are permitted to choose the measures they 

use to assess the particular level and/or combination of needs a person must have to be eligible. A 

state may require a person to have 2 out of 5 ADL 

impairments or 4 out of 12 ADL and IADL impairments. This flexibility has resulted in considerable 

variation in the service criteria for states’ Personal 

Care programs. 

Determining Medical Necessity

Examples of questions that could be relevant in 

determining medical necessity include

1. Relation to medical condition: Is the service required to identify, diagnose, treat, 

correct, cure, ameliorate, palliate, or prevent a disease, illness, injury, disability, or 

other medical condition, or is the service 

required to assist an individual to perform 

activities of daily living?

2. Medical reason for treatment: Is the service 

provided for medical reasons rather than 

primarily for the convenience of the beneficiary, caregiver, or provider?

3. Clinical appropriateness: Is the service 

consistent—in terms of amount, scope, 

and duration— with generally accepted 

standards of good medical practice?

4. Medical need for choice among alternate 

settings: Is the service affording treatment 

generally provided to similarly situated 

individuals in the setting, or is there an 

alternate available setting where, under 

generally accepted standards of good 

medical practice, the same service may be 

safely and effectively provided? This question would not apply where Medicaid or 

the Americans with Disabilities Act require 

that the beneficiary have a choice among 

alternate settings.

Source: CMS Office of Counsel.

Designing Medicaid service criteria can be a major 

challenge for states, because competing policy objectives are involved. On the one hand, states want 

to ensure that service criteria identify all individuals who have a legitimate need for assistance. On 

the other hand, states must operate their Medicaid 

programs in accord with their budgets. Because the 

number of people served is a major determinant of 

program costs, setting service criteria is a key financial decision. 

Setting service criteria based on a trade-off between coverage and costs can have unintended 

effects on other parts of the long-term care system. 
Chapter 3: Determining Service Eligibility 67

For example, because nursing homes are expensive, 

a state may establish stringent level-of-care criteria 

for Medicaid coverage. Although, the provision of 

home and community services through an HCBS 

waiver program can be considerably less expensive, 

Federal law requires that states use the same levelof-care criteria for nursing homes and HCBS waiver 

programs. Thus, stringent institutional criteria can 

be an obstacle to serving people through HCBS 

waivers, because some people who meet the criteria may be too impaired to be cared for safely and 

cost-effectively in the community unless they have 

extensive informal help. Very stringent service criteria may also result in premature institutionalization, 

if informal care networks “burn out” because paid 

assistance is not available until a person becomes 

severely impaired.

Alternatively, states may decide they would rather 

serve more people and control utilization (and 

therefore costs) by limiting the amount of services 

provided and reimbursement rates. The problem 

here is that the more restrictions the state imposes 

on the amount, scope, and duration of services, the 

more likely it is that people with significant needs 

will be inadequately served in the community and 

end up in an institution at a greater cost to the state. 

Such trade-offs suggest that there is no “correct” 

decision regarding service criteria. An approach that 

is appropriate in one state may not work in another. 

This underscores the need to make decisions about 

service criteria within the broader context of a 

state’s long-term care system—which includes both 

institutional and home and community services 

and, with respect to the latter, several alternative 

funding streams. 

States use various approaches to ensure that a 

program’s service criteria not only match the policy 

goals for that program but also fit with and meet 

the goals of the larger long-term care system. 

Several states do so by using an assessment process 

that starts with an eligibility determination for the 

highest level of need—nursing facility/waiver services. If applicants do not meet the nursing facility 

level-of-care criteria, they are then considered for 

other long-term care programs that have progressively lower need requirements. The waiver program 

may require three ADL limitations, for example, but 

the Medicaid Personal Care program may require 

only two, and a state-funded program for those not 

eligible for Medicaid may require only one ADL plus 

one IADL impairment. 

The remainder of this chapter provides information 

about Federal provisions related to the selection 

of service criteria for four Medicaid benefits: Home 

Health, Personal Care, HCBS waivers, and State Plan 

HCBS. The first three benefits account for the vast 

majority of Medicaid spending on home and community services; State Plan HCBS became an option 

in 2007. (See Chapter 4 for a more detailed description of these service options.) While the same or 

similar services may be covered by all three benefits 

(e.g., assistance with ADLs), states have more flexibility when defining service criteria for optional 

than for mandatory benefits. 

Home Health Services

Home health services are a mandatory benefit for all 

individuals entitled to nursing facility care under a 

state’s Medicaid State Plan—that is, for categorically 

eligible persons age 21 or older. If a state chooses 

to cover nursing facility care for younger persons, 

or for the medically needy, home health services 

become mandatory for these groups as well.6 

To receive home health services, Federal regulations 

specify that the services must be ordered by a physician as part of a written plan of care. Beyond this 

authorization procedure, and the general requirement that services be medically necessary, there are 

no additional Federal requirements. 

Misperceptions 

Despite the unambiguous nature of Federal coverage and eligibility requirements, misperceptions 

that additional Federal requirements further restrict 

who may receive home health services are common. The first misperception is that individuals 

must be eligible for nursing facility care in order to 

receive home health services (i.e., that they must 

meet a state’s nursing facility level-of-care criteria). 

This misunderstanding has arisen because the word 
68 Understanding Medicaid Home and Community Services: A Primer

entitled to nursing facility care has been interpreted 

to mean eligible for nursing facility care. The Federal 

requirement specifies the coverage groups entitled 

to the Home Health benefit. Those entitled include 

(a) categorically eligible persons age 21 or over, 

(b) persons under age 21 if the State Plan provides 

nursing facility services for them, and (c) medically 

needy persons if the State Plan provides nursing 

facility services for them. It also states clearly that 

eligibility does not depend on the need for institutional care or for skilled nursing or therapy services. 

Additionally, even if the state does not cover persons under age 21, the Early Periodic Screening, 

Diagnosis, and Treatment mandate requires that 

home health services be provided to this group if 

they are needed. 

A second misperception is that states must use Federal eligibility requirements for the Medicare Home 

Health benefit to determine eligibility for the Medicaid Home Health benefit. In particular, many incorrectly believe that to be eligible for Medicaid home 

health services, a person has to meet the Medicare 

home-bound requirement and need skilled nursing or therapy services. In fact, states may not limit 

Medicaid home health services to individuals who 

require skilled services as defined by Medicare (i.e., 

skilled nursing and therapy services).6

Additionally, while Federal regulations state that 

home health services must be provided in the 

home, there is no requirement that beneficiaries 

be homebound. A July 2000 State Medicaid Director Letter clarifies that a homebound requirement 

violates Medicaid comparability requirements.7

While Medicaid home health services must be provided by a Medicare-certified home health agency, 

this requirement is a provider qualification; it does 

not create an eligibility linkage between the two 

programs. Federal Medicaid policy permits states 

to provide home health services to persons with a 

wider range of needs than is possible through the 

Medicare program.

Federal Coverage and Eligibility 

Requirements for Medicaid 

Home Health Services

Mandatory State Plan home health services are 

(a) nursing services provided on a part-time or 

intermittent basis by a home health agency that 

meets requirements for participation in Medicare; (b) home health aide services provided by 

a home health agency that meets requirements 

for participation in Medicare; and (c) medical 

supplies, equipment, and appliances suitable for 

use in the home. 

• The optional home health services are 

physical therapy, occupational therapy, 

speech pathology, and audiology services. 

• Services must be ordered by a physician 

as part of a written plan of care that the 

physician reviews every 60 days.8 

• Once a state defines its Home Health benefit—whether it includes only mandatory 

home health services or both mandatory 

and optional services—the benefit must 

be available to all Medicaid beneficiaries 

entitled to nursing facility services under 

the State Plan. 

• States may place coverage limits on home 

health services if the limits are based on 

considerations related to medical necessity or utilization control.

• Eligibility of beneficiaries to receive home 

health services does not depend on their 

need for, or discharge from, institutional 

care, or their need for skilled nursing or 

therapy services.
Chapter 3: Determining Service Eligibility 69

Provision of Services Outside a Beneficiary’s Home

A Connecticut lawsuit—Skubel v. Fuoroli—challenged CMS’s regulation requiring that Medicaid home health care 

services be provided exclusively in a beneficiary’s place of residence. The lawsuit focused on the receipt of nursing services outside the home.

In 1997, the Court of Appeals ruled that the Medicaid statute is ambiguous with respect to whether home 

health care services must be provided exclusively at the recipient’s residence.9 Specifically, the court ruled that 

“the Medicaid statute neither allows nor prohibits reimbursement for home health services outside the recipient’s residence. The statute merely provides that states may include ‘home health care services’ in their Medicaid 

programs.10 It does not define home health care services, and though the statute implies that the services will 

normally be rendered in the home, neither the context of the provision nor the structure of the statute indicates 

whether the home is the exclusive locus of the necessary services.” 

The court went on to hold that “the regulation as written is invalid,” because the restriction of home health care 

services to a beneficiary’s residence “ignores the consensus among health care professionals that community 

access is not only possible but desirable for disabled individuals.” The court further stated that the assumptions 

behind the restriction of services to the beneficiary’s residence were medically obsolete, and that “the technology and knowledge now exist to allow many people with disabilities, elderly or not, to venture into the community, where before they would have been considered permanently homebound.” 

To ensure that the ruling would not result in increased costs for the state, the court expressly limited beneficiaries of Medicaid-covered home health nursing services to the number of hours of services to which they would 

be entitled if the services were provided exclusively at the recipient’s place of residence.11
70 Understanding Medicaid Home and Community Services: A Primer

Addressing Cost Concerns 

States can address concerns about the cost of the 

Home Health benefit without using the impermissible homebound criterion. For example, states may 

establish criteria to determine who needs the service based on medical necessity, criteria which take 

account of beneficiaries’ unique needs, as described 

in the following examples. 

When a condition—such as quadriplegia—prevents 

individuals from going to another health care setting to obtain the service.

When going to an outpatient setting for the service would constitute a medical hardship due to 

an individual’s condition, or is contraindicated by a 

documented medical condition, such as the need to 

be protected from exposure to infections.

When going to an outpatient setting for the service would interfere with the effectiveness of the 

service. Examples include (1) when hours of travel 

would be required; (2) when services are needed 

at a frequency that makes travel extremely difficult, such as IV care three times a day; (3) when 

a client needs regular and unscheduled catheter 

changes, and having home health services in place 

will prevent emergency room visits for unscheduled 

catheter changes due to blockage or dislodgment; 

and (4) when there is a history of noncompliance 

with outpatient services that has led to adverse 

consequences, including emergency room use and 

hospital admissions.12

States can also control costs for the Home Health 

benefit by limiting the amount, scope, and duration of the services provided—as long as all services 

listed in the State Plan are sufficient to meet the 

needs of most persons who need the services. The 

State Plan must include a list of services that will 

be provided, as well as their amount, scope, and 

duration. For example, some states limit the number 

and duration of daily home health aide visits, and 

preauthorization is required to exceed these limits. 

Other states require preauthorization for all services 

to ensure appropriateness. 

The appropriate context for making decisions about 

limits on a state’s Home Health benefit is the state’s 

entire system of home and community services. A 

state may opt to cover registered nurse and home 

health aide visits through the Home Health benefit, 

for example, and not through a waiver program to 

ensure that all beneficiaries who need these services receive them, not just those who meet the 

nursing home level-of-care criteria. However, if a 

state uses institutional rules for the waiver program, 

doing so will limit services under the Home Health 

benefit to those who meet the stricter financial 

eligibility criteria for State Plan services.

Ensuring Correct Application of

Eligibility Criteria

States contracting with private managed care 

organizations to provide the Medicaid Home Health 

benefit must specify in their managed care contracts who will determine eligibility for the benefit 

and what service criteria will be used. Clear and 

precise terms are crucial. Eligibility criteria that are 

framed in very general terms—medical necessity, 

for example—can be interpreted very differently 

in a managed health care plan that customarily 

provides primary and acute health care benefits but 

not long-term care services. 

Home health services can be provided as acute, 

post-acute, and/or long-term care services. If a state 

has an HCBS waiver program administered, for example, by an Area Agency on Aging, but the state’s 

capitated health programs control the Home Health 

benefit, the two systems will need to collaborate to 

ensure that individuals entitled to and eligible for 

home health services receive them.

Personal Care Benefit 

Personal care services provided through the State 

Plan are an optional benefit. When personal care 

services were first authorized in the mid-1970s, they 

had to be prescribed by a physician in accordance 

with a treatment plan. In 1993, Congress removed 

the requirement for physician authorization and 

gave states the option to use other methods to 

authorize the benefit in accordance with a stateapproved service plan. There are no other Federal 
Chapter 3: Determining Service Eligibility 71

statutory or regulatory requirements regarding 

eligibility for services. Within the broad parameters 

of the Federal definition of personal care services, 

states are free to determine service criteria as well 

as the amount, scope, and duration of the services. 

The State Medicaid Manual definition of personal 

care services provides the primary guidance for 

establishing these criteria: 

Personal care services . . . may include a range of human assistance provided to persons with disabilities 

and chronic conditions of all ages, which enables 

them to accomplish tasks they would normally do 

for themselves if they did not have a disability. Assistance may be in the form of hands-on assistance 

(actually performing a personal care task for a person) or cueing so that the person performs the task 

by him/herself. Such assistance most often relates to 

performance of activities of daily living (ADLs) and 

instrumental activities of daily living (IADLs).13

The Manual also states that people with cognitive 

impairments can be offered services through the 

Personal Care option: 

An individual may be physically capable of performing ADLs and IADLs but may have limitations in 

performing these activities because of a cognitive 

impairment. Personal care services may be required 

because a cognitive impairment prevents an individual from knowing when or how to carry out the 

task. For example, an individual may no longer be 

able to dress without someone to cue him or her on 

how to do so. In such cases, personal assistance may 

include cueing along with supervision to ensure 

that the individual performs the task properly.14

Given the Federal Medicaid definition of personal 

assistance, service criteria should be based on a 

need for assistance with ADLs or with IADLs. There 

is a considerable body of research on ADLs and 

IADLs to guide states in designing their service 

criteria. Generally, ADLs are more frequently used 

than IADLs to determine service eligibility, because 

they are widely believed to measure a greater level 

of need. But research indicates that dependencies 

in multiple IADLs also indicate a high level of need 

(e.g., the inability to use the telephone actually indicates a very high level of impairment).15 Limitations 

in performing other IADLs, such as meal preparation 

and medication management, may actually pose a 

greater health risk than an ADL limitation in bathing 

and dressing. A number of states use both ADLs and 

IADLs in their service criteria.

An important consideration when selecting service criteria is that the level of impairment a state 

requires for eligibility matches the services available. For example, if a state requires applicants to be 

severely impaired, the maximum number of service 

hours permitted should be sufficient to enable 

them to remain in the community. It is also important to ensure that assessment methodologies do 

not inadvertently exclude certain groups, such as 

persons with dementia. For example, if the eligibility 

criteria require that an individual needs “hands-on” 

assistance with ADLs, a person who needs cueing 

and supervision to perform ADLs will be excluded.

In effect, states have a very high level of discretion 

when determining who will receive personal care 

services through the State Plan. However, states 

may not violate Medicaid comparability requirements by restricting services to those with a particular diagnosis or condition. 

Given that personal care services are subject to Federal statewideness and comparability requirements, 

states understandably have cost concerns about 

increasing access to these services through the use 

of liberal service criteria. As mentioned, there is no 

“correct” decision regarding service criteria. Whether or not particular service criteria are appropriate 

and make sense depends on the broader context 

of a state’s policy goals for its entire long-term care 

system (i.e., whether the criteria fit logically into the 

overall plan for providing services to people with 

long-term care needs through multiple programs).
72 Understanding Medicaid Home and Community Services: A Primer

The Comparability Requirement

With few exceptions (such as the targeted case 

management benefit), service criteria for any 

State Plan benefit—mandatory or optional—are 

subject to the “comparability” requirement. Under this requirement, services must be available 

on a comparable basis to all Medicaid beneficiaries in an eligibility group in the state who need 

the service; that is, the State Plan may not offer 

a service only to persons who have a particular 

condition or offer it in different forms to different 

groups.16 Additionally, states must use the same 

eligibility criteria for all applicants, and any limits 

on service amount, scope, and duration must be 

applied equally to individuals currently receiving 

services and those applying for services. 

The effect of these requirements is that states 

cannot have service criteria that target particular 

groups of people by diagnosis, or condition (e.g., 

requiring that individuals have a spinal cord 

injury). Additionally, any changes made in the 

service criteria—and in the amount, scope, and 

duration of service—must be applied equally to 

those currently receiving services and those applying for them. These provisions constitute the 

“comparability” requirement. HCBS waivers are 

not State Plan services and not subject to this 

requirement—they “waive” comparability.

The Statewideness Requirement

States cannot restrict the availability of State 

Plan services to particular geographic regions.

Some states design programs funded only with 

state dollars to provide services for people who do 

not meet Medicaid’s eligibility criteria but nonetheless need services. For example, the goal of the 

Connecticut Home Care Program for Elders is to 

avoid institutionalization of frail individuals age 65 

or older. The program includes both a state-funded 

component and a Medicaid waiver component. Because many individuals who need services to avoid 

nursing home placement do not meet Medicaid’s 

financial eligibility criteria and/or the waiver’s levelof-care criteria waiver, this population is served in 

the state program, which has less stringent financial 

and service eligibility criteria than does the waiver 

program.

HCBS Waiver Programs

Under HCBS waiver programs, states are permitted 

to waive Federal comparability and statewideness 

requirements in order to provide home and community services to people who would otherwise 

require an institutional level of care reimbursable by 

Medicaid. 

To be eligible for waiver services, individuals must 

first meet a waiver’s targeting criteria, such as age 

and diagnosis or condition. A state may have a 

number of waiver programs targeting different 

groups: people age 65 or older, those age 18 to 64 

with physical disabilities, children who are technology dependent, persons with intellectual disabilities 

and other developmental disabilities (hereafter 

referred to as developmental disabilities), persons 

with AIDS, and persons with traumatic brain injury.

Individuals who meet the targeting criteria must 

then meet service criteria, which for HCBS waiver 

programs are the level-of-care criteria states use 

to determine eligibility for either a hospital, nursing facility, or intermediate care facility for persons 

with intellectual disabilities (ICF/ID)—also called 

institutional criteria.17 Level-of-care criteria explicitly 

describe the type and level (or severity) of functional limitations and/or medical and nursing needs an 

individual must have to be admitted to an institutional setting. 
Chapter 3: Determining Service Eligibility 73

Illustrative Service Criteria for Personal Care Services: State Examples

Arkansas. To be eligible for State Plan Personal Care services, a person must have physical dependency needs 

and require assistance performing the following tasks and routines: eating, bathing, dressing, personal hygiene, 

bladder and bowel requirements, taking medications, laundry, incidental housekeeping, and shopping for personal maintenance items. 

Texas. To be eligible for State Plan Personal Care services, the applicant/client must 

1. Meet the minimum functional need criteria as set by the department. The department uses a standardized 

assessment instrument to measure the client’s ability to perform activities of daily living. This yields a score, 

which is a measure of the client’s level of functional need. The department sets the minimum required 

score for a client to be eligible, which the department may periodically adjust commensurate with available 

funding. 

2. Have a medical need for assistance with personal care:

• the individual’s medical condition must be the cause of the individual’s functional impairment in performing personal care tasks;

• persons diagnosed with mental illness and intellectual disability, or both, are not considered to have an 

established medical need based solely on such diagnosis. The diagnoses do not disqualify an individual 

for eligibility as long as the individual’s functional impairment is related to a coexisting medical condition;

• have a signed and dated practitioner’s statement that includes a statement that the individual has a current medical need for assistance with personal care tasks and other activities of daily living.

3. Require at least 6 hours of service per week. An applicant/individual requiring fewer than 6 hours of service 

per week may be eligible if the applicant/individual meets one of the following criteria:

• requires primary home care or community attendant services to provide respite care to the caregiver;

• lives in the same household as another individual receiving primary home care, community attendant 

services, family care, or Community Based Alternatives personal assistance services;

• receives one or more of the following services (through the department or other resources):

i. congregate or home-delivered meals,

ii. assistance with activities of daily living from a home health aide,

iii. day activity and health services, or

iv. special services to persons with disabilities in adult day care.

• receives aid-and-attendance benefits from the Veterans Administration;

• receives services through the department’s In-home and Family Support Program;

• receives services through the Medically Dependent Children Program; or

• is determined, based upon the functional assessment, to be at high risk of institutionalization without 

primary home care or community attendant care services.
74 Understanding Medicaid Home and Community Services: A Primer

These criteria usually include measures of the need 

for nursing and medically-related services and for 

assistance with ADLs. A determination that a person 

meets the required level-of-care criteria is based on 

information gathered through a formal assessment 

process carried out when an individual applies for 

services. In the case of ICF/ID services, applicants 

must have an intellectual disability or a “related” 

condition, and be found to need various supports 

necessary to maintain or improve functioning.18 In 

the case of nursing facility services, the need for 

skilled and unskilled nursing care is generally assessed, as is the need for assistance with ADLs and 

other aspects of functioning.

The Federal requirement that states use the same 

or equivalent service criteria for waiver services that 

they use for institutional placement stems from 

the waiver program’s primary purpose: to offer an 

alternative to institutionalization.19 This statutory 

requirement was added by Congress in part to address concern about the cost of expanding home 

and community services: states must demonstrate 

that they are providing waiver services only to 

people who are eligible for institutional placement. 

CMS cannot waive this requirement or lessen its impact by regulation. Congress would have to amend 

the Federal Medicaid statute to allow states to use 

substantively different service criteria for a waiver 

program than for institutional services (i.e., criteria 

not based on the need for institutional services). 

Level-of-Care Criteria for ICFs/ID and 

HCBS Waiver Programs for People with 

Developmental Disabilities

Some states use “categorical” level-of-care criteria referencing specific “related conditions” by 

medical diagnoses or type, such as intellectual 

disability, spina bifida, or autism. Other states 

use “functional” criteria, such as that provided by 

the Federal Developmental Disabilities Assistance and Bill of Rights Act of 2000,20 which are 

based on a person’s adaptive abilities or capacity 

to perform tasks at a specific level. The majority 

of states, however, use a combination of the two 

approaches, referencing both categorical and 

functional criteria.21

When the waiver authority was enacted in 1981, 

home and community services could be provided 

under a waiver program only to persons who met 

the level-of-care criteria for any one of the following 

institutions: a Medicaid skilled nursing facility (SNF), 

an intermediate care facility (ICF) providing nursing services, an ICF/ID, or a hospital that is Medicaid 

certified as a hospital but provides long-term care 

services. In 1987, the Omnibus Budget Reconciliation Act eliminated the distinction between mandatory SNFs and the optional ICFs and mandated 

a new nursing facility benefit, which includes the 

former SNF and ICF benefits. 

The only Federal requirement for persons to receive 

the former ICF level of care—now the minimum 

level of care in a nursing facility—is a need on a 

regular basis for “health-related care and services 

[provided] to individuals who because of their mental or physical condition require care and services, 

above the level of room and board, which can be 

made available to them only through institutional 

facilities.”25 Within this broad definition, states are 

free to set whatever service criteria they choose for 

nursing facility care, which (or their equivalent) are 

then used to determine eligibility for waiver services. States vary considerably in the stringency of 

their minimum level-of-care criteria.26
Chapter 3: Determining Service Eligibility 75

Lawsuit Related to Maryland’s 

Level-of-Care Criteria

On November 30, 2007, Maryland’s Court of 

Special Appeals ruled that Maryland’s standard for 

determining eligibility for nursing facility services 

and HCBS waiver programs—a need for constant 

skilled nursing care—was stricter than allowed 

under Federal law. The Court determined that 

people should be eligible if they need constant 

care and supervision provided by health care 

aides, but not necessarily the level of care that 

would require licensed or highly skilled nurses.22

As a result of the Court’s ruling, the State developed new minimum level-of-care criteria for applicants who do not meet the criteria for a skilled 

level of nursing home care. These criteria include 

“a need for health-related services above the level 

of room and board on a regular basis.” The State 

describes such services as

• A need for hands-on assistance to adequately and safely perform two of five ADLs—

bathing, dressing, mobility, toileting/continence, and eating—as a result of a current 

medical condition or disability; or

• Supervision of an individual’s performance 

of two or more ADLs for an individual with 

cognitive deficits, as indicated by a score of 

15 or less on the Folstein Mini-Mental Status 

Exam (MMSE),23 and who is in need of assistance with at least three or four instrumental 

activities of daily living—medication management, money management, telephone 

use, and housekeeping; or 

• Supervision of an individual’s performance 

of two or more ADLs combined with the 

need for supervision and redirection of 

individuals exhibiting at least two of the 

following behavior problems: wandering 

several times a day; hallucinations/delusions 

at least weekly; abusive/aggressive behavior several times a week; disruptive/socially 

inappropriate behavior several times a week; 

and/or self-injurious behavior several times 

a month.24

Misperceptions About Medical Bias in 

Nursing Facility Service Criteria 

A common criticism of nursing facility level-of-care 

criteria is that they are “medically biased,” that is, 

(a) they do not adequately assess functional limitations and how they affect the need for long-term 

care, or (b) they give greater weight to nursing and 

medical needs than to functional limitations caused 

by physical or mental impairments. However, no 

Federal statute or regulation mandates that states 

adopt such a medical approach when setting nursing facility level-of-care criteria. 

The term medically necessary does not imply a 

distinction between medical conditions and functional limitations caused by physical or mental 

impairments. The correct sense of the term is that 

services need simply to be “necessary” (i.e., needed 

by the individual). Determining medical necessity 

is the process states use to determine whether a 

specific person requires a covered service. States 

must provide covered services to eligible individuals 

who require them. States also make medical necessity determinations to control utilization and avoid 

wasting resources on unneeded services.
76 Understanding Medicaid Home and Community Services: A Primer

There is no Federal definition of medical necessity 

for specific services, so states are free to define it 

broadly (e.g., medically necessary services are those 

that promote optimal health and functioning). Thus, 

the requirement that services be medically necessary does not mean a state is required to use only 

medical—or even any medical—service criteria to 

determine eligibility for nursing facility services. 

Oregon, for example, uses only functional criteria.27

Nor must a state give greater weight to medical and 

nursing needs than to functional needs. 

No clear line separates functional from medical 

needs. Health status and functioning are closely interrelated; immobility due to paralysis or even frailty 

can lead to serious medical problems in multiple 

body systems. Thus, failure to address functional 

limitations can result in serious medical problems that require not only nursing home care, but 

hospitalization as well. The primary reason people 

need long-term care services is because they have 

functional limitations. Even if people require specialized health care (e.g., injections or catheterization), research has shown that people can meet 

these needs themselves if they are not physically or 

mentally impaired. Thus, the single most important 

measure of need for long-term care is a person’s 

functional limitations.

Another common misperception is that a physical 

illness or disability is required in order to be eligible 

for Medicaid coverage of nursing facility care, rather 

than assistance with ADLs or IADLs due to functional limitations caused by cognitive deficits or mental 

illness. In fact, §1915(a)(1)(C) of the Social Security 

Act clearly states that while the overall facility must 

not be primarily for the treatment of mental diseases, a nursing facility provides health-related care 

and services to individuals who because of their 

physical or mental condition require, on a regular 

basis, care and services (that are above the level of 

room and board), which can be made available to 

them only through institutional facilities. However, 

a Federally required process called Preadmission 

Screening and Resident Review requires states to 

ensure that individuals with serious mental illness 

or an intellectual disability are admitted to a nursing 

facility only if the facility can meet their needs. 

Another common misperception about Medicaid 

level-of-care criteria is that an institutional standard 

requires a severe level of medical need or functional 

limitation. There is no such Federal requirement. In 

addition to having criteria for a skilled level of care, 

states’ nursing facility benefit must include minimal 

criteria that comports with the Federal definition 

of the former ICF criteria: a need, on a regular basis, 

for health-related care and services by individuals, 

who because of their mental or physical condition, 

require care and services (above the level of room 

and board), which can be made available to them 

only through institutional facilities.28

However states define their nursing home level-ofcare criteria, many people who meet those criteria 

will remain in the community, even without formal services. A study in Connecticut, for example, 

found that some people with severe functional 

limitations (three or more ADL impairments), who 

met the nursing facility level-of-care criteria, chose 

to go without nursing home and waiver services 

rather than spend down to Medicaid eligibility or 

be subject to estate recovery provisions.29 States’ 

concerns about increasing the number of people 

admitted to nursing facilities are understandable. 

However, states can prevent unnecessary institutionalization by screening people prior to nursing 

facility admission to determine whether services 

could be provided in home and community settings 

(i.e., establish pre-admission screening or nursing 

facility diversion programs). Other steps that states 

can take to reduce the number of people in nursing facilities include the establishment of nursing 

facility transition programs and “money follows 

the person” policies to allow institutional funds to 

follow nursing facility residents to home and community settings. Implementation of such programs 

and policies can help to ensure that only those who 

truly cannot be served safely and cost-effectively in 

the community will be admitted to and remain in 

nursing facilities.30
Chapter 3: Determining Service Eligibility 77

Illustrative Use of Functional Measures to 

Determine Eligibility for Nursing Facility 

and Waiver Services: Oregon

Oregon’s level-of-care criteria specify 18 functional levels with 1 representing the most 

impaired and 18 the least impaired. The State 

does not consider medical or nursing needs to 

determine eligibility. The State assesses the need 

for assistance with mobility (ambulation and 

transferring), eating, and elimination (toileting, 

bowel and bladder care), and assistance due to 

impaired mental status (cognition and behavior.) The definitions of ADL assistance recognize 

that the need for assistance can be the result 

of a physical impairment, limited endurance, or 

cognitive impairment.

The State assesses mental status, with measures 

of memory, orientation, adaptation to change, 

awareness of needs, and judgment. Memory is 

defined as the ability to remember and appropriately use current information, which affects 

an individual’s health, safety, and welfare. Behaviors that may affect living arrangements and/

or jeopardize the safety of self or others are also 

assessed; these include wandering, those that 

pose a danger to self or others, and those that 

negatively affect living arrangements, providers, 

and/or others. 

Threshold Eligibility Requirement. Depending 

on available funding, the State sets different 

levels as the threshold eligibility requirement. In 

the past 15 years, it has varied from level 13 to 

level 18.

HCBS State Plan Benefit 

The Deficit Reduction Act of 2005 (DRA-2005) 

added §1915(i) to the Social Security Act, which 

allows states, at their option, to provide home and 

community-based services under the Medicaid 

State Plan without a waiver.31 Section 1915(i) was 

subsequently amended by the Patient Protection 

and Affordable Care Act of 2010 (hereafter, the Affordable Care Act). 

The only Federal requirement regarding the needsbased criteria for this optional State Plan benefit is 

that they be less stringent than a state’s level-ofcare criteria for institutional services, that is, nursing 

facilities, ICFs/ID, and hospitals that are Medicaid 

certified as hospitals but provide long-term care 

services. However, if a state chooses to use the 300 

percent of Supplemental Security Income financial 

eligibility criteria for this benefit, to be eligible individuals must also be eligible for either a §1915(c), 

(d), or (e) waiver or a §1115 waiver. For a §1915(c) 

waiver, this means that individuals must meet the 

level-of-care criteria for institutional services.

If the state does not have needs-based criteria as 

part of its level-of-care criteria for these institutions, 

the state will have to add them.32 If a state revises its 

needs-based eligibility criteria, it must continue offering §1915(i) services in accordance with individual service plans to participants who do not meet the 

new revised needs-based criteria, but continue to 

meet the former needs-based criteria, for as long as 

the State Plan HCBS option is authorized.33

Needs-Based Level-of-Care Criteria

Because minimum eligibility for the §1915(i) 

benefit must be set below institutional level-ofcare criteria, states may want to use this option 

to serve individuals with a low level of need and 

to serve only individuals with a higher level of 

need in institutions and through HCBS waivers. 

(However, states could choose not to set such a 

ceiling, and allow individuals whose needs meet 

institutional and HCBS waiver criteria to be able 

to receive State Plan HCBS.) 

In order to implement the State Plan HCBS 

benefit, states may need to add needs-based 

criteria to their institutional level-of-care criteria 

requirements, if none presently exist. Section 1915(i) of the Social Security Act does not 

require that such added needs-based institutional level-of-care criteria necessarily result 

in excluding individuals who would be served 

without the added criteria. In fact, the purpose 

of §1915(i) is to expand access to home and 

community-based services for individuals who 

are not at an institutional level of care, rather 

than to reduce access to institutional and waiver 

services.
78 Understanding Medicaid Home and Community Services: A Primer

Community First Choice Option 

The Affordable Care Act of 2010 also establishes a 

new State Plan optional benefit—the Community 

First Choice Option, effective October 2011.34 The 

Federal Medical Assistance Percentage rate in the 

Community First Choice Option will be six percentage points higher than the state’s usual matching 

percentage for Medicaid services. To be eligible for 

services, individuals must require hands-on assistance, supervision, or cueing with activities of daily 

living, instrumental activities of daily living, and/

or health-related tasks. If their income exceeds 150 

percent of the Federal Poverty Level, they must 

meet the state’s institutional level-of-care criteria. 

Major Considerations in Setting Service 

Criteria: A Recap

Federal policies with respect to service criteria establish a framework within which states have wide 

latitude to select service criteria that best suit their 

unique long-term care service system. Three considerations, in particular, should guide state choices in 

setting their service criteria:

Service criteria should be developed with an eye 

toward the full constellation of services and supports a state offers—both through the Medicaid 

program and with other state and local resources. In 

other words, criteria should not be crafted for specific programs without considering the criteria for 

other long-term care service programs in the state. 

The criteria should fit together so that all individuals needing long-term care services in the state are 

able to obtain the services and supports that will 

meet their needs.

It is important to recognize that there is a constant 

tug-and-pull among state policy aims. On the one 

hand, states desire to make services and supports 

broadly available. On the other hand, states must 

manage their budgets. States, for example, may 

sometimes impose stringent service criteria for cost 

containment reasons, which then undermines their 

ability to promote appropriate access. Careful management of different components of the benefit 

package and establishment of an efficient service 

delivery system can help a state to work its way 

between these potentially conflicting objectives.

Concern that using less stringent criteria (with 

respect to the institutional/waiver eligibility linkage) 

will result in higher demand for—and expenditures 

on—institutional services, seems to be misplaced. 

Experience confirms that most individuals want to 

remain in their homes and in the community. Their 

ability to do so is strengthened through the provision of home and community services. 
Chapter 3: Determining Service Eligibility 79

Resources

Since the Primer was first published in 2000, numerous reports and other resources have become available 

on the Internet. This section includes key resources regarding service eligibility for Medicaid long-term care 

services and supports. Most of the publications cite additional resources and the websites have links to 

other information sources.

Publications

Centers for Medicare & Medicaid Services. (2008). Application for a §1915(c) Home and CommunityBased Waiver [Version 3.5]: Instructions, Technical Guide and Review Criteria. Baltimore, MD: Department 

of Health and Human Services.

This publication contains extensive information concerning Federal policies that apply to the operation of an 

HCBS waiver, in particular, Appendix B: Participant Access and Eligibility. 

Available at https://www.hcbswaivers.net/CMS/faces/portal.jsp under links and downloads, entitled §1915(c) 

Waiver Application and Accompanying Materials. 

Centers for Medicare & Medicaid Services. State Medicaid Director Letter. August 6, 2010. Improving Access to Home and Community-Based Services.

The purpose of this letter is to inform states of, and provide guidance on, several changes to §1915(i) of the 

Social Security Act made by the Affordable Care Act. Under §1915(i), states have the option to amend their 

State Plans to provide home and community-based services without a waiver. These changes, which become 

effective October 1, 2010, include revised and new §1915(i) provisions for removal of barriers to offering home 

and community-based services through the Medicaid State Plan. 

Available at http://www.cms.gov/smdl/downloads/SMD10015.pdfHendrickson, L., and Kyzr-Sheeley, G. 

(2008). Determining Medicaid Nursing Home Eligibility: A Survey of State Level of Care Assessment. New 

Brunswick, NJ: Rutgers Center for State Health Policy.

This study describes the nursing facility level-of-care determination processes for individuals applying for 

Medicaid coverage of nursing home services. The Appendix provides a brief description of data each state collects, the name of the assessment form, plus contact information for state staff.

Available at http://www.hcbs.org/moreInfo.php/doc/2216
80 Understanding Medicaid Home and Community Services: A Primer

Zaharia, R., and Moseley, C. (2008). State Strategies for Determining Eligibility and Level-of-Care for ICF/

MR and Waiver Program Participants. New Brunswick, NJ: Rutgers Center for State Health Policy.

This report presents the results of a survey of state developmental disabilities agency officials regarding the 

determination of initial eligibility/level of care and the “annual level of care” for services furnished under Medicaid waiver and ICF/MR programs. Forty-seven states provided information on state waiver eligibility criteria 

and practices. The report describes state level-of-care assessment approaches and provides legislative citations and contact information for state staff.

Available at http://www.hcbs.org/moreInfo.php/doc/2305

O’Keeffe, J. (1999). Elderly Persons with Cognitive and Other Mental Impairments: Can They Meet Medicaid Level-of-Care Criteria for Nursing Homes and for Home and Community-Based Waiver Programs? Pub. 

#9704, Washington, DC: AARP, Public Policy Institute.

This study investigates whether persons ages 65 or older, with functional limitations caused by cognitive and 

other mental impairments, can meet states’ Medicaid level-of-care criteria for nursing home and HCBS waiver 

programs. A review of 42 states’ Medicaid level-of-care criteria found that many states do not use measures 

that appropriately assess the need for services among persons with cognitive and other mental impairments. 

The report includes a state-by-state description of Medicaid level-of-care criteria relevant for persons with 

cognitive and other mental impairments. To obtain a free copy of this document, contact AARP’s Public Policy 

Institute at (202) 434-3840.

Note: Although this and the following publication are more than 10 years old, more recent reports with this level of 

detail are not available.

O’Keeffe, J. (1996). Determining the Need for Long-Term Care Services: An Analysis of Health and Functional Eligibility Criteria in Medicaid Home and Community-Based Waiver Programs. Pub. #9617, Washington, 

DC: AARP, Public Policy Institute.

This report provides, through text and tables, an overview and comparison of the criteria that 42 states use 

to determine eligibility for nursing home and HCBS waiver programs. To obtain a free copy of this document, 

contact AARP’s Public Policy Institute at (202) 434-3840. 
Chapter 3: Determining Service Eligibility 81

Websites

Centers for Medicare & Medicaid Services

Overview of Preadmission Screening and Resident Review (PASRR). Federal law requires that a Medicaid-certified nursing facility may not admit an applicant with serious mental illness (SMI), an intellectual disability (ID), 

or a related condition, unless the individual is properly screened, thoroughly evaluated, found to be appropriate for nursing facility placement, and will receive all specialized services necessary to meet the individual’s 

unique SMI/ID-related needs. Nursing facility residents with SMI or ID must have a Resident Review when there 

is a significant change in the resident’s physical or mental condition. CMS requires each state and territory to 

specify the PASRR program in their Medicaid State Plan.

Web address: http://www.cms.hhs.gov/pasrr/

The State Medicaid Manual. This manual makes available to all state Medicaid agencies, in a form suitable for 

ready reference, informational and procedural material needed by states to administer the Medicaid program. 

The manual provides instructions, regulatory citations, and information for implementing provisions of Title 

XIX of the Social Security Act. Instructions are official interpretations of the law and regulations, and, as such, 

are binding on Medicaid state agencies. The material is organized into major parts, which are divided into 

chapters and sections. The manual is structured as closely as possible to the codification of Medicaid regulations. A crosswalk of manual sections and regulations is also included. 

Web address: http://www.cms.hhs.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&sortBy

DID=1&sortOrder=ascending&itemID=CMS021927&intNumPerPage=10
82 Understanding Medicaid Home and Community Services: A Primer

Endnotes: Citations, Additional Information,

and Web Addresses

1 Janet O’Keeffe and Gary Smith co-authored the original chapter. Janet O’Keeffe updated the chapter.

2 States may make provision for “outliers”—those individuals whose condition responds less well than expected for their condition, and who, as a consequence, may receive more services for a longer period. 

3 The ADL and IADL scales are based on a developmental model: children learn to eat, toilet, bathe, and dress 

themselves before they develop the mental ability to do more cognitively complex activities such as using the telephone and managing money. When cognitive abilities start to deteriorate (as in a person who 

develops dementia) the ability to perform activities that require more complex mental functioning (IADLs) 

is generally lost before the ability to perform ADLs. States are not bound by the definitions implied by this 

developmental model; they can, for example, define ADLs to include whatever tasks/activities they consider 

important to determine a need for long-term care.

4 People who work with individuals who have cognitive impairments or behavior issues need specialized training.

5 Section 1902(a)(10)(d) of the Social Security Act.

6 42 CFR 440.230(c) and 42 CFR 440.240.

7 State Medicaid Director Letter, July 25, 2000. Available at http://www.cms.hhs.gov/smdl/downloads/

smd072500b.pdf.

8 The frequency of further physician review of a beneficiary’s continuing need for medical equipment and supplies is determined on a case-by-case basis, based on the nature of the item prescribed.

9 Skubel v. Fuoroli. (No. 96-6201). United States Court of Appeals, Second Circuit. Decided May 13, 1997. Ruling 

available at http://openjurist.org/113/f3d/330.

10 42 U.S.C. §1396d(a)(7). When Medicaid was first enacted in 1965, coverage of home health services was optional. In 1970, Congress made coverage of home health services mandatory for individuals entitled to skilled 

nursing facility services under a State Plan.

11 While CMS has not issued formal guidance on allowing states to provide home health services outside an 

individual’s home, CMS has supported and will continue to support such flexibility when analyzing State Plan 

amendments related to the Home Health benefit.

12 These examples are drawn from Colorado’s eligibility criteria for the Home Health benefit in the year 2000. 

At the time of publication, it was not possible to determine if the State still uses these criteria.

13 State Medicaid Manual, Part 4—Services, §4480.

14 Ibid. 

15 Kassner, E., and Jackson, B. (1998). Determining Comparable Levels of Functional Disability. Washington, DC: 

AARP, Public Policy Institute. Spector, W.D., and J.A. Fleishman (1998). Combining activities of daily living with 

instrumental activities of daily living to measure functional disability. Journal of Gerontology. 53(B):S46-S57. 
Chapter 3: Determining Service Eligibility 83

16 At §1902(a)(10)(B) of the Social Security Act.

17 Zaharia, R., and Moseley, C. (2008). State Strategies for Determining Eligibility and Level-of-Care for ICF/

MR and Waiver Program Participants. New Brunswick, NJ: Rutgers Center for State Health Policy. Available 

at http://www.hcbs.org/moreInfo.php/doc/2305; Hendrickson, L., and Kyzr-Sheeley, G. (2008). Determining 

Medicaid Nursing Home Eligibility: A Survey of State Level of Care Assessment. New Brunswick, NJ: Rutgers 

Center for State Health Policy. Available at http://www.hcbs.org/moreInfo.php/doc/2216.

18 Eligibility for ICF/ID services is limited to persons with intellectual disabilities or related conditions (42 CFR 

435.1010; 42 CFR 440.150). Eligibility for home and community-based services furnished under §1915(c) or 

§1915(b)(c) “managed care” Medicaid waivers is directly linked to the ICF/ID level of care. For both ICFs/ID 

and HCBS waiver programs, states must determine during the level-of-care evaluation process that potential 

service recipients (a) have a diagnosis of an intellectual disability or a related condition (42 CFR 435.1010; 42 

CFR 441.302), and (b) require the level of services provided by an ICF/ID. Intellectual disability (and the former 

term “mental retardation”) are not specifically defined; related conditions are defined functionally. (States 

have generally interpreted the term “related condition” to mean developmental disabilities other than an 

intellectual disability. Ernest McKenney, personal communication, December 8, 2009.)

Eligibility for home and community-based services under the waiver program is extended to individuals 

who, “but for the provision of waiver services,” would otherwise require the level of support and assistance 

furnished by an ICF/ID program (42 CFR 442.302(c)(1)). States are required to use level-of-care evaluation 

instruments or processes for waivers that yield equivalent outcomes to those used for the ICF/ID program. 

After a person is admitted to the waiver program, states are required to certify at least annually that he or she 

continues to need the “level of care provided” (42 CFR 441.302 (c)(2)), during an annual level-of-care determination process.” Unless noted otherwise, text above is taken verbatim from Zaharia, R., and Moseley, C. (2008), 

op. cit. 

19 States may use different evaluation instruments and processes for determining eligibility for waiver services 

than for institutional placement as long as they can explain in their waiver application how and why they differ and also provide assurances that the outcome of a different assessment instrument or process is “reliable, 

valid, and fully comparable to the outcome for institutional evaluation. In particular, the state must be able to 

demonstrate that individuals who meet level of care via the application of the waiver instrument also would 

meet level of care when the institutional instrument is employed.” Appendix B: Participant Access and Eligibility, Item B-6-e in Application for a §1915(c) Home and Community-Based Waiver, [Version 3.5], Instructions, 

Technical Guide and Review Criteria. See the Resources section of this chapter for the web link.

20 42 U.S.C. 15002 Sec. 102.

21 The term ‘‘developmental disability’’ means a severe, chronic disability of an individual that (i) is attributable 

to a mental or physical impairment or combination of mental and physical impairments, (ii) is manifested before the individual attains age 22, (iii) is likely to continue indefinitely, and (iv) results in substantial functional 

limitations in three or more of the following areas of major life activity: (I) self-care; (II) receptive and expressive language; (III) learning; (IV) mobility; (V) self-direction; (VI) capacity for independent living; (VII) economic self-sufficiency; and (VIII) reflects the individual’s need for a combination and sequence of special, 

interdisciplinary, or generic services, individualized supports, or other forms of assistance that are of life-long 

or extended duration and are individually planned and coordinated (42 U.S.C. 15002 Sec. 102). Note, this 

definition is more expansive than the regulatory definition of a “related condition” at 42 CFR 435.1010. The 

text that this endnote references, and the endnote itself, are taken verbatim from Zaharia, R., and Moseley, C. 

(2008), op. cit.

22 Maryland Dept. of Health and Mental Hygiene v. Brown, 177 Md. App. 440, 935 A.2d 1128 (2007), affirmed 

and opinion adopted, 406 Md. 466, 959 A.2d 807 (2008).

23 States should not use an MMSE score as an eligibility criterion because the MMSE and similar mental status 

tests were not designed to determine whether or to what extent an individual needs long-term care services. 
84 Understanding Medicaid Home and Community Services: A Primer

These tests were developed as clinical screening tools to determine whether more in-depth assessment is 

needed to make a diagnosis of dementia. Most importantly, as the Advisory Panel on Alzheimer’s Disease 

has noted, these tests are not correlated with the specific functional limitations or service needs of people 

with dementia. O’Keeffe, J., Tilly, J., and Lucas, C. (May 2006). Medicaid Eligibility Criteria for Long-Term Care 

Services: Access for People with Alzheimer’s Disease and Other Dementias. Washington, DC: Alzheimer’s 

Association. Additionally, the MMSE is insensitive to the functional limitations common in certain types of 

dementia. Many individuals with dementia who have extensive functional limitations will never reach the 

score specified in this eligibility criterion. Donald Royall, M.D., Professor and Chief, Division of Aging and 

Geriatric Psychiatry, University of Texas Health Science Center at San Antonio. Personal communication, 

June 28, 2010.

24 Maryland Department of Health and Mental Hygiene (July 1, 2008). Maryland Medical Assistance Program. 

Nursing Home Transmittal No. 213. Available at: http://www.msba.org/sec_comm/sections/elder/docs/

nursinghometransmittal213.pdf.

25 Section 1919(a)(1) of the Social Security Act.

26 O’Keeffe, J. (1996). Determining the Need for Long-Term Care Services: An Analysis of Health and Functional 

Eligibility Criteria in Medicaid Home and Community-Based Waiver Programs. Pub. #9617, Washington, DC: 

AARP, Public Policy Institute.

27 For reimbursement purposes, many states distinguish between those who need a skilled level of care and 

those who need lower levels of care; others use case mix reimbursement. The need for medical and skilled 

nursing services is always assessed when determining if a person needs a skilled or high level of care. It is 

when assessing applicants for ICF or minimal levels of care that states differ widely in the measures they 

use—some using functional measures only, some nursing measures only, and most a combination of both. 

O’Keeffe, J. (1996). Determining the Need for Long-Term Care Services: An Analysis of Health and Functional 

Eligibility Criteria in Medicaid Home and Community-Based Waiver Programs. Washington, DC: AARP, Public 

Policy Institute.

28 Application for a §1915(c) Home and Community-Based Waiver, [Version 3.5], Instructions, Technical Guide 

and Review Criteria. Glossary, p. 304. See the Resources section of this chapter for a web link to the application, instructions, and appendices. 

29 Most of the people interviewed in this study were able to remain in the community because they had extensive informal care supplemented by small amounts of privately paid care. O’Keeffe, J., Long, S.K., Liu, K., 

and Kerr, M. (1999). How do They Manage? A Case Study of Elderly Persons Functionally Eligible for Medicaid Waiver Services but Not Receiving Them. Washington, DC: AARP, Public Policy Institute.

30 In a study of 42 states’ nursing facility level-of-care criteria, respondents in states that used less stringent 

criteria said that most beneficiaries with lower levels of need could be safely served in the community. 

O’Keeffe, J. (1996). Determining the Need for Long-Term Care Services: An Analysis of Health and Functional 

Eligibility Criteria in Medicaid Home and Community-Based Waiver Programs. Washington, DC: AARP, Public 

Policy Institute.

31 P.L. 109–171. §6086(a).

32 The lack of functional criteria is more likely to be an issue for ICF/MR level-of-care criteria (which in some 

states is largely determined by diagnosis) than for nursing facility level-of-care criteria.

33 State Medicaid Director Letter, August 6, 2010. Available at http://www.cms.gov/smdl/downloads/

SMD10015.pdf.

34 Section 2401 of the Affordable Care Act, amending §1915 of the Social Security Act.
Chapter 4: Options for Designing Service Coverage: General Considerations 85

Guide to Chapter 4

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Medicaid Home and Community Services: An Overview. . . . . . . . . . . . . . . . . . . . . . . . . 87

Federal Policy Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

State Policy Goals and Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Home and Community Services under the Medicaid State Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 94

Personal Care/Personal Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

State Plan Home and Community-Based Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Community First Choice Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Services That May Be Offered Under an HCBS Waiver Program. . . . . . . . . . . . . . . . . . . . . . . . . . 102

Supports Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Supporting Individuals to Live in Their Own or Family Home. . . . . . . . . . . . . . . . . . . . . . . . . . . .106

Medicaid Financing for Supports to Individuals Living in Their Own Home. . . . . . 106

Factors to Consider When Choosing Coverage Options: Two Illustrative Services. . . . . . . . 107

1. Personal Care/Personal Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

2. Case Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . 119

Chapter 4: Options for Designing Service Coverage: General Considerations 87

Chapter 4

Options for Designing Service Coverage: General Considerations

To remain in their homes and communities, many people with disabilities and chronic conditions need long-term 

care services and supports, ranging from personal assistance to more specialized services, as well as assistive technology and environmental modifications. Federal Medicaid law and policy give states great latitude to offer individuals a wide range of home and community services through a state’s regular Medicaid program. States can also 

offer a comprehensive range of services by operating one or several home and community-based services (HCBS) 

waiver programs. This chapter discusses Medicaid coverage options, including important issues states need to 

consider in selecting the particular combination of home and community services and benefits that best suits their 

needs.1 

Introduction

Changes in Federal Medicaid statute and policy over the past three decades have made it feasible for states to 

provide a wide range of home and community services. The many options for furnishing these services can be 

confusing for policymakers, state officials, advocates, and consumers alike, as they can be funded through one 

or more of three alternative routes: (1) a state’s regular Medicaid State Plan, (2) managed care programs, and/

or (3) one or several HCBS waiver programs, each offering a distinct package of services and supports to different groups of individuals.2 

Combining these alternatives in creative ways can give states substantial latitude in designing their Medicaid 

home and community service coverages and customizing benefit packages to meet the needs of particular 

groups. Use of HCBS waivers also provides considerable flexibility for states to manage service costs and the 

number of people served. This flexibility explains the considerable variation in the services and supports that 

states offer. 

This chapter begins with an overview of the broad types of Medicaid home and community services and supports a state may offer. It then describes major Federal and state considerations that can influence decisions 

concerning whether to offer a service as a regular Medicaid program benefit or through an HCBS waiver program. The chapter concludes with more detailed descriptions and illustrations of coverage options—focusing 

first on services that may be offered under the regular Medicaid State Plan and then on services that may be 

offered under an HCBS waiver program. 

Medicaid Home and Community Services: An Overview

Home and community services can be thought of as falling into five overarching categories. It is useful to consider these in generic terms before proceeding to a detailed discussion of how they are treated in Medicaid 

law and policy. 
88 Understanding Medicaid Home and Community Services: A Primer

Personal Care—also called personal assistance and 

attendant care—involves helping individuals perform everyday activities when they have physical or 

mental impairments that prevent them from carrying out these activities independently. These activities can include Activities of Daily Living (ADLs) and 

Instrumental Activities of Daily Living (IADLs). ADLs 

include eating, bathing, dressing, toileting, transferring from bed to chair, and maintaining continence. 

IADLs include activities such as light housework, 

laundry, transportation, and medication management. 

This assistance can be furnished in the home or 

community settings, as well as to individuals who 

live in foster care, group homes, and other residential care settings. The terms used for individuals who 

provide personal care vary, and include personal 

assistants, personal attendants, personal care aides, 

and direct care workers. Certified nursing assistants 

and home health aides also provide personal care.

Individuals with various types of disabilities often 

require this form of basic assistance throughout 

their lives. Thus, a need for personal care is a major, 

if not the primary, reason many individuals seek 

Medicaid long-term care services and supports. 

States use several different terms to describe assistance with ADLs and IADLs, which may be provided 

under the mandatory Home Health benefit, the optional State Plan Personal Care benefit, the optional 

Section (§)1915(i) HCBS State Plan benefit, and/or 

a §1915(c) waiver (hereafter called HCBS waiver). In 

October 2011, an additional State Plan option will 

be available—the §1915(k) Community First Choice 

Option benefit, which was authorized by the Patient 

Protection and Affordable Care Act of 2010 (hereafter called the Affordable Care Act). Personal care 

can also be provided under the optional §1915(j) 

Self-directed Personal Assistance Services State Plan 

benefit. However, only states that offer personal 

care under either the State Plan Personal Care option or an HCBS waiver may employ the §1915(j) 

authority. (See Chapter 7 for a detailed discussion of 

the §1915(j) authority.)

Health-Related Services. Personal care can include 

assistance with health and health-related tasks, 

which encompass a wide range of skilled and 

unskilled nursing services that address chronic 

conditions and functional impairments (e.g., tube 

feedings, catheterization, range of motion exercises, 

and medication administration). However, assistance with skilled tasks may be provided only when 

delegated by a licensed nurse in accordance with 

state law. 

Specialty Services. This category comprises a wide 

range of services related to the specific nature of 

an individual’s impairment. These services generally share the common aim of helping individuals 

to improve their functioning. Adult day health 

services address both functional and health needs. 

Psychiatric rehabilitation services address the needs 

of individuals who have a mental illness that impairs their functioning. Habilitation services enable people with intellectual disabilities and other 

developmental disabilities (ID/DD, hereafter called 

developmental disabilities) to acquire or improve 

skills to help them become more independent. 

Assistive technology helps people with many types 

of disabilities become more self-sufficient. States 

may offer these specialized services through various options, including an HCBS waiver program. 

Many types of assistive technology (e.g., motorized 

wheelchairs and communication devices) are forms 

of medical equipment and supplies covered under 

the mandatory Home Health benefit. 

Adaptive Services. In order to remain in their own 

home and function in the community, many individuals with physical impairments need home and 

vehicle modifications. Home modifications include 

the installation of wheelchair ramps, widening 

doorways, and retrofitting bathrooms and kitchens so that individuals with physical impairments 

can get around their homes. Vehicle modifications 

include modifying a car or a van to enable a person 

to drive or be transported to work and/or community activities. These services can be covered under 

HCBS waiver programs. 
Chapter 4: Options for Designing Service Coverage: General Considerations 89

Family and Caregiver Supports. These supports 

are designed to help family members and friends 

who support individuals with disabilities. Various Medicaid options are available to maintain 

and strengthen these supports. Respite care—for 

unpaid caregivers who are absent or need relief—is 

one of these services. State Plan personal care services—in addition to those provided on an ongoing 

basis—can be authorized to temporarily relieve an 

unpaid caregiver.

States may also provide “caregiver training and education” as a distinct service under an HCBS waiver 

program to strengthen an unpaid caregiver’s ability 

to meet the needs of the person they are assisting. 

Training and education can cover a wide range of 

topics, such as instructions for using equipment 

specified in the service plan and ensuring compliance with treatment regimens. It may include 

(a) paying trainers to come into the home to teach 

skills and techniques for addressing the program 

participant’s (hereafter, the participant’s) needs, so 

that training can be customized to the individual 

and the caregivers; (b) paying for caregivers to 

attend special training and education classes; and 

(c) paying the expenses associated with caregivers 

attending workshops and conferences where they 

learn how to better meet participants’ needs. (These 

expenses might include conference fees, arranging 

substitute care while caregivers are away, or paying 

for personal assistance at the training conference 

itself if the participant accompanies the caregiver.)

Caregiver training may also be paid for under the 

optional Rehabilitation benefit. Rehabilitation services in Kentucky, for example, include home visits 

to (a) help family members and seriously mentally 

ill beneficiaries practice effective communication 

techniques to defuse stressful situations that occur 

in home settings, and (b) coach family members to 

improve their skills for managing a severely emotionally disturbed child. Training and supports may 

also be offered as component parts of other benefits, such as Home Health.

Social Supports. Social supports are intended to 

help individuals take an active part in both their 

family and community and can help avoid social isolation. Social supports such as companion 

services, for example, provide assistance so that 

individuals can participate in community activities 

(e.g., by providing a personal attendant to enable 

the individual to attend church). These services can 

be covered under HCBS waiver and State Plan HCBS 

programs.

Case Management/Service Coordination helps 

individuals who need services and supports funded 

by several sources. Some may be available through 

the Medicaid State Plan and others through other 

public programs such as state programs for person 

with disabilities and programs funded under the 

Older Americans Act. A common feature of home 

and community services is the provision of case 

managers, who may also be called care coordinators, service coordinators, or support coordinators. 

They frequently prepare—or facilitate preparation 

of—an individual service plan that describes how all 

the services and supports a person might need will 

be identified and delivered. They also play an active 

role in monitoring the quality and effectiveness of 

home and community services. Several Medicaid 

options are available for covering case management/service coordination, which are discussed 

later in this chapter.

As states consider which home and community 

benefits to offer, and how to offer them, it is helpful to keep in mind that no bright line distinguishes 

home and community services and supports from 

other types of Medicaid benefits. Many benefits not 

mentioned in this overview are very much a part of 

the mix required to meet the needs of individuals 

with disabilities and chronic conditions. For example, State Plan coverage of medical equipment and 

supplies can provide power wheelchairs and other 

mobility aids. The State Plan may also cover therapeutic services such as occupational and physical 

therapy, which many
90 Understanding Medicaid Home and Community Services: A Primer

Respite Benefits

Respite benefits encompass whatever services an individual needs (e.g., personal care and nursing services). 

They are usually furnished on an intermittent basis explicitly to provide relief to primary unpaid caregivers. Respite, for example, can be provided to give parents a night or weekend off periodically from the intense caregiving needed to support children with severe cognitive and/or physical disabilities or medical needs. It is particularly needed if caregivers themselves become ill. 

Respite is also important for spouses or adult caregivers of older adults, particularly those with dementia who 

need around-the-clock supervision. Respite care benefits the individual directly by providing services usually furnished by caregivers, and indirectly by helping avoid caregiver “burnout,” which can lead to institutionalization. 

Under HCBS waiver programs, respite can be provided in the family home by bringing a worker into the home 

while the caregivers are away for a few hours or overnight. 

Some states also allow respite care provided through HCBS waiver programs to be furnished at sites other than 

the family home, including especially designated respite care facilities. This out-of-home respite is used most 

often when the primary caregiver(s) will be away overnight or for extended periods, or to enable the primary 

caregiver(s) to be at home alone during the respite period. 

States may establish whatever limits they elect with respect to the amount of respite that will be available to primary unpaid caregivers. It is not uncommon for states to cap the amount of respite at 30 days during a calendar 

year. Some states do not impose such caps in their HCBS waiver programs, leaving the amount of respite that will 

be authorized to be worked out during the individual service planning process based on the needs and circumstances of the particular informal caregivers. 

Most states permit caregivers to “bank” respite benefits and to use the authorized amount whenever it is most 

needed. This practice recognizes that since respite is intended to renew the energies of the caregiver (for the direct longer term benefit of the participant), caregivers should determine when it is used. States have the option 

to permit “banked respite” to be carried over from one year to the next.
Chapter 4: Options for Designing Service Coverage: General Considerations 91

individuals need to improve or prevent a decline 

in their functioning. As a consequence, in crafting 

effective home and community service strategies, 

it is important to take stock of other services in 

the Medicaid State Plan and to modify or possibly 

supplement them if needed. This will help to ensure 

that the coverages chosen address the key needs of 

those being served. 

As states determine what services and supports to 

offer, they need to consider certain Federal policy 

issues and state goals and objectives that constrain, 

or at least shape, their benefit choices. The next 

section addresses the Federal dimension and is followed by a general discussion of state policy goals 

and objectives. 

Federal Policy Considerations 

While Federal Medicaid law and policy give states 

considerable latitude in deciding which Medicaid 

home and community services they will offer, states 

do not have complete freedom. State choices must 

be consistent with Federal requirements and limitations. Seven major Federal considerations merit 

discussion here. Although they affect state flexibility 

somewhat, they need not pose serious barriers to 

developing effective strategies to support individuals in their homes and communities. 

State Plan Requirements. All services covered under 

a state’s Medicaid plan—both mandatory and 

optional—are subject to two important statutory 

requirements. First, they must be available on a 

comparable basis to all state Medicaid beneficiaries 

(in an eligibility group) who need the service. States 

must use the same eligibility criteria for all applicants and any limits on service amount, scope, and 

duration must be equally applied to both individuals currently receiving services and those applying 

for services. The effect of these requirements is that 

states cannot have a waiting list and any changes 

made in the eligibility criteria, as well as service 

amount, scope and duration, must be applied 

equally to both those currently receiving services 

and those applying for them. These provisions constitute the “comparability” requirement. 

Second, services must be available statewide (i.e., 

the state cannot restrict the availability of the 

service to particular geographic regions). This is 

called the “statewideness” requirement.4 There are 

few exceptions to this statewideness requirement; 

targeted case management is a major one. Federal 

regulations also require that each Medicaid service 

be sufficient in amount, duration, and scope to 

achieve its purpose. Within this broad requirement, 

states have the authority to establish reasonable 

and appropriate limits on the amount, duration, and 

scope of each service. 

Generally, when a state wishes to make home 

and community services available only to certain distinct groups of Medicaid beneficiaries 

(e.g., adults with physical disabilities) it must seek 

Federal approval of an HCBS waiver.4 This waiver 

authority permits states to waive both the comparability and statewideness requirements in order 

to target services to distinct groups of Medicaid 

beneficiaries. Once eligible for a waiver program, 

participants must be provided all of the waiver 

services for which they have a documented need, 

and the services must be available in all parts of the 

state covered by the waiver. The Affordable Care 

Act includes a provision waiving comparability for 

services provided under the State Plan §1915(i) 

authority, but services must be provided statewide 

to everyone who meets the eligibility criteria.5

Services That Cannot Be Offered under the State 

Plan. Some services may not be offered under a 

Medicaid State Plan because they have not been 

specified in either the authorizing legislation or 

implementing regulations. An example is home 

modifications, which explains why home modifications is one of the most common services offered 

under HCBS waiver programs.

HCBS Waiver Coverage to Complement or Expand 

State Plan Coverage. Through an HCBS waiver, a 

state may augment the services it provides under 

the State Plan. When a state retains the scope of a 

State Plan service but increases its amount, duration, or frequency, the service is considered an “extended State Plan” service. For example, a state may 

allow four home health aide visits each week under 

the State Plan Home Health benefit and allow three 

additional visits under an HCBS waiver. States must 
92 Understanding Medicaid Home and Community Services: A Primer

have established mechanisms to ensure no duplication of service provision or billing for State Plan and 

waiver services.6

Non-duplication. Federal policy provides that a 

state may not offer precisely the same service 

under an HCBS waiver that it offers under its regular Medicaid program. The reason for this prohibition is simple. People who participate in an HCBS 

waiver program are already eligible, by definition, to 

receive the full range of services available under the 

State Plan. While a waiver service may be similar in 

scope to a State Plan service, it would be considered 

an “other” service rather than an “extended State 

Plan” service if the method of service delivery (e.g., 

giving participants the ability to direct their services) differs under the waiver. States have added tasks 

to the scope of services covered under a State Plan 

in order to create a new waiver service that does not 

duplicate the State Plan service (see Box).

EPSDT Mandate. When children are served in an 

HCBS waiver program, states must take account of 

the mandate to provide enhanced Early and Periodic Screening, Diagnosis and Treatment (EPSDT) 

services. Federal EPSDT requirements mandate that 

Medicaid-eligible children receive all medically 

necessary services (listed in §1905(a) of the Social 

Security Act) that they require, regardless of whether such services are specifically included in the State 

Plan. Thus, medically necessary services for children 

who need them cannot be restricted to children 

who are waiver participants.

Redefining Services: State Example

Texas provides attendant services through its 

State Plan Personal Care program. The State 

expanded the scope of attendant services to be 

provided in its Community Based Alternatives 

waiver to include protective supervision as temporary relief for the primary caregiver, extension 

of therapy services, and the performance of 

nursing tasks delegated by licensed registered 

nurses. Because the new service—called Personal Assistance Services—differs from attendant 

services provided under the State Plan, waiver 

participants do not have to first obtain attendant services under the State Plan Personal Care 

program before receiving personal assistance 

services through the waiver program.

Service Objective. A state can only offer services 

that are materially related to the basic reasons a 

person needs long-term services and supports. This 

may seem obvious enough, but complicating issues 

sometimes arise. In the case of services provided 

under HCBS waivers, for example, a state may offer 

only services that are either necessary for people 

to avoid institutionalization or would be available 

to beneficiaries if they were in a facility. This provision takes no account of other services and supports—such as guardianship services and leisure 

activities—that might be desirable but cannot be 

considered necessary given the aims expressed in 

Federal law. This does not imply that the state is prevented from providing such services and supports; 

only that Federal Medicaid dollars cannot be used 

to purchase them. 

Room and Board Expenses. Federal Medicaid dollars 

are not available to pay for the “room and board” 

expenses (i.e., housing, utilities, and food) of noninstitutionalized persons, except in limited circumstances such as (a) out-of-home respite care, and 

(b) the room and board costs of a live-in caregiver. 

Federal financial participation (FFP) is available for 

room and board provided as part of respite care 

furnished in a facility that is approved by the state 

but not in a private residence. 
Chapter 4: Options for Designing Service Coverage: General Considerations 93

The expectation is that individuals will use their 

own income and resources (e.g., Federal Supplemental Security Income [SSI] benefits and earnings from employment) to meet room and board 

expenses. The room and board exclusion can 

complicate the development of strategies to support individuals in their homes and communitybased residential care settings. In contrast, room 

and board expenses are Medicaid-reimbursable in 

institutions, where individuals receive a significantly 

reduced SSI payment as a personal needs allowance 

($30/month). 

Obligations of Other Payers. Medicaid is deemed a 

payer of last resort. This means that if another public program or private third-party payer—such as a 

private health insurance plan—is obliged to provide 

a service to an individual, a state generally may not 

replace this funding with Medicaid dollars. For example, if two public programs such as Medicare and 

Medicaid cover the same service and an individual 

is eligible for the service in both programs, Medicare must pay first for the service. Medicaid can only 

pay once Medicare benefits are exhausted.

State Policy Goals and Objectives

Federal policies provide a framework within which 

states can weigh their options in deciding whether 

to offer a service under their Medicaid State Plan or 

through an HCBS waiver program. But a state makes 

its particular coverage choices in light of its own 

policy goals and objectives. Five major factors need 

highlighting in this connection. 

State Budget Impact. States must balance their budgets on a regular basis—every year, for most states. 

This requirement can make states wary of offering 

services under their Medicaid State Plan, because 

Federal rules prohibit them from reducing services 

below the amount, duration, and scope needed to 

achieve their purpose, and from limiting the number of people who receive the service. While states 

can set the medical necessity criteria for State Plan 

services, they must serve everyone in the state who 

requests services and meets the criteria. Because 

they cannot predict how many individuals will qualify and how much it will cost to serve each person, 

spending for State Plan services is less predictable 

than for HCBS waiver programs. 

Predictability of costs is the major reason why many 

states have used HCBS waiver programs to expand 

the availability of home and community services 

rather than through State Plan benefits, such as 

Home Health and Personal Care. HCBS waivers 

permit states to serve only a set number of beneficiaries that the state itself establishes for the waiver 

and to set individual cost limits for participants. 

States may also use an aggregate cost neutrality calculation to determine the total amount of funding 

available for waiver services. Compared to setting 

per capita limits for waiver participants, this approach gives states the flexibility to serve individuals with extensive needs who require more services 

than the average participant. 

However, states that limit the provision of home 

and community services to HCBS waiver programs 

limit themselves to serving only a high-need 

population—those who meet institutional level-ofcare criteria. By providing State Plan services (e.g., 

under the Personal Care, Rehabilitation, and/or the 

§1915(i) benefits), states can serve a population 

with lower needs and help individuals maintain—

and/or slow the decline of—their health and functional status, thereby delaying the need for more 

costly services and supports.

Inclusiveness. When deciding whether to cover a 

service under the State Plan or an HCBS waiver program or both, states need to carefully consider how 

services provided in different programs can complement each other in furnishing people with disabilities the right amount and combination of services. 

Target Populations. With a few exceptions, services offered under a Medicaid State Plan must be 

provided to all eligible individuals on a comparable 

basis.7 Thus, it can be difficult to vary services or 

service delivery approaches based on the needs 

of individuals who have specific impairments and 

specialized needs. It also can be easier for a state to 

craft a package of services and supports to meet the 

needs of specific groups than to seek a one-size-fitsall State Plan coverage design. 

These considerations frequently lead states to select 

an HCBS waiver program as a vehicle for offering 
94 Understanding Medicaid Home and Community Services: A Primer

services to defined groups of individuals, because 

the service package can be designed to meet their 

distinct needs. The recently enacted §1915(i) HCBS 

State Plan option also permits states to target services to specific groups.

Maintaining a Unified Service Delivery System. 

While Medicaid is the major funding source for 

home and community services, it is frequently not 

the only one. In many states, distinct state-funded 

service systems or networks have evolved for 

specific target populations, for example, individuals 

who are elderly, who have a serious mental illness, 

or who have a developmental disability. One group 

for which states have historically not developed 

specific programs or service systems is people 18 to 

64 years of age with physical disabilities—a group 

that is frequently underserved. Some states, such 

as Connecticut, have programs targeted to people 

who are financially ineligible for Medicaid but meet 

the state’s institutional level-of-care criteria.8

These state-funded service systems often play a 

crucial role in expanding home and community services for the groups they serve. But they vary considerably in the types and amounts of services they 

provide and the numbers of people they serve. It is 

important to maintain these service systems, but it 

is also important to ensure that they are integrated 

into a unified service delivery system for their particular target group. An effective way of achieving 

this integration for many states is the targeted approach permitted under an HCBS waiver program. 

This is a way of accessing Medicaid funding at the 

same time as ensuring consistency in financing and 

practice across an array of funding sources. 

Eligibility. As discussed in Chapter 2, a state can 

qualify more individuals living in the community 

for Medicaid using an HCBS waiver program than it 

can under its State Plan because it has the option to 

use the more liberal financial eligibility rules used 

for institutions when determining eligibility for an 

HCBS waiver. Some individuals in the community 

who might not qualify for State Plan Medicaid benefits because they do not meet the income criteria, 

in particular, may be eligible for services under an 

HCBS waiver program, if the state uses institutional 

financial eligibility rules. 

The following two sections, respectively, provide 

detailed descriptions of the home and community 

services that can be provided (a) under the Medicaid State Plan, and/or (b) through HCBS waiver 

programs. 

Home and Community Services

under the Medicaid State Plan

Federal law distinguishes between services offered 

under a Medicaid State Plan and services that may 

be offered when the Secretary of Health and Human 

Services (HHS)—operating through the Centers for 

Medicare & Medicaid Services (CMS)—grants waivers for a state to operate an HCBS waiver program. 

The services that can be offered without a waiver 

are called Medicaid State Plan services. Some of 

these services must be provided by every state that 

operates a Medicaid program, for example, home 

health services. These are called mandatory services.9

 Others can be provided at state option—called 

optional services. 

When a state covers a service under its Medicaid 

State Plan, it may impose limits on exactly what will 

be provided and under what circumstances. Such 

limitations take four forms: (1) medical/

functional need, (2) how often a person may receive 

a service (amount), (3) for how long (duration), and 

(4) the exact nature of what is provided (scope). 

However, Federal law requires that such limitations 

not undermine a person’s receipt of necessary assistance. Any limitations states establish must generally be based on clinical grounds. Although limits 

must not prevent the state from meeting the needs 

of most Medicaid beneficiaries most of the time, 

states are not required to meet all beneficiaries’ 

needs all the time. 

A state’s decision to offer an optional service under 

its Medicaid State Plan amounts to a decision to 

make the service available to all individuals who 

require it, within whatever limitations on eligibility, 

amount, scope, and duration the state has established. This is why Medicaid beneficiaries are said to 

be “entitled” to State Plan services.10 
Chapter 4: Options for Designing Service Coverage: General Considerations 95

A state has the option of covering under its State 

Plan four key home and community services that 

are especially important for people with disabilities: 

(1) personal care, (2) targeted case management, 

(3) clinic services, and (4) rehabilitative services. Additionally, the state can cover a wide range of home 

and community services under the new HCBS State 

Plan option created by the 

Deficit Reduction Act of 2005 (DRA-2005) and 

amended by the Affordable Care Act. 

Each of these State Plan options will be discussed 

next, followed by a brief discussion of services that 

can be offered under an HCBS waiver program.

Personal Care/Personal Assistance11

Prior to enactment of the Omnibus Reconciliation 

Act of 1993 (OBRA 93), personal care services offered through the State Plan were limited in scope 

and had a medical orientation, due to the requirement that they be authorized by a physician and 

supervised by a nurse. OBRA 93—together with 

implementing regulations effective in November 

1997—gave states the option to substantially 

broaden the scope of personal care services to 

furnish individuals a wide range of assistance in everyday activities, both in and outside their homes.12

In January 1999, CMS released a State Medicaid 

Manual Transmittal that updated the guidelines 

concerning coverage of personal care services. In 

it, CMS made clear that (a) personal care services 

include assistance with both ADLs and IADLs, and 

(b) personal care for people with cognitive impairments may include cueing along with supervision 

to ensure the individuals perform the task properly. 

Formerly, such supervision generally was considered outside the scope of personal care. (See the 

Resources section of this chapter for a link to the 

Medicaid Manual.) 

A state may now extend such services to include 

supervision and assistance to people with cognitive impairments, which can include people with 

mental illness, intellectual disabilities, and dementia. However, this supervision and assistance must 

be related directly to the performance of ADLs and 

IADLs. Companionship or custodial observation of 

an individual, absent hands-on or cueing assistance 

that is necessary and directly related to ADLs or 

IADLs, is not a Medicaid personal care service. 

Specific provisions in the Manual are discussed next. 

Scope of services—Personal care services covered 

under a state’s program may include a range of 

human assistance provided to people with disabilities and chronic conditions of all ages, which 

enables them to accomplish tasks they would 

normally do for themselves if they did not have a 

disability. Assistance may be in the form of handson assistance (actually performing a personal 

care task for a person) or cueing so that a person 

performs the tasks by him/herself. Such assistance 

most often relates to performance of ADLs and 

IADLs . . . Personal care services can be provided 

on a continuing basis or on episodic occasions. 

Skilled services that may be performed only by a 

health professional are not considered personal 

care services. 

However, skilled services may be provided under 

the State Plan Personal Care benefit when delegated by a licensed nurse in accordance with state law. 

Cognitive impairments—An individual may be 

physically capable of performing ADLs and IADLs 

but may have limitations in performing these 

activities because [of] a cognitive impairment . . . 

Personal care services may be required because a 

cognitive impairment prevents an individual from 

knowing when or how to carry out the task. For 

example, an individual may no longer be able to 

dress without someone to cue him or her on how 

to do so. In such cases, personal assistance may 

include cueing along with supervision to ensure 

that the individual performs the task properly. 
96 Understanding Medicaid Home and Community Services: A Primer

In October 1999, CMS further revised the Manual 

to permit states to offer the option of consumerdirected personal care services (also called selfdirection or participant direction). The Manual 

revisions explicitly recognized that individuals 

who are receiving personal assistance may direct 

their workers, that is, train, supervise, manage, and 

dismiss them (if needed). In particular, the Manual 

states the following:

Consumer-directed services—A state may 

employ a consumer-directed service delivery 

model to provide personal care services under 

the Personal Care optional benefit to individuals 

in need of personal assistance, including people 

with cognitive impairments, who have the ability 

and desire to manage their own care. 

See the discussion later in this chapter—and in 

Chapter 7—about the §1915(j) State Plan authority, 

which expands participant direction service delivery 

options for both the State Plan Personal Care benefit and HCBS waiver programs.

These Manual materials describe a comprehensive 

scope of personal care/assistance that a state may 

choose to cover under its Medicaid State Plan—in 

keeping with contemporary views concerning the 

role personal assistance can play in supporting individuals with disabilities in a wide range of everyday 

activities. 

As a result of the changes made in Federal policy, 

there is now little difference in the scope of personal care services that may be offered under the 

Medicaid State Plan and those that may be offered 

under an HCBS waiver program. However, neither 

the provisions of OBRA 93 nor the revised Federal regulations and CMS State Medicaid Manual 

guidelines require a state to change the scope of its 

pre-1993 coverage. In order to take advantage of 

these changes, a state must file an amendment to 

its Medicaid State Plan. 

Targeted Case Management Services 

States have the option of covering case management services for a defined group of Medicaid 

recipients, or for multiple groups, as long as different provisions apply to each specified group (hence, 

the term “targeted”).13 Targeted case management 

services are exempt from the comparability requirement, that is, they do not have to be available to all 

Medicaid beneficiaries. They can also be offered on 

a less than statewide basis.14

For example, a state may offer one form of targeted 

case management services to recipients who have 

a mental illness and another to people who are 

elderly and have physical impairments. States may 

use their own definitions to define target groups 

and may do so broadly (e.g., all Medicaid-eligible 

individuals with a developmental disability) or more 

narrowly (e.g., Medicaid-eligible individuals with a 

developmental disability who also have a mental 

illness). Other target groups states have established 

include 

• Adults with serious mental illness as defined by 

the state.

• Children from birth to age 3 who are experiencing developmental delays or behavioral disorders as measured and verified by diagnostic 

instruments and procedures.

• Pregnant women and infants up to age 1.

• Individuals 60 years of age or older who have 

two or more physical or mental diagnoses that 

result in a need for two or more services.

• Individuals with AIDS or HIV-related disorders.

• People being transitioned from nursing homes 

to the community.

• Individuals enrolled in HCBS waiver programs.

Although the targeting aspects of this case management coverage make it somewhat akin to the 

HCBS waiver program, there is one important 

difference. Once a state has established its target 

population and geographic locations, targeted 

case management services must be furnished to all 

eligible individuals. A state may not limit the number of eligible individuals who may receive these 

services. 

States do have the option of limiting the entities 

that may furnish targeted case management services to individuals with a developmental disability 
Chapter 4: Options for Designing Service Coverage: General Considerations 97

or a mental illness to enable them to tie provision of 

these services to the “single point of entry” systems 

common in state service systems that serve these 

populations. Doing so enables states to maintain a 

unified service delivery approach. 

The four components of targeted case management 

include assessment, service plan development, referrals, and monitoring. Targeted case management 

services can be described as “planning, linking, and 

monitoring” the provision of direct services and 

supports obtained from various sources (the Medicaid program itself, other public programs, and a 

wide variety of private sources), making their scope 

very broad. Permitted activities can include (1) assistance in obtaining food stamps, housing, and 

legal services; (2) service/support assessment and 

planning; and (3) monitoring the delivery of direct 

services and supports to ensure they are meeting 

individuals’ needs.

Although a range of activities on behalf of beneficiaries can be included within the scope of targeted 

case management, some cannot. In particular,

• Activities related to authorization and approval 

of Medicaid services.15 

• Activities related to making basic Medicaid 

eligibility determinations.

• Activities that constitute “direct services” to the 

consumer (e.g., transporting an individual to 

and from a doctor’s appointment is outside the 

scope of targeted case management).16 

• Activities provided to individuals in institutions. 

This restriction is based on two Federal provisions: (a) Federal regulations concerning Medicaid institutional services require that facilities 

provide care coordination services to residents, 

and (b) Medicaid prohibits duplicate payments 

for the same service. However, targeted case 

management services may be provided to residents of institutions in the last 180 consecutive 

days of a Medicaid-eligible person’s institutional stay, if provided for community transition. 

(See Chapter 6 for a discussion of Medicaid 

provisions related to transitioning from institutions to the community.)

• Activities that overlap or duplicate similar 

services a person receives through other means 

(e.g., development of a service plan by an HCBS 

waiver case manager). 

Other Medicaid options for covering case management services are discussed later in this chapter.

Clinic Services17

States have the option of covering specialized treatment services and other supports under several 

State Plan benefits. The two benefits that states 

most frequently cover are the optional Clinic benefit 

and the optional Rehabilitation benefit. States employ the Clinic benefit for a wide variety of purposes 

in their state Medicaid programs, including paying 

for services furnished through health care clinics 

and community mental health centers. 

The Clinic benefit also serves as a means of paying 

for mental health services furnished to Medicaid 

beneficiaries on an outpatient basis. Mental health 

clinics may provide mental health therapy and 

other treatment to Medicaid beneficiaries—services 

needed by people who have serious and persistent 

mental illness and need long-term care services 

and supports to remain in their communities. The 

clinical services provided through the Clinic benefit 

must be site-based and supervised by a physician. 

(See the Resources section of this chapter for a web 

link to a publication on how to use Medicaid to provide services for adults with serious mental illness.) 

Rehabilitation18

The Rehabilitation benefit allows states more flexibility to design service packages than does the 

Clinic benefit, because of its broad definition in 

Federal regulation: “any medical or remedial services recommended by a physician or other licensed 

practitioner of the healing arts, within the scope of 

his practice under state law, for maximum reduction 

of physical or mental disabilities and restoration of a 

recipient to his/her best functional level.” 

Rehabilitation services can include those that are 

also covered under the Clinic benefit. But unlike 

services under that option, they are portable (i.e., 
98 Understanding Medicaid Home and Community Services: A Primer

not limited to specific sites under the direct, on-site 

supervision of a physician). Many other services 

also fall within the scope of Rehabilitation. Psychiatric rehabilitation services include basic living 

skills training (including independent living skills 

and cognitive skills, as well as education regarding 

medications and medication management), social 

skills training, counseling and therapy, and collateral 

services, such as consultation with and training of 

family members, primary caretakers, providers, legal 

guardians or other representatives, and significant 

others. Such training and counseling is limited to 

activities that directly support the individual.19

Collateral services can be covered as a specific 

stand-alone category or as part of day treatment 

or intensive in-home services. Through this activity, 

reimbursement is provided for face-to-face encounters with people who are important in the beneficiary’s life, when those encounters are needed 

to develop or implement the rehabilitation plan. 

Psychiatric rehabilitation services are furnished in a 

variety of locations, including homes, partial hospitalization or day programs for adults, day treatment 

programs in schools or other locations for children, 

and residential placements (including facilities with 

fewer than 16 beds, such as group homes or therapeutic foster care homes). Crisis services and early 

intervention services, including services for very 

young children exhibiting signs of serious emotional disorders, are also furnished under this option.20

These services, along with personal care and 

targeted case management, can be combined to 

meet a wide range of service and support needs 

for people who have a mental illness. Of the 46 

states that use the Rehabilitation benefit, many also 

provide targeted case management services to this 

population.21

The Clinic and Rehabilitation optional benefits are 

not generally used to provide long-term care services and supports to individuals with disabilities other 

than mental illness. During the 1970s and 1980s, a 

few states secured CMS approval to cover daytime 

services for people with developmental disabilities 

under either the Clinic or the Rehabilitation benefit. CMS ultimately ruled that the services being 

furnished were habilitative rather than rehabilitative and consequently could not be covered under 

either option in additional states. 

However, Congress acted in 1989 to permit states 

that had secured CMS approval of these coverages 

to continue them but effectively prohibited other 

states from adding such coverage. The main basis 

for this ruling was that habilitative services could 

be furnished only to residents of intermediate care 

facilities for individuals with an intellectual disability 

(ICFs/ID) under the State Plan or through an HCBS 

waiver program for individuals who might otherwise be eligible for ICF/ID services. A few states have 

maintained their coverage of these services. But 

many have dismantled their coverages in favor of 

offering similar services through their HCBS waiver 

programs. With the creation of the new HCBS State 

Plan option under the §1915(i) authority, states may 

now cover habilitation under the State Plan. 
Chapter 4: Options for Designing Service Coverage: General Considerations 99

State Plan Home and 

Community-Based Services22

The DRA-2005 added §1915(i) to the Social Security 

Act, which allows states, at their option, to provide 

a broad range of home and community-based 

services under the Medicaid State Plan.23 The Affordable Care Act made a number of significant changes 

to the §1915(i) authority. 

Section 1915(i) allows states to include any or all 

of the services that are listed in §1915(c)(4)(B) of 

the Social Security Act. These services include case 

management, homemaker/home health aide, personal care, adult day health, habilitation, and respite 

care services. In addition, the following services may 

be provided to persons with chronic mental illness: 

day treatment, other partial hospitalization services, 

psychosocial rehabilitation services, and clinic services (whether or not furnished in a facility). States 

may also offer “such other services...as the Secretary may approve.” CMS has drafted an application 

for states to submit a State Plan amendment to add 

an HCBS benefit. 

All individuals served under §1915(i) must meet 

the needs-based criteria the state establishes for its 

HCBS benefit. These criteria must be less stringent 

than its level-of-care criteria for institutional services, that is, nursing facilities, ICFs/

ID, and hospitals that are Medicaid certified as hospitals but provide long-term care services. These criteria cannot be based solely on diagnosis but must 

be based on an assessed need for a set of supports 

and services due to functional limitations.

The evaluation process to determine eligibility must 

be independent and not present a conflict of interest (i.e., service providers may not be involved in the 

eligibility determination process if 

Proposed Changes to Rehabilitation Benefit Withdrawn

On August 13, 2007, CMS published a proposed rule—Medicaid Program; Coverage for Rehabilitative Services—

in the Federal Register to clarify the definition of Medicaid “rehabilitative services” and to establish new documentation and other requirements. 

Due to concerns about the proposed rule expressed by many states and numerous stakeholders, it was subject 

to a Congressional moratorium that prohibited the Secretary of HHS from taking any action, including publication of a final rule that was more restrictive with respect to coverage or payment for rehabilitative services than 

the requirements in place as of July 1, 2007. 

Before the expiration of the Congressional moratorium, the American Recovery and Reinvestment Act of 2009, 

enacted on February 17, 2009, included a “Sense of Congress” that the Secretary should not promulgate a final 

regulation similar to the August 13, 2007 proposed regulation. In light of clear Congressional concern, as well as 

the complexity of the underlying issues and of the public comments received, on November 23, 2009 CMS withdrew the proposed rule in order to ensure agency flexibility in re-examining the issues and exploring options 

and alternatives with Congress and stakeholders.
100 Understanding Medicaid Home and Community Services: A Primer

they have a contract to furnish services under the 

benefit). Additionally, states must have safeguards 

in place to ensure there is no conflict of interest in 

the needs assessment and service planning processes.

States have the option to provide State Plan HCBS 

to individuals with incomes up to 150 percent of 

the Federal Poverty Level (FPL) who are eligible for 

Medicaid under an eligibility group covered under 

the State Plan without regard to whether they meet 

institutional level-of-care criteria. They also have 

the option of providing services to individuals with 

income up to 300 percent of the SSI Federal benefit 

rate, but individuals in this new eligibility group 

must be eligible for a §1915(c), (d), or (e) waiver 

or §1115 demonstration program.24 They do not, 

however, have to be enrolled and receiving services 

in either waiver program.

States may also make HCBS available to medically 

needy people if they are covered under the State 

Plan. For the medically needy group, states may apply income disregards to facilitate their eligibility for 

HCBS benefits (but not for other State Plan services). 

States do not have the option to protect spousal income and assets as they can under an HCBS waiver. 

Community First Choice Option

The Affordable Care Act added §1915(k) to the 

Social Security Act to allow states to provide 

“Community-based Attendant Services and Supports”—called the Community First Choice Option—effective October 2011. Under §1915(k), 

states that provide home and community-based 

attendant services and supports through their State 

Plans will receive a six percentage points higher 

Federal match. To be eligible for this benefit, individuals must meet Medicaid State Plan eligibility 

criteria and have incomes that do not exceed 150 

percent of the federal poverty level. If their income 

is greater, they must meet institutional level-of-care 

criteria.

Services under this option include home and community-based attendant services for the purpose of 

assisting in “accomplishing activities of daily living, 

instrumental activities of daily living, and healthrelated tasks through hands on assistance, supervision, or cueing.” Funds can also be spent to provide 

assistance with “the acquisition, maintenance, and 

enhancement of skills necessary” for the individual 

to accomplish such tasks; for “back-up systems or 

mechanisms to ensure continuity of services and 

supports (such as the use of beepers or other electronic devices)”; and for ‘‘voluntary training on how 

to select, manage, and dismiss attendants.” 

This option can also fund transition expenses 

incurred when moving from an institution to the 

community, such as security deposits for an apartment or utilities, as well as basic kitchen supplies, 

bedding, and other necessities required for transition. The law also allows “expenditures relating to a 

need identified in an individual’s person-centered 

service plan that increase independence or substitute for human assistance, to the extent that expenditures would otherwise be made for the human 

assistance.” 

Specific requirements for states that provide these 

services and supports include the following:

• Collaborate with a Development and Implementation Council established by the state that 

includes a majority of members with disabilities, elderly individuals, and their representatives. 

• Establish and maintain a comprehensive continuous quality assurance system specifically 

for this service. 

• Collect and report information for Federal oversight and the completion of a Federal evaluation of the program.

For the first full fiscal year in which the State Plan 

amendment is implemented, the state must maintain or exceed the level of expenditures for services 

provided under the State Plan, waiver programs, or 

demonstrations.
Chapter 4: Options for Designing Service Coverage: General Considerations 101

Table 4-1. Texas Home and Community-Based Waiver Programs

Waiver Population Served 

Medically Dependent Children 

Program 

Children (under age 21) at risk of nursing facility placement because of 

complex medical needs. 

Home and Community-Based 

Services 

People of all ages who qualify for ICF/ID services.

Community Living Assistance 

and Support Services 

People of all ages who have a disability—other than an intellectual 

disability—that originated before age 22 and that affects their ability to 

function in daily life. 

Deaf-Blind Multiple Disabilities People age 18 or older who are deaf, blind, and have multiple disabilities who qualify for ICF/ID/Related Conditions (RC) services.

Community Based Alternatives Adults (age 21 or older) who qualify for nursing facility services. 

STAR+PLUS Adults (age 21 or older) who qualify for nursing facility services and live 

in designated counties in the State. Services are provided through a 

§1915(b) waiver and a §1915(c) waiver program. 

Consolidated Waiver Program 

Two waivers: One for ICFs/ID/RC 

and one for nursing facilities.

People of all ages in Bexar County who qualify for nursing facility services or ICF/ID/RC services. 

Texas Home Living People of all ages, living with their families or in their own home, who 

qualify for ICF/ID services and meet the SSI income limit. 

Youth Empowerment Services Children between 3 and 18 years of age with Severe Emotional Disturbance who qualify for a Hospital Inpatient Psychiatric Facility for 

Individuals under 21 as provided for in 42 CFR 440.16.
102 Understanding Medicaid Home and Community Services: A Primer

Services That May Be Offered

Under an HCBS Waiver Program25

Using the HCBS waiver as authorized under 

§1915(c) of the Social Security Act, states have great 

flexibility to design programs that meet the unique 

needs of individuals with disabilities. Collectively, 

48 states and the District of Columbia operate 314 

distinct HCBS waiver programs.26 Some states, such 

as Texas and Florida have 10 or more waivers for 

specific populations (see Table 4-1 for a list of Texas’s 

waiver programs). 

To assist states in submitting requests to begin 

waiver programs, CMS issued a standard HCBS 

waiver application format in the early 1990s. Since 

November 2006, CMS has offered a web-based version of the application. Conversion to a web-based 

application streamlined the preparation of waiver 

applications and amendments, and improved 

communication concerning waiver requests between CMS and the states. CMS encourages states 

to employ the web-based application to submit 

new waivers, waiver renewals, and amendments. 

The application is linked to specific instructions for 

completing it and also includes technical guidance 

regarding its use. (See the Resources section of this 

chapter for a link to the latest version of the application and accompanying instructions.)

The services a state may offer under the HCBS waiver authority are not limited to those defined in the 

waiver instructions and technical guidance. States 

are free to accept the CMS definition, modify it to 

reflect other features and considerations important 

to the state, and/or propose a new service entirely 

and provide its definition. Many states use the CMS 

definitions—often with modifications—but many 

others have proposed alternative definitions to 

ensure that the service description exactly matches 

the service they want to provide.

Because the CMS service definitions may not be 

an exact match for what a state wants—and because CMS requires a precise definition of what will 

be furnished to waiver participants27—it is best to 

begin by developing a clear understanding of what 

the state intends. This analysis should encompass 

the types of services and supports to be delivered, 

as well as how, where, and by whom. Gaining a 

comprehensive understanding of its objectives puts 

a state in a good position to decide how well the 

definitions in the standard format “fit.” A good rule 

of thumb in considering CMS-predefined coverage 

is, “If it fits, use it. If it almost fits, change it to fit. If it 

doesn’t fit at all, propose a new service.” See the Box 

below for Colorado’s definition of Personal Assistant 

Services provided under its Supported Living waiver 

for people with developmental disabilities.

HCBS waivers cover many different services, including protective services and home-delivered meals;28

family counseling to deal with behavioral and other 

problems; substance abuse counseling/services; 

training in child and infant care for a parent with 

a disability; crisis intervention services; behavioral 

services, generally for individuals with developmental disabilities and acquired brain injuries; community participation supports; and housing coordination to assist individuals in locating and obtaining 

community housing. 

The wide range of services makes it clear that no 

exact formula exists for deciding which services and 

supports to include in a particular HCBS waiver program. States’ HCBS waiver programs differ in significant ways, but some of the large differences among 

the programs that serve similar target populations 

are less significant than meet the eye. Some states, 

for example, elect to break down their services 

into many distinct coverages, whereas others pull 

together several closely related services into one 

coverage category. For example, Colorado’s Supported Living Services waiver program for people 

with developmental disabilities provides a service it 

has named “Environmental Engineering,” which covers both home modifications and assistive technology. Other states choose to offer them as discrete 

services. How exactly services and supports are 

packaged and defined is less important than making sure they are covered in one way or another. 

Again, the best starting point for designing and 

selecting HCBS waiver coverage is for the state to 

assess the needs of the service population and 

develop concrete ideas about how those needs can 

best be met. 
Chapter 4: Options for Designing Service Coverage: General Considerations 103

A more substantive reason why state waiver services vary so widely is differences among states in 

the services already covered under the Medicaid 

State Plan. In states that have broad, comprehensive State Plan coverages, the services a state offers 

under its HCBS waiver program will consist mainly 

of those that cannot otherwise be covered under 

the State Plan. This explains why, for example, some 

states cover therapeutic services under their waiver 

programs and others do not. 

It also explains why HCBS waiver programs that 

principally serve children usually offer fewer services than programs that principally serve adults with 

disabilities. Because the EPSDT mandate requires 

states to provide the full array of mandatory and 

optional State Plan services to children, whether or 

not they are actually covered under the State Plan, 

HCBS waiver programs for children furnish a more 

limited array of additional services. 

Differences among target populations may also 

be important. As discussed earlier, several types of 

waiver services cut across disability categories (e.g., 

personal care/personal assistance, service coordination, and home modifications). These—and other 

services—are needed by people with different 

types of disabilities and are covered in nearly all 

HCBS waiver programs. 

However, there are also some differences among 

individuals that are linked to their disabilities and 

how those disabilities need to be addressed. For example, habilitation training is particularly important 

for people with developmental disabilities, because 

of the nature of their disability.29 (Indeed, the provision of habilitation usually accounts for a significant 

share of the expenditures in HCBS waiver programs 

that serve people with developmental disabilities 

and is one reason why these waiver programs tend 

to be relatively costly to operate.) However, habilitation training is not relevant in meeting the needs 

of most elderly individuals. Thus, state coverage 

decisions are very much tied to the specific needs of 

individuals in the target population.

Yet another substantive reason why states differ in 

the services and supports they offer through their 

HCBS waiver programs is that services and supports 

Colorado Supported Living HCBS Waiver: Personal Assistant Services Definition

Personal assistant services provide necessary personnel and supports to meet the daily living needs of a person 

with a developmental disability [on a less than 24-hour basis]. These services and supports, including evaluation 

and assessment, are provided to ensure adequate functioning in the person’s own home, someone else’s home, 

in the home of their natural or adoptive family, or for accessing and/or participating in the community.

Personal assistant services may include assistance or training with a wide range of activities necessary to meet 

the daily living needs of the person in the home and community including

1. Personal care such as hygiene, bathing, eating, dressing, grooming, bowel and bladder care, menstrual care, 

transferring, basic first aid, giving medications, relief to a family who normally provides personal care, emergency response in the form of human assistance, and operating medical equipment.

2. Household maintenance such as meal preparation, shopping and chores, assistance with money management and personal finances, cleaning, laundry, and household repairs and maintenance related to the 

person’s disability.

3. Mentorship activities such as planning; decision making; assistance with his/her participation on private 

and public boards, advisory groups, and commissions; person-specific training costs associated with providing unique supported living services to an individual, such as training in child and infant care for parent(s) 

who themselves have a developmental disability.

4. Supported living consultation such as assistance with decision making, planning daily activities, and direct 

assistance to access community resources and/or service providers.
104 Understanding Medicaid Home and Community Services: A Primer

continue to evolve. Approaches that seemed appropriate in the past give way to new approaches, and 

states vary in how quickly they adopt these changes. One of the most useful features of the HCBS 

waiver is that it is sufficiently flexible to change over 

time. States have considerable latitude to modify 

and/or totally change their HCBS waiver coverages. 

Each year, states submit numerous amendments 

to their HCBS waiver programs, which add, delete, 

and/or modify the services and supports states 

offer. As a consequence, waiver programs that 

have been in operation for a relatively long period, 

usually have changed considerably since they were 

first approved. Coverages can be fine-tuned based 

on feedback from waiver participants and service 

providers concerning problems or gaps. 

The “Application for a §1915(c) Home and Community Based Waiver [Version 3.5] Instructions, 

Technical Guide and Review Criteria” has attached 

to its instructions—in Appendix C—an excellent 

description of and guidance on the service options 

included in the HCBS waiver application format. 

(See the Resources section of this chapter for a link 

to the application and to a website where copies of 

each state’s approved waiver applications are available.)

A Frequent Problem in Designing Waiver 

Coverages: Tendency to Tie Them to Particular Service Settings

In designing HCBS waiver programs it is helpful 

to remember that services can be furnished in 

both the home and a wide range of community 

settings. Historically, in developmental disabilities services, states have tended to identify “day 

habilitation” with particular sites. This has had 

the effect of preventing habilitation services 

from being furnished to individuals in everyday 

community settings where training could be 

used to assist the individual in mastering skills 

important in community life. Several states are 

now removing the ties of this service to specific 

sites, and at least two states no longer offer 

“facility-based” day programming.

Another example of problems that can be 

caused by tying a service to a particular setting 

can be found in the area of personal care/assistance services. These services can be defined in 

a way that ties their delivery to a person’s living 

arrangement. But they can also be defined more 

flexibly, to permit their provision both in and 

outside the home (as Michigan’s HCBS waiver 

program for people with developmental disabilities allows). Defined in this alternative fashion, 

these services can be furnished more flexibly 

and more in accordance with an individual’s 

specific needs and preferences.
Chapter 4: Options for Designing Service Coverage: General Considerations 105

HCBS Waivers for Adults with Serious 

Mental Illness or Children with Severe 

Emotional Disturbance

Some states provide services for adults with 

serious mental illness and children with severe 

emotional disturbance using §1915(c) waivers. 

Colorado, Montana, and Wisconsin serve adults 

using nursing facility level-of-care waivers. Indiana, Kansas, Michigan, New York, Texas, Wisconsin, and Wyoming provide services to children 

and youth using the hospital level of care for 

an inpatient psychiatric facility for individuals 

under age 21, as provided in 42 CFR §440.160.

Supports Waivers

States are experiencing extremely high demand 

for home and community services for people with 

developmental disabilities. Many states, even those 

that have substantially expanded their HCBS waiver 

programs over the past decade, have very long 

waiting lists for services.30 Many factors account for 

this high demand. One factor is the increasing longevity of this population, many of whom now live 

with parents who themselves are elderly and less 

able to meet the needs of their adult children.31 A 

second and related factor is that many people with 

developmental disabilities outlive their parents. 

As a consequence, many states are rethinking the 

role that waiver services might play in meeting 

the needs of people with developmental disabilities—particularly with respect to increasing waiver 

services and supports for individuals who live with 

their families or have other informal caregivers who 

provide support. While requests for services and 

supports often take the form of families seeking a 

group home placement, in-home and family support services can often meet individuals’ needs so 

they do not have to leave the family home. States 

that make services and supports more readily available to people with developmental disabilities who 

live with their families, in fact, experience lower 

demand for services in group homes and other 

residential care settings.33

States rethinking is taking various forms. Some 

states have implemented distinct HCBS waiver 

programs intended mainly to provide services and 

supports to meet the needs of individuals who live 

with their families or on their own, with either informal caregiving available to them or the capacity to 

live without 24/7 supports. These programs do not 

offer services in group homes and other residential 

care settings that provide around-the-clock staffing, 

such as adult foster care. 

These programs—called supports waivers—usually operate under stricter cost caps than the state’s 

parallel HCBS waiver program, which covers service 

in residential care settings, because the individuals being served have informal caregivers or less 

intensive support needs. These caps enable the 

state to avoid imposing service-by-service restrictions on utilization in order to maintain program 

cost-effectiveness.

Supports waivers also permit the state to give 

individuals and families considerable flexibility in 

selecting the mix of services and supports that best 

meets their needs. However, unlike state-funded 

family support programs, waiver services and supports must be for the direct benefit of the waiver 

participant. Although the HCBS waiver does allow 

for services that support families to give care to a 

family member with a disability, such as respite and 

family training, services that are primarily for the 

benefit of the family can not be covered under a 

Medicaid HCBS waiver. 

The flexibility afforded individuals and families also 

permits states to reflect many of the principles and 

values under which developmental disabilities individual support and family support programs have 

operated for many years: namely, that the individual 

or the family be in a position to ensure that the services and supports they receive are tailored to meet 

their needs and preferences.34 

The availability of Medicaid funding allows states 

to offer more comprehensive services and supports 

to families than has typically been the case with 

respect to state-funded family support programs, 

many of which allot only $3,000 to $4,000 to a family each year. Average annual expenditures per participant for all HCBS ID/DD waivers for FY 2008 were 
106 Understanding Medicaid Home and Community Services: A Primer

$43,464 per year.34 In a study of 16 states’ supports 

waivers in 2006, average annual participant expenditures ranged from $4,015 to $24,443.35

Operating distinct waiver programs that primarily 

target individuals who live with their families has 

both pros and cons. One of the main advantages 

is that when creating a new program state officials 

and other stakeholders are often more willing to 

consider new approaches to furnishing home and 

community services than when modifying an existing program. Supports and services can be selected 

that are especially relevant to meeting the needs of 

people who live with their families, paying particular attention to those that can strengthen and support informal caregiving. 

The main disadvantages appear to be (1) the administrative complications associated with operating multiple HCBS waiver programs for the same 

general target population, and (2) the CMS requirement that states safeguard participants’ health and 

safety—even if their needs increase beyond what 

can be addressed within the waiver service cap.36

Supporting Individuals to Live in Their 

Own or Family Home

In-home supports provide an alternative living 

arrangement to provider-controlled residential programs. In-home supports are individually tailored 

services that assist individuals to live in their own 

home or in their family’s home. In-home supports 

may comprise a variety of services such as residential habilitation, personal care, homemaker/chore 

services, skills training, family training, respite, and 

housing modifications. In the past, in-home supports for individuals living in their own home (a 

place they lease or own) were reserved for individuals deemed capable of “independent” living. The 

model offered intermittent supports to individuals 

who needed some assistance with activities of daily 

living or some limited skills training or supervision 

in order to live independently. 

In the ID/DD field, this model has changed dramatically; even individuals who need around-the-clock 

supports can now live in their own home. The opportunity to own or lease a home (or apartment) is 

no longer reserved only for those individuals needing minimal supports. Now, individuals live with 

roommates and have either live-in or come-in support personnel to assist them. This type of arrangement is often referred to as “supported living.” The 

intensity, type, and frequency of supports are based 

on the person’s needs and can be a combination of 

support, supervision, and skills training based on 

the person’s individual service plan. 

For individuals living in their family’s home, similar 

services can be brought in to assist the individual, 

and other supports, such as respite and caregiver 

training, can be made available to the family. These 

supports help families to keep individuals in the 

family home rather than seeking out-of-home 

placement in facilities that are provider owned or 

operated.

Medicaid Financing for Supports to

Individuals Living in Their Own Home

Supports for individuals living in their own or family 

home can be financed through the HCBS State Plan 

benefit, the HCBS waiver, or both. These supports 

can be offered under the category of “residential habilitation.” States may also offer an array of in-home 

supports. Common in-home supports include personal care, homemaker chore services, and respite 

and training for informal caregivers.37 

Additionally, under the HCBS waiver, states have 

the option of offering “live-in caregiver” payments 

that cover services provided by an individual who 

resides in the home of a waiver participant, and 

also cover his/her room and board costs (see Box on 

next page).
Chapter 4: Options for Designing Service Coverage: General Considerations 107

Factors to Consider When

Choosing Coverage Options:

Two Illustrative Services

Every state covers personal care and case management in their Medicaid programs, either through 

the State Plan, an HCBS waiver, or both. This section 

will discuss the options for providing these two services, highlighting the advantages and drawbacks 

of each, which may vary by state depending on a 

state’s configuration of its long-term care system, as 

well as its policy goals.

1. Personal Care/Personal Assistance

The three major Medicaid options for covering 

personal care (also called personal assistance) are 

the Medicaid State Plan Personal Care benefit, the 

Medicaid State Plan HCBS benefit, and an HCBS 

waiver. States may also provide personal care under 

the Community First Choice Option, authorized by 

the Affordable Care Act, effective October 2011. 

Thirty-four states and the District of Columbia cover 

personal care under their Medicaid State Plans, 

but only a few states make it broadly available. 

For example, California, New York, and Texas operate relatively extensive State Plan Personal Care 

programs; elsewhere, provision of such services is 

more limited.38 Many states that offer personal care 

have strict limitations on its delivery. Some either 

stringently regulate the amount of personal care 

services an individual can receive or cap the dollar 

value of such services at a level well below the annual cost of nursing facility services.39

Others limit eligibility for personal care services by 

identifying a population or level of functional limitation for which they will provide assistance. However, states must be careful not to violate Medicaid 

comparability requirements by restricting services 

to those with a particular diagnosis or condition, 

such as by making benefits available only to people 

who use wheelchairs. All states are required to provide all §1905(a) services, including personal care, 

to children under the expanded EPSDT mandate, 

whether or not the state covers the service under its 

State Plan.

HCBS Waiver Core Services Definition: Live-in Caregiver

Live-in Caregiver: An unrelated live-in personal caregiver who resides in the same household as the waiver 

participant. Payment for this service includes the additional costs of rent and food that can be reasonably attributed to the unrelated live-in personal caregiver. Payment will not be made when the participant lives in the 

caregiver’s home or in a residence that is owned or leased by the provider of Medicaid services.

Under the HCBS waiver, states can elect to cover the costs of a live-in caregiver. These costs must be detailed in 

the cost-neutrality formula in the HCBS waiver application and must be described as a discrete service in the 

state’s waiver application. The Connecticut Department of Developmental Services (DDS) offers “live-in caregiver” as a service under its HCBS waiver for individuals with developmental disabilities using the following definition: “DDS reimburses the waiver participant for the cost of the additional living space and increased utility costs 

required to afford the live-in caregiver a private bedroom. The reimbursement for the increased rental costs will 

be based on the DDS Rent Subsidy Guidelines and will follow the limits established in those guidelines for rental 

costs. The reimbursement for food costs will be based on the United States Department of Agriculture Moderate 

Food Plan Cost averages. Payment will not be made when the participant lives in the caregiver’s home or in a 

residence that is owned or leased by the provider of Medicaid services.”
108 Understanding Medicaid Home and Community Services: A Primer

The principal reason why many states do not cover 

personal care under the State Plan or, if they do, 

impose considerable restrictions on its provision, is 

concern about controlling expenditures for an entitlement benefit. State officials often want to know 

(1) How many Medicaid beneficiaries will qualify to 

receive the service? (2) How many service hours will 

they use once eligible? On the other hand, because 

HCBS waivers permit states to cap the number of 

beneficiaries and the cost of services, most states 

cover personal care or a similar service under an 

HCBS waiver (or a §1115 waiver in Arizona and 

Vermont.) 

Personal Care and the Medicaid Home 

Health Benefit

Personal care is also provided by home health 

aides under the mandatory Medicaid Home 

Health benefit. However, this benefit is a very 

costly way to provide personal care because it 

is subject to the same rules regarding provider 

conditions for participation as the Medicare 

Home Health benefit. Under these rules, agencies must be Medicare certified and home 

health aides must be supervised by a licensed 

nurse. These requirements significantly increase 

the costs of a home health aide compared to 

that of a personal assistant from a non-Medicare 

certified agency and, of course, personal assistants hired by Medicaid beneficiaries who direct 

their services.

It is important to note that the Medicaid Home 

Health benefit cannot use the same eligibility 

criteria that Medicare uses, for example, requiring that individuals need skilled nursing care or 

be homebound. (See Chapter 3 for a more detailed discussion of the Medicaid Home Health 

benefit.)

Advocates for personal care point out that this 

service is usually less costly per person than institutional services and, consequently, that adding this coverage will result in lower institutional 

expenditures—by avoiding or delaying admission 

of individuals to institutions, as well as enabling institutionalized persons to return to the community. 

However, state officials are often concerned that 

such savings might be offset by the effect of more 

people overall seeking services once their availability becomes known (i.e., increased demand). The 

costs of meeting the needs of more people could 

offset the savings stemming from reduced nursing facility usage. Both are legitimate points and 

the challenge for state policymakers and disability 

advocates is to strike a balance between the need 

to control costs and the need to provide home and 

community services so that individuals can live in 

the least restrictive setting. 

Expenditure concerns, as noted earlier, have 

prompted many states to turn to an HCBS waiver 

program to secure Medicaid financing of personal 

care assistance services, since the waiver program 

permits tighter cost and use limits. Table 4-2 summarizes the differences in personal care service 

coverage between State Plan and HCBS waiver 

programs. 

Personal Care: Issues in Both State Plan and 

Waiver Programs

Regardless of the Medicaid authority used, states 

need to consider several issues related to the provision of personal care. Depending on how they are 

addressed, these issues can either impede or facilitate its provision.

Delegation of Nursing Tasks

Certain health-related personal care tasks (e.g., 

medication administration and tube feeding) fall 

under the jurisdiction of states’ Nurse Practice Acts. 

Federal Medicaid policy does not dictate who must 

perform skilled nursing tasks, merely that such tasks 

be performed in compliance with applicable state 

laws. But state laws and regulations often dictate 

that such tasks be performed by or closely supervised by a licensed nurse, which can significantly 

increase the cost of serving individuals with medical 

or health-related needs in the community. 
Chapter 4: Options for Designing Service Coverage: General Considerations 109

To avoid duplicating Home Health benefits already 

available through Medicare or under the Medicaid 

State Plan, many HCBS waiver programs do not offer 

skilled nursing or rehabilitative therapies. However, 

“skilled” paraprofessional services may still be provided by personal care workers under HCBS waivers 

or under the State Plan Personal Care option—as 

long as the services are provided in conformity with 

the state’s Nurse Practice Act.

A 1999 Medicaid Manual transmittal specifically 

states that 

Services such as those delegated by nurses or physicians to personal care attendants may be provided so long as the delegation is in keeping with 

state law or regulation and the services fit within 

the personal care services benefit covered under a 

state’s plan. Services such as assistance with medications would be allowed if they are permissible in 

states’ Nurse Practice Acts, although states need to 

ensure that the personal care assistant is properly 

trained to provide medication administration and/

or management.40

This policy and its applicability to optional State 

Plan personal care services and HCBS waiver programs were reaffirmed in a July 2000 letter from 

CMS to State Medicaid Directors.41 

Several states, notably Oregon, have amended their 

Nurse Practice Acts to enable licensed nurses to 

delegate nursing tasks under specific conditions. 

Others have amended their Nurse Practice Acts to 

exempt certain individuals—such as participantdirected personal assistants—from the provisions 

of the Act, just as most Acts exempt unpaid family 

members who perform these tasks. 

Provider Qualifications 

States typically require individuals who would 

provide personal care services to have completed a 

basic training course. To ensure proper supervision 

of personal care workers, some states require that 

they be employed by agencies that hire the workers and supervise them. More and more states are 

routinely requiring individuals who would provide 

personal care services to undergo criminal background checks and checks against abuse/neglect 

registries.

With the increase in state options for participants 

to direct their services, however, many states now 

allow individuals to directly hire the persons they 

want to provide services and to train and supervise them. States need to determine what provider 

qualifications will be required and, in so doing, 

balance concerns about safety with participants’ 

ability to choose who they will hire. (See Chapter 7 

for a detailed discussion of various service delivery 

models for participant-directed services.)

Change in Medicaid Statute to 

Increase Participant Direction Service 

Delivery Options 

Section 6087 of the DRA-2005 added §1915(j) to 

the Social Security Act, effective January 2007.43 This 

authority permits states to prospectively disburse 

cash to participants who direct their personal care/

personal assistance services using an individual 

budget. States may not offer participant-directed 

services under the §1915(j) authority except 

through an existing State Plan Personal Care program or an HCBS waiver program. 

Absent the §1915(j) authority, participant direction 

of Medicaid State Plan personal care is limited to 

use of the employer authority. The §1915(j) authority also allows states to permit participants who 

direct their services under the State Plan Personal 

Care option to use their individual budgets to purchase non-traditional goods and services other than 

personal assistance, to the extent that expenditures 

would otherwise be made for human assistance. 

(States already have the authority under §1915(c) to 

allow HCBS waiver participants to purchase a broad 

range of goods and services.) 

Employing Family Members

All of the Medicaid authorities allow participants to 

hire friends and relatives to provide personal care 

services. States also have the option under the HCBS 

waiver authority, and the §1915(j) and §1915(i) 

authorities, to allow participants to hire legally 

responsible relatives (i.e., spouses, and parents and 
110 Understanding Medicaid Home and Community Services: A Primer

Table 4-2. Key Features of Medicaid Options for Covering Personal Care

Feature State Plan 

Personal Care

HCBS Waiver State Plan HCBS

Entitlement States can not target 

services by age or 

diagnosis.

States must provide services to all 

categorically eligible 

individuals who 

meet the eligibility 

criteria.

Services must be 

provided statewide.

States can target services 

by age and diagnosis.

States can limit the number of people served.

States can limit the geographic area in which a 

waiver program is available.

States can target services by 

age and diagnosis.

States must provide services 

to all individuals in an eligibility group who meet the 

eligibility criteria.

Services must be provided 

statewide.

Financial 

Criteria

Beneficiaries must 

meet community 

financial eligibility 

standards.

States may set financial 

eligibility criteria up to 

300 percent ($2,022 per 

month) of the Federal 

SSI benefit ($674 per 

month in 2010).

States may set financial 

eligibility criteria at 150 percent of the FPL ($1,354 per 

month in 2009) or at 300 

percent of the Federal SSI 

benefit ($2,022 per month)42

Eligibility 

Criteria

Beneficiaries must 

have functional limitations—specified 

by the state—that 

result in a need for 

the services covered.

Beneficiaries must meet 

the minimum institutional level-of-care criteria and have a medical/

functional need for the 

specific service. 

Beneficiaries eligible under 

150 percent of the FPL must 

meet functional eligibility 

criteria that is less stringent 

than institutional level-ofcare criteria. 

Beneficiaries eligible under 

the 300 percent of SSI 

income eligibility standard 

must meet institutional 

level-of-care criteria.

Services Services include 

only those specified 

in the Federal definition of personal care 

services.

Coverage can include 

a very broad array of 

state-defined services, 

only some of which are 

specified in statute.

Coverage can include a very 

broad array of state-defined 

services, only some of which 

are specified in statute.

Payment of 

Relatives

Relatives other than 

legally responsible 

relatives may be 

paid to provide 

personal care, at the 

state’s option.

Relatives, including 

those legally responsible, may be paid to 

provide personal care 

and other services under 

specific circumstances 

determined by the state.

Relatives, including those 

legally responsible, may be 

paid to provide personal 

care and other services under specific circumstances 

determined by the state.
Chapter 4: Options for Designing Service Coverage: General Considerations 111

legal guardians of minor children).44 Generally, to be 

a paid personal care provider, a legally responsible 

relative has to be providing services that a parent 

or spouse would not be providing for a non-disabled spouse or minor child; for example, feeding 

a 15-year-old child or bathing a spouse. However, 

Medicaid still prohibits the hiring of legally responsible relatives under the State Plan Personal Care 

option. 

Within the broad parameters of Federal policy, it is 

up to states to define the particular circumstances 

under which relatives will be paid to furnish services 

to participants. States can take various factors into 

account, including the availability of other sources 

for the same services, costs of using family members 

to provide services versus costs of purchasing such 

services from conventional sources, and specific 

circumstances with respect to participants. 

2. Case Management

Medicaid gives states three ways to cover case management services: (1) targeted case management, 

(2) HCBS waiver programs, and (3) administrative 

claiming.45 This section discusses the advantages 

and drawbacks of each option in obtaining Federal 

financial participation.46 Some states cover case 

management services under their HCBS waiver 

programs and use the targeted case management 

option for Medicaid beneficiaries not receiving 

waiver services. For example, some states cover case 

management services in HCBS waiver programs for 

adults and children with developmental disabilities, and make targeted case management services 

available to individuals who have been wait-listed 

for the waiver services. Targeted case management 

services can also be made available to people who 

qualify for a state’s HCBS waiver program (in lieu of 

providing such services under the waiver program), 

as well as for individuals who do not participate in 

the waiver program. 

Targeted Case Management

Advantages to States of Offering Targeted 

Case Management Services

• The state is free to define the population that 

will be targeted.

• The service may be offered to all Medicaideligible persons who need home and community services. Consequently, they may be made 

available without regard to type of service or 

funding source. This feature makes targeted 

case management a potentially very useful 

coverage option in establishing a broad-based 

coordinated service system. 

• The costs of targeted case management 

services are claimed at the Federal Medical 

Assistance Percentage, which in many states is 

significantly higher than the 50 percent matching rate that applies to administrative claiming 

(see below).47 

• A problem for case management covered 

under an HCBS waiver program is that FFP is 

only available once the person has entered the 

program. Thus, case management costs incurred in advance of enrollment are not eligible 

for FFP unless they are covered under targeted 

case management, administrative claiming, 

or under the HCBS waiver if they are begun 

before waiver participation but completed on 

the first day the person is enrolled in the waiver 

program. However, targeted case management services may be furnished irrespective 

of whether the person is enrolled in an HCBS 

waiver program, enabling most pre-enrollment 

costs associated with service coordination to 

be recouped. 

• Once states were severely limited in obtaining 

FFP for targeted case management services 

furnished to residents of institutions. This 

limitation arose from the concern that activities 

performed for institutionalized persons by case 

managers not on the facility staff would duplicate activities facilities are required to conduct 

on behalf of their residents.
112 Understanding Medicaid Home and Community Services: A Primer

• FFP is now available for targeted case management services to assist and arrange for 

residents’ transition to the community for up 

to 180 days preceding discharge. This policy 

enables a state to involve case managers earlier 

in the community placement process. FFP for 

such targeted case management services is 

available regardless of whether the person is 

enrolled upon discharge in an HCBS waiver 

program, receives other Medicaid home and 

community services, or is supported through 

alternative funding sources.48 

• If the institutional resident does not transition, 

FFP can be secured by charging the targeted 

case management service as an administrative expense. In this case, the activity must be 

claimed as administrative case management, 

which is reimbursed at the 50 percent matching rate. (See Chapter 6 for a detailed discussion of Medicaid coverage of transition services, and the Resources section of this chapter for 

a link to a CMS State Medicaid Director Letter 

regarding the earliest date of service for which 

FFP can be claimed.)

• When the targeted groups are those with 

serious mental illness or developmental disabilities, targeted case management enables a 

state to strictly limit who may be contracted to 

provide case management services. This is beneficial when service providers are to be limited 

to the case management authorities already 

established in state law, or where counties or 

other local entities such as Community Centers 

are responsible for the provision of case management services. It allows states to tie delivery 

of targeted case management services into 

their already established single point of entry 

systems. In contrast, when case management/

service coordination is offered to these populations under an HCBS waiver program, Medicaid 

freedom of choice of provider rules apply and 

a state must allow HCBS waiver participants to 

obtain case management/service coordination 

from any qualified provider.

Drawbacks to States of Offering Targeted 

Case Management Services

• Obtaining FFP for targeted case management 

requires “service claiming” (i.e., claims for reimbursement for a specific service delivered to a 

specific Medicaid recipient). Service claiming 

can generate considerable paperwork. It can 

also pose logistical problems in developing a 

reimbursement mechanism that enables the 

relevant authority to maintain base operation 

levels when the amount of case management 

varies individual-to-individual, month-tomonth. The varying workload problem also 

arises when service coordination is offered as 

a distinct service under an HCBS waiver program.49 

• The necessity for service claiming can also 

make it difficult to obtain reimbursement for 

activities conducted on behalf of all recipients 

rather than distinctly for the benefit of a specific individual (e.g., staff development activities for case managers). Costs used in the development of the reimbursement rates must take 

into consideration staff time spent in general 

administrative activities such as intake, as well 

as training and travel. 

• Service coordinators often support individuals in ways that fall outside the scope of targeted case management activities for which 

FFP may be claimed. But, FFP for targeted 

case management services is not available for 

“direct services.” Examples are a case manager’s 

driving an individual to a doctor’s appointment 

(transportation) or helping the person manage 

their finances. Federal policy dictates that such 

direct services be claimed via other categories 

(e.g., making a claim for Medicaid transportation services).50 Having to assign some of the 

activities case managers routinely conduct on 

behalf of individuals to other categories creates 

administrative and billing complexity.
Chapter 4: Options for Designing Service Coverage: General Considerations 113

HCBS Waiver Coverage 

FFP is available for the costs of case management 

when a state covers such services under its HCBS 

waiver program. This option differs little from targeted case management with respect to types of 

activities for which FFP may be claimed. The general 

interchangeability of these options is illustrated by 

the fact that all states operate HCBS waiver programs for people with developmental disabilities, 

but states divide about equally between those that 

use targeted case management coverage and those 

that cover service coordination as a waiver service. 

Advantages to States of Covering Case

Management as a Waiver Service

• Covering case management as a waiver service 

tightly links availability of such services to the 

target population served through the HCBS 

waiver program. Thus, the scope of such coverage may be tied directly to the specific needs of 

the waiver population.

• Covering case management as a waiver service 

enables a state to provide for more intensive 

service coordination for HCBS waiver participants than it might (for financial reasons) be 

prepared to offer a wider range of individuals. 

Drawbacks to States of Offering Case

Management as an HCBS Waiver Coverage

• The service is limited to individuals enrolled in 

the HCBS waiver program.

• Under an HCBS waiver, a state may not limit 

case management service providers to established case management authorities for anyone—including those with serious mental illness and developmental disabilities—as it can 

under the targeted case management option.

• Claims for FFP may only begin once the person 

has been approved for admission to the waiver 

program. This prevents the state from being 

reimbursed for pre-enrollment case management expenses. However, some pre-waiver case 

management costs may be covered if (a) they 

are begun before waiver participation, but 

completed on the first day the person enrolls 

in the waiver; or (b) they occur in the 180 days 

preceding transition from an institution to the 

community. 

Administrative Claiming 

Administrative claiming takes advantage of a provision in Federal law permitting states to claim FFP 

for administrative expenses they incur in operating their Medicaid programs. Such expenses may 

include costs of intake, assessment, service planning, arranging Medicaid services for recipients, and 

overseeing service delivery—many of the activities 

typically performed by case managers. 

Administrative claiming differs from the targeted 

case management and waiver alternatives in one 

important aspect: It may not be used to assist recipients to access non-Medicaid services—even though 

such services might benefit them. Case managers 

may work to coordinate access to all services in 

a care plan. But administrative claiming can only 

be used for the administration of the Medicaid 

program, as established by a time study or other 

method to apportion Medicaid and non-Medicaid 

costs.

Advantages to States of Using the Administrative Claiming Option for Case Management Activities

• It is not necessary to bill for distinct activities 

on behalf of specific individuals, because administrative claiming is not service-based. Administrative claiming is usually accomplished 

by apportioning the costs an organization 

incurs between those attributable to 

Medicaid recipients and those attributable to 

non-recipients and/or other state or Federal 

non-Medicaid programs. While the cost apportionment process can be complicated, this does 

not always constitute an additional barrier, 

because some organizations must do cost apportionment in any case whenever they receive 

Federal funds for administering non-Medicaid 

programs.
114 Understanding Medicaid Home and Community Services: A Primer

• Because administrative claiming does not have 

a rule requiring states to contract with “any 

qualified provider,” (as they must with State 

Plan services) the state can limit which entities 

can make an administrative claim for case management. This can be especially advantageous 

for states that operate a single point of entry 

system through human service authorities that 

also administer the provision of non-Medicaid 

benefits. For example, some states use administrative claiming for a range of case management functions that are not specifically covered 

under the case management service for waiver 

beneficiaries (e.g., eligibility determination; administrative functions involving case managers 

such as program planning, development, and 

outreach; and certain licensing and contracting 

functions).

• Administrative claiming is consistent with 

models where a state has established, by law 

or regulation, a distinct network of local single 

point of entry/case management authorities.

The administrative claiming option for case 

management activities provides states with 

the capability of securing FFP for external 

case management services furnished to institutionalized persons that does not hinge on 

whether the person’s discharge from the facility 

is imminent. Administrative claiming may be 

employed to provide external oversight of the 

well-being of institutionalized persons, as well 

as to support “inreach” activities to provide information concerning the availability of home 

and community services.

Administrative claiming may also span case 

management activities that are directly tied to 

arranging and assisting a person’s return to the 

community—over and above that provided by 

discharge planners—without respect to length 

of time involved. However, such activities must 

be tied to arranging Medicaid home and community services. The state 

Medicaid agency may obtain case management services for institutionalized persons via 

contract with a state program office or through 

local human services agencies. Organizing 

case management for institutionalized persons 

under the administrative claiming option may 

simplify use of Medicaid dollars to underwrite 

such services in comparison to other available 

service options.

Drawbacks to States of Using 

Administrative Claiming for 

Case Management Services

• Federal reimbursement of administrative 

expenses is limited to 50 percent of allowable 

costs. In states where the service rate is greater 

than 50 percent, administrative claiming will 

yield less FFP.

• Administrative claiming is limited to activities related solely to administration of a state’s 

Medicaid program. Thus, the costs of activities 

that assist individuals to access services not 

available in a state’s Medicaid program, such 

as housing, food, education, and employment, 

will have to come from state/local dollars. 

Alternatively, states can use the targeted case 

management option to cover the activities 

that relate to the consumer’s needs but do not 

involve Medicaid services.

• Individuals lose the protections contained in 

Medicaid law with respect to provider freedom 

of choice, since administrative claiming usually restricts service coordination activities to a 

single provider source.
Chapter 4: Options for Designing Service Coverage: General Considerations 115

States May Use One, Two, or All Three of the Case Management Authorities

Federal policy allows states to select the options or combinations of options that will be most effective in meeting the needs of individuals and families with long-term care needs. Federal policy does prohibit states from 

claiming the costs of the same activity of service coordination for the same individual under more than one alternative at the same time. But as long as this prohibition is observed, a state can use the three options to serve 

recognizably different purposes. For example, a state may combine service coordination as a distinct service for 

participants under HCBS waivers with targeted case management services for Medicaid recipients not being 

served by the waiver program. This allows the state to offer case management services under its State Plan that 

are more limited in scope than those offered under an HCBS waiver.

Wyoming takes advantage of this possibility by offering targeted case management to individuals wait-listed 

for waiver services, to help them connect with other sources of direct service assistance while awaiting waiver 

coverage. 

Sometimes a state may want to add administrative claiming to the case management mix. Although administrative claiming may not be used to assist recipients in accessing non-Medicaid services, it has the advantage of 

allowing FFP claiming for certain services that are not claimable under targeted case management or an HCBS 

waiver—including outreach, quality assurance/quality improvement, operating automated data systems, and 

various state-level administrative activities.
116 Understanding Medicaid Home and Community Services: A Primer

Resources 

Since the Primer was first published in 2000, numerous reports and other resources have become available 

on the Internet. This section includes key resources relevant to service coverage. Most of the publications 

cite additional resources and the websites also have links to other sources of information.

Publications 

Centers for Medicare & Medicaid Services. (2008). Application for a §1915(c) Home and Community-Based 

Waiver [Version 3.5]: Instructions, Technical Guide and Review Criteria.

This publication contains extensive information concerning Federal policies that apply to the operation of an 

HCBS waiver, in particular, Appendix C: Participant Services, which includes core service definitions. 

Available at https://www.hcbswaivers.net/CMS/faces/portal.jsp under links and downloads, entitled §1915(c) 

Waiver Application and Accompanying Materials. 

Smith, G., Fortune, J., Agosta, J., and O’Keeffe, J. (2007). Gauging the Use of HCBS Supports Waivers for 

People with Intellectual and Developmental Disabilities: Profiles of State Supports Waivers. Washington, DC: 

U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy. 

This project was funded to (a) gather descriptive information on HCBS waivers, both comprehensive and 

supports, operated for people with intellectual and developmental disabilities in 17 states with the supports 

waivers; (b) determine how supports waivers have emerged as separate and distinct HCBS waivers; (c) better 

understand the range of participant characteristics and experiences that distinguish supports waivers from 

other HCBS waivers; and (d) more fully appreciate how states view supports waivers as a way to address demand for home and community services among people with developmental disabilities. 

Available at http://aspe.hhs.gov/daltcp/reports/2007/gaugingfr.htm

Smith, G., Kennedy, C., Knipper, S., O’Brien, J., and O’Keeffe, J. (2005). Using Medicaid to Support Working 

Age Adults with Serious Mental Illnesses in the Community: A Handbook. Washington, DC: U.S. Department of 

Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy. 

This Handbook focuses on working-age adults between the ages of 21 and 64 with serious mental illnesses, 

whose need for support extends beyond mental health services that can be effectively provided by primary 

care physicians or periodic visits to outpatient settings. It is designed to improve understanding and provide 

greater clarity concerning Medicaid’s contribution in supporting working-age adults with serious mental ill-
Chapter 4: Options for Designing Service Coverage: General Considerations 117

nesses in the community.

Available at http://aspe.hhs.gov/daltcp/reports/handbook.htm

Summer, L.L., and Ihara, E.S. (2005). The Medicaid Personal Care Services Benefit: Practices in States that Offer 

the Optional State Plan Benefit. Washington, DC: AARP, Public Policy Institute.

This paper reports on the eligibility requirements, characteristics of beneficiaries, program expenditures, types 

of services, and methods of service delivery in 26 states (and the District of Columbia) that offered the optional 

Medicaid Personal Care Services benefit in 2004. The site includes both the full version and a brief summary. 

Available at http://www.aarp.org/health/medicare-insurance/info-2005/2005_11_medicaid.html

CMS: State Medicaid Director Letter (July 25, 2000). Olmstead Update No: 3. 

This letter discusses a policy change regarding the earliest date of service for which Federal financial participation can be claimed, and explains some of the ways that Medicaid funding may be used to help people of all 

ages with disabilities and chronic illnesses transition from an institution to a community residence. 

Available at http://www.cms.gov/smdl/downloads/smd072500b.pdf

Websites 

CMS: Medicaid State Waiver Programs and Demonstration Projects

The Social Security Act authorizes multiple waiver and demonstration authorities to allow states flexibility in 

operating Medicaid programs. Each authority has a distinct purpose, and distinct requirements. This site provides information about these authorities and includes information about state-specific 

Medicaid waiver and demonstration programs. Users can access fact sheets, copies of proposals, approval letters, and other documents related to specific programs.

Web address: http://www.cms.hhs.gov/MedicaidStWaivProgDemoPGI/01_Overview.asp

The following site contains approved waiver applications for each state. Clicking on a specific state on the map 

will lead to a site with a list of all of the state’s approved waiver applications with links to view them.
118 Understanding Medicaid Home and Community Services: A Primer

Web address: http://www.cms.hhs.gov/MedicaidStWaivProgDemoPGI/%2008_WavMap.asp

CMS: The State Medicaid Manual

The State Medicaid Manual makes available to all state Medicaid agencies informational and procedural 

material to administer the Medicaid program. The material is organized into major parts, which are divided 

into chapters and sections. (Chapter 4 is about Services.) The manual is structured as closely as possible to the 

codification of Medicaid regulations. A crosswalk of manual sections and regulations is also included. 

Web address: http://www.cms.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&

sortByDID=1&sortOrder=ascending&itemID=CMS021927&intNumPerPage=10
Chapter 4: Options for Designing Service Coverage: General Considerations 119

Endnotes: Citations, Additional Information,

and Web Addresses

1 Gary Smith and Janet O’Keeffe co-authored the original chapter. Janet O’Keeffe, Ernest McKenney, and 

Robin Cooper updated the chapter.

2 States may also use §1115 Research and Demonstration waivers to provide long-term care services, as 

do Arizona and Vermont. 

3 Sections 1902(a)(10)(B) and 1902(a)(1) of the Social Security Act.

4 Section 1915(c) of the Social Security Act. The relevant Federal statute authorizes the Secretary of 

Health and Human Services to grant these waivers. Medicaid also provides other options for targeting 

services to specific groups, including the targeted case management benefit and various managed 

care authorities, and most recently, the §1915(i) authority.

5 State Medicaid Director Letter, August 6, 2010. Available at http://www.cms.gov/SMDL/SMD/itemdetail.asp?filterType=none&filterByDID=0&sortByDID=1&sortOrder=descending&itemID=CMS1238355&

intNumPerPage=10.

6 For example, it is increasingly common for states to offer, under HCBS waiver programs for people 

with developmental disabilities, supplementary dental services over and above the dental benefits 

available under the State Plan, which are typically very limited. This “extended” coverage option can be 

and is employed for other Medicaid State Plan services as well, such as rehabilitation therapies, vision 

services, and prescription drugs. 

7 Exceptions include targeted case management services, among others.

8 Connecticut Home Care Program for Elders. Information available at http://www.ct.gov/dss/cwp/view.

asp?a=2353&q=305170 and http://www.ct.gov/dss/lib/dss/documents/fee-for-servicechcp_xls.xls.

9 These services are listed in §1905(a) of the Social Security Act.

10 Adding or changing coverage of home and community services that Federal law permits to be covered under the Medicaid State Plan requires a state to take various formal steps. A state adds, deletes, 

or changes a service in its Medicaid State Plan by filing a State Plan amendment with CMS, which 

reviews the coverage and approves it if it conforms to Federal law and regulations.

11 Section 1905(a)(24) authority.

12 The 1997 regulations can be found at 42 CFR 440.167.

13 This state option was added in §1915(g) of the Social Security Act.

14 CMS guidelines concerning targeted case management services are in Sections 4302 et seq. of the 

State Medicaid Manual. See the Resources section of this chapter for a web link to the manual.

15 Activities related to eligibility determinations and service authorization may be reimbursed as administrative expenses.
120 Understanding Medicaid Home and Community Services: A Primer

16 States are required to ensure that appropriate transportation is available. See the transportation provisions in 42 CFR 431.53. Transportation may also be provided as a service under the State Plan.

17 Defined in 42 CFR 440.90 with additional CMS guidelines in §4320 of the State Medicaid Manual.

18 Defined in 42 CFR 440.130(d).

19 Teaching parents to anticipate and deal with a child’s rage is an example of an activity that directly 

supports the Medicaid beneficiary. Marriage counseling for the child’s parents does not and is not 

covered.

20 Much of the information provided here on the Rehabilitation benefit is drawn from Koyanagi, C. and 

Brodie, J. (July 1994). Making Medicaid Work to Fund Intensive Community Services for Children with 

Serious Emotional Disturbances. Washington, DC: Bazelon Center for Mental Health Law. This publication is no longer available because it has been updated and re-published as two new reports. The 

reports are available for purchase at the 

Bazelon Center’s website at http://www.bazelon.org/News-Publications/Publications/CategoryID/20/

List/1/Level/a/ProductID/51.aspx?SortField=ProductNumber%2cProductNumber and at: http://www.

bazelon.org/News-Publications/Publications/List/1/CategoryID/20/Level/a/ProductID/32.aspx?SortFiel

d=ProductNumber%2cProductNumber.

21 No data are available to determine how many states offer targeted case management to a specific 

group.

22 Information about the §1915(i) authority is from the State Medicaid Director Letter, August 6, 2010. 

http://www.cms.gov/SMDL/SMD/itemdetail.asp?filterType=none&filterByDID=0&sortByDID=1&sortOr

der=descending&itemID=CMS1238355&intNumPerPage=10.

23 P.L. 109–171, Section 6086(a).

24 Eligibility for a §1915(c) waiver requires that an individual meets the state’s institutional level-of-care 

criteria.

25 Statutory authority for HCBS waiver programs is contained in §1915(c) of the Social Security Act. Applicable Federal regulations are found at 42 CFR 441 Subpart G. These regulations were last modified 

in 1994. CMS guidelines concerning HCBS waiver programs are contained in Sections 4440 et seq. of 

the State Medicaid Manual. These guidelines are updated periodically.

26 Eiken, S., and Burwell, B. (2009). Medicaid HCBS Waiver Expenditures: FY 2003 through FY 2008. 

Cambridge, MA: Thomson Reuters. Available at http://www.hcbs.org/moreInfo.php/doc/2795.

27 With respect to services a state proposes to cover that depart from those that appear in the waiver 

application, the definition of each waiver service must describe goods and services in concrete terms, 

along with any conditions that apply to the provision of the service. The definition of a service cannot 

use terms such as “including but not limited to . . .,” “for example . . .,” “including . . .,” or “etc.” CMS will not 

approve vague, open-ended, or overly broad service definitions. The service must be defined in a manner to make it clear exactly what will be furnished to the beneficiary.

28 Although Medicaid cannot pay for food, services such as home-delivered meals and the provision of a 

meal and snack in adult day health settings are reimbursable because they do not constitute a complete daily diet. (Core service definition. Attachment to the Instructions to Appendix C for the HCBS 

Waiver Application, Version 3.5. See the Resources section of this chapter for a web link to the applica-
Chapter 4: Options for Designing Service Coverage: General Considerations 121

tion and instructions.)

29 Persons of all ages with many different types of disabilities can benefit from habilitation services. 

Coverage of habilitation has generally been provided only to people with developmental disabilities, 

which are defined as those occurring before age 22. However, a CMS letter to State Medicaid Directors 

clarifies that neither Medicaid law nor implementing regulations restrict who may receive habilitation 

services in an HCBS waiver. Individuals who do not have an intellectual disability or other developmental disabilities, such as persons with traumatic brain injury or physical disabilities that occurred 

after age 22, may also receive habilitation services through a waiver program.

30 Smith, G. (1999). Closing the Gap: Addressing the Needs of People with Developmental Disabilities 

Waiting for Supports. Alexandria, VA: National Association of State Directors of Developmental Disabilities Services. 

31 Among individuals with developmental disabilities who live with their families, about 25 percent live 

with parents who themselves are older than 60.

32 Smith, G. (1999). Serving and waiting: An update. In A Supplement to Closing the Gap: Addressing the 

Needs of People with Developmental Disabilities Waiting for Supports. Alexandria, VA: National Association of State Directors of Developmental Disabilities Services.

33 This type of HCBS waiver program is sometimes called a middle-range program, because it fills the 

gap between limited state-funded family support programs and HCBS waiver programs intended 

mainly to buy specialized group home and similar residential services.

34 The average is based on the average daily HCBS waiver census. Lakin, K.C., Larson, S., Salmi, P., and 

Scott, N. (2009). Residential Services for Persons with Developmental Disabilities: Status and Trends 

through 2008. Minneapolis, MN: University of Minnesota, Research and Training Center on Community 

Living. Available at http://rtc.umn.edu/risp08. Print copies may be requested by contacting Naomi 

Scott at scot0387@umn.edu or 612-624-8246. 

35 Smith, G., Agosta, J., Fortune, J., and O’Keeffe, J. (April 2007). Gauging the Use of HCBS Supports Waivers for People with Intellectual and Developmental Disabilities: Final Project Report. Washington, DC: 

U.S. 

Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging, and Long-Term Care Policy. Available at http://aspe.hhs.gov/daltcp/

reports/2007/gaugingfr.htm.

36 While states must safeguard health and safety under all waivers, it becomes more difficult in a waiver 

that has a cap that is well below what comprehensive waivers permit. Caps in supports waivers tend to 

be in the $15-25,000 range and the state must be able to ensure health and safety whatever the cost. 

If a waiver participant’s needs increase but there is no opportunity to move to another waiver and 

the person does not want to go to an ICF/ID, the state must supplement the services solely with state 

dollars if the person is to stay enrolled on the supports waiver. The lower cap poses issues, particularly 

when individuals need only a modest increase above the cap, because for cost containment reasons 

the state does not want to enroll them in the comprehensive waiver, which opens up the service 

menu and can lead to much greater increased costs (e.g., residential services instead of in-home supports). 

37 The §1915(j) authority may also be used to provide supports to people in their own home. 
122 Understanding Medicaid Home and Community Services: A Primer

38 Among the states that offered personal care services in 2008, annual per capita outlays for such services (i.e., total personal care expenditures divided by the state’s total population) ranged from less 

than $0.10 to a high of $151.02. Burwell, B., Sredl, K., and Eiken, S. (2009). Medicaid Long-Term Care Expenditures in FY 2008. Cambridge, MA: Thomson Reuters. Available at http://www.hcbs.org/moreInfo.

php/doc/2793. (A few of the states included in the data analysis cover personal care services only for 

children covered by the EPSDT mandate, which likely accounts for the very low amount spent in some 

states.) 

39 The limits each state imposes are listed in U.S. General Accounting Office. (May 1999) Adults with Severe Disabilities: Federal and State Approaches for Personal Care and Other Services. GAO Publication 

No. GAO/ HEHS-99-101. Washington, DC: GAO.

40 Health Care Financing Administration Medicaid Manual Transmittal Part 4, No. 73, September 17, 1999. 

41 State Medicaid Director Letter: Olmstead Update Number 3. July 25, 2000. Available at http://www.

cms.hhs.gov/smdl/downloads/smd072500b.pdf.

42 For the first time since the Federal Poverty Level (FPL) guidelines began to be issued in 1965, the annual average Consumer Price Index has decreased from the figure for the previous year. Therefore, the 

Department of Health and Human Services poverty guidelines have been frozen until at least May 31, 

2010 at 2009 levels in order to prevent a reduction in eligibility for certain means-tested programs, 

including Medicaid, Supplemental Nutrition Assistance Program, and child nutrition. Additional information is available at http://aspe.hhs.gov/poverty/09extension.shtml.

43 The text of §1915(j) is located at http://www.paelderlaw.com/pdf/DRA_Provisions.pdf.

44 They may also do so under a §1115 waiver.

45 Case management activities are also covered routinely as a component of another service. For example, home health agencies that provide home health services are required to perform certain case 

management activities.

46 The amount of FFP for services is called the Federal Medical Assistance Percentage, which cannot 

exceed 83 percent or go below 50 percent. The FFP for administrative claiming is 50 percent.

47 The cost of HCBS waiver case management services can also be claimed at the service rate.

48 States can recoup the costs of service coordination furnished to individuals returning to the community through the HCBS waiver program when the person is enrolled in the HCBS waiver after discharge. 

As with targeted case management services, FFP is available for service coordination furnished during 

the 180-day period preceding institutional discharge. These service coordination activities are considered completed when the person enrolls in the waiver program.

49 Solutions exist for this problem, but they can involve their own complications.

50 To the extent that driving a beneficiary to a doctor’s appointment is necessary, it could be paid for as a 

Medicaid State Plan service rather than as a targeted case management service. The person’s case 

manager may certainly transport the individual to a physician’s appointment. Although the costs 

involved cannot be claimed as case management (because the service is direct), they may be reimbursed as a transportation service under the Medicaid State Plan, or as an administrative expense.
Chapter 5: Providing Medicaid Services in Community Residential Settings 123

Guide to Chapter 5

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Definitions and Terminology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

Major Types of Residential Care Settings in Which Medicaid Services May be Provided. . . 127

Adult Foster Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Child Foster Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

Residential Care Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Older Adults and Younger Adults with Physical Disabilities. . . . . . . . . . . . . . . . . . . . . . 131

Adults with Developmental Disabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Medicaid Financing for Services in Residential Care Settings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Which Authority to Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Considerations When Using the HCBS Waiver Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Level-of-Care Criteria and State Regulation of Residential Care Facilities. . . . . . . . . 137

Target Population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Licensing and Contracting Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Enabling Medicaid Beneficiaries to Pay for Room and Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

Limiting the Amount Facilities Can Charge for Room and Board. . . . . . . . . . . . . . . . . 138

Providing State Supplements to the SSI Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Using the 300 Percent of SSI Standard and Providing an 

Adequate Personal Maintenance Allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Income Supplementation by Family Members or Trusts. . . . . . . . . . . . . . . . . . . . . . . . . 140

Effect of Medically Needy Rules on the Ability to Pay for Room and Board. . . . . . . 142

Service Payment Rates: Adequacy Concerns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Bundling Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . 147

Chapter 5: Providing Medicaid Services in Community Residential Settings 125

Chapter 5

Providing Medicaid Services in Community Residential Settings

This chapter provides guidance to states about selecting coverage options for services in a wide range of residential 

care settings that are provider owned and/or operated, encompassing foster care, group homes, and residential 

care facilities, including those called assisted living. When a state is faced with different ways of covering services, 

the tasks of choosing among the coverage alternatives and defining the precise services to be provided in specific 

settings require a detailed analysis of each alternative in the context of a state’s broader service system.1

Introduction

To reduce institutionalization—particularly for individuals who lack housing or cannot be served cost effectively in their own or a family member’s home—states offer services in residential care settings. This chapter 

deals with the provision of Medicaid services only in provider-owned and/or -operated residential care settings that are not institutions. 

Using Medicaid to pay for services in residential care settings is of interest to states that want to decrease 

expenditures on institutional care. Compared to Medicaid-covered institutions—nursing homes, intermediate care facilities for persons with intellectual disabilities (ICFs/ID), hospitals, and some inpatient psychiatric 

facilities2—residential care settings have the potential to be more homelike and to provide residents greater 

autonomy and privacy. Compared to services delivered in individuals’ homes, they may also offer economies 

of scale as well as the opportunity for socialization. 

For many individuals with disabilities and chronic illnesses—such as individuals with dementia who need considerable supervision but little nursing care—residential care settings can provide an alternative to institutionalization. The populations a state chooses to serve in these settings, much like the mix of facilities, depends on 

the state’s overall long-term care system and specific policy goals.

Residential care settings can be owned and/or operated by either individual service providers or agencies offering around-the-clock services. The level of staff support typically relates to the needs of residents as well as 

applicable state regulations. Staff are employed on either a live-in or come-in basis.3 They provide assistance 

with activities of daily living (ADLs), and help individuals to gain access to community activities. Depending 

on state regulations, individuals may share rooms or may have private rooms and share common public areas 

(dining and living rooms, and sometimes kitchens).

The size of residential care settings varies widely. In the system serving individuals with an intellectual disability or other developmental disability (ID/DD, hereafter referred to as developmental disabilities), some residential care settings may have more beds than a community ICF/ID.4

 Although Medicaid regulations that apply 

to the provision of services in residential care settings do not specify an upper size limit for these settings, the 

Centers for Medicare & Medicaid Services (CMS) defines “larger” facilities as settings serving four or more unrelated individuals.5

 CMS reviews proposed waiver services in residential care settings to ensure that 

A home-like character is maintained in larger settings, that is, the facility is community-based, provides an 

environment that is like a home, provides full access to typical facilities in a home such as a kitchen with cooking 

facilities, small dining areas, provides for privacy, visitors at times convenient to the individual, and easy access to 

resources and activities in the community.6
126 Understanding Medicaid Home and Community Services: A Primer

Residential care settings and the services they 

provide are governed by state law and regulations, which vary greatly across states. They can be 

licensed or certified, or in some instances have only 

to meet Medicaid requirements if serving Medicaid-eligible persons. States typically license these 

settings, performing annual reviews to ensure that 

they meet required standards. Some states choose 

to use national accreditation bodies to qualify 

providers, in lieu of or in addition to state standards. While some states license particular settings 

to serve specific populations (e.g., older adults or 

individuals with developmental disabilities), some 

states, such as Minnesota, license facilities to serve 

many different populations. See Box for Minnesota’s 

definition of a Group Home. 

Settings licensed to serve more than one population may choose to serve only one in order to tailor 

services to meet their needs—and most do. Additionally, if serving participants in Section (§)1915(c) 

Medicaid home and community-based services 

(HCBS) waivers (hereafter referred to as HCBS 

waivers), these settings will also have to meet the 

standards approved under the waiver for serving 

this population and be able to serve residents who 

meet institutional level-of-care criteria. Settings 

serving specific populations, such as individuals 

with dementia and those with developmental disabilities, may have specific licensing requirements 

to ensure that they have the specialized competencies needed to serve these populations.

Minnesota’s Definition of Group Homes: 

Group Residences for Adults with Disabilities

Group Residences for Adults with Disabilities are 

defined as “Agency-owned or -operated facilities 

that provide an alternative living environment 

for adults with developmental disabilities, sensory impairments, physical disabilities, emotional problems, multiple disabilities, or chronic 

illnesses such as AIDS, who are in need of 

personal services, supervision, and/or assistance 

essential for self-protection or for sustaining the 

ADLs, and consequently are unable to live with 

their own families or in a more independent setting. Group residences for adults with disabilities may be licensed by the State/province and 

may be distinguished according to the level of 

service residents require. Service levels depend 

on the self-care skills residents possess, their 

limitations in the areas of physical coordination 

and mobility, and the presence and extent of 

behavior problems, including disruptive or selfinjurious behavior.”7

There are no applicable Federal statutes regarding 

licensing or certification standards for residential 

care settings other than §1616(e) of the Social 

Security Act (the Keys Amendment), which requires 

states to set their own standards for residences 

where “a substantial number of Supplemental Security Income (SSI) recipients” reside.8

 If states wish 

to use Medicaid HCBS waivers to fund services in 

residential care settings, as discussed in more detail 

below, CMS requires as a condition of approval that 

they describe how they will ensure compliance with 

§1616(e).

Definitions and Terminology

The service systems for different populations use 

very different and sometimes contradictory terms 

to describe non-institutional provider-operated residential care settings. In the service system for older 

adults and younger adults with physical disabilities, 

the generic terms traditionally used for these settings are foster care and residential or congregate 

care. Consumer preference for the assisted living 

model of residential care—which provides both 

privacy and autonomy—has led providers to market 
Chapter 5: Providing Medicaid Services in Community Residential Settings 127

all types of residential care settings as assisted living—whether or not they provide private units or 

operate with a service philosophy that ensures resident autonomy. Thus, assisted living has become a 

generic term for many different types of residential 

care settings for older adults.9

Because states regulate residential care settings, 

the terms they use for them vary considerably. For 

example, states use 31 different names for adult 

foster care, including adult family home, family care 

rest home, adult residential care home, elder group 

home, and assisted living establishment, to name 

but a few. 

In the service system for people of all ages with 

developmental disabilities, the generic term residential settings includes the entire range of living 

options: institutions (ICFs/ID), provider-owned and/

or -operated facilities such as group homes, foster 

care, a family member’s home, and a person’s own 

home. The ID/DD system also uses the term community residential program, which may include 

both community (i.e., small) ICFs/ID as well as group 

homes. As with the aging services system, states 

have hundreds of different names for ID/DD residential programs, including residential habilitation 

facilities, group residences, or residential treatment 

facilities, among others.

The enormous variability in the terms states use for 

the same or similar residential care settings can create considerable confusion. Therefore, this Primer 

will use the terms defined in the Box below.

Major Types of Residential Care

Settings in Which Medicaid

Services May be Provided

Three major types of residential care settings that 

are provider owned and/or operated furnish longterm care services and supports to persons of all 

ages with disabilities and/or chronic illnesses: adult 

foster care, child foster care, and residential care 

facilities. 

Definitions of Residential Care Settings

Residential care settings. A generic term 

encompassing all types of state-regulated 

(licensed or certified) foster care and residential care facilities, regardless of their size or the 

population they serve.

Foster care. A home owned or rented by an 

individual or family in which they live and in 

which they provide care and support for one 

or more unrelated persons. Depending on 

the state, these homes can serve up to 6 or 8 

residents, but typically serve 1 to 3 residents. (In 

a few states, corporations own and/or operate 

settings licensed as foster homes and provide 

staffing 24 hours-a-day.) Foster care providers 

can serve adults or children.

Residential care facility. A building or residence—other than a foster care home—owned, 

rented, or managed by the service provider, or 

the provider’s agent, to provide housing, services, and supervision. This term includes many 

types of facilities—from group homes serving 

as few as 2 or 3 individuals with developmental 

disabilities to board and care homes or assisted 

living facilities serving 100 or more older adults. 

When referring to residential care settings in 

specific states, the Primer will use the terms 

these states use. 

Adult Foster Care

Adult foster care is typically provided in a private 

home, offering 24-hour support to one or more 

individuals. Most commonly the support is provided 

by the owners of the home, although foster care 

providers may engage other individuals to provide 

care. In some states, corporate entities oversee and 

manage foster homes. States may contract with 

each primary caregiver for the provision of adult 

foster care services, and/or contract with agencies 

that, in turn, contract with and supervise individual 

caregivers. In addition to room and board, foster 

care providers typically furnish assistance with daily 

living activities and help in accessing community 

activities.
128 Understanding Medicaid Home and Community Services: A Primer

Definition of Adult Foster Care in HCBS 

Waiver Application

“Personal care and supportive services (e.g., 

homemaker, chore, attendant care, companion, 

medication oversight [to the extent permitted 

under state law]) provided in a licensed (where 

applicable) private home by a principal care provider who lives in the home. Adult foster care is 

furnished to adults who receive these services in 

conjunction with residing in the home. Separate 

payment is not made for homemaker or chore 

services furnished to a participant receiving 

adult foster care services, since these services 

are integral to and inherent in the provision of 

adult foster care services.”10

States may use this definition, or modify or 

supplement it to reflect the scope of adult foster 

care to be furnished through a waiver program.

Adult foster care homes serve individuals with a 

wide range of disabilities, including those with 

physical and/or cognitive impairments, serious 

mental illness, and developmental disabilities. 

Arizona, Maine, Oregon, Washington, and Wisconsin, among other states, offer adult foster care as 

a means to keep older adults connected to their 

home communities when they can no longer live 

alone. Oregon has made efforts to recruit and train 

foster care providers for older adults specifically to 

increase the viability of this option as an alternative 

to nursing homes.11

Most foster homes serve a relatively small number 

of individuals. As an example, in 2007, of the 23,848 

family foster homes serving individuals with developmental disabilities, only 652 served four or more 

individuals, with the maximum number nationally 

being six individuals.12 In an HCBS waiver program, 

adult foster care is considered a residential habilitation service for individuals with developmental 

disabilities only when habilitation is included in 

the defined scope of the adult foster care service; it 

is not considered a residential habilitation service 

when habilitation services are furnished in the adult 

foster care setting by a different provider and billed 

separately.

Adult foster care settings usually are licensed or 

certified; 17 states regulate these settings for older 

adults under assisted living regulations.13 States 

have flexibility in setting provider standards but 

most require specialized training to support specific 

populations, such as adults with developmental disabilities and older adults with dementia.

Child Foster Care 

The provision of Medicaid services for children in 

foster care settings is permissible, typically through 

an HCBS waiver program. The waiver application 

does not include a definition for child foster care—it 

is subsumed under the waiver service called “residential habilitation” (see Box), as are group homes 

(discussed below).14

Definition of Residential Habilitation in 

HCBS Waiver Application

“Residential habilitation means individually 

tailored supports that assist with the acquisition, retention, or improvement in skills related 

to living in the community. These supports 

include adaptive skill development, assistance 

with ADLs, community inclusion, transportation, 

adult educational supports, social and leisure 

skill development, that assist the participant to 

reside in the most integrated setting appropriate to his/her needs. Residential habilitation also 

includes personal care and protective oversight 

and supervision.” 

The method by which the costs of room and 

board are excluded from payment for residential 

habilitation is specified in Appendix I-5 of the 

Waiver application.15

Children’s foster homes are often the private homes 

of individuals licensed by the state to provide care 

to one child or a few children. These homes may 

serve children who are placed voluntarily or those 

under state protection. In either case, the home 

must meet the state’s licensing criteria. When foster 

homes serve “special” populations such as children 

with developmental disabilities, some states require 

providers to have training above and beyond what 

is required for a general foster care license. Children 

with serious emotional disturbances (SED) may also 
Chapter 5: Providing Medicaid Services in Community Residential Settings 129

be served in child foster care. Detailed information 

about services for children with SED is the subject 

of a separate publication listed in the Resources section of this chapter. 

Payments under the HCBS waiver cannot supplant 

funding under Title IV-E of the Social Security Act 

(hereafter called the Act) that pays for the basic 

foster home care and services for children in state 

custody. Waiver services to children in foster care 

can only supplement the basic services that must 

be covered under Title IV-E. According to Title IV-E 

regulations, “Foster care maintenance payments are 

payments made on behalf of a child eligible for Title 

IV-E foster care to cover the cost of (and the cost of 

providing) food, clothing, shelter, daily supervision, 

school supplies, a child’s personal incidentals, liability insurance with respect to a child, and reasonable 

travel for a child’s visitation with family, or other 

caretakers.”16

The HCBS waiver application instructions note that 

Waiver services may be furnished to children in 

foster care living arrangements but only to the extent that waiver services supplement maintenance 

and supervision services furnished in such living 

arrangements and waiver services are necessary 

to meet identified needs of children. Waiver funds 

are not available to pay for maintenance (including room and board) and supervision of children 

who are under the state’s custody, regardless of 

whether the child is eligible for funding under Title 

IV-E of the Act. The costs associated with maintenance and supervision of these children are 

considered a state obligation. The costs associated 

with the treatment of these children may be Medicaid reimbursable [under either the State Plan or 

an HCBS waiver]. Depending on the nature of the 

treatment (i.e., habilitation), the costs of treatment 

may be eligible for Federal financial participation 

under a waiver.17

Utah and Wisconsin, among other states, cover foster care services under an HCBS waiver for children 

with “exceptional needs” (i.e., those requiring intensive assistance due to medical or behavioral support 

needs). See Box for Utah’s pro-visions pertaining 

to coverage of residential services under an HCBS 

waiver for children in foster care.

Moving from Adult Foster Care to Shared Living Arrangements

To better support individuals with developmental disabilities, new, more personalized approaches to adult 

foster care are being used, such as Shared Living. The purpose of Shared Living is to create a more equal arrangement than is found in traditional foster care—one based on mutual choice. In Shared Living, the individual with 

a disability and the provider choose to live together. Although the provider furnishes support and supervision, 

the expectation is that the relationship is more equal and more personal than is typically the case in foster care. 

A Shared Living arrangement is usually in the Shared Living Provider’s home or apartment, but could also be in 

the home or apartment of the individual with a disability, in which case it would be considered a home-based 

supports approach. Many different arrangements can be developed based on individuals’ unique needs and 

situation. 

A human services agency in Pennsylvania serving individuals with developmental disabilities offers a foster care 

approach called Lifesharing Thru Family Living. This approach provides an option for people with developmental 

disabilities to be active, participating members in a family and the community in which the family lives. This approach emphasizes the importance of matching individuals and families to enable harmony in values, interests, 

and mutual commitments. Family Living Specialists work closely with the family and the individual, and serve 

as the primary support to ensure a successful match. For more information, see http://www.skillsofcentralpa.

org/public/services/lifesharing.php
130 Understanding Medicaid Home and Community Services: A Primer

Utah’s HCBS Waiver Definition of Residential Services for Children in Foster Care

To ensure compliance with CMS payment requirements, Utah has established a prior authorization process and 

criteria to determine if children in foster care have exceptional needs that can be supported though the HCBS 

waiver program. In its approved HCBS Residential Services definition, Utah notes that, “For children in the custody of the Division of Child and Family Services (DCFS), the costs of basic and routine support and supervision 

are not covered as waiver services. Compensation for this routine support and supervision is covered by other 

funding sources associated with the DCFS. Children in DCFS custody are eligible to receive this service only after 

the provision of this service has been prior-authorized by the minor’s support coordinator. Such prior-authorization will occur only after it has been determined that the minor has exceptional care needs that materially affect 

the intensity or skill level required of the service provider.” 

Utah defines a variety of medical and/or behavioral conditions that would qualify a child for this exceptional 

payment including, among other conditions, “... emotional or behavioral needs such as hyperactivity; chronic 

depression or withdrawal; bizarre or severely disturbed behavior; significant acting out behaviors; or, the minor 

otherwise demonstrates the need for 24-hour awake supervision or care in order to ensure the safety of the 

minor and those around him/her.” 

The exceptional care criteria also includes a variety of medical needs, such as ostomy care or catheterization; 

tube feeding or supervision during feeding to prevent complications such as choking, aspiration or excess 

intake; frequent care to prevent or remedy serious conditions such as pressure sores; suctioning; assistance in 

transferring and positioning throughout the day; two or more hours of therapy per day; assistance with multiple 

personal care needs including dressing, bathing and toileting; complex medical treatment throughout the day; 

or, the minor has a complex and unstable medical condition that requires constant and direct supervision.

Utah further specifies that, “This service is intended to accomplish a clearly defined set of outcomes associated 

with the child’s habilitation that is outlined in their individual support plan. Services provided under this service 

definition are only those that are over and above the basic routine supports provided for through the DCFS.”18
Chapter 5: Providing Medicaid Services in Community Residential Settings 131

Residential Care Facilities 

For individuals who live in residential care facilities—whatever their age or type of disability—in 

order to receive waiver services, the facility must 

be specifically included as a setting for service 

provision in the state’s waiver program. As noted 

earlier, states must have licensure, certification, or 

some other standards for their operation, including 

required provider qualifications and methods to ensure facility oversight and monitoring. States must 

include a description of these standards and provider qualifications in the HCBS waiver application.19

HCBS waiver requirements include “portability,” that 

is, the service funding is an individual benefit for the 

beneficiary and is not tied to the facility; individuals can move from one type of setting to another 

as their needs change. States may also use the 

State Plan Personal Care optional benefit to provide personal care in these facilities, as does North 

Carolina. However, Medicaid personal care services 

cannot duplicate or replace services that are part of 

the residential care facilities’ existing service package. They can only be used to supplement existing 

services. 

Older Adults and Younger Adults with 

Physical Disabilities 

For older adults, until the introduction of the private 

pay assisted living model in the late 1980s, the most 

frequently used general term for residential care 

settings other than foster care was board and care. 

The new assisted living model differs significantly 

from traditional board and care. According to three 

of the major assisted living industry trade associations, privacy and flexible services that will meet 

residents’ needs and allow them to age in place are 

key elements of the assisted living philosophy.20 The 

new assisted living model of residential care became popular with older adults because it offered 

what nursing homes and traditional board and care 

facilities generally do not: privacy and control over 

one’s daily activities. Another reason for its popularity is that assisted living facilities—many built 

in the 1990s—have much more desirable physical 

environments than do most board and care facilities 

and nursing homes, many of which were built in the 

1960s and 1970s.21

Due to the popularity of the private pay model of 

assisted living, many operators of board and care 

homes and other types of residential care settings 

believe they will be put at a competitive disadvantage if they cannot market themselves as “assisted 

living.” Consequently, under pressure from the 

residential care industry, most states have amended 

their statutes to rename domiciliary care homes, 

board and care homes, and even adult foster care, 

as assisted living.22 Today, virtually all residential 

care settings for older adults market themselves as 

assisted living despite the fact that some provide 

few services and the physical character of a substantial portion of these settings is quite institutional, 

with two to four persons sharing a bedroom, and as 

many as 8 to 10 residents sharing a bathroom.23

This general use of the term assisted living is also 

found in the HCBS waiver application, which uses 

the term assisted living services to cover a wide 

range of services that can be provided in residential 

care settings. However, in its guidance, CMS encourages states to use a “more accurate name,” noting 

that the term assisted living describes a setting, 

not a service and that Medicaid never pays for assisted living in the ordinary sense of a monthly fee 

to the facility for room, board, and services. Rather, 

Medicaid may cover, as a waiver service, some of 

the supportive services provided to beneficiaries in 

residential care settings.24

Core Definition of Assisted Living 

Services in the HCBS Waiver Application

Personal care and supportive services (homemaker, chore, attendant services, meal preparation) that are furnished to waiver participants 

who reside in a homelike, non-institutional 

setting that includes 24-hour on-site response 

capability to meet scheduled or unpredictable 

resident needs and to provide supervision, 

safety, and security. Services also include social 

and recreational programming, and medication 

assistance (to the extent permitted under state 

law). Nursing and skilled therapy services are 

incidental rather than integral to the provision 

of assisted living services. Payment is not made 

for 24-hour skilled care.
132 Understanding Medicaid Home and Community Services: A Primer

CMS guidance notes that when a waiver includes 

“assisted living services,” the locations of service 

delivery must meet criteria described in Appendix 

C-2 of the HCBS waiver application with regard to 

the “home-like” character and community integration of the facility.25 On June 22, 2009, CMS issued 

an advance notice of proposed rulemaking in the 

Federal Register to solicit comments about defining standards for what constitutes “home-like” and 

“community” under HCBS waivers. 

Adults with Developmental Disabilities 

The most common type of residential care facility 

serving adults with developmental disabilities is the 

group home. Group homes are generally operated 

by agencies that both own the settings and provide 

the support staff assisting the residents. 

Based on the state’s policy goals and the interests 

and preferences of stakeholders, group homes may 

also be made available to other populations, such as 

children with developmental disabilities or serious 

emotional disturbances. As with adult and child foster care, waiver services provided in group homes 

and other residential care facilities for persons with 

developmental disabilities are subsumed under the 

waiver service category of residential habilitation. 

CMS provides a general definition of residential 

habilitation but states have the flexibility to adopt 

this suggested definition or create a completely 

different definition crafted to suit the state’s services 

system and array of settings.26

States may establish highly specialized group 

homes to serve specific populations, such as individuals with autism spectrum disorders, intensive 

medical support needs, or challenging behaviors. 

These specialized settings may have additional 

requirements, such as specialized training, and 

may receive additional reimbursements due to the 

nature of the services provided.

Medicaid Financing for Services 

in Residential Care Settings27

Medicaid provides several authorities for financing 

services in residential care settings: HCBS waivers,28

Section 1115 research and demonstration waivers 

(hereafter referred to as §1115 waivers), and the 

Medicaid State Plan. State Plan services include 

personal care (through the Personal Care optional 

benefit), rehabilitation services, and services offered 

under the §1915(i) HCBS benefit, including personal 

care and habilitation services. Each of these Medicaid authorities has specific eligibility, application, 

and approval requirements. (See Chapters 1 and 4 

for more information about all of these authorities.) 

However, Medicaid will pay for services furnished in 

residential care settings only if a “homelike environment” is preserved. Thus, Medicaid will not pay for 

services in residential care settings if they are located in the wing of a nursing home or an ICF/ID. As 

discussed earlier, CMS has provided guidance as to 

what constitutes a home-like character, particularly 

in regard to what CMS defines as “larger” facilities—

those serving four or more unrelated individuals. 

States may provide HCBS waiver services only in 

residential care settings that are permitted under 

state regulations to serve individuals who meet 

institutional level-of-care criteria. Some states, such 

as Oregon, license both adult foster care providers 

and residential care facilities to serve persons who 

meet the state’s nursing home level-of-care criteria. Others, such as North Carolina, use the State 

Plan Personal Care option to provide personal care 

services to individuals in residential care settings, 

because these facilities are not permitted to serve 

individuals who meet the nursing home level-ofcare criteria. Some states use both the HCBS waiver 

and State Plan Personal Care option to provide 

services in different types of settings.
Chapter 5: Providing Medicaid Services in Community Residential Settings 133

In 1981, Oregon was the only state to use the HCBS 

waiver authority to fund services in residential care 

settings for older adults. Few states followed suit 

until the 1990s, when the growth in private pay 

assisted living focused attention on residential care 

alternatives to nursing homes. In 2009, 46 of the 

50 states and the District of Columbia used either 

a waiver or State Plan optional services (or both) 

to provide services in residential care settings for 

older persons and/or younger persons with physical 

disabilities.29 Table 5-1 lists the states that use each 

authority for these populations. The HCBS waiver is 

the most frequently used authority and the largest 

source of financing for Medicaid services in residenTable 5-1. Medicaid Authorities States Use to Provide Services in Residential Care 

Settings for Older Adults and Younger Adults with Physical Disabilities

Waiver Only1 State Plan State Plan and Waiver

Alaska 

Arizona (§1115)

California (AL)

Colorado

Connecticut (AL)

Delaware (AL)

District of Columbia

Georgia

Hawaii (§1115)

Illinois (AL)

Indiana

Iowa

Kansas

Maryland

Mississippi (AL)

Minnesota

Montana

Nebraska

Nevada (AL)

New Hampshire

New Jersey

New Mexico

North Dakota

Ohio (AL)

Oklahoma

Oregon

Rhode Island (AL and §1115)

Tennessee

Texas

Utah

Virginia (AL)

Wisconsin

Wyoming (AL)

Maine

Massachusetts

Michigan

New York

North Carolina

South Carolina

Arkansas (AL)

Florida (AL and BW)

Idaho 

Missouri (AL)2

South Dakota 

Vermont (§1115)

Washington 

AL: Waiver services are provided only in residential care settings (13 states). §1115: Services covered 

under a §1115 waiver (4 states).

1 Unless indicated as an §1115 or AL waiver, the states provide coverage under a broad HCBS waiver 

(BW) that covers services in participants’ homes and in residential care settings (24 states and the 

District of Columbia). 

2 Missouri’s waiver was approved by CMS but had not been implemented by the end of 2009.
134 Understanding Medicaid Home and Community Services: A Primer

tial care settings, but more individuals in residential 

care settings receive personal care services through 

the State Plan than through an HCBS waiver. 

Only four states use a §1115 waiver to cover services in residential care settings for older adults and 

younger adults with disabilities, and no states currently use the new §1915(i) HCBS authority for this 

purpose, although it is possible to do so as several of 

the services under this authority (e.g., personal care 

and habilitation) can be provided in such settings.

From the inception of the waiver program in 1981, 

states have used HCBS waivers to pay for services for 

individuals with developmental disabilities in group 

homes and foster homes as an alternative to ICFs/ID. 

As a result, every state now uses the HCBS waiver (or 

a §1115 waiver as in Arizona and Vermont) to provide 

services and supports in residential care settings for 

individuals with developmental disabilities. No states 

use the State Plan Personal Care option to cover personal care in residential care settings for this population because this benefit is very limited compared to 

residential habilitation services provided under HCBS 

waivers.

Because all states use HCBS waivers—and none use 

the State Plan Personal Care option—to cover services and supports in residential care settings for 

persons with developmental disabilities, the following discussion regarding which Medicaid authority to 

use focuses primarily on considerations when serving 

older adults and younger adults with physical disabilities. However, the discussion regarding considerations when using HCBS waivers is also relevant for 

the ID/DD population.

Which Authority to Use 

The most common choice states face with regard 

to covering services in residential care settings is 

whether to use an HCBS waiver program, the State 

Plan Personal Care option, or both. The primary factor 

that will determine whether a state can use an HCBS 

waiver is whether a state’s residential care settings are 

permitted to serve a population that meets institutional level-of-care criteria—nursing home or ICF/

ID. States that have several different types of facilities 

serving different populations—those who meet institutional level-of-care criteria and those who do not—

may choose to use the waiver authority to finance 

services in one type of residential care setting and the 

State Plan Personal Care option in another. 

For facilities serving individuals who meet nursing 

home level-of-care criteria, the HCBS waiver authority 

is advantageous in that states can broaden eligibility 

by using the 300 percent of SSI income rule to reach 

persons in the community who do not meet Medicaid’s community financial eligibility criteria. (The 

300 percent rule is explained later in this chapter and 

in detail in Chapter 2.) The HCBS waiver also offers 

states considerable flexibility in defining the scope 

and array of services to be provided as there are no 

statutory definitions for services. However, since 

waiver services are available only to beneficiaries who 

meet the state’s nursing home or ICF/ID level-of-care 

criteria, serving people through a waiver will target 

a more severely impaired population than can be 

served through the State Plan Personal Care option. 

Because states may set limits on the number of beneficiaries who can be served through waiver programs, 

waivers also offer the advantage of predictable costs, 

particularly for states concerned about utilization of a 

new benefit for older adults. The combination of institutional level-of-care eligibility criteria, a set number 

of slots, and expenditure caps that are part of the cost 

neutrality formula required for CMS approval will limit 

the number of people potentially eligible.

The Boxes below contain examples of how two 

states—North Carolina and Oregon—use different 

Medicaid authorities to provide services in residential 

care settings.30

Considerations When Using the HCBS 

Waiver Authority

The three factors that are important for states considering the HCBS waiver authority are discussed next. 
Chapter 5: Providing Medicaid Services in Community Residential Settings 135

Coverage of Assisted Living through the Personal Care Benefit: North Carolina

North Carolina covers personal care in adult care homes as a Medicaid State Plan service.31

Target Population. Adult care homes serve adults of all ages with all types of disabilities, including developmental disabilities and those caused by mental illness. They are not licensed to serve individuals who need a nursing 

home level of care. There are two types of adult care homes: those that serve all populations and those that 

serve only persons age 65 or older. Adult care homes are divided into different types based on size—family care 

homes for 2-6 residents and adult care homes for 7 or more residents. 

Services. Adult care homes are required to provide three meals a day, transportation, activities, and housekeeping services. The Medical Care Commission may limit what medical and functional care needs can be met in 

adult care homes; for example, medication may be administered by designated, trained staff but nursing services can only be provided by the residence on a case-by-case exception basis approved by the State’s Department of Health and Human Services, or through licensed home care agencies. Unless a physician determines 

otherwise, adult care homes may not serve people who are ventilator dependent or who require continuous 

licensed nursing care. 

Payment. The payment includes a flat rate for basic personal care services with add-ons for residents with 

specific ADL impairments. Residents with extensive or total impairments in eating, toileting, or both eating and 

toileting qualify for a higher rate. In 2009, the basic payment was $17.50 a day for facilities with 30 or fewer beds 

and $19.17 for facilities with more than 30 beds. The additional daily rate for residents with extensive or total impairments in eating was $10.80 and in toileting was $3.86. Additional payment for residents needing assistance 

with ambulation/locomotion was $2.76 a day. Eligibility for the additional payment is based on an assessment 

by the adult care home, which is verified by a county case manager. (The State has a generous SSI state supplement, which is added to the SSI Federal benefit to cover room and board charges for residents of adult care 

homes: $579 in 2009.)
136 Understanding Medicaid Home and Community Services: A Primer

Coverage of Assisted Living through the Waiver Program: Oregon

Oregon uses an HCBS waiver to cover multiple services in residential care settings. Two settings are licensed: 

assisted living facilities and residential care facilities. The State has two classes of RCFs: Class I facilities provide 

only ADL assistance. Class II RCFs offer a range of services and can serve people who need a nursing home level 

of care. The Medicaid waiver program covers services in ALFs and Class II RCFs.

ALFs and Class II RCFs can serve the same population. When Oregon first decided to regulate assisted living, 

it chose not to replace existing RCF rules. Instead, it added a new licensing category for assisted living with 

requirements that differed somewhat from its RCF rules. The State has since consolidated many requirements for 

RCFs and ALFs, but maintains separate requirements for living units. The State does not allow providers to market 

themselves as assisted living unless they offer residents private apartments and are licensed as assisted living.

Target Population. The waiver program serves adults age 18 or older. Individuals at risk of nursing home 

placement and assisted living residents who were formerly private pay but who have spent down and become 

eligible for Medicaid are given priority for assisted living services. Rather than set specific medical or functional 

criteria governing when a resident is no longer appropriate for assisted living, Oregon’s regulations permit discharge when the facility can no longer meet the resident’s needs or there is a “documented established pattern” 

of noncompliance with the resident agreement.32

Setting. The primary difference between RCFs and ALFs is the physical setting. RCFs provide single or double 

rooms with shared baths; individual kitchens are not required. ALFs must offer individual apartments with lockable doors, kitchen facilities, and private baths.

Services. Services provided by RCFs and ALFs include three meals a day and snacks, personal and other laundry 

services, a program of social and recreational activities, assistance with ADLs, medication administration, and 

household services (cleaning and bed making). Facilities must also provide or arrange for social and medical 

transportation and ancillary services for related medical care (physicians, pharmacy, therapy, podiatry).

Payment. The Medicaid rate pays for the services ALFs provide under the licensing requirements. There are 

five levels of ALF payments based on residents’ acuity, which are based on a service priority score determined 

through an assessment. The monthly payment rate in 2009 for level 1 was $1,002 and for level 5 was $2,355.

Medicaid also pays for services for persons living in Level II RCFs who meet the nursing home level-of-care criteria. In 2009, the RCF base service rate for all clients was $1,249 per month. Depending on impairment level, there 

are three add-on payments. The base payment plus one add-on was $1,491; base plus two add-ons was $1,733; 

base plus three add-ons was $1,975. The add-on is based primarily on individuals’ need for assistance with ADLs.
Chapter 5: Providing Medicaid Services in Community Residential Settings 137

Level-of-Care Criteria and State Regulation 

of Residential Care Facilities 

HCBS waiver regulations require that any facility 

in which waiver services are furnished must meet 

applicable state standards regarding provider 

qualifications and methods to ensure oversight and 

monitoring of the facilities. As noted above, states 

must include a description of these standards and 

provider qualifications in the HCBS waiver application.33 When services are furnished by a residential 

care facility, it must meet the standards for service 

provision that are set forth in the approved waiver 

documents. 

Thus, states planning to cover services in residential care facilities through an HCBS waiver program 

need to be sure that the admission and retention 

provisions of state licensing or certification requirements permit facilities to serve individuals who 

meet Medicaid’s nursing home or ICF/ID level-ofcare criteria. Licensing must also address a facility’s 

qualifications to provide the services needed by 

Medicaid beneficiaries.

States that use a waiver program to provide services in residential care settings need to contract 

with facilities that are willing and able to provide 

the services needed by individuals who meet the 

state’s Medicaid nursing facility level-of-care criteria, 

which—if stringent—may be extensive.

Target Population 

When determining which population to serve in 

residential care settings, states need to consider 

their policy goals and their current long-term care 

system. Questions to ask include the following: Is 

the new coverage intended to fill a gap in the current set of options? Will the target population be 

different from the population usually served in the 

state’s residential care facilities? Is the new coverage 

intended to enable people who cannot be served in 

their homes to avoid institutionalization?

Once these questions are answered, the state must 

decide which age groups will be served—those age 

65 or older or younger adults with physical disabilities, or both—and whether services will be designed to address the specialized needs of specific 

populations, for example, persons with dementia or 

individuals with acquired brain injuries. It is crucial 

to make certain that the state’s licensing and other 

facility regulations match the needs of the target 

population. As noted above, if the state wants to 

target nursing home-eligible beneficiaries, the 

facilities need to be licensed or certified to serve a 

population with a nursing home level of need. 

When determining the target population for an 

HCBS waiver serving individuals with developmental disabilities, states may combine the entire 

eligible population into one HCBS waiver, or may 

choose to craft “specialty” waivers that target 

specific populations, such as children or individuals with autism. At least seven states have separate 

HCBS waivers serving individuals with autism. States 

may choose to target waivers to specific sub-groups 

within a larger population of eligible individuals as a 

means to offer specialized and/or different services 

to the sub-groups. The choice to use multiple waivers targeting distinct sets of eligible individuals is of 

course related to state policy goals.

Licensing and Contracting Issues 

State licensing rules set the minimum requirements 

for Medicaid providers; for example, state regulations may establish certain staff-to-resident ratios 

or may specify awake overnight staff. However, the 

Medicaid program may set more stringent standards if desired. For example, if licensing rules do 

not include sufficient provider requirements for residential care settings that serve people with dementia, Medicaid contracting requirements may specify 

additional training or other requirements. Similarly, 

while a state may allow residential care facilities to 

offer rooms shared by two, three, or more residents, 

the Medicaid programs can choose to contract only 

with facilities that offer private occupancy unless 

the resident chooses to share a room or unit. 

In states that are considering covering services in 

“assisted living” facilities for older adults, it is important to recognize that “assisted living” can mean 

more than just a setting for potentially cost-effective service delivery. It can refer to a philosophical 

approach to residential care that supports privacy, 

autonomy, and consumer choice. States that want 
138 Understanding Medicaid Home and Community Services: A Primer

to offer residential care services that comport with 

the assisted living philosophy will need to ensure 

that their regulations and payment policies support 

its basic tenets, most notably privacy and autonomy. Several states do so—including North Dakota, 

Oregon, and Washington—by requiring residential 

care facilities that call themselves “assisted living,” 

and want to contract with Medicaid, to offer apartment-style units rather than bedrooms.34

Enabling Medicaid Beneficiaries 

to Pay for Room and Board35

Medicaid beneficiaries with limited income may 

not be able to afford the room and board rates in 

residential care settings, unless states take specific 

steps to make them affordable. As noted earlier, 

Medicaid pays for room and board only in institutions, except in limited circumstances, for example, 

when providing respite care. For Medicaid purposes, room and board comprises real estate costs 

(debt service; building maintenance, upkeep, and 

improvements; utilities; and taxes) and food.36 The 

costs of preparing, serving, and cleaning up after 

meals can be covered as a waiver service.37

Although Medicaid beneficiaries are responsible for 

paying for room and board, states have a range of 

options to help make the costs affordable.

Limit the amount facilities can charge Medicaid 

clients for room and board to the Federal SSI benefit, which in 2010 is $674 per month minus a small 

personal needs allowance.

Provide a state supplement to the SSI payment for 

persons living in residential care settings, and limit 

the amount these settings can charge to the combined SSI plus state supplement payment. 

Use the 300 percent of SSI standard for HCBS waiver 

eligibility, and set the maintenance allowance at 

a level that allows residents to retain sufficient 

income to pay for room and board. 

Allow family supplementation to increase the funds 

available for room and board, particularly to pay the 

difference in cost between a shared and a private 

room.

Each of these options is discussed below.

Limiting the Amount Facilities 

Can Charge for Room and Board

States can limit the amount that can be charged 

for room and board by setting a combined “rate” 

for Medicaid beneficiaries that includes service 

costs and room and board costs, but the state only 

pays for services. This approach essentially caps the 

room and board rate that Medicaid beneficiaries 

pay. Other states simply limit by policy the amount 

that facilities can charge Medicaid beneficiaries for 

room and board, usually capping the charge at the 

Federal SSI payment for a single elderly beneficiary 

living in the community, plus a state supplemental 

payment (SSP), if any. See Box below for a list of 

states that limit room and board charges. 

23 States That Limit Room and Board 

Charges to the SSI/SSP Benefit Level in 

One or More Residential Care Settings

Arizona

California

Colorado

Delaware

District of Columbia

Georgia

Hawaii

Illinois

Indiana

Maine

Maryland

Montana

Nebraska

New Jersey

North Dakota

Ohio

Oklahoma

Oregon

South Carolina

Tennessee

Texas

Vermont

Washington

This approach guarantees that Medicaid beneficiaries can afford room and board costs in facilities that 

accept Medicaid. However, if providers feel that the 

room and board rate is too low to cover costs, they 
Chapter 5: Providing Medicaid Services in Community Residential Settings 139

may decide not to admit Medicaid beneficiaries. 

New Jersey has passed a law requiring that facilities 

licensed after September 2001 set aside 10 percent 

of their units to serve Medicaid residents within 3 

years after licensing.

Providing State Supplements to 

the SSI Payment

To increase access to residential facilities for SSI beneficiaries in areas with high housing costs, states can 

create a special SSI state supplement for residents in 

these facilities, and limit what providers may charge 

to the amount of the Federal payment plus the state 

supplement.38 Many states have such SSP programs 

to supplement the Federal SSI payment, which in 

2010 is $674 a month; the payment is adjusted each 

January based on the cost of living index. Individual 

states may use a specific term to refer to their supplement, and some use the term SSI to refer to both 

the Federal payment and any state supplement.

States may pay different supplements based on 

a person’s living arrangement. A few states have 

developed a supplemental payment rate specifically for SSI recipients in residential care facilities 

to increase the amount of income they have to pay 

for room and board. State supplements are totally 

state-determined and vary widely. In 2009, the SSI 

state supplement payment standards (including the 

Federal payment of $674) ranged from $722 and 

$735 a month in Vermont and New Hampshire, respectively, to $1,275 a month in Hawaii and $1,350 

in one area of Virginia.39

Some policymakers might question the fiscal benefit of providing 100 percent state funding for a state 

supplement to enable residents to pay for room and 

board. However, it is important to consider the net 

state cost for services provided in a residential care 

facility rather than a nursing home.40 If the program 

diverts people from nursing homes or allows nursing home residents to move to a residential care 

facility, states may be able to fund a fairly substantial supplement to the Federal SSI payment and still 

reduce their net cost. To determine if such a policy 

would be budget neutral, states would have to determine the number of people who would receive 

the increased supplement and the combined cost 

of the supplement and Medicaid services provided 

in residential care settings. 

Using the 300 Percent of SSI Standard and 

Providing an Adequate Personal Maintenance 

Allowance

States have the option to use more liberal incomeeligibility criteria for the waiver program—up to 

300 percent of the Federal SSI payment—$2,022 per 

month in 2010. (This option is discussed in detail in 

Chapter 2.)

This option is attractive for HCBS waiver programs 

that cover services in residential care settings, because it expands the program to include beneficiaries who are better able to afford room and board 

costs. To make this option effective, however, states 

must allow eligible persons to retain enough of 

their income to cover “maintenance needs,” including the room and board charges in residential care 

settings. Setting a higher maintenance allowance 

may allow more beneficiaries to be served in residential care settings; however, it will increase Medicaid’s service payment since it reduces the “excess 

income” that is applied to the cost of services.

Under Medicaid’s post-eligibility treatment of 

income rules for HCBS waivers, states are allowed to 

use “reasonable standards” to establish the maintenance allowance, and may vary the allowance based 

on the beneficiary’s circumstances. For example, 

states can permit Medicaid beneficiaries to keep 

sufficient income to pay for the needs of a dependent, health care costs not covered by Medicaid, 

and other necessary expenses. 

States typically set a single maintenance needs 

allowance for all HCBS waiver participants. Many 

states set their maintenance needs allowance at 300 

percent of the SSI Federal benefit. Since 300 percent 

of the SSI Federal benefit is the highest amount of 

income a person can have and still be subject to 

share of cost requirements, setting the maintenance 

needs allowance at that level allows waiver participants to keep all of their income to pay for living expenses. It also eliminates the administrative burden 

for states to calculate cost-sharing requirements. 
140 Understanding Medicaid Home and Community Services: A Primer

If a state does not want to set a single maintenance 

needs allowance, Medicaid rules allow states to set 

different maintenance allowances for each individual, or for groups of individuals, if they believe that 

different amounts are justified by the needs of the 

individuals or groups. 

Beneficiaries living in residential care settings may 

have different income needs depending on the type 

of facility: private market-rate facility or subsidized 

housing facility. The rent component of the monthly 

fee charged by facilities built with low-income housing tax credits will be lower than the rent charged 

by privately financed facilities. Through tax credits, 

rents can be reduced to around $400 per month. A 

lower maintenance amount for individuals with rent 

subsidies means more income is available to share 

the cost of services.

Setting the maintenance allowance based on the 

area’s average monthly charge for room and board 

may be overly generous when applied to residents 

in subsidized units. On the other hand, setting the 

maintenance allowance based on the amount paid 

by residents in subsidized units may be too low for 

private market facilities and create access barriers. 

If a state wants to improve access to both private 

and subsidized residential care facilities, it can set a 

separate maintenance allowance for each setting.

Income Supplementation by 

Family Members or Trusts

Family members may be able and willing to help 

with room and board costs when the beneficiary is 

unable to pay them. While this discussion focuses 

on payments by family members, payments may 

also be made by a special needs trust on behalf of 

its named beneficiary. Many families set up such 

trusts for adult children with disabilities to ensure 

that they will be adequately taken care of throughout their lives.

Since Medicaid does not pay for room and board 

in residential care settings, Federal rules regarding 

supplementation in nursing homes do not apply 

(i.e., families of nursing home residents may not 

supplement Medicaid payments, which cover room 

and board and services). 

As presented in Table 5-2, 24 states and the District 

of Columbia reported that they allow family supplementation for individuals in residential care settings, 14 states do not allow supplementation, and 

2 states have no policy. The remaining states either 

do not cover services in residential care 

settings or did not report whether they have a 

supplementation policy.41 States are not allowed to 

require supplementation.

In states that allow supplementation, family members need to understand that the amount of the 

supplement is considered in determining financial 

eligibility for SSI. Federal SSI regulations contain 

provisions for treating unearned income during 

the eligibility determination process, and, because 

Medicaid income and resource rules for the “Aged, 

Blind, and Disabled” follow SSI rules, the SSI rules 

for treating unearned income apply to Medicaid 

eligibility determinations as well, even if an “elderly, 

blind, or disabled” person is not receiving SSI.42 The 

application of SSI rules is not required for individuals eligible for Medicaid through another categorical group, such as pregnant women.

Under SSI rules, the entire amount of a family contribution paid directly to an individual is counted 

as unearned income. As a result, supplementation 

can lead to a reduced SSI payment or the loss of 

SSI altogether, and with it, potentially Medicaid as 

well. Even if an individual is not receiving SSI, this 

unearned income could cause him or her to lose 

Medicaid if it raises countable income above the 

Medicaid income limit. 

If, however, the family contribution is paid directly 

to a residential care facility on the beneficiary’s behalf, it is treated somewhat differently (i.e., as an “inkind” payment). Under SSI (and therefore Medicaid) 

rules, in-kind support and maintenance—no matter 

how much—is valued at only one-third of the 

monthly SSI benefit, or approximately $225 in 2010. 

This amount is also considered to be unearned 

income, just as a direct payment from the family 

to the individual would be, with similar potential 

consequences. The difference is that an in-kind payment cannot be valued at more than one-third 
Chapter 5: Providing Medicaid Services in Community Residential Settings 141

Table 5-2. Family Supplementation Policy

Allow Supplementation No Policy Prohibit Supplementation

Alaska

Arizona

Colorado

Connecticut

Delaware

District of Columbia

Florida

Georgia

Kansas

Maine

Minnesota

Missouri

Nevada

New Hampshire

New Jersey

New Mexico

North Carolina

North Dakota

Oklahoma

Rhode Island

Tennessee

Utah

Washington

Wisconsin

Wyoming

Indiana

Massachusetts

California

Hawaii

Illinois

Maryland

Michigan

Montana

Nebraska

New York

Ohio

Oregon

South Carolina

South Dakota

Texas

Vermont

of the SSI benefit, whereas the entire amount of a 

direct payment to the individual is countable.

Another point worth noting is that if the family can 

document that the actual amount of an in-kind 

payment is less than one-third of the SSI monthly 

payment, the actual amount of the payment will 

be used instead of the higher one-third amount. Finally, some states have elected to not count in-kind 

support and maintenance at all when determining 

eligibility for Medicaid. The Medicaid state agency 

should be able to provide information on whether a 

state has elected to not count such support. 

Because the Federal rule states that the maximum 

reduction to an SSI payment is only one-third of the 

benefit, there is no limit on the amount of money 

that can be paid to a facility on behalf of an SSI 

beneficiary. If a family chooses, they could pay for a 

private room and board in a more expensive facility 

without jeopardizing an individual’s eligibility for 

SSI. However, the payment could result in the loss of 

Medicaid eligibility. 

To prevent beneficiaries from losing Medicaid 

eligibility, states could amend their State Plan, with 

approval from CMS, to exempt in-kind income that 

supports a person’s accommodations or services 

not covered by the Medicaid payment in residential 

care settings. Section 1902(r)(2) of the Social Security Act allows states to use less restrictive income 

and resource methodologies than are used by SSI 

when determining eligibility for most Medicaid 

eligibility groups. States can elect to disregard different kinds or greater amounts of income and/or 

resources than SSI, giving states more flexibility to 

design and operate their Medicaid programs.

However, although a state may limit its less restrictive methodologies to eligibility groups it selects, 
142 Understanding Medicaid Home and Community Services: A Primer

the group(s) must still be one of those specifically 

listed in §1902(r)(2); for example, buy-in groups for 

working persons with disabilities, most povertyrelated groups, and the medically needy. States are 

not permitted to carve out a subgroup of their own 

definition (e.g., one based on place of residence). 

Effect of Medically Needy Rules on the Ability 

to Pay for Room and Board

States have the option of covering medically needy 

beneficiaries under their Medicaid programs. 

The medically needy are persons who, except for 

income, would qualify under one of the other 

Medicaid eligibility groups covered under the State 

Plan (such as people receiving SSI or the optional 

aged and disabled poverty level group). Medicaid 

payments can begin for medically needy persons 

once they have “spent down”—that is, incurred 

expenses for medical care in an amount at least 

equal to the amount by which their income exceeds 

the medically needy income level. As discussed in 

the previous section, any family supplementation is 

considered part of the excess income that must be 

spent down. If it is paid to a residential care facility, 

the one-third rule applies and it is still treated as 

unearned income.

The medically needy eligibility option can allow 

people who have income greater than 300 percent 

of SSI to become eligible for Medicaid services. But 

Federal law imposes two significant constraints on 

the use of this option: 

The state must cover medically needy children and 

pregnant women before it can elect to cover any 

other medically needy group. Additionally, the state 

may not place limits on who is eligible for Medicaid 

by using such characteristics as diagnosis or place 

of residence. Thus, it cannot use medically needy 

policies to extend Medicaid services only to HCBS 

waiver beneficiaries in residential care settings.

The maximum income-eligibility limit that a state 

medically needy program may use is based upon 

its welfare program for families—levels that are 

typically lower than SSI. The income level must be 

the same for all medically needy groups in the state 

(i.e., states are not permitted to establish higher 

income-eligibility levels for selected subsets of the 

medically needy, such as beneficiaries in residential 

care settings).

These rules have several implications that states 

need to consider when trying to make the medically needy eligibility option work for higher income 

individuals in residential care settings. First, these 

individuals may find it more difficult to incur sufficient medical expenses to meet the spend-down 

requirements while living in the residential care setting than they would in a nursing home. The higher 

their “excess” income, the higher the amount of their 

spend-down, which means that only beneficiaries 

with extremely high medical expenses may become 

eligible for Medicaid.

Second, community providers are less willing to 

deliver services during the spend-down period, 

since payment cannot be guaranteed and collection 

may be difficult. Third, spend-down rules combined 

with low medically needy income-eligibility levels 

mean that individuals may not have enough total 

income to pay both the bills they incur under the 

spend-down provision and room and board. Permitting spend-down to a higher amount—such as 300 

percent of SSI instead of a state’s medically needy 

standard for HCBS waiver eligibility—requires a 

change in the Medicaid statute. 

In summary, room and board costs may present an 

access barrier to residential care settings for Medicaid beneficiaries unless states take specific steps to 

make these costs affordable. Several observers have 

suggested that the Medicaid program be allowed to 

pay for room and board in residential care settings 

as it does in nursing homes. To do so, Congress 

would have to amend the Medicaid statute. It is 

possible that states would not welcome this change 

because currently the SSI benefit, which pays for 

room and board, is 100 percent Federal funding. If 

Medicaid were to pay for room and board in residential care settings, states would be responsible 

for part of the cost under Federal Medical Assistance 

Percentage provisions. (See Chapter 2 for a detailed 

discussion of Medicaid’s financial eligibility rules.)
Chapter 5: Providing Medicaid Services in Community Residential Settings 143

Service Payment Rates:

Adequacy Concerns

Unless service rates are considered reasonable by 

residential care settings, they will not be willing to 

contract with Medicaid, particularly in states where 

private pay rates are very high. It is important for 

states to recognize that payment levels will likely 

need to vary based on residents’ current needs 

(called tiered rates). Doing so will enable people 

whose condition deteriorates to stay in the setting 

rather than having to move to a nursing home. A 

number of states use tiered rates (including Arizona, 

Delaware, Ohio, Oregon, Vermont, and Washington). 

Rates set by case mix (as used in Minnesota, Maine, 

Wisconsin, and New York) also create incentives to 

accept people with high needs and retain people 

whose needs increase. Flat rates, in contrast, tend to 

force facilities to discharge residents whose needs 

exceed what can be covered under the rate. 

Many states use tiers or levels of payment in group 

homes for individuals with developmental disabilities to account for individual needs within a single 

setting, allowing increased payments for individuals 

who have intensive medical or behavioral support 

needs requiring a higher staffing ratio or specialized expertise. For example, Ohio uses payment 

rates that account for the size of the setting, the 

staffing ratio, and residents’ specialized needs. This 

allows for individualized services that are tailored 

to the support needs of persons in group settings. 

Alabama and Utah use an assessment process that 

costs out the hours of support an individual needs, 

while Missouri establishes rates by “category” of 

facility, with higher payment rates going to settings 

serving individuals with more intensive support 

needs. As payment rates are set, consideration 

should be given to what aspects of the supports are 

included in the rate versus other supports that are 

billed outside the rate. 

Whatever the specific process, states will want to 

allow for individualization of rates to ensure that 

individuals receive the level of support appropriate 

to their needs. This type of individualized rate can 

also be applied to foster homes as well. For example, some states operate “medical” foster homes that 

support children with intensive medical needs. The 

costs for operating these specialized homes—and 

their highly specialized personnel—are reflected in 

the payment rates.

Payments to licensed foster care settings may 

be tax exempt. If so, individualizing rates allows 

states to adjust the payment rate to account for 

the increased revenue to the provider because 

they may not have to pay Federal income taxes. As 

with larger residential care settings, the foster care 

payment rates can be individualized and tailored 

to meet the needs of the individuals and/or target 

group served. 

Bundling Payments 

Bundled rates are permitted for services that are by 

design multi-component or, as a practical matter, 

very difficult to break down into separate billing 

components; for example, rates for a single worker 

who supervises several residents and engages in 

one-on-one interactions with them for varying 

lengths of time. States are expected to have effective means to verify that bundled services are in 

fact providing the claimed components. Monthly 

rates are not as useful for this purpose as are daily 

or, in some cases, hourly bundled rates, which can 

account for resident absences from a facility for 

varying amounts of time for other services, such as 

offsite vocational programs.
144 Understanding Medicaid Home and Community Services: A Primer

Resources

Since the Primer was first published in 2000, numerous reports and other resources have become available on the Internet. This section includes key resources relevant to the use of Medicaid to pay for services 

in residential care settings. Most of the publications cite additional resources, and the websites also have 

links to other sources of information.

Publications

Mollica, R. (2009). State Medicaid Reimbursement Policies and Practices in Assisted Living. Washington, DC: 

National Center for Assisted Living, American Health Care Association.

This report presents and updates information on state coverage of Medicaid services in assisted living/residential care settings and includes the source of coverage, the number of participating facilities, number of people 

served, payment rates, and other data.

Available at http://www.ahcancal.org/ncal/resources/Documents/MedicaidAssistedLivingReport.pdf

Mollica, R.L., Simms-Kastelein, K., Cheek, M., Baldwin, C., Farnham, J., Reinhard, S., and 

Accius, J. (2009). Building Adult Foster Care: What States Can Do. Washington, DC: AARP, Public Policy Institute. 

This report examines the role of adult foster care within the long-term care system and offers guidance to 

policy makers interested in developing or expanding this type of residential care.

Available at http://www.aarp.org/health/doctors-hospitals/info-09-2009/2009_13_building.html

CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5]: Instructions, Technical Guide and Review Criteria. Baltimore, MD: U.S. Department of Health and Human Services.

This publication contains extensive information concerning Federal policies that apply to the operation of an 

HCBS waiver, including a section on paying for services in residential facilities. (Appendix C-2-c: Facilities Subject to §1616(e) of the Social Security Act.)

Available at https://www.hcbswaivers.net/CMS/faces/portal.jspunder links and downloads, entitled §1915(c) 

Waiver Application and Accompanying Materials. 
Chapter 5: Providing Medicaid Services in Community Residential Settings 145

Mollica, R., Sims-Kastelein, K., and O’Keeffe, J. (2007). Residential Care and Assisted Living Compendium: 

2007. Washington, DC: U.S. Department of Health and Human Services, Office of the Assistant Secretary for 

Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy.

This report provides information about regulations covering residential care/assisted living facilities in all 50 

states and the District of Columbia. It also discusses Medicaid policy regarding coverage of services in these 

facilities. 

Available at http://aspe.hhs.gov/daltcp/reports/2007/07alcom.htm

Ireys, H.T., Pires, S., and Lee, M. (2006). Public Financing of Home and Community Services for Children and 

Youth with Serious Emotional Disturbances: Selected Strategies. Washington, DC: U.S. Department of Health 

and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy.

This report describes important system-of-care principles that have shaped services for youth with serious 

emotional disturbances, the role of the various agencies that serve these children, and the financing mechanisms many states use to fund services for this population. It covers the strengths and weaknesses of major 

financing mechanisms, including HCBS waivers, the Medicaid rehabilitation option, and provisions in the 

Tax Equity and Fiscal Responsibility Act, also known as the Katie Beckett provision. The report also presents 

information that can inform legislative efforts to strengthen the financing of intensive home and community 

services for youth with serious emotional disturbances and their families.

Available at http://aspe.hhs.gov/daltcp/reports/2006/youthSED.htm

Stancliffe, R.J., and Lakin, C. (2004). Costs and Outcomes of Community Services for Persons with Intellectual and Developmental Disabilities. Policy Research Brief 14(1). Minneapolis: University of Minnesota, 

Research and Training Center on Community Living. 

This Policy Research Brief reviews available research on the costs and outcomes of community service provision for people with intellectual disabilities and developmental disabilities, with a particular emphasis on 

residential services. It focuses on a number of key issues related not only to public expenditures, but also to 

funding systems, related policies and regulations, and their impact on service systems, on specific service 

types, and on service users.

Available at http://ici.umn.edu/products/prb/151/151.pdf
146 Understanding Medicaid Home and Community Services: A Primer

Websites

Assisted Living Federation of America (ALFA)

The Assisted Living Federation of America is the largest national association exclusively dedicated to professionally operated assisted living communities for seniors. ALFA’s member-driven programs promote business 

and operational excellence through national conferences, research, publications, and executive networks. In 

addition, ALFA works to influence public policy by advocating for informed choice, quality care, and accessibility for all Americans. The website includes links to publications and information about Federal and state policy. 

Web address: http://www.alfa.org/alfa/Default.asp

Center for Excellence in Assisted Living

The Center for Excellence in Assisted Living is a non-profit collaborative of 11 national organizations that 

builds upon the work of the Assisted Living Workgroup, which was formed to work with the U.S. Special Committee on Aging on a range of assisted living issues. The Center’s purpose is to promote high-quality assisted 

living and to serve as a national clearinghouse for information about assisted living, including research findings, exemplary practices, training and education materials, and consumer materials. 

Web address: http://www.theceal.org

The Clearinghouse for Home and Community Based Services 

This site promotes the development and expansion of home and community-based services by gathering 

resources and tools for research, policymaking, and program development into this one-stop website. The site 

has over 2,000 resources that users can browse using the site’s search engine. For example, using the search 

words “Medicaid” and “assisted living” yields 17 results, including several of the publications listed above. 

Web address: http://www.hcbs.org/
Chapter 5: Providing Medicaid Services in Community Residential Settings 147

Endnotes: Citations, Additional Information,

and Web Addresses

1 Janet O’Keeffe and Robin Cooper co-authored this chapter. Some sections of this chapter draw liberally from other published sources, which are referenced in the endnotes. 

2 Medicaid-covered “institutional” services refer to specific services and settings as authorized in the 

Social Security Act. While the term “institutional” is also commonly used to describe specific characteristics of a facility—such as structuring its operation to accommodate the facility’s needs rather than 

the residents’ choices—in Federal Medicaid statute and regulations the term institutional generally 

has the following meanings: 

(1) The service is institutional, that is, a provider accepts responsibility for residents’ overall care, and 

furnishes food and shelter in addition to services; (2) the setting is institutional—subject to state licensure requirements and survey and certification process; (3) payment is made through separate provisions for institutional services; and (4) eligibility rules may be specific to institutional services. 

Taken together, these requirements mean, among other things, that an institutional service such as 

Medicaid nursing facilities can only be provided in a Medicaid-certified nursing facility, and only reimbursed under the Medicaid nursing facility benefit. It is important to note that a facility does not have 

to have many beds to be considered an institution, despite the popular image of institutions as being 

large. (See endnote 5 regarding the minimum size of an ICF/ID.) 

3 Come-in staff generally work 8-hour shifts (day, evening, night) but can also work 12-hour day or night 

shifts.

4 ICFs/ID are considered institutions under Federal regulations. Although some ICFs/ID are large stateoperated facilities, the majority are now smaller. CMS regulations provide for a “community size” ICF/

ID option. Facilities that have 15 or fewer beds are considered “community” ICFs/ID, and facilities with 

16 or more beds are considered to be “large.” A number of states operate community ICFs/ID, many of 

which have few beds.

For example, California, Texas, Illinois, Indiana, and Louisiana, among other states, all have ICFs/ID that 

serve six or fewer individuals. Thus, a state could potentially provide services under the HCBS waiver 

in group homes that serve the same number of residents (or more) than an ICF/ID, so that the two 

settings are the same in size. The difference is that the ICF/ID setting provides the ICF/ID institutional 

service, must comply with numerous Federal regulations, and receives the comprehensive institutional reimbursement, which includes payment for room and board.

5 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, 

Technical Guide and Review Criteria, Appendix C-2-c-ii, p. 117. See the Resources section of this chapter for a web link to the application, instructions, and appendices.

6 Ibid.

7 Found at http://www.minnesotahelp.org/Public/taxonomy_glossary.aspx?code=BH-840.600-28.

8 Section 1616(e) of the Social Security Act requires that the state must “establish, maintain, and insure 
148 Understanding Medicaid Home and Community Services: A Primer

the enforcement of standards for any category of institutions, foster homes, or group living arrangements in which a significant number of SSI recipients resides or is likely to reside. The standards must 

be (a) appropriate to the needs of residents and the character of the facilities involved; and (b) govern 

such matters as admission policies, safety, sanitation, and protection of civil rights.” 

Section 1616(e) also requires states to maintain records of information concerning standards, procedures available to ensure enforcement of the standards, and a list of waivers of standards and violations of standards by specific facilities. These records must be made available annually to the public. 

States must certify annually to the Commissioner of Social Security that they are in compliance. Office 

of the Inspector General (March 31, 1997). Review of the Social Security Administration Procedures to 

Ensure State Compliance with §1616(e) of the Social Security Act – A-01-96-62001. Available at http://

www.ssa.gov/oig/ADOBEPDF/audit_htms/96-62001.htm. 

9 Mollica, R., Sims-Kastelein, K., and O’Keeffe, J. (2007). Residential Care and Assisted Living Compendium: 2007. Washington, DC: U.S. Department of Health and Human Services, Office of the Assistant 

Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy. Available 

at http://aspe.hhs.gov/daltcp/reports/2007/07alcom.htm.

10 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, 

Technical Guide and Review Criteria, pp. 168-169, and 265-266. See the Resources section of this chapter for a web link to the application, instructions, and appendices.

11 Mollica, R., Booth, M., Gray, C., and Sims-Kastelein, K. (2008). Adult Foster Care: A Resource for Older 

Adults. New Brunswick, NJ: Rutgers Center for Health Policy, p. 7. Available at http://www.hcbs.org/

moreInfo.php/doc/2273. 

12 Alba, K., Prouty, R.W., and Lakin, K.C. (2007). Chapter 4: Number of Residential Settings and Residents 

by Type of Living Arrangement on June 30, 2007. In Prouty, R.W., Alba, K., and Lakin, K.C. (Eds.). Residential Services for Persons with Developmental Disabilities: Status and Trends through 2007. Minneapolis: University of Minnesota, Research and Training Center on Community Living, Institute on 

Community Integration, p. 45. Available at http://www.hcbs.org/moreInfo.php/doc/2312.

13 Mollica, R.L., Simms-Kastelein, K., Cheek, M., Baldwin, C., Farnham, J., Reinhard, S., and Accius, J. (2009). 

Building Adult Foster Care: What States Can Do. Washington, DC: AARP, Public Policy Institute, p. 9. 

Available at http://www.aarp.org/health/doctors-hospitals/info-09-2009/2009_13_building.html.

14 Supported living in an individual’s own home and any other type of residential supports a state wants 

to cover are also subsumed under residential habilitation.

15 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, 

Technical Guide and Review Criteria, pp. 151-152. See the Resources section of this chapter for a web 

link to the application, instructions, and appendices.

16 45 CFR 1355.20.

17 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, 

Technical Guide and Review Criteria, p. 131. See the Resources section of this chapter for a web link to 

the application, instructions, and appendices.

18 Utah’s Community Supports Waiver for Individuals with Intellectual Disabilities and Related Conditions, Waiver # 0158.90.r#.02.
Chapter 5: Providing Medicaid Services in Community Residential Settings 149

19 States do not have to include citations of state rules, which can change over time. The application 

must also include the state’s quality assurance plans.

20 Hawes, C. (2001). Introduction. In Zimmerman, S., Sloan, P.D., and Eckert, K. (Eds.). Assisted Living: 

Needs, Practices, and Policies in Residential Care for the Elderly. Baltimore, MD: The Johns Hopkins 

University Press.

21 The supply of older residential care facilities that serve individuals eligible for SSI and Medicaid is 

much larger than the supply of private pay assisted living facilities. Robert Newcomer, University of 

California at San Francisco. Personal communication, November 25, 2009.

22 Mollica, R., Sims-Kastelein, K., and O’Keeffe, J. (2007), op. cit.

23 Mollica, R. (2009). State Medicaid Reimbursement Policies and Practices in Assisted Living. Washington, DC: National Center for Assisted Living; American Health Care Association. Available at http://

www.ahcancal.org/ncal/resources/Documents/MedicaidAssistedLivingReport.pdf. Hawes, C., Rose, M., 

and Phillips, C.D. (1999). A National Study of Assisted Living for the Frail Elderly: Results of a National 

Survey of Facilities. U.S. Department of Health and Human Services, Office of the Assistant Secretary 

for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy. Available at http://

aspe.hhs.gov/daltcp/reports/facres.pdf.

24 The Guidance also notes that states may modify or supplement the core definition to reflect the scope 

of assisted living services furnished under the waiver.

25 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, 

Technical Guide and Review Criteria, pp. 117, 170. See the Resources section of this chapter for a web 

link to the application, instructions, and appendices.

26 Ibid. Appendix C, Attachment: Core Service Definition, pp. 151-153.

27 This section draws liberally from Mollica, R., Sims-Kastelein, K., and O’Keeffe, J. (2007), op. cit.

28 An HCBS waiver may cover services provided in participants’ homes or in residential care settings. 

Some states have implemented specialized assisted living waivers, which provide services only in residential care settings. 

29 Mollica, R. (2009), op. cit. Individuals with developmental disabilities who meet a state’s nursing home 

level-of-care criteria may also be served in Aged or Aged/Disabled HCBS waiver programs. But only 

persons with developmental disabilities can be served in ID/DD waiver programs, because the levelof-care criteria for ICFs/ID require a specific diagnosis of developmental disabilities to be eligible.

30 Information in the Boxes is mainly from Mollica, R. (2009), op. cit., and Mollica, R., Sims-Kastelein, K., 

and O’Keeffe, J. (2007), op. cit.

31 Licensing requirements adopted in 1995 and 1996 established the umbrella term of “assisted living 

residences” for two types of residential care facilities: (1) licensed adult care homes and (2) multi-unit 

assisted housing with services (which are not licensed, but must be registered with the State).

32 Residents may be asked to leave under the following conditions: (a) their needs exceed the level of 

ADL services provided by the facility; (b) the resident’s behavior interferes with the rights and well-being of others or poses a danger to self and others; (c) the resident has a medical or nursing condition 

that is complex, unstable or unpredictable and exceeds the level of health services the facility provides; or (d) the facility is unable to accomplish resident evacuation in accordance with OAR 411-054-
150 Understanding Medicaid Home and Community Services: A Primer

0090 (Fire and Life Safety).

33 As noted, above, states do not have to include citations of state rules, which can change over time. The 

application must also include the state’s quality assurance plans.

34 Oregon and Washington also allow other types of residential care settings that contract with Medicaid 

to have shared rooms.

35 The information in this section is taken verbatim from Mollica, R., Sims-Kastelein, K., and O’Keeffe, J. 

(2007), op. cit.

36 Medicaid will pay for food costs in specific situations, such as meals served as part of an adult day 

health program. 

37 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, Technical Guide and Review Criteria, Appendix I-5: Exclusion of Medicaid Payment for Room and 

Board, pp. 265-266. See the Resources section of this chapter for a web link to the application, instructions, and appendices.

38 Many states have a state supplement for residential care settings that may be too low to cover more 

intense services needs and higher capital costs in some residential care settings.

39 Mollica, R., (2009), op. cit.

40 The net cost to the state will depend on Medicaid payment rates for both nursing homes and services 

in residential care facilities. 

41 Mollica, R. (2009), op. cit.

42 Family contributions that do not affect SSI eligibility—and therefore do not affect Medicaid eligibility—might have an affect in 209(b) states because Medicaid eligibility in these states is not linked 

to SSI eligibility. (When SSI replaced state-only programs of aid for elderly persons and persons with 

disabilities, the change was expected to lead to large increases in the numbers of SSI beneficiaries. The 

209(b) option was enacted along with SSI in 1972 to enable states to limit large increases in Medicaid 

enrollment and costs. 

43 See IRS Code Section 131b1 that defines a qualified foster care payment as “a payment made pursuant to a foster care program of a state or a political subdivision of the state: that is paid by a political 

subdivision of a state, or a qualified foster care placement agency; and that is paid to the foster care 

provider for caring for a qualified foster care individual in the foster care provider’s home, or a difficulty of care payment.” 
Chapter 6: Transitioning People from Institutions to the Community 151

Guide to Chapter 6

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Lessons from the Transitioning Experience with ICFs/ID. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Nursing Home Transition Grants Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

General Factors to Consider for Transition Initiatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

Identifying and Addressing Administrative and Legal Barriers. . . . . . . . . . . . . . . . . . . 157

Ensuring the Availability of a Comprehensive Range of 

Home and Community Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

Developing Methods to Circumvent HCBS Waiver Waiting Lists. . . . . . . . . . . . . . . . . 158

Identifying and Educating Residents 

with the Desire and Potential for Transition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

Involving and Collaborating with Key Stakeholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Developing and Implementing Case Management/Service 

Coordination Systems That Support Transition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

Identifying and Addressing Housing Needs and Rental Assistance. . . . . . . . . . . . . . 163

Providing Flexible Funding Mechanisms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Preventing Unnecessary Admissions and Avoidable Long Stays. . . . . . . . . . . . . . . . . . . . . . . . . 166

Establishing a Quality Assurance System 

That Effectively Balances Risk and Autonomy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . 171

Chapter 6: Transitioning People from Institutions to the Community 153

Chapter 6

Transitioning People from Institutions to the Community

The realization that many people with long-term care service and support needs can thrive in integrated community settings and the requirements of the Supreme Court’s Olmstead decision have increased states’ commitment to 

transition residents of intermediate care facilities for persons with intellectual disabilities (ICFs/ID), nursing facilities, 

and other long-term care institutions to the community. This chapter begins with a brief overview of how states 

have used Medicaid home and community-based services (HCBS) waiver programs to enable ICFs/ID residents to 

transition to the community. It then discusses important factors states need to consider when planning transition 

programs for persons in nursing facilities and options for using Medicaid to help cover certain transition costs.1

Introduction

After Medicaid’s enactment, the following decades saw an increase in the number of states developing alternatives to institutional care for persons with disabilities, in order to provide services and supports in the most 

integrated setting appropriate to their needs. The Supreme Court decision—Olmstead v. L.C., finding that unnecessary segregation of people with disabilities in institutions constitutes a form of discrimination under the 

Americans with Disabilities Act (ADA)—gave legal weight and new urgency to this policy direction.2 The Centers for Medicare & Medicaid (CMS) guidance, issued to states in January 2000, underscores the importance of 

states’ efforts to move people out of nursing homes and other long-term care institutions into community settings as a part of a state’s “comprehensive effectively working plan” for providing services to qualified persons 

in the most integrated settings. (See the Resources section of this chapter for a link to the complete text of this 

guidance.) 

Transitioning people with disabilities from institutions to the community began in a serious way with the recognition that many people with intellectual disabilities and other developmental disabilities (ID/DD, hereafter 

called developmental disabilities) were inappropriately placed in large public facilities and institutions. This 

recognition, starting in the 1970s, led to successful efforts by many states to sharply reduce the number of 

people living in large institutions (16 or more beds) by transitioning residents to a range of smaller, community settings. This dramatic wave of deinstitutionalization set in motion the realignment of state ID/DD service 

systems from institutionally dominated to community-centered. 

The first section of this chapter provides a brief overview of the transition process for residents of ICFs/ID, distilling the lessons learned from this experience that apply to transition initiatives more generally. The second 

section focuses on current Medicaid options for supporting transitions and discusses major factors states need 

to consider when setting up transition programs—focusing primarily on the transition of nursing home residents—but also applicable to transitions from ICFs/ID and other institutions.
154 Understanding Medicaid Home and Community Services: A Primer

Lessons from the Transitioning

Experience with ICFs/ID3

Medicaid funding for home and community services and supports for persons with developmental disabilities, particularly through HCBS waiver 

programs, has played a pivotal role in enabling a 

substantial majority of states to reduce (or in some 

cases, end completely) long-term care service 

delivery in large state institutions.4 Between 1970 

and 2008, 40 states closed or initiated plans to close 

more than 140 large public institutions.5 Alaska and 

Oregon have closed all of their state and non-state 

ICF/ID programs and Vermont supports a single 

private facility of six residents. Additionally, many 

states ceased sponsoring additional ICF/ID development. 

Terminology

In the developmental disabilities service system, 

ICFs/ID that serve a small number of residents—

from 15 to as few as 4—are called community 

ICFs/ID, and the term “institution” is used only 

for ICFs/ID with 16 or more residents. However, 

for Medicaid purposes, ICFs/ID are considered 

to be institutions, irrespective of the number of 

people they serve.

Not all institutions that serve persons with 

developmental disabilities are ICFs/ID. Prior to 

coverage of ICFs/ID under Medicaid in the early 

1970s, institutions were exclusively state funded. 

While states converted virtually all of these institutions to ICFs/ID to take advantage of Federal 

funding, a few privately funded institutions may 

still be operating, as well as former ICFs/ID that 

have lost their certification and are not receiving 

Federal finding.

By the end of 2009, 10 states and the District of 

Columbia had closed all of their large public institutions for people with developmental disabilities. 

6

 In the private sector as well, the number of residents of both large and small ICFs/ID nationwide 

has declined steadily since 1997. The decline in ICF/

ID utilization began about the same time that the 

number of people with developmental disabilities 

participating in HCBS waiver programs began to 

grow very rapidly. Between 1992 and 2007, the 

number of individuals participating in HCBS waiver 

programs for people with developmental disabilities grew by 703 percent.7

 A major reason for the 

increased use of HCBS waivers is the flexibility they 

afford states to offer services and supports that can 

accommodate individuals with a wide range of different needs in a targeted fashion without resorting 

to institutionalization.

The successful transitioning of people with developmental disabilities from institutions to the community demonstrates that waiver services can be 

cost-effective substitutes for institutional services 

for this population.8 States that have been especially successful in closing large public facilities and 

reducing reliance on ICFs/ID have taken many other 

important steps to ensure that the needs of individuals with developmental disabilities can be met 

in the home and community. Many of these steps 

are equally applicable to beneficiaries with other 

disabilities being transitioned from nursing homes 

and other institutions. These steps are

• Developing community-based crisis and 

quick-response capabilities. In many states, 

institutions provide backup services and supports for persons who are in crisis and need 

emergency services. In the 10 states that have 

closed all of their public institutions (as well as 

the District of Columbia), each has addressed 

the need for emergency support in different 

ways. Maine established crisis response teams, 

resource coordinators, and emergency placement beds in small settings in each of its three 

regions as part of the initiative to close its 

Pineland Center facility, which had functioned 

as a “crisis-placement” facility. By providing 

resources in the community to respond to crises and working out permanent solutions for 

the individual, a prime rationale for operating 

Pineland was eliminated. Vermont established 

the Vermont Crisis Intervention Network in 

1992 to provide community-based emergency 

support and assistance statewide. New Mexico 

and Hawaii developed similar programs using 

the same organizational model. The development of an effective crisis response capability 
Chapter 6: Transitioning People from Institutions to the Community 155

was instrumental in Oregon’s closing its Fairview facility in February 2000 and the Eastern 

Oregon Training Center in 2009.

• Expanding community services to meet the 

needs of individuals with multiple disabilities and challenging conditions who require 

particularly intensive support and assistance. People with significant needs are often 

described as “requiring” institutional services. 

States that have closed their institutional 

programs have demonstrated that people with 

even the most intensive support requirements 

can lead productive and successful lives in 

home and community settings when afforded 

person-centered services and supports tailored to their strengths and needs.9

 Many 

states have found that the costs of community 

services for people being transitioned from 

institutional services can be higher on average than the costs of waiver services furnished 

to persons who have not been institutionalized. This cost differential may result because 

as institutional populations have declined, 

the proportion of institutionalized residents 

with significant and multiple disabilities has 

increased, and these individuals require more 

intensive services wherever they are served—

in an institution or the community. To ensure 

sufficient capacity to support these individuals, many states must enhance the infrastructure of community agencies.10

• Providing higher than average funding allocations for individuals transitioning to the 

community. States have taken steps to provide 

needed services and supports in community settings by permitting the development 

of HCBS waiver service plans that allow an 

individual’s costs to rise above the average for 

institutions in that state. This allows states to 

decide on the plausibility of transitioning for a 

particular individual, without forcing individuals de facto to seek institutional care simply 

because of an individual expenditure limit or 

cap.11

• Developing waivers targeting specific populations and groups. Although most states 

accommodate transitioning individuals from 

institutional settings through their existing 

HCBS waiver programs, a limited number 

operate distinct HCBS waiver programs for 

people transitioning from institutional settings. Georgia created a special HCBS waiver 

program for individuals who transitioned to 

the community during the State’s closure of 

its 320-bed, Atlanta-based Brook Run facility in 1997. Closure of this facility resulted in 

cost savings that enabled Georgia to provide 

waiver services to 180 individuals in addition 

to the persons transitioned from Brook Run. 

The Washington State Division of Developmental Disabilities developed and implemented five separate waiver programs designed to 

support individuals at differing levels of need. 

Four types of waivers—Basic, Basic Plus, Core, 

and Community Protection—furnish a variety 

of supports at increasing intensity. A fifth provides intensive in-home behavioral support to 

children with significant needs.

• Developing specialized “supports” waivers. 

An increasing number of states to date have 

developed and implemented distinctive HCBS 

waiver programs—called supports waivers—

which offer a limited menu of specific services 

that operate in tandem with previously existing comprehensive waiver programs. Designed to limit Medicaid costs by preventing 

out-of-home placement in 24-hour residential 

programs or ICFs/ID, these waivers offer a 

variety of flexible in-home supports. Supports 

waivers impose specific expenditure limits on 

the amount of services provided and perperson costs are significantly less than those 

found in comprehensive waivers. Supports 

waivers typically emphasize participant direction and are intended to promote the use of 

non-traditional, “natural supports” provided by 

family, friends, and neighbors.12 (See Chapter 

4 for additional information about supports 

waivers.)

• Expanding supports offered to individuals 

and families. Family support services are crucial for preventing unnecessary out-of-home 

placements and are used by many states to 

reduce reliance on institutional services. In 
156 Understanding Medicaid Home and Community Services: A Primer

addition to supports waivers, states furnish 

assistance to families through state general 

fund programs and the provision of cash 

subsidies or stipends. As a result of these and 

other efforts, increasing numbers of individuals with developmental disabilities are able to 

avoid institutional placement by receiving the 

assistance they need in the home of a family 

member. In 2007, the majority (55.8 percent) of 

persons with developmental disabilities receiving publicly funded services lived in the home 

of a family member.13 Michigan, for example, 

reduced the number of individuals served in 

large public facilities from over 6,000 in 1977 

to fewer than 300 in 1998—in large part by 

implementing and sustaining family support 

programs.

• Developing strong and locally centered community service systems. In developmental 

disabilities services, creating a strong infrastructure at the community level has proven 

to have a significant impact on the ability to 

avoid institutionalization and promote quality 

services. An important component of Michigan’s transition activities was its strengthening 

of the State’s network of local governmental 

Community Mental Health Service Programs 

through its Section (§)1915(b)(c) managed 

care waiver program. As part of its overall plan 

to close its Brandon facility, Vermont placed 

major emphasis on upgrading the skills of 

its community workforce and maintains a 

strong program to train community workers. 

In Kansas, the state developmental disabilities 

authority and the State’s University Affiliated 

Program forged a partnership to improve 

the training and skills of the community 

workforce—a step that was instrumental in 

enabling the State to transition many institutional residents to the community.

• Expanding investments in quality assurance 

and quality improvement capabilities. The 

Medicaid HCBS waiver application requires 

each state to submit a comprehensive quality management strategy outlining the approaches the state intends to use to assess, 

improve, and safeguard the health and welfare 

of waiver program participants.14 Several states 

are responding by improving current practice 

through the utilization of standardized outcome measurement tools such as the National 

Core Indicators (NCI), which permit state-tostate comparisons, or other instruments such 

as the Participant Experience Survey. Pennsylvania launched a comprehensive quality 

measurement system for community-based 

services, which relies on information obtained 

from individuals receiving support and their 

families. The data are collected by individuals 

who have no connection to entities delivering services. The Independent Monitoring for 

Quality project combines both state-specific 

and the NCI national outcome measurement 

tools. (See the appendix for an overview of 

CMS requirements for quality management 

and improvement systems.)

Nursing Home Transition

Grants Program

During the 1990s, the system serving individuals 

with developmental disabilities gained considerable 

experience transitioning individuals from institutions to the community. In contrast, most states 

had little experience transitioning nursing home 

residents to the community. To encourage states to 

develop and implement nursing home transition 

programs, in 1998 and 1999 the U.S. Department of 

Health and Human Services (HHS) provided grants 

to eight states through the Nursing Home Transition 

Program. 

By 1999, the Olmstead decision had increased state 

interest in nursing home transition, and in Federal 

fiscal year (FFY) 2001 and FFY 2002, under its Systems Change for Community Living Grants program, CMS provided 33 Nursing Facility Transition 

(NFT) grants to help states develop a sustainable 

transition infrastructure, and to promote partnerships between state agencies and Independent 

Living Centers (ILCs) to facilitate transitions.15 In FY 

2004, CMS awarded nine Systems Change Money 

Follows the Person (MFP) grants to states to continue working on NFT initiatives with a specific focus 

on developing and implementing MFP initiatives.16
Chapter 6: Transitioning People from Institutions to the Community 157

Many of the lessons learned through this grants 

program, and Grantees’ recommendations for addressing continuing transition barriers, have been 

incorporated into the discussion that follows. 

General Factors to Consider for 

Transition Initiatives

Successful transitions depend fundamentally on the 

ability to provide services and supports in the community that meet the needs of the person transitioning. Persons leaving ICFs/ID have varying types 

and levels of need. Residents of nursing facilities are 

an even more heterogeneous group. Nursing facility 

residents can include a 75-year-old with cognitive impairment and multiple medical problems, 

a 45-year-old with quadriplegia, and a 25-year-old 

with a traumatic brain injury (TBI). While those transitioning will have some needs in common, they will 

also require services and supports tailored to their 

specific situations.

Whether a person currently resides in a nursing 

facility or in an institution serving primarily those 

with a developmental disability or mental illness, 

the steps in planning or arranging for home and 

community services are the same. In either case, 

solid transitional planning is essential.17 Because 

each person has unique needs, the complexity and 

cost of each individual’s transition process will vary. 

For this reason, it is crucial that states design their 

transition programs to operate with maximum 

flexibility. In addition to the numerous options for 

providing home and community services, Medicaid also provides options to facilitate and support 

transitions. 

The remainder of this chapter will discuss the key 

factors essential to implementing successful transition programs, along with related Medicaid policies 

and service options. The key factors are 

• Identifying and addressing administrative and 

legal barriers to transition.

• Ensuring the availability of a comprehensive 

range of home and community services.

• Developing methods to circumvent HCBS 

waiver waiting lists.

• Identifying and educating residents with the 

desire and the potential for transition.

• Involving and collaborating with key stakeholders.

• Developing and implementing care management/service coordination systems that support transition.

• Identifying and addressing housing needs and 

rental assistance.

• Providing flexible funding mechanisms.

States generally undertake many of these activities simultaneously. The chapter ends with a brief 

discussion of how states can prevent unnecessary 

admissions to institutions and avoidable long stays.

Identifying and Addressing

Administrative and Legal Barriers

States need to analyze their Medicaid regulations 

and administrative policies to identify any institutional bias that might make it difficult or impossible for some people living in nursing homes to 

be served in the community. For example, if a state 

does not use the 300 percent of SSI income rule for 

its HCBS waiver program, some institutional residents will not meet the financial eligibility criteria 

for waiver services, even though they can be appropriately served in the community. (See Chapter 2 for 

a discussion of Medicaid’s financial eligibility rules.) 

In addition, if Medicaid’s maintenance needs allowance is too low to permit individuals to pay for room 

and board costs in the community, nursing home 

residents may be unable, simply for financial reasons, to transition to the community—whether to 

an independent living arrangement or a residential 

care facility. (See Chapter 2 for a discussion about 

financial criteria and Chapter 5 for a discussion of 

state policies to help Medicaid beneficiaries afford 

room and board costs.)
158 Understanding Medicaid Home and Community Services: A Primer

Ensuring the Availability of a

Comprehensive Range of Home

and Community Services18

Since persons transitioning from institutions have 

widely varying needs, the transition process presupposes that a broad range of home and community 

services and supports is available. Yet, 

Medicaid HCBS waiver programs vary greatly in the 

comprehensiveness of services they provide, and 

in many states the home and community services 

system does not provide the amount, duration, and 

scope of services needed to enable people with 

severe disabilities or extensive nursing needs to live 

safely in the community. 

New Service Developed to 

Enable Transition

During implementation of its Systems Change 

NFT grant, state staff in Rhode Island found 

that lack of day services was a transition barrier 

for persons with traumatic brain injury. Under 

a contract with an adult day services provider, 

grant staff established an adult day services program for adults with severe cognitive disabilities, many with traumatic brain injury. The new 

program is now funded as a Medicaid State Plan 

service under the Rehabilitation services option. 

Some Systems Change NFT Grantees cited a lack 

of services for specific populations as a transition 

barrier; for example, when a state does not have a 

TBI waiver and the services available in other waiver 

programs do not meet the needs of persons with 

traumatic brain injury. Other barriers Grantees cited 

were (1) insufficient funding for home modifications 

and assistive technology; (2) HCBS waiver programs 

that do not provide all of the services a person 

needs; (3) lack of mental health and substance 

abuse services and supports; and (4) lack of agreement among state agencies about who is responsible for providing services for people with both 

physical and mental impairments, making it difficult 

to ensure adequate services for this population. The 

lack of nurse delegation provisions that enable individuals with complex medical needs to be served 

cost-effectively in the community can also be a barrier as can the lack of experience of HCBS providers 

in serving this population, which may make them 

reluctant to do so.

Lack of home and community services prevents diversion as well as transition. One NFT Grantee noted 

that timely access to in-home services is essential 

for diverting persons being discharged from hospitals. In the absence of these services, hospital staff 

will not discharge patients to their homes, sending 

them instead to a nursing facility. Clearly, before 

spending resources on transition activities, states 

need to ensure that a comprehensive range of services and supports are available in the community, 

particularly for individuals with severe disabilities 

and/or extensive nursing needs. 

Developing Methods to Circumvent 

HCBS Waiver Waiting Lists19

Waiting lists for HCBS waiver services are a major transition barrier. States have several options 

available to deal with this problem. First, states can 

prioritize their waiver waiting lists so that individuals wanting to transition are placed at the top of the 

list (generally, after individuals who are at immediate risk of nursing home admission). 

Second, states can increase the number of waiver 

slots and designate them solely for people who are 

transitioning. For example, Michigan authorized 

new waiver slots for persons who are transitioning 

if they have been in a nursing facility for more than 

6 months. Exceptions to the 6-month rule may be 

granted in a limited number of circumstances (e.g., 

if individuals are at risk of losing their housing). Additionally, for each successful move to the community, the State provides transition costs and waiver 

services for one additional Medicaid nursing facility 

resident without regard to their length of stay. 

Third, if states are reluctant to increase the number 

of waiver slots, they can appropriate state funds to 

cover home and community services. When Georgia’s Systems Change NFT grant ended, the State 

appropriated $7.25 million for non-Medicaid covered transition expenses and the first year of home 

and community services for transitioning individuals for whom there were no waiver slots. The legis-
Chapter 6: Transitioning People from Institutions to the Community 159

lature specified a maximum of $50,000 per person 

for up to 145 individuals. Only when individuals 

have been supported with these funds for 1 year 

does the State create a new waiver slot to continue 

services.

Fourth, states can enact a global budget or an MFP 

policy to allow Medicaid funds budgeted for institutional services to be spent on home and community 

services when institutional residents move to the 

community. 

Identifying and Educating Residents with the 

Desire and Potential for Transition 

States must first establish the target population: all 

individuals or specific groups, such as those under 

age 60 who do not need a skilled level of care or 

those who at admission are at risk of losing their 

housing. Once the target population has been 

selected, states must then develop feasible and 

effective referral, screening, and assessment procedures to identify individuals who have the desire 

and the potential to be transitioned successfully to 

the community. 

Money Follows the Person Demonstration20

To further encourage states to implement nursing facility transition programs and MFP policies, the Deficit 

Reduction Act of 2005 authorized the Secretary of HHS to award up to $1.75 billion in special MFP demonstration grants to states over a 5-year period to support the transition of individuals from institutional settings to 

the community.21 All states were eligible to participate in the 5-year demonstration program and had to commit to provide demonstration services for at least 2 years. As of 2009, 29 states and the District of Columbia had 

MFP grants. The Patient Protection and Affordable Care Act of 2010 extended the demonstration program until 

2016.22

The MFP demonstration has four major objectives: 

• Increase the use of home and community services in place of institutional services. 

• Eliminate barriers or mechanisms that prevent Medicaid-eligible individuals from receiving appropriate 

and necessary services and supports in the settings of their choice. 

• Increase the ability of state Medicaid programs to ensure continued provision of services and supports to 

eligible individuals who choose to move from an institutional to a community setting. 

• Ensure that procedures are in place to ensure the quality of Medicaid home and community services, and 

to provide for continuous quality improvement in the furnishing of these services. 

As an incentive to states to participate, CMS will increase Federal Medicaid matching funds for home and community services for each person transitioned for a 1-year period, after which the state must ensure 

that individuals transitioned will continue to receive HCBS as long as they are Medicaid eligible and need 

the services. 

To qualify for the enhanced Federal match, individuals must transition to community living arrangements that 

they own or lease, their family home, or a community-based residential setting where no more than four unrelated people reside. 

The MFP program is being rigorously evaluated and CMS is offering an ongoing series of reports completed as 

part of the MFP national evaluation.23
160 Understanding Medicaid Home and Community Services: A Primer

There is no single profile of a nursing facility resident who would be considered a good candidate 

for transition. Individuals of all ages with many different diagnoses and varying disability levels have 

successfully transitioned. However, some factors 

are considered essential for an individual’s successful transition: motivation for discharge, community 

supports, and available housing. People who lost 

their home during a nursing home stay and those 

whose home is not accessible can find it difficult to 

transition.

Some states have used the nursing home minimum 

data set (MDS) or other screening and assessment 

tools to identify potential candidates.25 The MDS is a 

core set of screening and assessment elements that 

forms the foundation of the comprehensive assessment for nursing facility residents. By looking at 

factors captured in these data sets—such as medical needs, functional status, desire to transition, and 

length of stay—transition programs can screen for 

potential candidates, who can then be further assessed for transition. 

Using MDS data in this manner, while a useful step, 

is by no means sufficient. Many individuals who 

are good candidates for a transition program may 

not show up in the initial screening, and some of 

those who do may face insurmountable transition 

barriers. Therefore, programs should not rely solely 

on screening tools but should work with persons 

and groups who know the nursing home residents. 

Such knowledge can make them invaluable sources 

of information to identify appropriate transition 

candidates. 

Minnesota enacted legislation in 2005 requiring 

its Department of Human Services to develop 

a methodology for sharing MDS data with 

Independent Living Centers to assist them in 

identifying institutional residents who want to 

live in the community.26

North Carolina added a transitions protocol to 

the Medicaid Uniform Screening and Assessment Tool, and obtained a Data Use Agreement 

Amendment that allows the State to use MDS 

data to identify those wanting to transition.27

Nursing home ombudsmen, Independent Living 

Centers, protection and advocacy organizations, 

and other local groups and programs can also serve 

as important partners in the identification process. 

A number of states use Independent Living Centers 

to both assist in the identification of individuals and 

with the transition process. The expertise and capabilities of such community organizations should be 

tapped early on to ensure effective collaboration. 

Based on the experience of Systems Change NFT 

Grantees, the following methods have proved to 

be most effective in identifying individuals with the 

highest potential for community living: (1) targeted 

outreach and education by local transition coalitions to nursing facility staff, including administrators, social workers, discharge planners, and directors of nursing; (2) outreach activities for residents 

of nursing facilities; and (3) education of and 

collaboration with regional nursing facility ombudsmen.28

Money Follows the Person Policies: State Examples

Texas was one of the originators of the MFP concept. The State’s MFP policy enables individuals residing in 

nursing facilities to move back to a community setting and to utilize their entitlement dollars to receive HCBS, 

primarily through the Community-Based Alternatives waiver program. The Texas Health and Human Services 

Commission implemented the program September 1, 2001, and the policy was subsequently codified into law. 

The MFP policy has been highly successful in relocating individuals from nursing facilities to the community. As 

of December 31, 2007, 12,461 individuals had transitioned from nursing facilities.24

Maryland enacted the Money Follows the Individual Act, which requires admission to an HCBS waiver program 

if (1) an individual is living in a nursing home at the time of the application for waiver services, (2) the nursing 

home services for the individual were paid by Medicaid for at least 30 consecutive days immediately prior to 

the application, (3) the individual meets all of the eligibility criteria for participation in the waiver program, and 

(4) the home and community services to be provided to the individual will qualify for Federal matching funds.
Chapter 6: Transitioning People from Institutions to the Community 161

Use of Peers to Facilitate Transition

Utah developed a statewide network of trained 

ILC transition coordinators and peer mentors 

who can provide information to any nursing 

home resident contacting an Independent Living Center for transition services. 

State transition program staff should anticipate 

some resistance to transition activities among 

nursing home staff and family members. Several 

Systems Change NFT Grantees considered such 

resistance to be a major transition barrier. Some 

nursing facility staff do not believe that individuals 

with extensive functional limitations or medical and 

nursing needs can be safely served in the community. In addition, some nursing facilities may actively 

resist transition efforts, believing that such efforts 

will decrease their occupancy rates and profitability. Even if families do not oppose their relative’s 

transition, their ability to support it and/or provide 

informal care depends on a wide range of factors, 

including work commitments, available time and 

money, distance from their home, and the age of 

any dependent children. In some instances, family 

members may not want to provide informal care, 

particularly if the relative’s admission to a nursing facility followed many years of informal care at 

home and caregiver “burnout.” 

Dealing with resistance can require considerable 

time and effort, and in some cases such resistance 

may pose an insurmountable transition barrier, 

particularly if the individual seeking transition has 

extensive needs and no family or friends willing or 

able to provide informal care. (See the Resources 

section of this chapter for publications describing 

nursing facility transition programs.) 

Involving and Collaborating with 

Key Stakeholders29

To develop processes and procedures that will 

result in the successful relocation of nursing home 

residents who are appropriate for home and community settings, states need to take account of the 

interests of multiple stakeholders. Stakeholders 

include consumers, families, consumer advocates, 

nursing facility administrators and discharge planners, HCBS providers, Independent Living Centers, 

housing authorities, and state agency staff. 

A good way of taking these interests into account, 

and thus increasing an NFT program’s chance of 

success, is to develop relationships and partnerships with these key stakeholders, particularly at the 

direct service level (e.g., the community organizations that provide services and supports), which 

can facilitate effective coordination of transition 

activities. Involving nursing facility provider associations in one project’s work group helped the project 

to succeed by allaying providers’ fears and gaining 

their support. Project staff also made presentations to individual nursing facilities to introduce the 

program and answer questions from administrators, 

directors of nursing, and social services staff; this 

strategy proved to be valuable, as about 85 percent 

of the project’s referrals came from nursing facilities. 

Some stakeholders can assist the state Medicaid 

program with identifying the home and community 

service infrastructure necessary for a successful 

transition, and can help design service and support 

systems. It is important that the key stakeholders 

involved include individuals or groups with experience in moving people out of nursing facilities and 

that they be involved at the earliest feasible point in 

the process.

In general, states need to use two approaches to 

develop a successful and sustainable transition 

program: (1) a “top-down” approach that elicits the 

involvement and support of the leadership of key 

agencies to reduce barriers and urge cooperation; 

and (2) a “bottom-up” approach of fostering cooperative staff relationships in the field to facilitate 

referrals and address specific transition issues. Although efforts to involve stakeholders can be time 

consuming, the resulting goodwill and improved 

communication ultimately contribute to successful 

transitions. 
162 Understanding Medicaid Home and Community Services: A Primer

Collaborating with Key Stakeholders: 

State Examples

New Jersey’s Community Choice counselors 

work in all of the State’s nursing homes and have 

developed invaluable collaborative relationships 

with nursing home social workers and admission 

staff. This collaboration enables dialogue and 

cooperation, thereby facilitating the transition 

process.

North Carolina established 16 regional coalitions to work on nursing facility transitions, 

and the Divisions of Medical Assistance and 

Vocational Rehabilitation Services, as well as 

Independent Living Centers, use state, local, and 

private resources to provide transition services.

Nebraska created transition partnerships 

statewide among all the State’s Area Agencies 

on Aging (AAAs) and nursing facilities to identify 

residents who were likely candidates for transition and to facilitate successful transitions for 

those candidates. The State also established a 

statewide toll-free number for nursing facility 

transition assistance that routes callers to the 

appropriate AAA.

Developing and Implementing Case Management/Service Coordination Systems That Support Transition30

The primary service needed to ensure a successful transition is case management, also called care 

management, service coordination, transition 

coordination, or relocation assistance. In general, 

individuals with severe disabilities and medical 

needs who have no informal care will require more 

intensive case management than those with lesser 

needs. Individuals without their own or family housing in the community will also require assistance in 

finding affordable and accessible housing. 

Transition case management is an intensive process that includes a range of activities: identifying 

and coordinating services, motivating participants, 

working with participants’ families or friends, assisting participants in finding housing and other 

resources, and assessing participants’ living arrangements for health and safety issues. The use of a person-centered planning format—one that involves 

all stakeholders in the transition—enables the development of a cohesive transition and service plan, 

which is essential to successful and safe transitions. 

With regard to specific case management practices, 

having transition staff present on the day of relocation can help to ensure a smooth transition.

Medicaid allows states to pay for case management 

services related to transitioning an individual from 

an institution, as long as they do not duplicate regular discharge planning services paid for through 

Medicaid or another source. Medicaid-reimbursable 

case management services that help to ensure a 

successful transition include the following: 

• Discussing options with the resident.

• Arranging visits to potential settings and assisting the resident to obtain essential furniture and household items.

• Providing education and training for the resident prior to discharge.

• Arranging transportation on moving day.

• Implementing a plan of care so that services 

are available immediately when the individual 

moves.

Three options are available for obtaining Medicaid 

reimbursement for case management services: case 

management as a waiver service, the targeted case 

management option, and administrative claiming.31

(The advantages and drawbacks of each of these 

payment methods are described in Chapter 4.) 

The targeted case management option is likely to 

offer the most flexibility because it can be targeted 

specifically to persons who are being transitioned. 

The Federal statute defines targeted case management as “services which assist an individual eligible 

under the plan in gaining access to needed medical, 

social, educational, and other services.” This definition enables states to coordinate a broad range of 

activities and services outside the Medicaid program, which are necessary for the optimal functioning of a Medicaid beneficiary in the community. 

State Plan targeted case management services must 
Chapter 6: Transitioning People from Institutions to the Community 163

include the following four components: assessment 

of need, plan of care development, referrals and 

linkages, and monitoring and follow up activities. 

States desiring to provide transition case management services under the targeted case management option may do so by amending their State 

Plans accordingly. If a state does not plan to offer 

the service to all Medicaid recipients, the amendment must specify precisely the group or groups to 

be served. 

CMS policy regarding case management services 

specifically recognizes that some individuals may 

require a considerable amount of time to transition 

to the community. It is possible to obtain Medicaid 

funding for case management services provided 

during the last 180 consecutive days of a Medicaideligible person’s institutional stay, if provided for 

the purpose of community transition. When case 

management services are provided under the targeted case management option, states may specify 

a shorter time period or other conditions under 

which the services may be provided.32

Case management furnished as a service under an 

HCBS waiver program may also be provided to institutionalized persons during the last 180 consecutive 

days prior to discharge. However, Federal financial 

participation (FFP) is available only on the date the 

person leaves the institution and is enrolled in the 

waiver. In these cases, the cumulative total amount 

paid is claimed as a special single unit of transitional 

case management. (See the Resource section of this 

chapter for a link to CMS State Medicaid Director 

letters providing guidance on this topic.)

Although Medicaid policy regarding case management is flexible and allows payment for services 

over a 6-month period, states need to ensure that 

the amount of case management it covers is sufficient—particularly for nursing home residents who 

lack housing, have weakened community connections, or are dependent on the institutional environment. In such instances, the individual’s needs may 

exceed case managers’ ability and time to provide 

the services needed. States need to ensure both a 

sufficient number of case managers and sufficient 

time for them to complete complex transitions.

Connecticut funds six full-time transition 

coordinators to provide outreach and transition 

services, and a toll-free line for nursing facility residents that gives them direct access to a 

transition coordinator.

Ensuring adequate transition capacity may require 

education and training for hospital and nursing 

home discharge planners, nursing facility staff, 

and community case managers about home and 

community services, generally, and nursing facility 

transition, specifically. 

Identifying and Addressing Housing Needs 

and Rental Assistance

Lack of accessible, affordable, and safe housing 

is a major transition barrier. Waiting lists for both 

services and rental assistance present a major 

coordination challenge. Individuals may receive a 

rental assistance voucher after waiting a year but 

be unable to use it because a waiver slot is not yet 

available. Only those individuals with informal support may have the option of transitioning and then 

waiting for waiver services. In some cases, individuals may remain in nursing facilities solely because 

there are no other housing alternatives. 

Housing requirements differ, depending on individual needs. States have been working with their 

regional and local housing authorities with varying degrees of success to come up with creative 

solutions to housing problems. Stronger partnerships between health/long-term care and housing 

authorities at both the state and Federal levels 

are often cited as the most important need in the 

search for comprehensive approaches to maintaining people in the community. 

Successfully addressing housing issues often 

requires considerable time and effort. The services 

of a dedicated housing coordinator are invaluable 

in helping nursing facility residents find suitable 

housing. This individual can also work at the policy 

level to increase awareness of the need for housing 

for persons relocating and to address the need for 

affordable, accessible housing for all persons with 

disabilities. 
164 Understanding Medicaid Home and Community Services: A Primer

If dedicated staff are not feasible, one way of finding affordable, accessible housing is to call housing 

unit managers and developers to let them know 

of unmet need and to impress on them the importance of notifying transition counselors of available 

units. Once potential housing has been identified, 

it is beneficial to have nursing home residents visit 

the prospective residence or apartment in order to 

identify any potential problems or barriers in advance—for example, a physical layout that does not 

accommodate their needs. 

Some states are using Housing and Urban Development (HUD) Section 8 rental vouchers for individuals who are transitioning to help them secure 

affordable, accessible housing. Housing authorities 

in some Maryland counties changed their priority criteria on housing voucher set-asides to allow 

persons in a nursing facility who are on the housing 

voucher list to move to the top of the list when they 

become eligible for waiver services. Similarly, the 

Spokane Housing Authority in Washington State has 

designated individuals leaving nursing facilities as 

“homeless,” enabling them to bypass a 2-year waiting list for rental assistance vouchers. An Independent Living Center in Spokane now has an ongoing 

process for assisting nursing facility residents with 

housing voucher applications. Waiver transition 

funds or state general funds pay for this service.33

Other states have created rental assistance programs for individuals seeking diversion or transition 

from nursing facilities, such as Arkansas’s Bridge 

Rental Assistance Program, which bridges the gap 

between income and the cost of affordable apartments for persons transitioning or being diverted 

from nursing homes.34

Arkansas’s Bridge Rental 

Assistance Program

The Arkansas Supported Housing Office and the 

Governor’s Task Force on Supported Housing 

recommended the creation of a rental assistance 

program for individuals who are being diverted 

or are transitioning from nursing homes. Under 

the State’s Nursing Facility grant initiatives, Spa 

Area Independent Living Services, the Arkansas 

Development Finance Authority, and Arkansas 

Rehabilitation Services developed and implemented the Bridge Rental Assistance Program. 

Individuals who apply for Section 8 vouchers 

and are on a waiting list are provided a monthly 

rental stipend for up to 2 years, while case 

managers work with them to create and execute 

a plan for housing self-sufficiency. The Bridge 

Rental Assistance Program is being sustained 

through funding from the Arkansas Development Finance Authority.35

Assessments for Accessibility 

Environmental modifications are often crucial to a 

state’s ability to serve an individual in the community. Federal financial participation may be available 

for the costs of assessing accessibility and the need 

for modifications in a person’s home or vehicle in 

three ways. First, FFP may be claimed at the administrative rate for assessments to determine whether 

the person’s home or vehicle requires modifications 

to safeguard the health and welfare of an HCBS 

waiver participant. (Assessment costs incurred to 

determine whether an individual’s needs can be 

met under an HCBS waiver may qualify for FFP regardless of whether or not the person is eventually 

served under the waiver.) 

Second, the cost of environmental assessment may 

be included in the cost of environmental modifications under an HCBS waiver. Third, the assessment 

may be performed by another service provider, 

such as a home health agency or an occupational 

therapist; if so, FFP is available at the service match 

rate for these providers when they perform the assessment in addition to their other duties. (See the 

Resource section of this chapter for the link to the 
Chapter 6: Transitioning People from Institutions to the Community 165

State Medicaid Director letter regarding payment 

of assessments for accessibility and environmental 

modifications.) 

Providing Flexible Funding Mechanisms 

Many resources are needed to help individuals relocate from nursing facilities to community settings, 

including but not limited to subsidized accessible 

housing, transition funds, services and supports, 

and a wide range of local community resources, 

including transportation. To provide adequate 

services for individuals who are transitioning, it may 

be necessary to combine services from multiple 

funding sources, for example, HCBS waiver services, 

home health services, and state-funded programs. 

Inflexible funding streams and a lack of mechanisms 

to coordinate funding can pose transition barriers.

Because Medicaid-eligible residents in institutions 

have only a small monthly personal needs allowance, they lack the financial resources to pay for 

one-time transition expenses, such as security deposits for rent, utilities, and phone service, and essential furniture and household items. CMS permits 

coverage of these one-time transition expenses 

under HCBS waiver programs. The CMS HCBS waiver 

application defines these expenses as Community 

Transition Services:

Community Transition Services are non-recurring 

set-up expenses for individuals who are transitioning from an institutional or other provideroperated living arrangement to a living arrangement in a private residence where the person 

is directly responsible for his or her own living 

expenses. 

Allowable expenses are those necessary to enable a person to establish a basic household 

that do not constitute room and board and may 

include (a) security deposits that are required 

to obtain a lease on an apartment or home; 

(b) essential household furnishings required to 

occupy and use a community domicile, including 

furniture, window coverings, food preparation 

items, and bed/bath linens; (c) set-up fees or 

deposits for utility or service access, including 

telephone, electricity, heating and water; (d) services necessary for the individual’s health 

and safety such as pest eradication and onetime cleaning prior to occupancy; (e) moving 

expenses; (f) necessary home accessibility adaptations; and, (g) activities to assess need, 

arrange for and procure needed resources.

Community Transition Services are furnished 

only to the extent that they are reasonable and 

necessary as determined through the service 

plan development process, clearly identified 

in the service plan, and the person is unable to 

meet such expense or when the services cannot 

be obtained from other sources. Community 

Transition Services do not include monthly 

rental or mortgage expense; food, regular utility 

charges; and/or household appliances or items 

that are intended for purely diversional/recreational purposes.

States are permitted to supplement or modify this 

definition to reflect the specific expenses they want 

to include in their waiver program and may also list 

expenses that are specifically excluded. While Federal law prohibits Medicaid payment for room and 

board, payment of a security deposit to a landlord is 

not considered rent. Medicaid Community Transition Services may not be used to pay for furnishing 

living arrangements that are owned or leased by a 

waiver service provider where the provision of these 

items and services are inherent in the service they 

are already providing.

One-time transition expenses for waiver participants can be billed when the individual leaves the 

institutional setting and becomes a waiver participant. For these expenses to be reimbursable, the individual must be reasonably expected to be eligible 

for and to enroll in the waiver. If for any reason the 

individual does not enroll in the waiver (e.g., due to 

death or a significant change in condition), transition expenses may be billed to 

Medicaid as an administrative cost. 

Some states have chosen to use state funding for 

transition expenses. New Jersey began covering 

transition expenses under the Enhanced Community Options and Assisted Living waiver programs. 

For persons ineligible for these waivers, transition 

expenses can be covered through a special fund 

established under the State’s Systems Change NFT 
166 Understanding Medicaid Home and Community Services: A Primer

grant. Two other states—Ohio and Wyoming—have 

also appropriated funds to cover one-time transition expenses not covered by 

Medicaid.36

South Carolina added a nursing facility transition services package to the Elderly and Disabled waiver that covers housing and utility 

deposits and basic furniture and appliances. All 

items must be required by the service plan, and 

total expenditures are capped at $1,000. The 

State also enhanced coverage for environmental 

modifications for all waiver participants, and 

now covers bath safety items and door widening.37

Individuals who are receiving Medicaid-funded 

institutional services have had to spend down their 

assets and some may have credit issues that prevent them from obtaining phone, utility, and other 

services that require a good credit history. Transition 

coordinators need to address this potential barrier 

early in the planning process.

Preventing Unnecessary Admissions 

and Avoidable Long Stays

Although transitioning people out of institutions 

can save money over the long term, the process can 

incur major costs, and not all may be reimbursable 

by Medicaid. Given this, it makes sense for states 

to consider strategies that will divert people from 

entering institutions in the first place and ensure 

a quick return to the community if placement is 

unavoidable. 

The ICFs/ID experience illustrates that the best 

transition program is one that makes sure that very 

few people will need to be transitioned. In the ID/

DD field, this is known as the front door/back door 

connection. Little progress with transitioning can 

be made as long as the front door to the institution 

remains open; intervention before inappropriate 

placement (i.e., diversion) is easier than intervention 

after placement.

Establishing a Quality Assurance 

System That Effectively Balances 

Risk and Autonomy

Community living presents a different set of risks 

from those associated with living in an institution. 

Transition programs need to have a quality assurance (QA) system that monitors and helps ensure 

service quality and client safety, particularly in the 

immediate period after transition and for the first 

few months. At the same time, however, such a 

QA system must respect individuals’ autonomy by 

acknowledging their choice to assume risk. The 

balance is delicate and can be hard to achieve. Programs that use a participant direction model allow 

individuals to assume more responsibility and accountability than those that use an agency-directed 

model. (See Chapter 7 for a full discussion of participant direction service delivery models). 

The assurances CMS requires from states for approval of HCBS waiver services include “necessary 

safeguards” to safeguard the “health and welfare” of 

persons receiving services in the community. Since 

HCBS waiver programs serve a diverse array of target populations, no one-size-fits-all application of 

these QA requirements can be prescribed. (See the 

Appendix for an overview of CMS requirements for 

quality management and improvement systems.)
Chapter 6: Transitioning People from Institutions to the Community 167

Diversion Strategies: State Examples

Several states have recognized the need to prevent both unnecessary nursing facility admissions and unnecessarily long stays that result in a loss of housing.

Rhode Island developed a protocol for the State’s long-term care nurses—who conduct level-of-care determinations and Level I Preadmission Screening and Resident Review (PASRR)38—to identify and refer individuals who 

do not appear to be at risk for a long stay when admitted. Based on the success of this protocol, in 2005 the State 

enacted a statute requiring that registered nurses (RNs) reevaluate all new nursing facility admissions 45 days 

after admission. The RNs who perform level-of-care and PASRR determinations flag individuals who appear to 

require only a short stay, and a computer-generated letter to this effect is sent to the resident and the nursing 

facility. A computer-generated reminder is sent to the RNs 45 days after admission, instructing them to evaluate 

the most recent MDS assessment to determine whether a continued stay is required.39

Rhode Island also enacted a statute in 2004 requiring the Department of Human Services (DHS) to inform 

nursing facility residents about home and community services that may enable them to live in a less restrictive 

community setting or their own home. The law requires DHS to mail a brochure describing the range of available 

services to all nursing facility residents whom the state long-term care nurses have identified as likely candidates 

for discharge within several months of admission.40

Nebraska operates a nursing facility preadmission program—Senior Care Options (SCO)—to ensure that 

Medicaid applicants in need of nursing facility care receive information on alternative choices appropriate to 

their level of care. SCO staff, located throughout the State, are trained to use the Blaylock Risk Assessment Scoring System (BRASS) screening tool, an instrument that identifies patients at risk for prolonged hospital stays at 

admission and in need of discharge planning services; BRASS can also be used to identify individuals at risk for 

long nursing home stays. 

As a result of positive experience with the tool, the State changed its preadmission screening procedures. Every 

AAA now employs the BRASS tool for preadmission screening to identify individuals who should be reassessed in 

3 to 6 months. For these individuals, Medicaid provides only a short-term authorization to 

enter a nursing home so that they will have to be reassessed to remain there. This change has led to active discharge planning to return new admissions to the community, and has resulted in shorter nursing home stays.41

Nebraska also allows service coordinators to authorize waiver services for individuals who will likely be eligible 

for Medicaid coverage. Based on basic financial information provided by the applicant, the service coordinator 

consults with a Medicaid eligibility worker who can judge whether it appears that the applicant will be eligible 

for Medicaid. If, ultimately, the applicant is not eligible, the State uses funds from the Social Services Block Grant 

to pay for services, which has occurred only twice over a 2-year period.42

New Jersey’s preadmission screening process for all nursing home admissions designates Medicaid beneficiaries 

as “Track One” or “Track Two” depending on whether they are likely to remain in the facility for a long or short period of time. All short-term residents receive a letter indicating that they are certified for 6 or fewer months and 

are contacted by Community Choice counselors who work with them to develop a relocation plan.43
168 Understanding Medicaid Home and Community Services: A Primer

Resources

Since the Primer was first published in 2000, numerous reports and other resources have become available 

on the Internet. This section includes key resources relevant to transitions. Most of the publications cite additional resources and the websites also have links to other information sources.

Publications 

Centers for Medicare & Medicaid Services. (2008). Application for a §1915(c) Home and CommunityBased Waiver [Version 3.5]: Instructions, Technical Guide and Review Criteria.

This publication contains extensive information concerning Federal policies that apply to the operation of an 

HCBS waiver, in particular, Appendix C-3: Waiver Services Specifications, and C-3H: Services to Facilitate the 

Transition of Institutionalized Persons to the Community. 

Available at https://www.hcbswaivers.net/CMS/faces/portal.jsp under links and downloads, entitled §1915(c) 

Waiver Application and Accompanying Materials. 

O’Keeffe, J., O’Keeffe, C., Greene, A.M., and Anderson, W. (2008). Enduring Changes of the FY 2001 and FY 

2002 Nursing Facility Transition Grantees. Baltimore, MD: Centers for Medicare & Medicaid Services.

This issue brief provides a summary overview of the accomplishments and enduring changes brought about 

by all of the Systems Change NFT Grantees. Despite achieving many enduring systems improvements, Grantees reported that many transition barriers remain. Grantees made recommendations to help states address 

continuing barriers to nursing facility transition and diversion.

Available at http://www.hcbs.org/moreInfo.php/doc/2353

O’Keeffe, J., O’Keeffe, C., Osber, D., Siebenaler, K., and Brown, D. (2007). FY 2002 Nursing Facility Transition Grantees: Final Report. Baltimore, MD: Centers for Medicare & Medicaid Services.

This report provides an overview of the 16 FY 2002 Systems Change NFT Grantees’ initiatives to either establish 

or improve NFT programs or to help develop some components of an NFT infrastructure. The report includes 

lessons learned and recommendations that can guide states that are undertaking similar initiatives. 

Available at http://www.hcbs.org/moreInfo.php/doc/2060
Chapter 6: Transitioning People from Institutions to the Community 169

O’Keeffe, J., O’Keeffe, C., Siebenaler, K., Brown, D., Anderson, W., Greene, A.M., and Osber, D. (2006). FY 

2001 Nursing Facility Transition Grantees: Final Report. Baltimore, MD: Centers for Medicare & Medicaid 

Services.

This report provides an overview of the 17 FY 2001 Systems Change NFT Grantees’ initiatives to either establish 

or improve NFT programs or to help develop some components of an NFT infrastructure. The report includes 

lessons learned and recommendations that can guide states that are undertaking similar initiatives. The report 

was referenced on page 48 of the CMS MFP Demonstration Solicitation Document.

Available at http://www.hcbs.org/moreInfo.php/doc/1678

Siebenaler, K., O’Keeffe, J., Brown, D., and O’Keeffe, C. (2005). Nursing Facility Transition Initiatives of 

the Fiscal Year 2001 and 2002 Grantees: Progress and Challenges. Baltimore, MD: Centers for Medicare & 

Medicaid Services.

This report provides an overview of the NFT initiatives implemented by 18 of the FY 2001 and FY 2002 Systems 

Change Grantees. It describes their differing approaches to nursing facility diversion and/or transition within 

a framework of the key steps needed to create NFT programs that are integrated into a state’s long-term care 

system. This report also identifies the transition challenges and policy issues facing states and Independent 

Living Centers, discusses lessons learned from grant initiatives, and recommends programmatic and policy 

changes needed to support transitions. 

Available at http://www.hcbs.org/moreInfo.php/doc/1308

Eiken, S., Holtz, D., and Steigman, D. (2005). Medicaid HCBS Waiver Payment for Community Transition 

Services: State Examples. Cambridge, MA: Thomson Reuters.

This topic paper summarizes how states can use Medicaid to pay for most institutional transition program 

costs. It also describes how states are currently using Medicaid HCBS waivers to pay for Community Transition 

Services—temporary supports people need when trying to move, such as housing deposits, utility set-up fees, 

and furniture.

Available at http://www.hcbs.org/moreInfo.php/doc/1192

Summer, L. (2005). Strategies to Keep Consumers Needing Long-Term Care in the Community and Out of 

Nursing Facilities. Washington, DC: Kaiser Commission on Medicaid and the Uninsured. 

In recent years, states have been trying to shift resources from institutions to home and community services. 

This report examines transition and diversion policies and practices in eight states. It provides a sense of what 

state Medicaid programs are doing or could be doing to promote diversion. The report has a 10-page executive summary. 

Available at http://www.hcbs.org/moreInfo.php/doc/1442
170 Understanding Medicaid Home and Community Services: A Primer

Websites

Centers for Medicare & Medicaid Services

CMS issues State Medicaid Director letters to clarify Medicaid policy and provide guidance to states to ensure 

consistency in its application. The initial Olmstead decision letter, dated January 14, 2000, and subsequent updates, can be accessed at the following website by using the word “Olmstead” in the search criteria. In particular, Olmstead Update #3, July 25, 2000, includes Attachment 3-b, Community Transition, which discusses policy 

changes related to case management services, assessments for accessibility, and environmental modifications.

Web address: http://www.cms.hhs.gov/SMDL/SMD/list.asp#TopOfPage

In 2007, CMS awarded MFP grants to 30 states and the District of Columbia, proposing to transition 37,731 individuals out of institutional settings over a 5-year demonstration period. The MFP demonstration is the most 

ambitious program to date aimed at helping Medicaid enrollees transition from long-term care institutions to 

the community. A series of reports are being completed as part of the MFP national evaluation and are available at the following website. 

Web address: http://www.cms.hhs.gov/DeficitReductionAct/20_MFP.asp#TopOfPage

The Clearinghouse for Home and Community Based Services 

This site promotes the development and expansion of HCBS by gathering resources and tools for research, 

policymaking, and program development into this one-stop website. Under the topic Transition/Diversion 

from Institutions, there are 302 publications and other resources, including all of the publications listed above, 

and also many states’ promising practices for facilitating nursing facility to community transitions. 

Web address: http://www.hcbs.org/
Chapter 6: Transitioning People from Institutions to the Community 171

Endnotes: Citations, Additional Information, 

and Web Addresses

 1 Gavin Kennedy, Gary Smith, and Janet O’Keeffe co-authored the original chapter. Janet O’Keeffe and 

Charles Moseley updated the chapter.

2 The Court affirmed the rights of qualified individuals with disabilities to receive services in the most integrated settings appropriate to their needs. Under the Court’s decision, states are required in specific 

circumstances to provide community services for persons with disabilities who would otherwise be 

entitled to institutional services. See Introduction for more information on the Olmstead decision.

3 The information in this section is drawn from Prouty, R.W., Alba, K., and Lakin, K.C. (Eds.). (2008). Residential Services for Persons with Developmental Disabilities: Status and Trends through 2007. Minneapolis, MN: University of Minnesota Research and Training Center on Community Living, Institute 

on Community Integration. Available at http://rtc.umn.edu/docs/risp2007.pdf. Additional print copies 

may be requested by contacting Naomi Scott at scot0387@umn.edu or 612-624-8246.

4 HCBS waiver programs are authorized under Section (§)1915(c) of the Social Security Act.

5 Braddock, D., Hemp, R., and Rizzolo, M.C. (2008). The State of the States in Developmental Disabilities, 

2008. Boulder, CO and Washington, DC: Department of Psychiatry and Coleman Institute for Cognitive 

Disabilities, University of Colorado, and American Association on Intellectual and Developmental Disabilities.

6 New Hampshire, Vermont, Rhode Island, West Virginia, Maine, New Mexico, Alaska, Hawaii, Indiana, 

and Oregon.

7 Prouty, R.W., Alba, K., and Lakin, K.C. (Eds.). (2008), op. cit.

8 Institutional services for persons with developmental disabilities are generally much more costly than 

nursing home services.

9 Although the need for such intensive services may continue indefinitely for some persons, for others, 

the level of support required may decrease over time.

10 Additional Federal matching funds were provided to states transitioning people from institutions to 

community services under the Federal MFP state demonstration grants to assist them with developing 

the necessary community infrastructure, among other objectives.

11 While per capita service plans may exceed the average cost of institutional services, the aggregate 

costs for the waiver program must meet Medicaid cost neutrality requirements. 

12 Smith, G., Fortune, J., and Agosta, J. (2006). Gauging the Use of HCBS Supports Waivers for People with 

Intellectual and Developmental Disabilities: Profiles of State Supports Waivers. Washington, DC: U.S. 

Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging, and Long-Term Care Policy. Available at http://aspe.hhs.gov/daltcp/

reports/2006/gauging.htm.
172 Understanding Medicaid Home and Community Services: A Primer

13 Prouty, R.W., Alba, K., and Lakin, K.C. (Eds.). (2008), op. cit.

14 Version 3.5. See the Resources section of this chapter for a web link to the waiver application, instructions, and technical guidance.

15 NFT grants were provided to state agencies—called State Program grants—and to Independent Living Centers—called Independent Living Partnership (ILP) grants. The purpose of the ILP grants was to 

capitalize on ILC expertise to develop outreach materials, identify and support nursing facility residents who want to transition, provide technical assistance, and supplement state transition infrastructure.

16 These are not the grants awarded through the MFP demonstration authorized under the Deficit Reduction Act of 2005 (DRA-2005).

17 Additional challenges are involved when downsizing or closing an institutional facility, including ensuring that any special services provided in the facility will be available to individuals after they have 

left the institution, maintaining the quality of facility services and worker morale, assisting workers to 

find other employment, and addressing the “dual funding” problem (i.e., meeting the costs of maintaining facility operations while underwriting the costs of community placement).

18 Information in this section draws liberally from O’Keeffe, J., O’Keeffe, C., Greene, A.M., and Anderson, 

W. (2008). Enduring Changes of the FY 2001 and FY 2002 Nursing Facility Transition Grantees. Baltimore, MD: Centers for Medicare & Medicaid Services. Available at http://www.hcbs.org/moreInfo.php/

doc/2353.

19 Information in this section draws liberally from O’Keeffe, J., O’Keeffe, C., Greene, A.M., and Anderson, 

W. (2008), op. cit.

20 See CMS Press Release, available at http://www.hcbs.org/moreInfo.php/doc/1909. See also CMS 

website about the MFP demonstration at http://www.cms.hhs.gov/DeficitReductionAct/20_MFP.

asp#TopOfPage.

21 Section 6071 of DRA-2005. 

22 P.L. 111-148 (signed on March 23, 2010) and the Health Care and Education Reconciliation Act of 2010 

(signed on March 30, 2010).

23 The reports and other information concerning the MFP demonstration can be found at http://www.

cms.hhs.gov/DeficitReductionAct/20_MFP.asp.

24 Texas Health and Human Services Commission. Medicaid Reform Strategies for Texas. February 2007.

25 Federal law mandates use of the MDS for all residents of facilities that are certified to participate in 

Medicare or Medicaid skilled nursing facilities and hospital-based skilled nursing units. These facilities 

are required to conduct comprehensive, accurate, standardized, and reproducible assessments of each 

resident’s functional capacity, using a Resident Assessment Instrument (RAI). The RAI consists of the 

MDS, Resident Assessment Protocols, and Triggers.

26 O’Keeffe, J., O’Keeffe, C., Greene, A.M., and Anderson, W. (2008), op. cit. 

27 Ibid.

28 O’Keeffe, J., O’Keeffe, C., Osber, D., Siebenaler, K., and Brown, D. (2007). FY 2002 Nursing Facility Transition Grantees: Final Report. Baltimore, MD: Centers for Medicare & Medicaid Services. Available at 

http://www.hcbs.org/moreInfo.php/doc/2060.
Chapter 6: Transitioning People from Institutions to the Community 173

29 Information in this section draws liberally from O’Keeffe, J., O’Keeffe, C., Osber, D., Siebenaler, K., and 

Brown, D. (2007), op. cit. 

30 Ibid. 

31 Case management can also be provided as an integral and inseparable part of another covered service.

32 Medicaid funding is not available for targeted case management services provided to persons who are 

receiving services in an institution for mental disease, except for services provided to elderly individuals and children under the age of 21 who are receiving inpatient services.

33 O’Keeffe, J., O’Keeffe, C., Greene, A.M., and Anderson, W. (2008), op. cit.

34 Ibid. 

35 O’Keeffe, J., O’Keeffe, C., Osber, D., Siebenaler, K., and Brown, D. (2007), op. cit.

36 Ibid.

37 Ibid.

38 Medicaid regulations require states to maintain a program to screen nursing facility applicants and 

residents for serious mental illness and intellectual disability. The program’s intent is to ensure that 

individuals are placed in the most appropriate setting and have access to specialized mental health 

services where appropriate. To do this, the program uses a progressive screening process to assess 

whether applicants for nursing facilities have a mental illness or an intellectual disability, and if the 

nursing facility is an appropriate placement. 

The first test, Level I, screens for potential mental illness. All those who test “positive” must receive a 

more in-depth screen—Level II—that more accurately identifies mental illness and assesses whether 

the individual needs specialized services and nursing facility level of care. Linkins, K., Lucca, A., Housman, M., and Smith, S. (2006). PASRR Screening for Mental Illness in Nursing Facility Applicants and 

Residents. Report prepared for the U.S. Department of Health and Human Services, Substance Abuse 

and Mental Health Services Administration, Center for Mental Health Services. Available at http://

download.ncadi.samhsa.gov/ken/msword/SMA05-4039.doc. 

39 O’Keeffe, J., O’Keeffe, C., Greene, A.M., and Anderson, W. (2008), op. cit. 

40 O’Keeffe, J., O’Keeffe, C., Osber, D., Siebenaler, K., and Brown, D. (2007), op. cit. 

41 O’Keeffe, J., O’Keeffe, C., Greene, A.M., and Anderson, W. (2008), op. cit. 

42 Example taken verbatim from the Executive Summary of Summer, L. (2005). Strategies to Keep Consumers Needing Long-Term Care in the Community and Out of Nursing Facilities. Washington, DC: 

Kaiser Commission on Medicaid and the Uninsured. Available at http://www.hcbs.org/moreInfo.php/

doc/1442.

43 Ibid.
174 Understanding Medicaid Home and Community Services: A Primer
Chapter 7: Participant-Directed Services and Supports 175

Guide to Chapter 7

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Evolution of Participant Direction of Medicaid HCBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

Basic Features of Participant Direction of Medicaid HCBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Federal Medicaid Statutory Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

1. State Plan Coverage of Personal Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

2. HCBS Waiver Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

3. State Plan Coverage of HCBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

4. State Plan Coverage of Participant-Directed Personal Assistance Services. . . . . 186

5. State Plan Community First Choice Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

Service Planning and Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Use of Representatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

Individualized Backup Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

Building Flexibility into the Service Plan While Ensuring Equitable Budgets. . . . . . 191

Employing Family Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

Non-Personal Care Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

Furnishing Assistance to Individuals in Managing and Directing Services. . . . . . . . . . . . . . . 193

Information and Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

Financial Management Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Performance of Skilled Nursing Tasks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . 203

Chapter 7: Participant-Directed Services and Supports 177

Chapter 7 

Participant-Directed Services and Supports

Like those without disabilities, individuals with disabilities want and expect to control their own lives. This includes 

having a direct say about the home and community services and supports they receive through the Medicaid program and the individuals who provide them. Virtually every state now has at least one participant direction program under Medicaid that provides options for individuals to direct and manage their own services and supports, 

with the assistance of family members when needed. Participant-directed services are an alternative to—and can 

be offered alongside—the traditional service delivery model. This chapter describes the main features of participant-directed home and community services, and the interplay between participant direction options and Medicaid 

policy. It focuses on services furnished through five Medicaid authorities, including Section (§)1915(c) waivers, the 

§1915(i) Home and Community-Based Services (HCBS) State Plan benefit, and §1915(j) Participant-Directed Personal Assistance Services. Medicaid gives states the authority to provide a full range of options for participant direction—on a continuum from less to more control and responsibility.1

Introduction

Participant direction, referred to alternatively as consumer direction, self-direction, and participant-driven 

supports, is a service model that offers individuals and their families the opportunity, support, and authority 

to choose the services they need and direct the individuals who provide them.2 Participant direction principles 

have broad applicability for individuals of all ages who need long-term care services and supports (hereafter 

called services and supports) due to physical or cognitive impairments, including those caused by serious 

mental illness, a developmental condition, or dementia. 

Participant direction has been demonstrated to promote positive outcomes for individuals and their families, 

improve participant satisfaction, and increase access to needed services.3 Participant direction service models 

can be a means to involve individuals and families in quality assurance and improvement efforts, promote effective service delivery, and improve participant satisfaction with services.4

For individuals with intellectual disabilities and other developmental disabilities (hereafter referred to as 

developmental disabilities), participant-directed services are considered an essential element of self-determination, the philosophy that continues to reshape the provision of services and supports for this population. 

A key principle of self-determination is that individuals should have the authority to direct and manage their 

own lives, including their services. Individuals may invite and enlist friends and family members to assist them 

in directing and managing services.5 An individual’s legal representative or surrogate decision maker may also 

provide assistance and advice and perform some service management tasks (as they can for all individuals 

who need assistance to direct their services).
178 Understanding Medicaid Home and Community Services: A Primer

Participant direction models can operate side by 

side with traditional service delivery models, so 

individuals and families can choose the extent to 

which they wish to manage their services. Those 

who want to exercise a high level of control can select participant direction options, while others can 

have services and supports managed by a provider 

agency. 

Evolution of Participant Direction of 

Medicaid HCBS

Participant direction of Medicaid home and community services began in the 1970s when a few 

states launched Medicaid personal assistance/attendant services programs that authorized Medicaid 

participants to hire, train, supervise, and dismiss 

their workers.6 During the 1980s and 1990s, the 

number of states that authorized Medicaid participants to manage their workers grew—both through 

the Medicaid State Plan Personal Care optional 

benefit and, starting in 1981, through §1915(c) 

home and community-based services waivers 

(hereafter referred to as HCBS waivers). In 1997, the 

Centers for Medicare & Medicaid Services (CMS) 

released formal guidance (discussed in more detail 

below) acknowledging that states could employ a 

“participant-directed service delivery model” for the 

delivery of personal care/assistance services under 

the Medicaid State Plan.

In 1995, the Robert Wood Johnson Foundation 

(RWJF) and the U.S. Department of Health and Human Services (HHS) launched the National Cash and 

Counseling Evaluation Demonstration.7 Its aim was 

to test a broader approach to participant direction 

that gave participants the authority to manage an 

individual budget and the latitude to use this budget to purchase goods and services to meet their 

service and support needs. The demonstration also 

gave participants the option of receiving allowances 

in cash to purchase services and supports, or have 

their funds deposited with an entity that would perform financial transactions under their direction.8

In the same year, RWJF also launched its Self-Determination for People with Developmental Disabilities 

Program.9 RWJF awarded grants to 18 states to create pilot programs that gave individuals and families a leadership role in the design of person-centered service plans along with choice and control 

over an individual budget to carry out the service 

plan. These pilots also featured the provision of independent counseling services (specifically referred 

to as Support Broker services) to assist participants 

in selecting and managing services, along with fiscal intermediaries to serve as their agents to handle 

employment-related tasks. The Self-Determination 

pilots operated within the regulatory confines of 

the HCBS waiver program and, therefore, did not 

permit individuals or their representatives to receive 

any benefits directly as “cash.”

In response to the favorable early evaluation results 

from the Cash and Counseling Demonstration, experience garnered through the Self-Determination 

pilots, and rapidly growing state interest in offering participant direction options, CMS launched 

its Independence Plus initiative in 2002, which 

provided guidance to the states about incorporating employer and budget authority into a waiver 

program.10 CMS also issued separate templates for 

Independence Plus programs operating under the 

HCBS and §1115 waiver authorities. 

In 2005, CMS extensively modified its standard 

HCBS waiver application so that states could include 

a participant direction option in any HCBS waiver, 

eliminating the need for a separate Independence 

Plus waiver. The new waiver application built upon 

the predecessor Independence Plus waiver template and further clarified the Federal policies that 

apply when a participant direction option is implemented in an HCBS waiver. To date, at least 37 states 

have a participant direction option in one or more 

HCBS waivers.11 However, some states offer only the 

employer authority and some have experienced 

slow enrollment in participant direction options. 

In the Deficit Reduction Act of 2005 (DRA-2005), 

Congress added two statutory provisions that offer 

states additional options to incorporate participant 

direction into the delivery of Medicaid HCBS without having to seek Federal waivers.12 These provisions are discussed in more detail below.13 In the 

space of about 10 years, Federal Medicaid policy has 

evolved to provide states with several options to 

afford Medicaid participants wide-ranging authority 
Chapter 7: Participant-Directed Services and Supports 179

to direct their services and supports, including the 

option to direct an individual budget.

Basic Features of Participant

Direction of Medicaid HCBS 

The sections below describe in detail the legal 

authorities that permit incorporation of participant 

direction into the delivery of Medicaid HCBS. While 

each authority has unique elements, certain basic 

features of participant direction cut across the authorities. These features are described next.

Individual Election of Participant Direction. The 

various authorities have different requirements regarding the provision of alternatives to participant 

direction. 

• When a state offers participant direction 

through an HCBS waiver program, it must 

provide that participants may opt into or out 

of directing their services, that is, a state must 

offer a “provider-managed” service delivery 

option alongside the participant direction 

option and ensure there are no service breaks 

during transition periods. 

• Participant direction programs operated 

under the State Plan Personal Care benefit 

are not required to use a particular service 

delivery model or to offer more than one 

service delivery model; nor are they required 

to specify policies for voluntary or involuntary 

transition from participant-directed services to 

other types of service delivery, such as agencyprovided services. 

• If a state chooses to use the §1915(j) authority 

to permit self-direction of State Plan personal 

care services, it must ensure that participants 

may opt into or out of directing their services 

and that a traditional service delivery option 

is available. Because traditional service 

delivery models vary, they are not specified 

here. If a state uses the §1915(j) authority in 

conjunction with the HCBS waiver authority, 

the requirements of the latter authority must 

be met.

• Under §1915(i), CMS requires states to have 

policies to facilitate voluntary or involuntary 

transitions from participant-directed services 

to non-participant-directed service delivery 

models. 

Participant-Led Service Planning Process. Another important feature is positioning the participant 

(or a personally-selected personal representative) to 

lead the person-centered service planning process. 

This includes giving participants the authority to 

select who participates in the process (e.g., family 

members and friends), and ensuring that participants’ service plans reflect their preferences and 

goals. Participants are expected to have the authority to select their services and supports, in addition 

to exercising free choice of provider, a long-standing right under Federal Medicaid law.14

Managing Workers. All of the pertinent Medicaid 

authorities allow participants to select, hire, supervise, and manage their workers—called the Employer Authority. Under this authority, a state may recognize Medicaid participants (or their representatives) 

as the legal (“common law”) employers of their 

workers and provide for the use of Fiscal/Employer 

Agents (F/EAs) to pay workers and file payroll taxes 

on their behalf. A state also may elect to use a “coemployer” model whereby an organization serves as 

the primary or legal employer of participant-hired 

workers, while the individual or their representative 

serves as the secondary or managing employer.15

This co-employer model is commonly referred to as 

the Agency with Choice model. 

Individual Authority Over Service Delivery. 

Participant direction of Medicaid services and supports also allows participants to determine how and 

when services are delivered. This includes specifying the elements of services that will be delivered 

(within the approved scope of the service(s) that the 

state offers), scheduling the delivery of services, and 

establishing any additional special qualifications for 

the workers or agencies that provide services.16

Individual Budget. Under the §1915(c) and 

§1915(j) authorities, participants may be provided 

an individual budget that includes some or all of 

their service and support funding and the ability to 

exercise decision-making authority and manage-
180 Understanding Medicaid Home and Community Services: A Primer

ment responsibility to purchase goods and services 

authorized in the service plan—called the Budget 

Authority.17 Participants, with the aid of counselors 

(i.e., information and assistance providers) and the 

financial management services entity, assume responsibility for managing their individual budgets. 

Supports for Participant Direction. The §1915(c) 

and §1915(j) authorities specifically require states 

to provide certain key supports to participants who 

direct their services: financial management services 

and information and assistance. The proposed rule 

for the §1915(i) authority also addresses the provision of these two support services. However, its 

requirements are not included here because at the 

time of publication, the rule had not yet been finalized. 

• Financial management services. These 

services include performing financial 

transactions on behalf of participants (e.g., 

paying workers that participants employ, 

deducting payroll taxes, and under the 

§1915(c) and §1915(j) authorities, facilitating 

the purchase of other goods and services) 

along with tracking expenditures against the 

individual budget.

• Information and assistance in directing 

services and supports. Medicaid funding is 

available to reimburse the costs of personalized assistance to participants in directing 

their services. Such assistance may include 

(a) counseling participants about available 

services and supports, (b) helping them 

to acquire the skills to create and manage 

the individual budget and to manage their 

individually employed workers, (c) assisting 

them in locating workers and services, and 

(d) accessing other benefits and community 

resources. States use various terms for this 

type of assistance, including counseling, 

supports brokerage, supports coordination, or 

consulting.

Safeguards. Finally, states are expected to provide 

safeguards on behalf of participants who direct 

their services. These include ensuring that services 

are not interrupted when an individual elects to 

transition from participant direction to providermanaged services, guarding against the premature 

depletion of the individual budget, and ensuring 

that participants have an individualized backup 

plan to handle breakdowns in service delivery.

Under the applicable authorities, states have considerable latitude in how they implement each of 

these participant direction features.

Federal Medicaid Statutory Authorities

There are five principal Medicaid authorities under 

which states may implement participant direction 

of home and community services. (A sixth authority—a §1115 waiver—is available under certain 

conditions18 [see Box].) 

Four of the five are Medicaid State Plan authorities. A state can add participant direction options 

under the State Plan by submitting a State Plan 

amendment to CMS for review and approval. Once 

approved, it becomes part of the state’s Medicaid 

program unless subsequently altered by the state. 

The fifth is a waiver authority, that is, states can 

request waivers of Federal statutory provisions in 

order to furnish services in a fashion not otherwise 

permitted under the Medicaid State Plan. 
Chapter 7: Participant-Directed Services and Supports 181

Section 1115 Waivers19

Before the enactment of the §1915(j) authority, 

Federal law did not easily accommodate the 

incorporation of the full range of participant 

direction options into the delivery of personal 

care services furnished through the Medicaid 

State Plan. As a consequence, the §1115 

authority had to be invoked when a state was 

interested in implementing a wide-ranging 

participant direction option (including budget 

authority) for State Plan personal care services.20

With the availability of the §1915(j) and other 

authorities for implementing participant 

direction options, states now have little or no 

reason to invoke the §1115 waiver authority 

solely to initiate a participant-directed services 

option for Medicaid HCBS except in so far 

as participant direction is a component of a 

broader Medicaid reform proposal. As a general 

matter, §1115 waivers may only be used to 

test service delivery approaches that are not 

otherwise feasible under Medicaid law. 

Table 7-1 summarizes the key features of participant 

direction programs under four of the five principal 

Medicaid authorities. The remainder of this section 

describes the basic scope of each authority and 

how it can be applied with respect to participant 

direction.

1. State Plan Coverage of Personal Care

Under §1905(a)(24) of the Social Security Act, a state 

has the option to cover personal care services under 

its Medicaid State Plan. (See Chapter 1 and Chapter 

7 for more information about this authority.) Thirtytwo states cover personal care under their Medicaid 

State Plans.21 When personal care is covered under 

the Medicaid State Plan, it must be provided to all 

Medicaid participants who require such services. 

Because Personal Care is an optional State Plan benefit, a state may impose limitations on the amount, 

frequency, and duration of the services that it provides to eligible participants. 

Participant Direction of Personal Care 

In 1997, CMS issued revised guidance concerning 

the provision of personal care under the 

Medicaid State Plan.22 In this guidance, CMS confirmed that states have the option to use a participant direction model, where “the Medicaid beneficiary may hire their own provider, train the provider 

according to their personal preferences, supervise 

and direct the provision of the personal care services and, if necessary, fire the provider.” States may 

also permit family members or others specified in 

the service plan to direct the provider on behalf of 

the individual receiving the services. 

Many states that cover personal care under the 

Medicaid State Plan authorize participant-directed 

services.23 In some states (e.g., Maine and Massachusetts), third-party entities (often Independent Living 

Centers) facilitate participant direction by performing payroll and related employment functions on 

behalf of program participants (hereafter, called 

participants) who select and manage their workers. 

Elsewhere (e.g., California and Michigan), the state 

itself or its claims payment contractor performs 

payroll and tax-filing functions as the participant’s 

employer-agent. 

There are two main limitations concerning the 

extent to which participant direction can be used 

in conjunction with the delivery of personal care 

under the Medicaid State Plan. 

• When personal care is covered under §1905(a)

(24), the budget authority may not be 

used and personal care dollars may not be 

redirected or cashed out (i.e., converted to a 

budget) to purchase other types of goods and 

services. Medicaid dollars may only be used to 

pay for the provision of personal care.

• Legally responsible relatives (i.e., parents of 

minor children and spouses) may not be paid 

to provide personal care. However, other 

relatives (at a state’s option) can be paid to 

provide personal care.
182 Understanding Medicaid Home and Community Services: A Primer

Table 7-1. Participant Direction Features of the Optional Medicaid Authorities 

Features §1905(a)(24)

State Plan

Personal Care 

Services

§1915(c)

Home and 

Community-Based 

Services Waiver

§1915(i)

State Plan Home 

and CommunityBased Services

§1915(j)

Self-Directed 

Personal 

Assistance 

Services

Employer Authority Allowed Allowed Allowed Required

Budget Authority Not allowed Allowed Allowed Required

Cash Payments to 

Participants

Not allowed Not Allowed Not allowed Allowed

Direction by 

Representative

Allowed Allowed Allowed Allowed

Hiring of Legally 

Responsible 

Individuals 

Not allowed Allowed Allowed Allowed

Information & 

Assistance

Not required Required Required Required

Financial 

Management 

Services

Fiscal employer 

agent services only 

are required

Required Required Required, except 

for those receiving 

the cash option

Limitation on services 

that can be directed 

Not applicable; 

personal care is the 

sole service

Allowed Allowed Not allowed

Availability of 

Non-Traditional Goods 

and Services 

Not allowed Allowed Allowed Allowed

Comparability Cannot be waived Can be waived Can be waived Can be waived

Statewideness Cannot be waived Can be waived Cannot be waived Can be waived

Availability of NonParticipant-Directed 

Services 

Not required Required Not Required Required24
Chapter 7: Participant-Directed Services and Supports 183

These limitations may be overcome when a state 

elects to furnish participant-directed personal care 

under provision §1915(j) of the Social Security Act 

(described below).

2. HCBS Waiver Authority 

Under the provisions of §1915(c) of the Social 

Security Act, a state may obtain Federal waivers to 

furnish home and community services to participants who require the level of care that is provided 

in a Medicaid-reimbursable institutional setting but 

choose to be supported in the community. All states 

except Arizona and Vermont operate HCBS waivers.25 (For more information about this authority, see 

Chapter 1 and Chapter 4.) 

Participant Direction of Waiver Services

Since the inception of the HCBS waiver program in 

1981, some states allowed participants to exercise 

the employer authority (e.g., Oregon, Wisconsin, 

Washington). As previously noted, 

in 2002 the CMS Independence Plus initiative 

spelled out for the first time the essential features 

for incorporating participant direction into the 

delivery of waiver services.26 As part of the initiative, 

CMS issued a stand-alone Independence Plus HCBS 

waiver application template for states interested 

in implementing participant direction of waiver 

services27

In 2004, CMS undertook a major revision of the 

standard HCBS waiver application.28 The revised application, released in 2005 (and the most recent update, released in 2008), requires states to describe in 

detail the critical operational features of their HCBS 

waivers and places a stronger emphasis on waiver 

service quality assurance/quality management than 

did the previous application.29 In conjunction with 

the release of the new application, CMS also released comprehensive technical guidance to states 

concerning various dimensions of the design and 

operation of HCBS waivers.30

An important feature of the revised HCBS waiver application is the inclusion of a distinct part (Appendix 

E) that is devoted to participant direction of waiver 

services.31 Appendix E is designed to permit a state 

to incorporate participant direction into the operation of any HCBS waiver. 

When states elect to include a participant direction 

option in an HCBS waiver, they have the latitude to 

shape the option along several dimensions, including

• Limited Implementation of Participant 

Direction. A state may elect to offer the 

participant direction option in all parts of the 

state or limit it to specific areas or regions, 

for example, to create a pilot in a specific 

geographic area to evaluate the program 

design before expanding it statewide. 

• Availability of Participant Direction by 

Types of Living Arrangement. A state may 

decide to make its participant direction option 

available to all waiver program participants 

(hereafter called participants) or limit the 

option to specified groups of participants, 

such as persons who live with their families or 

in their own homes.32

• Direction by a Representative. A state 

may allow services to be directed by a 

representative selected by the participant.

• Limitation of Services That May Be 

Participant Directed. A state may specify 

which waiver services—some or all—may be 

directed by participants.

• Election of Employer and/or Budget 

Authority. A state may elect to offer 

participants the employer authority or the 

budget authority—or both—over the services 

they may direct. In each instance, a state 

may limit the extent of the authority that 

participants may exercise.

• Employer Authority. A state has the option 

to offer two models of the employer authority: 

(1) “co-employer” model—also known as 

the “agency with choice” model, where a 

third party serves as the primary or legal 
184 Understanding Medicaid Home and Community Services: A Primer

employer of workers that the participant 

selects to furnish services and the individual 

or representative serves as the secondary or 

managing employer; and/or (2) a “common 

law employer” model, where the participant 

or his/her representative is the legal employer 

of workers.33 Regardless of the employer 

authority model used, the state may not 

permit payment to individuals who are 

ineligible to participate as providers in the 

Federal Medicaid program.34

• Budget Authority. A state has the option to 

allow participants to exercise decision-making 

authority and management responsibility 

for an individual budget to purchase goods 

and services authorized in the service plan. 

When a state offers budget authority, it may 

specify whether participants are afforded the 

flexibility to shift funds among authorized 

services within the total amount of the budget 

without prior review and approval; desired 

purchases that are not in the service plan, 

however, must be formally added. 

• Coverage of Individual Directed Goods 

and Services. A state may elect to include 

the coverage of non-traditional “individual 

directed goods and services” in its waiver.35 

Under this service coverage, participants may 

identify and purchase goods and services 

from their individual budgets that are not 

otherwise covered under the HCBS waiver 

or the Medicaid State Plan; for example, 

appliances that substitute for or reduce the 

need for paid assistance, such as a microwave 

oven. Coverage of non-traditional goods 

and services is only an option for waiver 

participants who exercise budget authority.36

The criteria for allowable goods and services 

is articulated in a State Medicaid Director 

Letter.37

As part of its design of an HCBS waiver participant 

direction option, a state must also address the following topics:

• Information About Participant Direction. 

A state must describe how it will inform 

waiver participants about the benefits, 

responsibilities, and potential risks of directing 

their services as compared to continuing 

to receive services in the traditional service 

system.38

• Financial Management Services. A 

state must provide for the provision of 

financial management services on behalf of 

participants who direct their waiver services. 

The HCBS waiver statute does not permit the 

payment of Medicaid dollars directly to waiver 

participants through the use of a “cash option.” 

Thus, the use of an intermediary to perform 

financial transactions on behalf of participants 

is required under the HCBS waiver authority. 

States have the latitude to contract for 

financial management services as a Medicaid 

administrative function or to offer them as a 

waiver service.39 

• Information and Assistance to Support 

Participant Direction. Similarly, a state 

must make information and assistance 

available to participants who direct their 

services and wish to avail themselves of 

such assistance. This assistance may take the 

form of a distinct waiver service or it can be 

covered as an administrative activity.40 For 

example, assistance might be provided to 

help participants locate workers or to develop 

the service plan. The type and extent of the 

supports that must be available to participants 

depends on the nature of the participant 

direction opportunities provided under the 

waiver. 

• Budget Safeguards. A state must put 

mechanisms in place to flag situations when 

a waiver participant might overspend and 

prematurely deplete the individual budget, 

and intervene as appropriate. It is also 

important that states monitor budgets to 

identify under-spending, as this may be an 

indication of inadequate service delivery. 

• Transition. A state must allow waiver 

participants who voluntarily decide to 

discontinue participant direction to transition 

to traditional models of service delivery, 

which can include agency-delivered services. 
Chapter 7: Participant-Directed Services and Supports 185

In particular, a state must ensure that such 

participants continue to receive critical 

services during the transition period.

• Termination from Participant Direction 

Option. Finally, a state must describe the 

circumstances under which it will terminate 

participants’ use of the participant direction 

option and provide for their transition to 

traditional modes of service delivery. As with 

voluntary transitions, a state must ensure 

the participants continue to receive critical 

services during the transition period.

States have considerable latitude in determining 

how they will address these requirements.

Additional HCBS waiver operational dimensions relate to participant direction of waiver services. These 

include service planning (and associated risk assessment processes) and some elements of quality management. CMS does not require states to develop 

processes concerning these generic dimensions 

of waiver operations that are specifically keyed to 

participant direction. However, when a state offers 

a participant-directed services option, CMS expects 

that such processes will take into account any special considerations related to participant direction. 

For example, when participants assume the role 

of employer and a professional service provider is 

no longer overseeing service delivery, participants 

themselves must assume the responsibility of managing staff and assessing quality.

Some states have elected to deliver HCBS in tandem with the provision of State Plan services by 

operating a §1915(b)/§1915(c) concurrent waiver 

program.41 Such waivers use a managed care model 

to coordinate the provision of services to Medicaid 

participants. Participant direction may be incorporated into this type of waiver program.42 (See 

Chapter 8 for a discussion of Medicaid managed 

care authorities.)

3. State Plan Coverage of HCBS 

Section 6086 of the DRA-2005 added §1915(i) to the 

Social Security Act, effective January 2007.43 This 

provision permits a state to offer HCBS under its 

Medicaid State Plan without having to secure Federal approval of a waiver. Section 1915(i) was subsequently amended by the Patient Protection and 

Affordable Care Act of 2010 (hereafter called the 

Affordable Care Act). The amendments only affect 

one of the DRA-2005 provisions related to participant direction: states may now offer “other” services 

(as they can in §1915(c) waivers), which means that 

participants will have the flexibility to purchase a 

wide range of “goods and services” to reduce their 

dependence, as long as they are included in the 

service plan. CMS has not yet published a final rule 

for the §1915(i) authority. 

Participant Direction of State Plan HCBS

The §1915(i) authority specifically allows states to 

incorporate a participant direction option for the 

delivery of State Plan HCBS.44 Under the statute, 

participant-directed services are defined as HCBS 

“which are planned and purchased under the direction and control of such individual or the individual’s authorized representative.” 

States that elect to incorporate a participant direction option in the provision of State Plan HCBS must 

address the following:

• Assessment. The state must provide for a 

process to assess the “needs, capabilities, and 

preferences” of the individual.

• Service Plan. The state must have a personcentered service plan development process 

that is directed by the individual or the 

individual’s authorized representative. The 

process must (1) build upon the individual’s 

capacity to engage in activities that promote 

community life; (2) respect the individual’s 

preferences, choices, and abilities; and 

(3) involve families, friends, and professionals 

as desired or required by the individual 

or his/her authorized representative. The 

service plan must also include appropriate 

risk management techniques that recognize 

the roles and sharing of responsibilities in 

obtaining services in a participant-directed 

manner and ensure the appropriateness of 

the service plan based on the resources and 

capabilities of the individual or the individual’s 

authorized representative. 
186 Understanding Medicaid Home and Community Services: A Primer

• Limitation of Services That May Be 

Participant Directed. A state must specify 

which of the services it offers under its §1915(i) 

benefit may be directed by participants. The 

service plan must specify the services that 

participants or their representatives will selfdirect, the methods by which they will selfdirect, and the supports that are available to 

the participant.

• Methods of Participant Direction. A state 

must also specify the methods by which 

participants may direct their services. States 

may elect to offer participants the employer 

and/or budget authority along similar lines as 

allowed under the HCBS waiver authority. 

• Participant-Directed Budget. States may 

of­fer participants a participant-directed 

budget that identifies the dollar value of the 

services and supports under the control and 

direction of the individual or the individual’s 

authorized representative. When a state offers 

a participant-directed budget, it must specify 

the methods by which the budget is calculated 

and provide for a process to adjust the 

budget based on changes in an individual’s 

assessment and service plan.45

• Financial Management Services. A state may 

provide financial management services as an 

administrative activity to support participants 

who elect to direct their services or contract 

with an outside entity to provide these 

services.

In most respects, the elements of a participant direction option under §1915(i) closely parallel those 

in HCBS waivers.

4. State Plan Coverage of ParticipantDirected Personal Assistance Services

Section 6087 of DRA-2005 added §1915(j) to the 

Social Security Act, effective January 2007.46 This 

authority permits a state to institute a participantdirected services option that includes the disbursement of cash prospectively to participants who 

direct their personal assistance services.47 (While 

specific statutes use different terms—personal care 

and personal assistance—the service provided is 

the same.) Absent the §1915(j) authority, participant direction of Medicaid State Plan personal care 

services is limited to use of the employer authority, 

as previously discussed.

The §1915(j) authority also allows states to permit 

participants who direct their services under the 

State Plan Personal Care benefit to use individual 

budgets to purchase non-traditional goods and 

services other than personal care/assistance, to 

the extent that expenditures would otherwise be 

made for human assistance. (States already have 

the authority under §1915(c) to allow HCBS waiver 

participants to purchase a broad range of goods 

and services.) 

States may use the §1915(j) authority only in a State 

Plan Personal Care program or in HCBS waiver programs already in operation (i.e., states may not offer 

participant-directed services under the §1915(j) 

authority except through an existing State Plan Personal Care program or an HCBS waiver program).

Especially with respect to Medicaid State Plan 

personal care services, this authority is specifically 

intended to relieve states of the need to operate 

§1115 waivers in order to offer participants wideranging authority to direct their personal care services, including using their personal care budget to 

purchase other goods and services, as long as they 

substitute for or reduce the need for paid personal 

assistance. 

In September 2007, CMS issued a State Medicaid 

Director Letter that provides guidance to states concerning this Medicaid State Plan option.48 The letter 

is accompanied by a Medicaid State Plan amendment pre-print that states may submit in order to 

invoke this authority.49 The rule was finalized on 

October 3, 2008.50 So far, seven states—Alabama, 

Oregon, Florida, Texas, New Jersey, California, and 

Arkansas—have secured CMS approval of a State 

Plan amendment under this authority, and several 

other states have submitted their draft amendments to CMS and requested technical assistance. 
Chapter 7: Participant-Directed Services and Supports 187

Key Features of the §1915(j) Authority

The authority has the following major features: 

• Disregard of Statewideness and 

Comparability. A state may elect to make 

its participant direction option available 

statewide or in specified parts of the state, and 

may limit the number of persons who direct 

their services under this option.

• Limitations on Participants Who May SelfDirect. The participant direction option may 

only be offered to participants who live with 

their families or in housing that they own or 

lease, not to those whose living arrangement 

is owned, operated, or controlled by a service 

provider. States also have the latitude to 

make participant direction available to all 

participants (subject to the preceding limits) 

or only to specified groups of participants. 

• Election of Participant Direction. A state 

must provide information and counseling 

regarding participant direction to individuals 

so they can make an informed choice about 

whether to direct their services and supports. 

A state also must allow participants to 

voluntarily terminate participant direction and 

return to receiving provider-managed services. 

When a person voluntarily ends participant 

direction (or the state determines that 

participant direction should be terminated 

involuntarily), the state must ensure that the 

individual continues to receive critical services 

during the transition period.

• Use of a Representative. A state may permit 

the individual to appoint a representative 

to direct services, but the person acting as a 

representative is prohibited from providing 

personal assistance services to that individual.

• Service Plan. The state must fashion a 

person-centered service planning process 

that includes an assessment of the individual’s 

needs, strengths, and preferences and that 

“... (a) builds upon the participant’s capacity to 

engage in activities that promote community 

life and that respects the participant’s 

preferences, choices, and abilities; and (b) involves families, friends, and professionals 

in the planning or delivery of services or 

supports as desired or required by the 

participant.”

• Quality Assurance and Risk Management. 

The state must develop appropriate quality 

assurance methods and employ processes 

that identify and address risks. The risk 

management plan must be developed in 

concert with the participant.

• Individual Budget. The state must provide 

an individual budget to each participant who 

elects to direct his/her services. The amount 

of this budget must be determined through 

the uniform application of a methodology 

developed by the state.

• Cash Option. A state may elect to disburse 

cash prospectively to self-directing 

participants to directly purchase services. 

Participants who elect this option are also 

permitted to pay their workers and file the 

employer share of payroll taxes, subject only to 

retrospective oversight to ensure compliance 

with labor and tax law requirements. There is 

no comparable cash option available under 

the State Plan Personal Care option, the HCBS 

waiver program, or Medicaid State Plan HCBS 

coverage.51

• Purchase of Non-traditional Goods 

and Services. A state may elect to permit 

participants who self-direct to “to acquire 

items that increase independence (such as a 

microwave oven or an accessibility ramp) or 

substitute for human assistance, to the extent 

that expenditures would otherwise be made 

for the human assistance.” In other words, 

participants may be given the authority to use 

their individual budgets to purchase goods 

and services other than personal assistance, as 

long as they substitute for or reduce the need 

for paid personal assistance. On November 19, 

2009, CMS issued a State Medicaid Director 

Letter to provide guidance on this provision. 

Among other clarifications, the Letter stated 

that “the services, supports, and items that 

are purchased with a service budget must be 
188 Understanding Medicaid Home and Community Services: A Primer

linked to an assessed participant need or goal 

established in the service plan.”52 

• Availability of Ongoing Assistance in 

Participant Direction. The state must 

make ongoing training, assistance, and 

counseling available to participants who 

direct their personal assistants through the 

use of a counselor and other information and 

assistance methods. 

• Providers. Under this authority, participants 

can “choose as a paid service provider, any 

individual capable of providing the assigned 

tasks including legally liable relatives,” as long 

as they meet applicable state requirements, 

such as those related to training and criminal 

background checks.

• Financial Management Services. A state 

must arrange for the provision of financial 

management services on behalf of selfdirecting participants (except those who have 

elected the cash option, if available).53 The 

state may obtain such services from vendors or 

elect to provide the services itself. The costs of 

these services are eligible for Federal financial 

participation only as an administrative 

expense. As noted above, under an HCBS 

waiver, they can be reimbursed as either a 

service or an administrative expense.

While this authority shares some of the features of 

participant direction that are available under the 

HCBS waiver and Medicaid State Plan HCBS options, 

it goes beyond those options by permitting states 

to offer an individual the option to receive some or 

all of the benefit directly in cash. 

5. State Plan Community 

First Choice Option 

Section 2401 of the Affordable Care Act amends 

§1915 of the Social Security Act by adding a new 

subsection (k), effective October 2011, to allow 

states to provide “Community-based Attendant Services and Supports”—called the Community First 

Choice Option. 

Under this new benefit, services and supports may 

be provided through an agency-provider model 

or “other” model, both of which require that participants or their representatives select, manage, 

and dismiss workers. An “other” model is defined as 

methods, other than an agency-provider model, for 

the provision of consumer-controlled services and 

supports. Such models may include the provision 

of vouchers, direct cash payments, or the use of a 

fiscal agent to assist in obtaining services, as long 

as the model allows for the services to be “selected, 

managed, and dismissed by the individual, or, as 

appropriate, with assistance from the individual’s 

representative,” and to be “controlled, to the maximum extent possible, by the individual...regardless 

of who may act as the employer of record.” Services 

must be provided by qualified individuals, although 

the law allows providers to be “family members,” 

and gives the Secretary of HHS latitude to define 

the term. 

Employers must adhere to the provisions of the Fair 

Labor Standards Act of 1938 and applicable Federal 

and state laws regarding income and payroll taxes, 

unemployment and workers compensation insurance, general liability insurance, and occupational 

health and safety. 

Key Participant Direction Features of the 

§1915(k) Authority 

The authority has the following major features: 

• Use of a Representative. Participants may appoint a representative to direct services.

• Service Plan. The state must fashion a personcentered service planning process based on a 

functional needs assessment.

• Purchase of Non-Traditional Goods and 

Services. In addition to assistance with 

Activities of Daily Living and Instrumental 

Activities of Daily Living, permissible services 

may include... “the use of beepers or other 

electronic devices” and “voluntary training 

on how to select, manage, and dismiss 

attendants.” Expenditures for transition costs 

involved in moving from an institution to 

the community, including deposits for the 

first month’s payment for rent and utilities, 
Chapter 7: Participant-Directed Services and Supports 189

bedding, basic kitchen supplies, and other 

necessities, can also be funded through 

this authority. The authority also allows 

“expenditures relating to a need identified 

in an individual’s person-centered plan of 

services that increase independence or 

substitute for human assistance, to the extent 

that expenditures would otherwise be made 

for the human assistance.” 

Service Planning and Authorization 

Participant direction service models use the needs 

assessment and service planning processes as fundamental activities to safeguard participants’ health 

and welfare, and to ensure that the services and 

supports provided enable participants to meet their 

individual community living goals. The participant 

direction model differs from professional-directed 

service models by affirming that the participant 

is the center of—and leads—the service planning 

process. Person-centered planning (PCP) is a critical 

component of participant-directed service planning, which enables and helps the individual to 

identify and access a personalized mix of paid and 

non-paid services and supports. While PCP methods 

used to be associated only with service planning 

for persons with developmental disabilities, these 

methods are now employed for individuals with any 

type of disability, and CMS encourages and supports the use of person/family-centered planning 

methods in service plan development.

With the exception of home health services, Medicaid policy does not dictate that service plans must 

be prepared by medical, clinical, or case management professionals. Whether for waiver services 

authorized in a plan of care or personal care services 

under the optional State Plan benefit, states have 

considerable latitude with regard to empowering the individual to manage authorized services. 

Under the Personal Care option, for example, many 

states already allow participants to determine when 

authorized service hours are to be furnished and to 

alter the schedule to meet their needs. 

In an HCBS waiver program, states may also permit 

participants to manage the service schedule or alter 

the mix of authorized services to meet their changing needs without having to develop an entirely 

new service plan. However, the statutory requirement that “services be provided pursuant to a written plan of care” must continue to be met. 

Federal law requires that the services individuals 

receive through an HCBS waiver program be provided pursuant to a plan of care.54 Neither Federal 

law nor regulations specify the process by which 

this plan of care is to be developed. The plan of 

care must meet the requirements spelled out in the 

State Medicaid Manual and the Technical Guide for 

HCBS waivers, as well as requirements included in 

the state’s approved HCBS waiver request. Effective 

service plan development processes are essential to 

ensure that waiver participants will receive the services and supports they need and want in order to 

successfully live and thrive in the community. States 

must specify in their waiver application how the 

participant-centered plan will be developed as well 

as how the state will monitor the service planning 

process to ensure that it is person centered. 

At one time, Federal regulations dictated that the 

§1905(a) optional State Plan Personal Care benefit 

be authorized by a physician and supervised by 

nursing personnel. In the Omnibus Reconciliation 

Act of 1993, states were specifically authorized 

to use alternative service authorization methods, 

including those that do not require the involvement 

of medical personnel. This policy change enables 

states to adopt alternative approaches to personal 

care service planning. A common approach is to 

delegate this task to case managers who are responsible for assessing eligibility and authorizing 

services.55

Section 1915(i) highlights service planning as a 

fundamental component of participant direction, 

intended to both safeguard health and welfare, as 

well as ensure meaningful involvement of participants in identifying and selecting the services and 

supports they need. Section 1915(j)(5)(B) emphasizes the assessment and service planning process by 

requiring an assessment of the participant’s “needs, 

strengths, and preferences” for personal assistance 

services. 
190 Understanding Medicaid Home and Community Services: A Primer

Use of Representatives 

All individuals, regardless of their impairments, can 

be successful in directing their services with the 

proper supports. People with serious illnesses and 

those with cognitive impairment—including impairment due to dementia, stroke, traumatic brain 

injury, and developmental disabilities—are capable 

of expressing preferences, but may need assistance 

to manage their services and budget. Most participant direction programs permit participants to 

designate a representative to assist them in these 

tasks. Representatives can ensure that participants’ 

preferences are known and respected and can manage tasks that participants would perform if they 

were able. 

Some programs allow participants to use representatives without formally designating them as such, 

but have criteria that individuals must meet to be 

a representative, such as demonstrating a strong 

commitment to the participant’s well-being and 

being interested in and able to carry out program 

responsibilities and requirements.56 Although formal designation requires individuals to complete a 

form acknowledging acceptance of the duties and 

responsibilities of a representative, there is no legal 

transfer of authority or responsibility with respect 

to personal decision making or financial matters 

from the participant to the representative (as would 

be the case if an individual were to grant power-ofattorney or a court were to appoint a guardian.)

Program requirements for person-centered planning also apply to representatives, who must 

re-present the best interests of participants and 

ascertain and act in accordance with their preferences—unless they are impractical.57

The use of a representative under the §1915(j) 

authority is at the option of the state. This authority provides that representatives include “(1) a 

minor child’s parent or guardian; (2) an individual 

recognized under state law to act on behalf of an 

incapacitated adult; (3) a state-mandated representative, after approval by CMS of the state criteria, if 

the participant has demonstrated, after additional 

counseling, information, training, or assistance, the 

inability to self-direct personal assistance services.”58

The statutory language of §1915(i) gives states the 

option to allow an individual or the individual’s representative to elect to receive self-directed HCBS.59

An issue intrinsic to the use of representatives is 

avoiding a conflict of interest. Most programs that 

allow representatives generally do not permit them 

to be paid either as workers or for serving as representatives. However, exceptions can be made under 

extraordinary circumstances (e.g., lack of workers in isolated areas or the inability of workers to 

understand individuals with speech impairments). 

The final rule for §1915(j) stipulates that a person 

acting as a representative for a participant directing 

their personal assistance services is prohibited from 

acting as a provider of such services.60 The HCBS 

waiver application (version 3.5) instructions provide 

guidance on the use of representatives. (See the 

Resources section of this chapter for a link to the 

application.)

Individualized Backup Plans

A key component of person-centered service planning is a risk assessment process to identify issues 

or situations that can jeopardize health and welfare 

and to develop an individualized backup plan that 

specifies actions to prevent them or address them 

if they occur. For example, a backup plan should 

designate individuals to be called—and in which 

order—if workers do not arrive when scheduled. 

Backup plans should also address methods for handling any critical incidents that may occur, such as a 

serious injury, abuse, neglect, or exploitation. 

Every participant receiving home and community 

services—whether through the traditional agencydelivered service system or a participant direction 

program—should be educated about the availability of backup resources and have a backup plan 

individually tailored to their needs and preferences.

Appendix D-1(e) of the HCBS waiver application 

(version 3.5) requires states to specify how potential risks to participants will be assessed during the 

development of the service plan and how strategies 

to mitigate risk will be incorporated into the service 

plan, subject to participants’ needs and preferences. 

In addition, states must describe how the service 
Chapter 7: Participant-Directed Services and Supports 191

plan development process will address the need for 

backup plans and the arrangements that are used 

for backup must be included. These requirements 

apply to both traditional and participant direction 

programs. 

Section 1915(j) regulations also emphasize the 

importance of developing backup plans. Identifying actual and potential risks—and determining 

how they will be handled—should be accomplished 

through discussion and negotiation among persons 

involved in the service planning process. 

If the backup plan includes calling individuals who 

are willing and able to work at short notice, such 

as neighbors, all of their payroll paperwork must 

be on file in advance. Similarly, if it includes calling a traditional service agency, the agency should 

be informed that they are listed on a participant’s 

backup plan and should be provided with information about the participant’s needs. 

Typically, backup plans include the names and 

contact information of individuals or entities to be 

called in a specific order; for example, family and 

friends may be called first, and a counselor or case 

manager called only if family and friends are unable 

to provide backup. Some states have developed 

an Emergency Backup Person Designation Form to 

identify individuals as emergency backup personnel; individuals designated are required to sign 

the form demonstrating their willingness to serve 

in this capacity. The effectiveness of backup plans 

should be tested periodically and changes made as 

needed.

Building Flexibility into the Service Plan 

While Ensuring Equitable Budgets 

In programs that allow participants to exercise budget authority, purchases must be clearly linked to an 

assessed need that is identified in the service plan.61

Typically, purchases either increase independence 

or address a personal care need. While some programs only allow participants to purchase personal 

care services, others allow them to purchase a range 

of services, including skilled nursing, rehabilitative 

therapies, and supported employment services.

The flexibility afforded to participants to purchase 

goods and services varies by program. Programs 

may require pre-approval of non-traditional services, such as purchase and maintenance of a service 

dog, or they may develop a list of allowable items 

and a prior authorization process to approve the 

purchase of items not on the list. Other programs 

allow participants significant flexibility and consider 

any purchase that fosters community inclusion as 

allowable. 

States also can build flexibility into the service 

menu and individual service plans by combining 

certain services (e.g., personal care, homemaker, respite, non-medical transportation, and companion 

services) into one service category in the waiver application. This could allow participants to use their 

budgets to purchase the specific services they need 

to address their needs without having to formally 

alter the service plan. 

Programs that allow participants broad discretion 

to purchase goods and services—within Federal parameters—must ensure that financial accountability 

is maintained through the application of consistent 

methods to determine both needs and allowable 

purchases to meet those needs. States must demonstrate to CMS that statewide procedures are in 

place to assess need and ensure access to services, 

even in states where counties or local entities play a 

strong role in the operation of the waiver. 

Uniform use of a standardized assessment process—and training to ensure its consistent use—

will enable states to ensure equitable funding of 

individual budgets and help them to determine 

whether budgets are being calculated accurately 

using a consistent method. It is also important that 

states implement procedures to ensure that funds 

go to enrolled or otherwise eligible providers. 

The methods states use to perform the assessment 

vary greatly and often differ within a state according 

to the population being served. In programs serving persons with developmental disabilities, many 

states use standardized assessment processes and 

instruments that are nationally tested and accredited, such as the Supports Intensity Scale. In programs serving elderly persons and younger adults 

with physical disabilities, assessment instruments 
192 Understanding Medicaid Home and Community Services: A Primer

are generally state specific, but typically assess 

ADLs and IADLs, as well as nursing needs, cognitive 

impairment, and behavioral issues.62

A few states use the comprehensive Minimum Data 

Set–Home Care assessment instrument, which assesses multiple factors that determine the need for 

services, including cognition; vision; hearing and 

communication; mood/behavior; social functioning; informal support services; physical functioning 

(including IADLs and ADLs); continence; medical 

conditions and medications; and the living environment.63

Employing Family Members

All of the participant direction Medicaid authorities allow participants to hire friends and relatives 

to provide personal care services. States also have 

the option under the HCBS waiver authority, and 

§1915(i) and §1915(j), to allow participants to hire 

legally responsible relatives (i.e., spouses, and 

parents and legal guardians of minor children) 

within certain parameters.64 Generally, to be a paid 

personal care provider, a legally responsible relative 

has to be providing services that a spouse or parent 

would not be providing for a non-disabled spouse 

or minor child; for example, feeding a 15-year-old 

child or bathing a spouse. Medicaid prohibits the 

hiring of legally responsible relatives in participant 

direction programs under the Medicaid State Plan 

Personal Care benefit. 

Non-Personal Care Services

Relatives—including legally responsible relatives—

may be hired to provide non-personal care services 

when they are difficult to obtain from other sources. 

The rules that pertain to paying relatives to provide 

non-personal care services are not substantially 

different from the rules for obtaining such services 

from other sources. The relative must meet whatever provider qualifications the state may have 

established and charge no more than any other 

provider. For example, if a minor child has extensive 

medical needs and requires skilled nursing services, 

a parent who is a licensed nurse could provide the 

service as long as she or he meets the state’s provider qualifications. 

Within the broad parameters of Federal policy, it is 

up to states to define the particular circumstances 

under which relatives will be paid to furnish services 

to participants. States can take various factors into 

account, including the availability of other sources 

for the same services, costs of family member services versus costs of purchasing such services from 

conventional sources, and specific circumstances 

with respect to participants. See Box for Minnesota’s 

provisions regarding payment of family members. 

Minnesota’s Family Payment Policies65

Minnesota does not allow legally responsible 

relatives (i.e., spouses or parents of minor 

children) to be reimbursed for personal care, 

which they are legally obligated to provide to a 

spouse or child. 

Additional provisions are available under 

the consumer-directed community supports 

waiver service to allow spouses and parents of 

minor children to provide “personal support 

services”—within state-set limits in hours, rate 

of pay, and scope of tasks.

The State allows services provided by other 

relatives or friends to be reimbursed only if: 

(1) they meet the qualifications for providers 

of care, 

(2) the State has strict controls to ensure that 

payment is made to the relative or friend 

as providers only in return for specific 

services rendered, and

(3) adequate justification exists for the 

relative or friend to provide the service 

(e.g., lack of qualified providers in remote 

areas). Medicaid payment may be made 

to qualified parents of minor children 

or to spouses for extraordinary services 

requiring specialized nursing skills that 

they are not legally obligated to provide.
Chapter 7: Participant-Directed Services and Supports 193

Furnishing Assistance to

Individuals in Managing and

Directing Services

Participants who are interested in directing their 

services may need or want assistance to do so. The 

§1915(c) HCBS waiver authority and the §1915(j) 

State Plan authority require states to furnish two 

support services to participants directing their 

services: (1) information and assistance, and (2) financial management services. (The proposed rule 

for §1915(i) also addresses the provision of these 

two support services. However, it is not included 

here because at the time of publication, it had not 

yet been finalized.) 

These support services are necessary to ensure 

that individuals have a support system to ensure 

they are able to manage their services and budgets. The extent to which such supports are utilized 

depends on the capacity, preferences, and needs of 

each individual and may vary in scope and timing. 

While their main purpose is to facilitate participant 

direction, these supports also provide important 

protections and safeguards for those directing their 

own services. Financial management services also 

provide fiscal accountability for state budget staff, 

by helping participants to manage the individual 

budget and by issuing payments on behalf of the 

state.

Information and Assistance

Many terms are used to describe the provision of 

information and assistance, including counseling, 

supports brokerage, service coordination, and service consultation. This Primer uses the term counseling. States have broad flexibility to design counseling services in a manner that suits their program, 

as long as they meet the intent of the service: to 

provide detailed information to enable individuals 

to make informed decisions about whether participant direction is right for them, and if it is, to assist 

them in obtaining and managing their services.

CMS views the roles and responsibilities of the 

counselor as fundamentally different from those of 

a case manager. See Table 7-2 for a comparison of 

services provided by counselors and traditional case 

managers. 

The case manager’s role to oversee and monitor service delivery is often required to ensure that Medicaid or other public programs meet state and Federal 

health and welfare requirements, and the case management system is often a key component of states’ 

quality management systems. Consequently, many 

programs use both case managers and counselors 

to assist participants, and in such cases it is essential 

that they understand each other’s respective roles 

and responsibilities, work collaboratively, and avoid 

duplication of services. Participants also need to 

understand the difference between the two roles.

Some programs have one person perform the 

responsibilities of both roles—either transferring 

case management functions to counselors, or 

having case managers assume the counselor role. 

Whichever approach a state uses, the individuals 

providing these services—whether counseling, case 

management, or both—need to meet all applicable 

job requirements. Prior to approval of a participant 

direction waiver program, Federal reviewers will ask, 

at a minimum, the following questions: 

1. Does the program provide participants with 

information about (a) its benefits, (b) their 

responsibilities under the program, and 

(c) their liability if employment-related taxes 

and workman’s compensation insurance 

premiums are not paid? 

2. Who provides the above information and what 

is the process for providing it?

3. Who oversees the provision of information and 

assistance? 

4. Is the information provided in a timely manner 

to permit informed decision making?

5. If both counselors and traditional case 

managers are involved, how will their 

functions be coordinated and how does the 

program prevent duplication of services?
194 Understanding Medicaid Home and Community Services: A Primer

Table 7-2. Examples of Typical Activities of Counselors and Traditional Case Managers

Counselors Traditional Case Managers 

Provide information about 

• the person-centered planning process

• participants’ rights 

• resources, choices, and options

• responsibilities, risks and/or liabilities associated 

with participant direction and decision making

• program limitations or restrictions

• how to report changes in condition and needs

• recognizing and reporting critical events, abuse, 

or neglect

• the availability of criminal background checks 

and processes for conducting reference checks

Provide assistance with

• defining needs, preferences, and goals

• developing and managing the individual budget

• developing a backup plan

• identifying and obtaining services, supports, and 

resources

• recruiting, hiring, and managing workers

• obtaining training in practical skills related to 

personnel management (e.g., negotiating rates, 

arranging schedules, training workers, and 

making changes)

• assessing the quality of services received

• Explain the program process, and eligibility 

criteria 

• Present information about various settings 

for service delivery: institutional, home, or 

community-based; and service options: 

traditional agency or participant direction

• Conduct an assessment to determine 

eligibility for services and to develop 

a service plan, and match needs with 

resources 

• Implement the service plan 

• Monitor the provision of services 

• Assess the quality of services

• Ensure cost/budget neutrality, if required 

• Revise the service plan when changes 

occur

• Perform periodic assessments and 

eligibility determinations
Chapter 7: Participant-Directed Services and Supports 195

For detailed information about counseling services, 

see the Resources section of this chapter for a link 

to the chapter on Counseling in the Self-Direction 

Handbook.

Financial Management Services66 

CMS defines Financial Management Services (FMS) 

as follows:

Service/function that assists the family 

or participant to (a) manage and direct 

the distribution of funds contained in the 

participant-directed budget; (b) facilitate the 

employment of staff by the family or participant 

by performing as the participant’s agent such 

employer responsibilities as processing payroll, 

withholding and filing Federal, state, and local 

taxes, and making tax payments to appropriate 

tax authorities; and (c) performing fiscal 

accounting and making expenditure reports 

to the participant and/or family and state 

authorities.67

The provision of financial management services is 

essential when implementing participant direction 

programs for several reasons. 

• Under the §1905(a) State Plan Personal Care 

benefit, the HCBS waiver authority, and the 

§1915(i) authority, payments for services can 

not be made directly to participants, either 

to reimburse them for expenses incurred 

or to enable them to directly pay a service 

provider. Rather, payments on the participant’s 

behalf must be made by an intermediary 

organization (i.e., either a qualified Medicaid 

provider or an entity under administrative 

contract with the state).68

• Under the §1915(j) authority, CMS does not 

require states to mandate the use of financial 

management services for participants 

who elect the “cash” option. Instead, 

these participants may choose to retain 

responsibility for some or all of their fiscal and 

employer-related responsibilities. However, 

even if participants choose to receive some 

benefits in cash and distribute workers’ payroll 

checks directly, they may still choose to have 

an FMS organization manage the Federal and 

state tax filings and deposits and generate 

payroll checks for their workers.69

• Some FMS organizations may act as a neutral 

bank for receiving and disbursing public funds 

(i.e., Fiscal/Employer Agents).70 

• Financial management services provide fiscal 

accountability for state and local government 

agencies, and safeguards for individuals 

enrolled in participant direction programs 

and their workers, by ensuring that payroll,71 

workers’ compensation insurance policy 

management, and vendor payment tasks are 

performed accurately and in accordance with 

Federal, state, and local rules and regulations, 

and in a timely manner. 

• Some FMS organizations (i.e., Fiscal/Employer 

Agents) assist program staff and participants 

by providing a variety of financial reports 

related to the receipt of public funds, service 

use, and payments. These reports inform 

participants about their service use and 

related expenditures and also act as a fiscal 

and/or fraud monitoring tool for them and for 

program staff. 

• At the request of participants who are acting 

as their workers’ managing employer, an FMS 

provider who has a joint/co-employment 

arrangement with participants (as in the 

Agency with Choice or Public Authority/

Workforce Council models) can also provide 

worker-related services (e.g., recruitment, 

training, and supervision, and the provision of 

emergency backup staff).72 

FMS Models

States principally use two FMS models to implement Medicaid and state-funded participant direction programs: the Fiscal/Employer Agent (F/EA) 

model and the Agency with Choice model. The F/EA 

model includes two specific types: Government F/

EA and Vendor F/EA. All of these models are described below.
196 Understanding Medicaid Home and Community Services: A Primer

1. Fiscal/Employer Agent Model

Fiscal/Employer Agents are most effective for implementing participant direction programs, particularly 

those that allow participants to have individual 

budgets, for several reasons. First, using an F/EA 

provides participants a high degree of choice and 

control over their workers as their common law 

employers, while reducing their employer-related 

burden by managing the payroll and bill payment 

tasks. Second, using an F/EA provides safeguards 

for participants by ensuring that all required taxes 

are paid and all Department of Labor and workers’ 

compensation insurance requirements are met. 

Third, using an F/EA can provide fiscal accountability for states. Both the Government and Vendor 

F/EA models operate under §3504 of the Internal 

Revenue Service (IRS) code.73

Government Fiscal/Employer Agents. When 

states implement participant direction programs 

using a Government F/EA, the costs associated with 

providing financial management services must be 

billed as an administrative expense for the purpose of claiming Federal Medicaid matching funds 

because participants’ freedom of choice of provider 

is limited.74 Thus, when evaluating the feasibility of 

implementing a Government F/EA, a state’s Medicaid agency and program staff should assess the 

economic impact of using this model on the receipt 

of Federal Medicaid matching funds and the administrative costs to the state associated with monitoring multiple F/EA providers. 

Vendor Fiscal/Employer Agents. When states 

implement participant direction programs using a

Vendor F/EA, states may engage vendor entities–either under contract or as qualified Medicaid service 

providers, or both—who have the knowledge, 

experience, resources, and the infrastructure necessary to provide effective fiscal services. This model 

enables states to negotiate cost-effective fees for F/

EA services rendered, rather than providing these 

services in-house. States also have the option to 

(1) select a discrete number of Vendor F/EAs, using a 

competitive solicitation process, and bill F/EA costs 

as an administrative expense (at a uniform Federal 

matching funds rate of 50 percent); or (2) develop 

Medicaid F/EA provider standards and provide 

freedom of choice of provider to participants, and 

bill F/EA costs as a service expense for the purpose 

of claiming Federal matching funds (at a Federal 

matching funds rate that ranges from 50 to 83 percent).75

For Vendor F/EA services to be reimbursed as a 

waiver service, states must meet a number of Federal requirements. States must develop a service 

definition that includes a set of provider qualifications and the tasks that will be performed by the 

Vendor F/EA and any reporting agent. States must 

verify a provider’s qualifications before services are 

initiated, and must provide a detailed description 

of the frequency and methods by which provider 

qualifications will be re-verified and ongoing performance will be monitored. 

States must treat Vendor F/EAs as they would any 

Medicaid service provider. States may not arbitrarily limit the number of Vendor F/EAs available 

to participants as this would restrict their freedom 

of choice of provider and disqualify the state from 

claiming Vendor F/EA expenses as a waiver service 

for Federal matching funds purposes. Finally, states 

must monitor Vendor F/EAs and any reporting 

agents’ performance on an ongoing basis. 

A significant number of states limit the number 

of Vendor F/EA providers and forgo the receipt 

of Federal service matching funds, called Federal 

Medical Assistance Percentage (FMAP), in order to 

obtain the cost efficiencies from working with and 

monitoring fewer F/EA providers.76 The majority use 

some type of competitive solicitation process to 

select one or more Vendor F/EA providers. 

However, some states report challenges related 

to this strategy, such as (1) the need to write an 

effective solicitation document that accurately and 

completely reflects F/EA requirements; (2) the need 

to evaluate F/EA knowledge and experience for 

proposal review and vendor selection purposes; 

(3) interruptions in the continuity of F/EA providers because a satisfactory F/EA provider must rebid 

at the end of each contract period and may not be 

reselected (e.g., if they are not the lowest bidder, 

which may be a priority for a state’s purchase and 

property department responsible for managing the 

solicitation process); (4) the resources and time required to complete a solicitation, including address-
Chapter 7: Participant-Directed Services and Supports 197

ing any bidder challenges; and (5) developing and 

executing effective performance-based contracts.

Other states provide freedom of choice of F/EA 

service providers for participants in order to receive 

Federal service matching funds.77 Again, some of 

these states have experienced challenges, such 

as (1) having sufficient knowledge of Federal and 

state F/EA requirements and operations to prepare 

Medicaid standards and execute Medicaid provider 

agreements effectively; (2) preparing effective protocols for certifying F/EA providers as Medicaid providers and monitoring their performance through 

periodic re-certification; (3) having the staff and financial resources necessary to conduct F/EA certifications and recertification/performance monitoring 

in a timely and effective manner; and (4) having the 

cost of monitoring F/EA performance exceed the 

additional amount a state may receive in Medicaid 

service match versus administrative match. Given 

this last challenge, states should determine how 

much it will cost them to monitor the performance of 

significant numbers of F/EAs, as this amount may well 

exceed the funds they would receive through FMAP. 

Establishing Reimbursement for F/EA Services. 

States need to establish reasonable and adequate 

reimbursement for Vendor F/EA services (and Government F/EA services that are subcontracted to a 

subagent or reporting agent) that reflect the costs 

of providing these services. CMS has approved a 

variety of methods for determining reimbursement 

for financial management services, including the 

basic transaction-based reimbursement method 

and the modified transaction-based (per member 

per month or per member per day) reimbursement 

method. A method that is not approved by CMS 

is the percent of budget reimbursement method, 

which reimburses on the basis of a percentage 

of the total dollar volume of services that an FMS 

entity processes. This approach is not approved because it does not reflect the actual cost of providing 

the F/EA service. 78

For a detailed description of the various F/EA models and their advantages and challenges, see the 

Resources section of this chapter for a link to the 

chapter on Fiscal/Employer Agent Services in the 

Self-Direction Handbook.

2. Agency with Choice Model

In contrast to the F/EA models described above, the 

Agency with Choice FMS model operates under a 

co-employment arrangement whereby employer 

status is shared by the participant and an agency. 

For IRS purposes and other considerations, the 

agency is the primary or legal employer and officially hires the worker(s), processes human resource 

forms, and manages the payroll tasks. They also 

monitor the participant’s health and welfare, ensure that intended services are provided, and may 

provide guidance on recruiting, training, managing, 

and discharging workers. The participant or his/

her representative is the secondary or managing 

employer. In this role, the participant or representative recruits, interviews, and selects workers, and 

then refers them to an agency for the completion 

of employment/payroll paperwork. In addition, the 

participant or representative trains, manages, and 

discharges workers (to the extent they wish to). 

To be considered a bona fide participant direction 

model, agencies operating under this model must 

give participants meaningful choice and control 

over their workers—the authority to select, train, 

manage, and dismiss, as well as directing the tasks 

they perform. Key elements of an effective Agency 

with Choice program include (1) a strong commitment to the philosophy of participant direction; 

(2) a high level of choice and control afforded 

participants and their representatives; and (3) comprehensive support services, such as employer-related skills training that covers worker recruitment, 

selection, management, evaluation, and discharge; 

assistance with recruiting, hiring, and discharging 

workers when requested; and guidance on conducting criminal background checks, if not required by a 

participant-directed services program. 

Each of the five Medicaid participant direction 

authorities acknowledge the Agency with Choice 

model as an option for participant direction programs and it may be used to fulfill FMS responsibilities for participants exercising employer authority, 

budget authority, or both. CMS provides some 

basic information on Agency with Choice models in 

the Waiver Application Instructions and Technical 

Guidance.79 Some states have established specific 
198 Understanding Medicaid Home and Community Services: A Primer

requirements for this model (e.g., New Hampshire 

and Pennsylvania). 

In 2003, New Hampshire implemented regulations 

for “Other Qualified Agencies” that outline the requirements for entities to be certified as such in the 

State.80 This is the name the State uses for Agency 

with Choice FMS providers that furnish financial 

management services to participants in the State’s 

Choices for Independence HCBS waiver who are 

directing their personal care services. Effective July 

1, 2008, Pennsylvania published an Office of Developmental Programs Administrative Bulletin entitled, 

Agency with Choice Financial Management Services.

Among other things, the Bulletin outlines the requirements for agencies to operate as Agency with 

Choice FMS providers for individuals enrolled in the 

State’s Medicaid Consolidated and Person/FamilyDirected Supports waivers. 

Consumer Choice and Provider Qualifications 

Section 1902(a)(23) of the Social Security Act 

requires that Medicaid enrollees must be free to 

choose among all willing and qualified providers. 

This statutory requirement applies to all Medicaidfunded services, including services furnished 

through HCBS waiver programs. The Act allows the 

Secretary of HHS to grant states a waiver of freedom of choice only in certain circumstances, and 

then only when other safeguards are in effect that 

preserve consumer choice. 

Free choice of providers is absolutely necessary for 

individuals to direct their own services and supports 

(with the exception of FMS providers and counselors).81 However, the Medicaid freedom of choice 

statutory requirement extends only to “qualified” 

providers, and therein lies the source of limitations 

and/or complications when seeking to implement 

participant direction programs. Federal Medicaid 

law (whether under the Medicaid State Plan or 

through an HCBS waiver program) requires that a 

state establish required provider qualifications and 

agree to enroll all willing providers who meet such 

qualifications.

These qualifications must be reasonable (i.e., they 

must relate to provision of the service), and they 

also must comport with state law. Within these 

stipulations, states have considerable latitude in 

establishing the qualifications required of providers of home and community services. The broader 

these requirements, the greater will be the number 

of people who will qualify to provide services. Some 

states, however, limit provision of personal care 

services to entities that are licensed as “home care” 

or “home health agencies” or have been licensed to 

furnish community developmental disability services. This means, in turn, that individuals who provide 

home and community services and supports must 

be employees of such provider organizations. When 

provider qualifications are expressed in this fashion, 

they can pose barriers to promoting participantdirected services. 

Some of these barriers arise from state Nurse Practice Acts provisions, which sometimes dictate that 

even non-health care related personal assistance 

be provided under the supervision of a nurse (and, 

not atypically, nurses who themselves must be 

employees of a licensed home care or home health 

agency). Thus, a central task for states interested in 

promoting participant-directed services is a thorough assessment of their provider qualifications to 

determine whether they need to broaden the types 

of organizations and individuals who may qualify as 

providers. 

It is not necessary to limit providers to traditional 

service agencies. Provider qualifications may be 

expressed solely with respect to the competencies 

and skills individual workers must possess. Many 

types of Medicaid home and community services 

may be furnished by friends, neighbors, and family members—including spouses and parents of 

minor children under some authorities, at the state’s 

option. In various states, families are encouraged to 

seek out individuals in their communities who can 

provide some types of services and supports for 

people with developmental disabilities. 

Revising provider qualifications can be vital not only 

in promoting participant-directed services but also 

in expanding the potential sources of services and 

supports for people with disabilities more generally. 

However, no providers on the Office of the Inspector General excluded provider lists may furnish 

Medicaid services, whether directed by participants 

or provided by agencies.
Chapter 7: Participant-Directed Services and Supports 199

Performance of Skilled Nursing Tasks

Although the principles underlying participant 

direction support a social rather than a medical 

service model, avoiding the medical model can be 

complicated by state laws and regulations concerning the performance of “skilled nursing tasks.” 

Federal Medicaid policy does not dictate who must 

perform skilled nursing tasks, merely that such tasks 

be performed in compliance with applicable state 

laws. But state laws and regulations often dictate 

that such tasks be performed by or closely supervised by a licensed nurse—thereby creating obstacles to participant direction service models. Liability 

concerns—particularly when participants have extensive medical and nursing needs—can also stand 

in the way of promoting participant direction. 

To avoid duplicating Home Health benefits already 

available through Medicare or under the Medicaid 

State Plan, many HCBS waiver programs do not offer 

skilled nursing or rehabilitative therapies. However, 

“skilled” paraprofessional services may still be provided by personal care workers under HCBS waivers 

or under the State Plan Personal Care benefit—as 

long as the services are provided in conformity with 

the state’s Nurse Practice Act. A 1999 CMS State 

Medicaid Manual transmittal specifically states that 

Services such as those delegated by nurses or 

physicians to personal care attendants may be 

provided so long as the delegation is in keeping 

with state law or regulation and the services 

fit within the personal care services benefit 

covered under a state’s plan. Services such as 

assistance with medications would be allowed 

if they are permissible in states’ Nurse Practice 

Acts, although states need to ensure that the 

personal care assistant is properly trained to 

provide medication administration and/or 

management.82

This policy and its applicability to State Plan Personal Care programs and HCBS waiver programs were 

reaffirmed in a July 2000 State Medicaid Director 

Letter.83

Most states restrict performance of medical or 

skilled nursing tasks to licensed medical professionals, although most physician and nurse licensing 

laws do permit individuals to be trained to perform 

these tasks for themselves or for close family members. Federal Medicaid law references state licensing laws by requiring that Medicaid State Plans 

comply with all “applicable” state and local statutes. 

Under the Nurse Practice Acts in most states, tasks 

that require nursing judgment—such as medication administration—and tasks considered to be 

invasive procedures—such as catheterization and 

injections—may be performed only by paid personnel who are registered nurses or persons supervised 

by registered nurses. 

Issues related to the performance of skilled nursing 

tasks stem from concerns about quality assurance 

and liability. (See the Appendix for an overview of 

CMS requirements for quality management and 

improvement systems.)

See the Resources section of this chapter for a link 

to the chapter on Self-Direction and Health Care 

in Developing and Implementing Self-Direction 

Programs and Policies: A Handbook, which includes 

a detailed discussion of liability issues related to 

the performance and delegation of skilled nursing tasks, and ways in which states have addressed 

them.
200 Understanding Medicaid Home and Community Services: A Primer

Resources

Since the Primer was first published in 2000, numerous reports and other resources have become available 

on the Internet. This section includes key resources relevant to participant direction. Most of the publications cite additional resources and the websites also have links to other sources of information.

Publications

Crisp, S., Doty, P., Flanagan, S., Smith, G., O’Keeffe, J., et al. (2009). Developing and Implementing Self-Direction Programs and Policies: A Handbook. Chestnut Hill, MA: National Resource Center for ParticipantDirected Services.

This publication was developed to provide state staff, policymakers, service providers, program participants, 

and other stakeholders with a single comprehensive source of information about participant direction programs and policies. 

Available as the full handbook at http://www.cashandcounseling.org/resources/handbook

Available as individual chapters using the following links: 

Chapter 1: Self-Direction

http://www.cashandcounseling.org/resources/pdf/cc-01.pdf

Chapter 2: Legal Authority

http://www.cashandcounseling.org/resources/pdf/cc-02.pdf

Chapter 3: Involving Participants

http://www.cashandcounseling.org/resources/pdf/cc-03.pdf

Chapter 4: Enrollment

http://www.cashandcounseling.org/resources/pdf/cc-04.pdf

Chapter 5: Individual Budgeting

http://www.cashandcounseling.org/resources/pdf/cc-05.pdf

Chapter 6: Counseling

http://www.cashandcounseling.org/resources/pdf/cc-06.pdf

Chapter 7: Fiscal/Employer Agent Services

http://www.cashandcounseling.org/resources/pdf/cc-07.pdf

Chapter 8: Quality Management in Self-Direction Programs

http://www.cashandcounseling.org/resources/pdf/cc-08.pdf

Chapter 9: Self-Direction and Health Care

http://www.cashandcounseling.org/resources/pdf/cc-09.pdf
Chapter 7: Participant-Directed Services and Supports 201

Chapter 10: Looking Ahead 

http://www.cashandcounseling.org/resources/pdf/cc-10.pdf

Appendix I: Using Strategic Communications 

http://www.cashandcounseling.org/resources/pdf/cc-app1.pdf

Appendix II: The Consumer Direction Module

http://www.cashandcounseling.org/resources/pdf/cc-app2.pdf

Appendix III: History of Self-Direction

http://www.cashandcounseling.org/resources/pdf/cc-app3.pdf

CMS State Medicaid Director Letter (November 19, 2009). Implementation of §6087 of DRA §1915(j).

This letter provides guidance on the implementation of §6087 of the Deficit Reduction Act of 2005, Public Law 

Number 109-171. Section 6087, the “Optional Choice of Self-Directed Personal Assistance Services (PAS) (Cash 

and Counseling),” amended §1915 of the Social Security Act by adding a new subsection (j). The guidance also 

applies to §1915(c) HCBS waiver programs when states offer the self-direction opportunity and permit participants to purchase “Individual Directed Goods and Services.” The letter offers information on (1) Background, 

(2) Medicaid Authorities, (3) Criteria, (4) Support and Monitoring, and (5) Compliance with the Guidance. 

Available at http://www.cms.hhs.gov/SMDL/SMD/ItemDetail.asp?ItemID=CMS1230894

CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5]: Instructions, 

Technical Guide and Review Criteria.

The Application contains extensive information concerning Federal policies that apply to the operation of an 

HCBS waiver, in particular, Appendix E: Participant Direction of Services, which addresses how the waiver affords participants the opportunity to direct some or all of their waiver services. The addition of Appendix E to 

the waiver application recognizes that participant direction is an increasingly common feature of waivers.

Available at https://www.hcbswaivers.net/CMS/faces/portal.jsp under links and downloads, entitled §1915(c) 

Waiver Application and Accompanying Materials. 

Brown, R., Lepidus Carlson, B., Dale, S., Foster, L., Phillips, B., and Schore, J. (2007). Cash & Counseling: 

Improving the Lives of Medicaid Beneficiaries Who Need Personal Care or Home and Community-Based 

Services. Princeton, NJ: Mathematica Policy Research, Inc.

This report summarizes the findings from 5 years of research by Mathematica Policy Research, Inc. on how 

each of the three Cash and Counseling Demonstration states implemented its program, and on how the programs have affected participants, their paid and unpaid caregivers, and Medicaid costs. 
202 Understanding Medicaid Home and Community Services: A Primer

Available at http://www.cashandcounseling.org/resources/20070910-145713/index_html

Websites

National Association of State Medicaid Directors

This website contains information about the Medicaid program, including all State Medicaid Director Letters 

issued since 2004, links to state Medicaid websites, information about Medicaid statutory and regulatory issues, and current Federal legislative and policy initiatives. 

Web address: http://www.nasmd.org/Home/home_news.asp

Cash and Counseling National Program Office

This website contains extensive, wide-ranging resources concerning participant direction.

Web address: http://www.cashandcounseling.org/ 

National Resource Center for Participant-Directed Services (NRCPDS)

Drawing on over a decade of experience with participant direction and experience as a National Program Office for the Cash and Counseling project, the NRCPDS provides technical assistance to develop and improve 

participant direction programs, regardless of funding source. The website contains extensive resources on 

participant direction.

Web address: http://www.bc.edu/schools/gssw/nrcpds/

The Clearinghouse for Home and Community Based Services 

This site promotes the development and expansion of HCBS by gathering resources and tools for research, 

policymaking, and program development into this one-stop website. Under the topic Consumer/Participant 

Direction, there are 520 publications, including policy alerts and briefs, promising practices, and reports. 

Web address: http://www.hcbs.org/ 
Chapter 7: Participant-Directed Services and Supports 203

Endnotes: Citations, Additional Information,

and Web Addresses

1 The original chapter was co-authored by Gary Smith, Pamela Doty, and Janet O’Keeffe. The information in this chapter is drawn from several sources. The section on consumer choice and provider qualifications is from the original Primer chapter. The sections on Basic Features of Participant Direction of 

Medicaid HCBS and Federal Medicaid Statutory Authorities, authored by Gary Smith, are taken verbatim from Chapter 2 of the publication Developing and Implementing Self-Direction Programs and Policies: A Handbook. (See the Resources section of this chapter for the full citation, including web links to 

the entire document and to the individual chapters.) The section on Financial Management Services 

(FMS) is a brief condensation of information in Chapter 7, Fiscal/Employer Agent Services, authored by 

Susan Flanagan in the same publication. Suzanne Crisp and Janet O’Keeffe updated all other sections.

2 Family involvement is not always needed or appropriate, but many participants desire or require it. 

3 Brown, R., Lepidus Carlson, B., Dale, S., Foster, L., Phillips, B., and Schore, J. (2007). Cash & Counseling: 

Improving the Lives of Medicaid Beneficiaries Who Need Personal Care or Home and CommunityBased Services. Princeton, NJ: Mathematica Policy Research, Inc. Available at http://www.cashandcounseling.org/resources/20070910-145713/index_html. 

4 Phillips, B. et al. (2003). Lessons from the Implementation of Cash and Counseling in Arkansas, Florida 

and New Jersey. Washington, DC: Department of Health and Human Services, Assistant Secretary for 

Planning and Evaluation. Available at http://aspe.hhs.gov/daltcp/reports/cclesson.htm.

5 In the developmental disabilities field, the term “circle of support” is used to describe such informal 

supports.

6 Doty, P., Kasper, J., and Litvak, S. (1996). Consumer-Directed Models of Personal Care: Lessons from 

Medicaid. The Milbank Quarterly, 74(3):377-409. Available at http://aspe.hhs.gov/daltcp/reports/lessons.htm.

7 CMS collaborated with Arkansas, Florida, and New Jersey to design programs under the §1115 Research and Demonstration waiver authority (hereafter referred to as the §1115 waiver authority) to 

implement the demonstration and to evaluate the benefits of this approach. The demonstration 

was launched in the three states between 1998 and 2000, using a random assignment social experimental design to address selection bias, which yielded robust data about the positive benefits of the 

Cash and Counseling approach to participant direction. Phillips, B. et al. (2003), op. cit. Several more 

reports about the results of the demonstrations are located at http://aspe.hhs.gov/_/topic/topic.

cfm?topic=Consumer%20Choice. 

8 Notably, fewer than a dozen participants in all three states selected the cash option. Pamela Doty, Office of the Assistant Secretary for Planning and Evaluation. Personal communication, July 2008.

9 More information about this program is available at http://www.rwjf.org/reports/npreports/sdpdd.

htm.
204 Understanding Medicaid Home and Community Services: A Primer

10 A few states offered employer authority prior to the Independence Plus initiative. 

11 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5] Instructions, 

Technical Guide and Review Criteria. See the Resources section of this chapter for a web link to the application instructions.

12 P.L. 109-171.

13 The DRA-2005 also provides that states may offer participants in Money Follows the Person (MFP) 

demonstrations the authority to direct their services and supports. Section 6071 of DRA-2005 also authorized the Secretary of HHS to award $1.75 billion in special MFP demonstration grants over a 5-year 

period to states to support the transition of individuals from institutional settings to the community. 

These grant funds may be used to pay for special transition services to facilitate community placement. States are also eligible to receive an enhanced Federal Medical Assistance Percentage (FMAP) for 

a 1-year period for the costs of HCBS furnished to persons who move to the community. 

After 1 year, the state must ensure that individuals will continue to receive HCBS through the Medicaid 

State Plan and/or an HCBS waiver. In order to qualify for the enhanced FMAP, individuals must transition to community living arrangements that they own or lease, their family home, or a communitybased residential setting where no more than four unrelated people reside. CMS has awarded MFP 

grants to 31 states to support the transition of individuals from nursing facilities, intermediate care 

facilities for persons with intellectual disabilities, and other institutional settings to the community.

Section 6071(c) of DRA-2005 specifically provides that a state may offer MFP demonstration participants the authority to direct their HCBS. The participant direction elements of the MFP authority 

closely parallel the participant direction provisions contained in the §1915(i) HCBS State Plan authority. These elements include providing for a person-centered service plan development process and the 

option for the state to give participants choice and control over an individual budget. More information concerning MFP is located at http://www.cms.hhs.gov/DeficitReductionAct/20_MFP.asp

14 As provided in §1902(a)(23) of the Social Security Act, participants may select any qualified and willing 

provider to furnish services. A significant number of states restrict freedom of choice of FMS provider 

because the cost of monitoring large numbers of FMS providers often outweighs the benefit of receiving a higher FMAP matching payment.

15 The terms primary and secondary employer are often used in states’ unemployment statutes to describe the role of employers under a “co-employer” model.

16 Individuals may establish additional qualifications as long as they do not contradict those that the 

state has established. For example, a person may require that the worker can communicate in sign 

language. 

17 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5] Instructions, 

Technical Guide and Review Criteria, p. 195. See the Resources section of this chapter for a web link to 

the application instructions.

18 Home and community services may be delivered under additional authorities and through various service delivery arrangements. For example, the delivery of Medicaid health and long-term care 

services may be integrated under the §1915(a) authority. HCBS also may be included in managed care 

programs offered under the provisions of §1932 of the Social Security Act. The Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003 created a new type of Medicare coordinated 

care health plan, the Medicare Special Needs Plan (SNP). SNPs may be created to “wrap around” the 
Chapter 7: Participant-Directed Services and Supports 205

delivery of health and long-term care services for persons who are dually eligible for Medicare and 

Medicaid. Section 6044 of the DRA-2005 gives states the option to create alternative Medicaid benefit 

packages, including tailored benefits to meet participants’ special health needs. As a general matter, 

participant direction options may be employed in conjunction with these other authorities or service 

delivery arrangements.

19 Section 1115 of the Social Security Act gives the Secretary of HHS wide-ranging authority to grant 

states waivers of Federal Social Security Act provisions for the purpose of demonstrating and evaluating alternative approaches to service delivery. When a state is interested in testing such alternative 

approaches, this waiver authority provides states with a means to obtain relief from statutory requirements that stand in the way of implementing them. A state is required to develop a research strategy 

to assess the extent to which its alternative approach results in improved or more efficient delivery of 

services to participants. In recent years, states principally have employed this authority to restructure 

the delivery of Medicaid health care services rather than long-term care services. The authority also 

has been employed to expand eligibility for Medicaid services. Section 1115 waivers operate under 

“budget neutrality” requirements (i.e., expenditures can be no higher under the waiver than they 

would otherwise have been).

20 It was necessary to use this authority in the Cash and Counseling demonstrations, which offered participants a cash option, permitted participants to redirect personal care/assistance funds to purchase 

other goods and services, and allowed payment of legally responsible relatives for services.

21 Source: Mary Sowers, CMS. Personal communication, December 11, 2009.

22 Centers for Medicare & Medicaid Services. (2005). Medicaid-At-A-Glance: 2005. Available at http://

www.cms.hhs.gov/MedicaidGenInfo/downloads/MedicaidAtAGlance2005.pdf. 

23 The exact number of states is not known.

24 Must provide option to transition to traditional services under §1905(a)(24) and §1915(c) authorities.

25 These two states furnish HCBS to Medicaid participants under the §1115 waiver authority.

26 CMS stressed the use of person-centered planning, provided guidance to states on establishing 

individual budgets, defined requirements for supporting participants who direct their services (e.g., 

through the provision of financial management services and information and assistance services), and 

provided guidance on how states could permit waiver program participants to exercise choice and 

control over the selection of workers and their individual budgets.

27 CMS also issued a §1115 waiver template for the same purpose.

28 CMS worked in collaboration with several state agency associations that have operational responsibility for HCBS delivery: the National Association of State Directors of Developmental Disabilities Services, 

the National Association of State Units on Aging, the National Association of State Medicaid Directors, 

the National Association of State Head Injury Administrators, and the Alliance of Cash and Counseling 

States.

29 The Version 3.3 HCBS waiver application was released in November 2005 but has since been replaced 

by subsequent versions. Version 3.5 was issued in January 2008. CMS continually updates the waiver 

application and the current version is also being updated. Version 3.6 is expected to be released in late 

2010 or early 2011. With respect to participant direction, there are no substantive differences in the 

treatment of participant direction among the various versions of the application. 
206 Understanding Medicaid Home and Community Services: A Primer

30 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5] Instructions, 

Technical Guide and Review Criteria. See the Resources section of this chapter for a web link to the application instructions.

31 Appendix E built upon the participant direction elements that were contained in the predecessor 

Independence Plus waiver application template.

32 Waiver of comparability has traditionally been interpreted to mean that states can have multiple 

waivers offering different kinds of services for different populations. However, there has also been a 

legal interpretation by General Counsel that there can be no waiver of comparability within waivers. 

Unlike the §1915(j) authority, HCBS waiver rules do not have an explicit prohibition on self-direction 

for group home residents. However, as a practical matter, group home residents can not direct their 

services if they are provided by facility staff or outside staff through arrangements with the facility. 

Basically, if waiver participants choose to live in a group residential service setting, by definition they 

are choosing to use services they can not direct. However, it is technically possible that “some” services 

not provided by the facility could be self-directed. 

33 It is important to specify that a representative may be the common law or managing employer because in both cases, the employer must be someone who can successfully participate in an unemployment or worker’s compensation appeal. 

34 State Medicaid Director Letter regarding how to check for excluded providers, available at http://www.

cms.gov/smdl/downloads/SMD061208.pdf.

35 In the Instructions, Technical Guide, and Review Criteria that accompanies the HCBS waiver application, p. 172, CMS has defined Individual Directed Goods and Services as “services, equipment or supplies not otherwise provided through this waiver or through the Medicaid State Plan that address an 

identified need in the service plan (including improving and maintaining the participant’s opportunities for full membership in the community) and meet the following requirements: the item or service 

would decrease the need for other Medicaid services; AND/OR promote inclusion in the community; 

AND/OR increase the participant’s safety in the home environment; AND, the participant does not 

have the funds to purchase the item or service or the item or service is not available through another 

source. Individual Directed Goods and Services are purchased from the participant-directed budget. 

Experimental or prohibited treatments are excluded. Individual Directed Goods and Services must be 

documented in the service plan.” 

36 A few states extend the coverage of Individual Directed Goods and Services to waiver participants 

who do not formally self-direct. More commonly, the coverage is confined to individuals who selfdirect and exercise budget authority. For example, West Virginia includes this coverage in its Personal 

Options participant direction program in its Medicaid HCBS waiver for older persons and individuals 

with disabilities. Waiver participants may save up to $1,000 from their budget to purchase participantdirected goods and services. For more information, go to http://www.cashandcounseling.org/resources/20070611-111748.

37 Issued on November 19, 2009. Available at http://www.cms.hhs.gov/SMDL/downloads/SMD111909.

pdf.

38 Participant direction programs pose different risks than do traditional service delivery programs. In 

both programs, a risk always exists that workers will not show up. But when participants assume the 

role of employer and a professional service provider is no longer overseeing service delivery, participants themselves must assume the responsibility of managing staff and assessing quality. Participants 
Chapter 7: Participant-Directed Services and Supports 207

who employ their workers may also be liable if employment-related taxes and workers compensation 

insurance premiums are not paid. Consequently, CMS requires states to (1) institute safeguards and 

supports to minimize participants’ potential liability (including the use of strong fiscal employer agent 

models), and (2) develop quality management and improvement systems sufficient to safeguard the 

health and welfare of individuals in participant direction programs. States must also continue to meet 

all other statutory assurances required when operating a waiver program.

39 When financial management services are furnished as a Medicaid administrative activity, costs are 

reimbursable at the standard 50 percent administrative claiming rate for federal financial participation. Under this option, a state may limit the number of FMS entities, for example, by selecting them 

through a competitive process. When financial management services are furnished as a waiver service, 

the costs are reimbursable at the state’s services claiming rate, which may be higher than 50 percent 

and any willing and qualified provider must be permitted to furnish financial management services. 

When the services are covered as a waiver service, a state also may designate the FMS provider as an 

“organized health care delivery system.” Such a designation may simplify compliance with Medicaid 

provider agreement requirements. There is an extensive discussion of the provision of financial management services as an administrative activity or as a covered waiver service in the CMS HCBS Waiver 

Application Instructions, Technical Guide, and Review Criteria, including managing provider agreements. See the Resources section of this chapter for a web link to the Application Instructions.

40 Another option for providing counseling services to self-directing HCBS waiver participants is the 

use of targeted case management services (paid as a State Plan service). See the Resources section of 

this chapter for additional information on counseling services and Chapter 4 for information on the 

targeted case management option.

41 The §1915(b) waiver authority permits a state to obtain a freedom of choice waiver in order to limit the 

providers of Medicaid State Plan services. Some states (e.g., Michigan and Wisconsin), and sometimes 

jurisdictions within a state, operate programs under concurrent §1915(b)/§1915(c) waivers. For example, the North Carolina Piedmont Cardinal Health Plan operates under concurrent §1915(b)/§1915(c) 

waivers to provide mental health and developmental disabilities services in a five-county area.

See also Chapter 9: Incorporating Self-Direction Options in Managed Care Plans from the publication 

Developing and Implementing Self-Direction Programs and Policies: A Handbook. See the Resources 

section of this chapter for the full citation and web link to the chapter.

42 A state can restrict freedom of choice of financial management services entities and information and 

assistance providers in a (b)(c) waiver program and receive Federal matching funds under the service 

rate rather than the administrative rate, as long as the service is included in the approved §1915(b)(4) 

request. 

43 The text of §1915(i) is located at http://www.paelderlaw.com/pdf/DRA_Provisions.pdf. 

44 Section 1915(i)(1)(G)(iii) of the Social Security Act.

45 See Chapter 5, Individual Budgeting from the publication Developing and Implementing Self-Direction Programs and Policies: A Handbook. See the Resources section of this chapter for the full citation 

and web link to the chapter.

46 The authority defines participant direction as follows: “The participant (or in the case of a participant 

who is a minor child, the participant’s parent or guardian, or in the case of an incapacitated adult, 

another individual recognized by state law to act on behalf of the participant) exercises choice and 
208 Understanding Medicaid Home and Community Services: A Primer

control over the budget, planning, and purchase of participant-directed personal assistance services, 

including the amount, duration, scope, provider, and location of service provision.” The text of §1915(j) 

is located at http://www.paelderlaw.com/pdf/DRA_Provisions.pdf.

47 Different Medicaid authorities use different terms to describe the same service. As noted previously, 

the terms personal assistance, personal care, and attendant services encompass the same service: assistance performing activities of daily living (ADLs) and instrumental activities of daily living (IADLs). 

48 Available at http://www.cms.hhs.gov/SMDL/downloads/SMD091307.pdf. The letter provides guidance 

on the implementation of Section 6087, Optional Participant Direction Personal Assistance Services 

Program of the Deficit Reduction Act of 2005.

49 Available at http://www.cms.hhs.gov/SMDL/downloads/SMD091307Encl.pdf.

50 On October 3, 2008, CMS published a final rule in the Federal Register (73 Fed. Reg. 57,854) providing 

guidance to states that choose to administer self-directed personal assistance services through their 

Medicaid State Plan, as authorized by the DRA-2005. Available at http://edocket.access.gpo.gov/2008/

E8-23102.htm. 

51 A cash option would be allowed under a §1115 waiver, but CMS is no longer approving the use of this 

authority solely to implement participant-directed services options. However, if a participant direction 

program is a component of a broader Medicaid reform proposal, the authority could be used. 

52 Available at http://www.cms.hhs.gov/SMDL/downloads/SMD111909.pdf.

53 Under the §1915(j) authority, CMS does not require states to mandate the use of financial management services for participants who elect the “cash” option. Instead, these participants may choose to 

retain responsibility for some or all of their fiscal and employer-related responsibilities. Individuals 

who receive cash benefits have the option to hire an FMS provider or a private accountant to perform 

employer tasks, such as payment of payroll taxes. Participants who choose to perform these tasks 

themselves must comply with all applicable employment and tax laws.

54 42 CFR Subpart G—Home and Community-Based Services: Waiver Requirements. Available at http://

law.justia.com/us/cfr/title42/42-3.0.1.1.10.7.html.

55 The service plan is based on a needs assessment that determines how many hours of aide services will 

be authorized for payment. Some states also require specification of tasks the aide will perform, and in 

some of these states the number of hours authorized is determined by the time allocated for particular tasks, such as bathing, dressing, and meal preparation. 

56 Some states require the representative to be a legal entity, such as a guardian, which limits participants’ choice of representatives.

57 If representatives serve their own interests rather than those of participants, the counselor may advise 

a change of representative.

58 At §441.480.

59 Statute available at http://www.ssa.gov/OP_Home/ssact/title19/1915.htm.

60 Federal Register, 73(193):57885 (444.480). 

61 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, 
Chapter 7: Participant-Directed Services and Supports 209

Technical Guide and Review Criteria. p. 173. See the Resources section of this chapter for a web link to 

the application instructions.

62 O’Keeffe, J. (1996). Determining the Need for Long-Term Care Services: An Analysis of Health and Functional Eligibility Criteria in Medicaid Home and Community-Based Waiver Programs. Washington, DC: 

AARP Public Policy Institute.

63 Available at http://www.hhsc.state.tx.us/Contract/529060406/final/Attachment_H.pdf.

64 They may also do so under the §1115 waiver authority.

65 Kathy Kelly, Minnesota Department of Human Services, Disability Services Division, Supervisor of 

Policy Implementation in the Home & Community Living Services Group. Personal communication, 

January 27, 2010.

66 This section is condensed from Chapter 7 on Fiscal/Employer Agent Services, authored by Susan Flanagan, Ph.D., M.P.H., from the publication Developing and Implementing Self-Direction Programs and 

Policies: A Handbook. See the Resources section of this chapter for the full citation and web link to the 

chapter.

67 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, Technical Guide and Review Criteria. Appendix C: Participant Services, Attachment: Core Services 

Definitions, Section D, Services in Support of Participant Direction, #2 Financial Management Services, 

p. 176. See the Resources section of this chapter for a web link to the application instructions.

68 Ibid. Appendix E, Overview: Financial Management Services, p. 201.

69 Medicaid funds may also be disbursed directly to participants in programs under the §1115 authority. 

However, as stated above, CMS will generally not approve a §1115 waiver solely to offer a participant 

direction program. 

70 The term “neutral bank” is used because the F/EA is not providing direct care services to participants 

so it is “neutral” about which providers they use. Prior to the use of F/EAs, some participants with developmental disabilities found it difficult to move between/among agency service providers because 

their Medicaid benefit was often allocated to one service organization for the fiscal year, which had a 

financial interest in who provided services to participants. 

71 Payroll includes, but is not limited to, the collection and processing of worker timesheets; making sure 

that workers are paid in accordance with Federal and state labor laws; the withholding, filing, and payment of Federal and state income tax withholding and employment taxes, and locality taxes; processing of the advanced Federal earned income credit, when applicable, and any garnishments, liens, or 

levies against workers pay, as required; and generating and distributing payroll checks. 

72 When participants are not able or willing to act solely as their workers’ employer, their representatives 

can assume this role if they are willing to do so. 

73 Flanagan, S.A., and Green, P.S. (2000). Fiscal Intermediaries: Reducing the burden of consumer-directed 

support. Generations, 24(111):94-95. This publication describes the development of Fiscal/Employer 

Agents and various issues regarding their use.

74 Participants’ choice of provider is limited because, per IRS regulations, only one entity (a Government 

F/EA, or its reporting agent or subagent if it chooses to use one) can file and deposit the required 

Federal taxes for participants and their workers under the same entity name and Federal Employer 
210 Understanding Medicaid Home and Community Services: A Primer

Identification Number on the required IRS Forms.

75 However, if a state implements a Medicaid State Plan participant direction program in accordance 

with §1915(j) of the Social Security Act, the costs associated with Vendor F/EA services must be billed 

as an administrative expense for the purpose of claiming Federal matching funds.

76 States that limit the number of Vendor F/EA providers available to participants include, but are not 

limited to, Alabama, Arkansas, Arizona, Connecticut, Florida, Idaho, Iowa, Illinois, Maryland, Massachusetts, Kansas (WORK Program), Missouri, Nevada, New Jersey, New Mexico, Pennsylvania, Tennessee, 

Virginia, Vermont, and West Virginia. States that restrict participant choice of F/EA provider, including 

states that implement Government F/EAs or Medicaid State Plan amendments in accordance with 

§1915(i) and §1915(j) of the Social Security Act, are reimbursed for F/EA costs at the Federal administrative matching rate. 

Alabama has implemented a pilot participant direction program under its Medicaid State Plan by 

using the §1915(j) authority. New Jersey converted its Personal Preference Program from operating 

under a Medicaid §1115 waiver to the §1915(j) authority effective July 1, 2008. The Missouri Division of 

Developmental Disabilities has implemented a Government F/EA and performs all tasks internally. Nevada plans to implement a participant-directed services pilot for individuals with developmental disabilities living in rural areas sometime in 2010. West Virginia’s Bureau of Medical Services and Florida’s 

Department of Elder Affairs and Agency for Persons with Disabilities have implemented a Government 

F/EA and use a subagent.

77 States include, but are not limited to, Pennsylvania (53 percent Medicaid service match rate), Michigan 

(58.10 percent Medicaid service match rate), Minnesota (50 percent Medicaid service match rate), and 

Rhode Island (52.35 percent service match rate). 

78 CMS. (2008). Application for a §1915(c) Home and Community-Based Waiver [Version 3.5], Instructions, Technical Guide and Review Criteria. Appendix E, Item E-1-i: Provision of Financial Management 

Services, p.205. See the Resources section of this chapter for a web link to the application instructions.

79 Ibid.

80 Chapter He-P600, Part He-P601, Certification of Other Qualified Agencies.

81 The administrative burden for states of having multiple FMS providers is significant and the cost often 

exceeds the funds a state receives through the receipt of FMAP. In addition, the potential liability associated with poor performance by FMS providers increases when they do not have enough business 

to stay current with Federal and state requirements. For example, if a state has 75 FMS providers, but 

only 25 are regularly serving clients and 50 are not serving anyone, those without clients are at risk of 

not staying up-to-date with Federal and state requirements. A similar situation can occur with having 

too many counselors (i.e., information and assistance providers). New Jersey’s Personal Preference Program found that only a small number of counseling agencies were serving the majority of consumers 

while the others were serving very few consumers and were not keeping up with requirements.

82 Medicaid Manual Transmittal Part 4, N. 73, September 17, 1999. Available online as part of the State 

Medicaid Manual, Chapter 4: Services, 4444 to 4658, at http://www.cms.hhs.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sortOrder=ascending&itemID=CMS02192

7&intNumPerPage=10.

83 Available at http://www.cms.hhs.gov/smdl/downloads/smd072500b.pdf.
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 211

Guide to Chapter 8

Evolution of Medicaid Long-Term Care in Managed Care Systems. . . . . . . . . . . . . . . . . . . . . . . 213

Early Growth of Medicaid Managed Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

Recent Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

Reasons for Developing MLTC Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

Challenges to Implementing MLTC Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

Medicaid Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

Section 1115 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Concurrent §1915(b) and §1915(c) Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

Section 1915(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

Section 1932(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222

Section 1934. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222

Medicare Special Needs Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Section 1915(i). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

All Quality and Other Requirements of Each Authority Must Be Met. . . . . . . . . . . . . 224

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .225

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . 229

Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 213

Chapter 8

Medicaid Authorities for Delivering 

Home and Community Services through 

Risk-Based Managed Care Systems

Managed care is an approach to financing and delivering health care that aims to enhance value by controlling 

costs while improving quality. Risk-based managed care is defined as a financing and delivery system in which a 

contractor is paid a set monthly fee per person enrolled (called a capitation rate), and bears financial risk for providing a defined package of services to the enrolled population. Forty-six states use risk-based Medicaid managed care; 

it is the most commonly used approach for organizing and financing primary and acute health care. But, apart from 

the Program of All-inclusive Care for the Elderly (PACE) model, only 11 states have applied risk-based managed care 

approaches in the delivery of long-term care—either institutional or home and community services and supports. 

Recently, however, the number of people receiving these services and supports through managed care delivery 

systems has grown significantly.

This chapter discusses the Medicaid authorities that states can use to provide home and community services 

through risk-based managed care delivery systems. It briefly decribes the history of programs that include long-term 

care services in managed care arrangements, and discusses how Medicaid authorities have evolved over time. Because the majority of Medicaid-eligible individuals who need long-term care also have Medicare coverage—known 

as people who are dually eligible—some programs are designed to integrate Medicaid and Medicare funding for 

these beneficiaries. Thus, this chapter also briefly discusses the Medicare authority for integrated service delivery 

models.1

Evolution of Medicaid Long-Term Care in Managed Care Systems 

Prototype Medicaid managed care programs that include long-term care services and supports go back to the 

1980s, when the PACE demonstration grew out of San Francisco’s innovative On Lok program, and the Arizona 

Long-Term Care System (ALTCS) was implemented. Both of these programs were implemented under the Section (§)1115 Research and Demonstration waiver authority (hereafter referred to as a §1115 waiver). 

PACE and ALTCS are very different programs, but they have one important feature in common: their contractors receive a monthly capitation fee per member regardless of the amount of services their members use. This 

contrasts with the usual fee-for-service approach used to pay for home and community-based services (HCBS). 
214 Understanding Medicaid Home and Community Services: A Primer

Thirty states now operate PACE sites under a §1934 

State Plan amendment, and ALTCS continues to 

operate as a statewide demonstration program 

under a §1115 waiver. (More information about 

these programs and the authorities under which 

they operate is provided later in this chapter.) Despite the early efforts of these enduring programs, 

it was several years before a few other states began 

fashioning managed long-term care (MLTC) models 

of their own.

Early Growth of Medicaid

Managed Care

In the 1980s, many states were implementing 

Medicaid managed health care. Their efforts were 

focused on the largest groups of beneficiares: families and children who qualified for Medicaid based 

on their eligibility for cash assistance through Aid to 

Families with Dependent Children (now Temporary 

Assistance to Needy Families). Individuals eligible 

for Medicaid through Supplemental Security Income (SSI) typically were excluded from managed 

health care, or included on a voluntary basis.2 When 

SSI-related groups were included, their long-term 

care services were almost always “carved out” and 

continued to be delivered through the traditional 

fee-for-service system. This was in part because 

early Medicaid managed care programs were building on the experience of commercial managed care 

organizations (MCOs) that provided only primary 

and acute health care.

Growth of Medicaid managed health care accelerated in the 1990s. By 1998, state survey data 

showed that a majority of Medicaid beneficiaries 

were enrolled in some form of Medicaid managed 

care. About two-thirds of Medicaid managed care 

enrollment was in risk-based commercial or Medicaid-only MCOs.3

 The remaining third were enrolled 

in primary care case management, which assigns 

primary care providers to members but does not 

capitate payments.

In the 1990s, a number of states began applying 

risk-based managed care strategies to the provision of long-term care services. These included both 

Medicaid-only models, which focused exclusively 

on Medicaid-funded services, and integrated models, which included both Medicaid and Medicare 

services for persons who were dually eligible. New 

integrated programs were implemented in two 

states: the Wisconsin Partnership Program (1995) 

and Minnesota Senior Health Options (1997). Three 

Medicaid-only programs were launched in the 

same period: New York Managed Long-Term Care 

(1997), Texas Star+Plus (1998), and Florida Diversion 

(1998).4

The Balanced Budget Act (BBA) of 1997 included 

significant changes to Federal Medicaid managed 

care policy. For the first time, Federal law allowed 

states under certain conditions to implement mandatory Medicaid managed care programs without 

the need for Federal waivers (i.e., a state could 

require certain Medicaid participants to enroll in a 

new managed care program). However, individuals 

eligible for both Medicaid and Medicare (hereafter 

called dually eligible persons) and children with 

special health and/or long-term care needs were 

specifically excluded from those provisions. The 

change in Federal policy recognized that managed 

care had become the dominant delivery system for 

families and children, but was still relatively untested among SSI-eligible groups. 

Recent Trends 

Facilitated by the policy changes in the BBA, Medicaid managed care for families and children has 

continued to grow in the past decade. By June 2008, 

the Centers for Medicare & Medicaid Services (CMS) 

reported that 71 percent of Medicaid enrollees were 

in managed health care of some type in 48 states, 

including risk-based arrangements and primary 

care case management.5 As about two-thirds of the 

managed care enrollment is in risk-based arrangements in 46 states, risk-based arrangements are the 

dominant form of Medicaid managed care.6 However, populations receiving long-term services have 

largely continued to be excluded from states’ Medicaid managed care initiatives. For example, one survey showed that 90 percent of states with managed 

care service delivery models excluded persons in 
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 215

long-term institutional settings, 73 percent excluded dually eligible persons, and 71 percent excluded 

persons receiving home and community services.7

As a percentage of overall Medicaid managed care 

programs, MLTC continues to be small, but a number of new Medicaid-only and integrated MLTC 

initiatives have been implemented since 2000 and 

some of the early MLTC programs have grown substantially. In 2000, Wisconsin piloted its Medicaidonly Family Care Program in five areas of the State 

and by 2009 had almost completed its statewide 

expansion. In 2001, building on its experience with 

Senior Health Options, Minnesota launched its 

Disability Health Options, an integrated MedicaidMedicare program for adults with physical disabilities, and in 2005, expanded Senior Health Options 

statewide. Texas has also engaged in a multi-region 

expansion of Star+Plus.

In 2004, Massachusetts implemented the integrated 

Senior Care Options program, and in 2008, New 

Mexico began implementing its Coordinated Long 

Term Services program, a mandatory, statewide 

Medicaid managed care program with an estimated 

38,000 persons enrolled. Hawaii implemented Quest 

Expanded Access in 2009, adding an estimated 

39,000 persons to the national MLTC enrollment. 

As of 2009, 11 states were providing long-term care 

services and supports through risk-based managed 

care arrangements outside of PACE programs, and 

one additional state has been approved to implement an MLTC initiative.8 So, although MLTC continues to be the exception rather than the rule, it is 

slowly being adopted by additional states. 

Reasons for Developing

MLTC Programs

The key feature of risk-based managed care is that a 

contractor bears financial risk for services provided 

over time and across settings. The contractor is paid 

a capitation rate per enrollee and is responsible for 

providing all contracted benefits under this rate. If 

the actual cost of providing services exceeds the 

aggregate capitation amount, the contractor experiences a loss, but if services can be provided at or 

below the capitation amount, the contractor profits. 

As applied to long-term care, this approach creates 

an incentive to avoid institutional care whenever 

possible through the provision of cost-effective 

home and community services.

States commonly cite the following goals as reasons 

to develop MLTC.

• Strengthen accountability for quality. When 

bolstered by a robust quality improvement 

component, MLTC can hold contractors accountable for consumer outcomes over time 

and across service settings. Given that many 

individuals who receive long-term care services have complex, multi-service needs, the 

ability to hold contractors accountable for a 

broad range of services across multiple service 

settings is critical to quality improvement. 

Absent a single, accountable contractor, it is 

very difficult to work on preventing avoidable 

hospitalization or institutionalization. 

• Streamline and coordinate access to services. A good care management system can 

help address the lack of coordination across 

primary, acute, and long-term services. Such 

coordination is particularly important in integrated programs for dually eligible persons. 

Care management is also critical in traditional 

HCBS waiver programs, but care managers 

are limited to managing waiver services and 

have little or no interaction or influence with 

primary and acute health care providers.

• Complement state efforts to better balance 

their long-term service systems. States see 

MLTC as an effective vehicle for reducing the 

unnecessary use of institutional services and 

increasing the use of home and community 

services. In the fee-for-service system, such 

balancing efforts often face a financing obstacle: states need to increase resources for home 

and community services while maintaining 

funding for institutional care. The flexibility of 

capitation addresses this problem when community and institutional services dollars are 

blended in a single capitation rate. The contractor has the flexibility to use the capitation 

rate in the most appropriate way that meets 
216 Understanding Medicaid Home and Community Services: A Primer

the needs and preferences of the consumer. 

In essence, the capitation becomes a flexible, 

portable, and global budget.9

Challenges to Implementing

MLTC Programs 

Implementing MLTC programs has proven to be 

more challenging than traditional Medicaid managed primary and acute health care for families and 

children. Major issues are summarized below. 

• Consumers and advocates worry about 

underservice and loss of control. Despite efforts to emphasize person-centered concepts 

in MLTC programs, many consumers and their 

advocates worry that contractors will be financially motivated to reduce access to services, 

limit consumer choice, and provide service 

plans that are less tailored to members’ individualized needs. To address these and related 

concerns, states must engage consumers early 

on and throughout program development, 

implementation, and evaluation, recognizing 

that a meaningful engagement process with 

consumers requires a substantial commitment 

of time and resources. 

• Entities involved in delivering HCBS resist 

role changes. In particular, organizations to 

whom the state has delegated case management of waiver services, such as counties, Area 

Agencies on Aging, and Independent Living 

Centers, generally do not want to cede that 

responsibility to MCOs. States must work with 

these entities to help them redefine their roles, 

and in some programs, to forge formal partnerships with MCOs.

• Infrastructure is lacking at the state and 

service delivery levels. Commercial MCOs 

generally lack experience providing long-term 

care services, while state Medicaid agencies 

and traditional HCBS providers lack experience 

managing risk. Additionally, because state 

legislatures often equate managed care with 

privatization, they may expect to reduce state 

administrative positions when MLTC is implemented. A major education effort may be 

needed for the state legislature to understand 

that implementing a managed care program 

does not result in a need for fewer state 

agency staff.

• Rate setting is complex. Considerable variation in the needs of the population served 

presents a major challenge to the rate setting 

process. One person may need only a few 

hours of personal assistance per day, while 

another might need several months of nursing facility care; also, an individual’s needs can 

vary over time. Determining a capitation rate 

to pay appropriately for this potential range of 

services, while also building appropriate incentives to provide HCBS instead of institutional 

services, is a complex task. 

• High incidence of dually eligible persons. 

One of the greatest challenges is the high 

incidence of dually eligible persons among the 

population in need of long-term care. While a 

state may conclude that a Medicaid-only program will have too few participants—particularly in small states—and so is not worth the 

effort, on the other hand, finding a contractor 

that can provide the entire range of Medicaid 

and Medicare services may not be feasible or 

may require too much effort. 

Medicaid Authorities 

Medicaid authorities for MLTC have evolved considerably since the early programs of the 1980s and 

1990s. ALTCS and the first generations of Minnesota’s Senior Health Options and Wisconsin’s Partnership Program all operated under §1115 waivers, which are intended to promote research and 

demonstration initiatives that test new ideas. Since 

then, additional statutory authorities have been enacted, and CMS has helped states to assess whether 

or not they need the §1115 authority to achieve 

their goals. The result has been a marked movement 

away from §1115 waivers.10

Medicaid authorities that states may consider alone 

or in combination are described below and their key 

features are summarized in Table 8-1 (on the next 

page). The authority or combination of authorities 

that a state selects depends primarily on the program features desired. Ideally, the choices made will 

enable the desired program features with the least 
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 217

administrative burden. The major program features 

are listed in the first column of Table 8-1 and are 

discussed below.

• Managed care authority is used to pay a limited number of contractors to serve a population on a capitated basis. The contractor is 

responsible for a group of services, which it 

offers through a network of providers. States 

may select contractors through a competitive 

process, or may simply set the participation 

requirements and contract with any organization meeting the requirements. 

• Selective contracting allows the state to 

limit the number of participating providers. 

This feature differs from the normal practice 

in Medicaid, in which provider qualifications 

are set by the state and all providers who meet 

them may participate as Medicaid providers.

• Mandatory enrollment into Medicaid managed long-term care requires a §1115 or a 

§1915(b) waiver. Mandatory enrollment is 

also possible under the §1932(a) and §1937 

authorities, except for dually eligible persons. 

Because persons dually eligible are at risk for 

needing long-term care, exempting them from 

mandatory enrollment makes these authories 

impractical for mandatory MLTC. Regardless of 

the authority used, dually eligible persons may 

never be subject to mandatory enrollment for 

Medicare services.

• HCBS beyond the State Plan, institutional 

level-of-care requirement, and waiver of 

comparability. Traditionally, states have provided a wide range of home and community 

services—including those not available under 

the Medicaid State Plan, such as environmental modifications—on a fee-for-service basis 

in a §1915(c) waiver program. States can offer 

a capitated MLTC program using a §1915(c) 

waiver in com-bination with a managed 

care authority. However, the program will be 

limited to individuals who meet the state’s 

institutional level-of-care criteria.

With the passage of the Deficit Reduction 

Act of 2005 (DRA-2005)—as amended by the 

Patient Protection and Affordable Care Act 

of 2010 (hereafter called the Affordable Care 

Act)—states may now offer HCBS under their 

State Plan through the §1915(i) authority, freeing them from the requirement to use institutional level-of-care criteria—unless the state 

uses the 300 percent of SSI income eligibility 

criteria. (See Chapter 4 for more information 

about this authority.)

• Limit geographically. Except for the §1915(i) 

authority, all of the authorities listed in Table 

8-1 allow a state to limit a program geographically, referred to as waiving Medicaid’s “statewideness” requirement. States often do so to 

gradually phase-in a pro-gram or because a 

limited supply of MLTC contractors in rural 

areas makes it impractical to offer a program 

except in highly populated areas. 

• HCBS financial eligibility. In general, a state 

may not deviate from the financial eligibility criteria included in its State Plan, with the 

exception of institutional financial eligibility 

criteria, an option states may elect to use for 

institutional services and for §1915(c) waiv-ers. 

Institutional financial eligibility criteria include 

(1) the special income rule, which allows states 

to expand financial eligibility to cover individuals in institutions (and §1915(c) waivers) who 

have incomes up to 300 percent of the Federal 

SSI benefit level; (2) the ap-plication of spousal 

impoverishment rules; (3) non-deeming of parental income for de-pendent children living at 

home; and (4) var-ious exclusions from countable income (such as a home maintenance 

allowance) in the determination of financial 

eligibility for home and community services. 

This option to use 300 percent of the Federal 

SSI benefit to determine financial eligibility is 

also possible with a §1115 waiver, in a PACE 

program under §1934, and with the §1915(i) 

authority. However, if a state uses the special 

income rule in its §1915(i) program, then participants must meet institutional level-of-care 

criteria. It is not possible to use institu-tional 

financial eligibility criteria under a §1915(b) 

waiver or under the §1915(a) statutory authority alone.
218 Understanding Medicaid Home and Community Services: A Primer

 Table 8-1. Features of Medicaid Authorities That May Be Employed in 

 Managed Long-Term Care Programs

Features

Waivers Statutory Authority

§1115 §1915(b) §1915(c) §1915(a) §1915(i)

(ACA)

§1932(a)

(BBA)

§1934

(BBA)

Managed care 3 3 3 3 PACE model 

only

Selective 

contracting

allowed

3 3 3 3

Mandatory 

enrollment 3 3

Yes, but not 

for dually 

eligible 

persons

Offer HCBS 

beyond State 

Plan

3 3 3 3

Institutional 

level-of-care 

requirement

3

Only if state 

uses the 

300% of SSI 

income rule

3

Waive 

comparability 3 3 3 3 3 3

Limit 

geographically 3 3 3 3 3

Expand HCBS 

financial 

eligibility 

3 3 3 3

Budget and cost 

requirements

Budget 

neutral

Cost 

effective Cost neutral

Less than 

upper 

payment 

level

Includes 

Medicare 3

State Plan 

amendment 

required

3 3 3

Renewal 

requirement

Usually 

every 5 

years

2 years 5 years None —1 None None

ACA = The Affordable Care Act; BBA = Balanced Budget Act.

1 If a state’s §1915(i) program targets a specific population, the State Plan amendment will only be approved for 5 years, 

with the option for the state to renew for additional 5 year periods if CMS determines, prior to the beginning of the renewal period, that (1) the state met Federal and state requirements and (2) the state’s monitoring is in accordance with 

the Quality Improvement Strategy in the state’s approved State Plan Amendment. 
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 219

• Budget and cost requirements are important 

when selecting an authority for implementing 

an MLTC program, especially a §1115 waiver. 

The test for a §1115 waiver demonstration program is that it be budget neutral, which means 

that the total costs of the program can not 

exceed what they would have been under the 

state’s regular Medicaid program. Because the 

state needs to stay within a total expenditure 

cap, if enrollment is greater than projected, the 

state is at risk for any additional costs. A state 

may manage this risk by capping enrollment, 

but may not want to do so if the policy objective is to expand coverage.11

Section 1915(b) waivers require cost effect-iveness, which applies to the average per-person 

costs, which may not exceed the average per 

person costs of the comparable fee-for-service 

group. These costs must be calculated in an 

actuarially sound manner, based on actual expenditures in a base year. A state is at risk if average per person costs exceed fee-for-service 

costs, but not for unanticipated enrollment of 

additional per-sons.12

Section 1915(c) waivers require cost neutrality, which means the average per person 

cost for waiver services may be no greater than 

the average cost of the institutional services 

that the waiver services are an alternative to, 

determined on a per capita basis or in the 

aggregate. The budget requirement for PACE 

sites under §1934 is similar to that for §1915(c). 

It requires that the cost of PACE services must 

be less than the upper payment limit—defined 

as the average amount that would have been 

spent on a comparable population in fee-forservice arangements.13 Finally, if proposing a 

benchmark plan under §1937, a state must 

demonstrate that the proposed plan is actuarially equivalent to the selected benchmark.

• Renewal requirements. When determining 

which authority to use, states may want to 

consider the associated administrative burdens of each option. A clear advantage of 

using the §1932(a) and §1934 authorities is 

that once approved, they become a permanent feature of the state’s Medicaid program 

unless subsequently altered by the state. Section 1915(b) waivers are approved for 2-year 

per-iods and may be renewed for up to 2 years. 

Section 1915(c) waivers are approved initially 

for a 3-year period with a 5-year renewal period. Section 1115 demonstration programs are 

initially approved for a 5-year period and can 

be renewed for a 3-year period. Section 1915(i) 

benefits that include targeted pop-ulations 

can only be approved for a 5-year period, with 

the option to renew for additional 5-year periods. 

Under a new provision of the Affordable Care 

Act, the Secretary of HHS may allow waiver 

programs for individuals who are dually eligible to be approved for an initial period of up 

to 5 years and renewed for up to 5 years, at the 

State’s request.14 CMS will be issuing guidance 

on this provision in the near future.

The features a state wishes to include in its MLTC 

program should drive the state’s decision about 

what specific authorities to use. In general, a state 

wants to achieve the greatest number of desired 

features with the least administrative burden. A 

summary of each authority follows.

Section 1115 Waivers 

Of all the Medicaid authorities that states can use to 

offer MLTC, §1115 waivers offer the greatest flexibility. However, they also have the most rigorous 

approval criteria and generally take longer to obtain 

than other waivers. Section 1115 allows the Secretary of Health and Human Services to waive any of 

the requirements of §1902 of the Social Security Act 

for purposes of researching innovative approaches 

to delivering Medicaid benefits and services, including both managed care and fee-for-service innovations. Section 1902 includes the basic requirements 

for operating a Medicaid program, making the 

§1115 waiver the most comprehensive available. 

To be approved, a §1115 demonstration must test 

a new idea to improve the Medicaid program. The 

budget test is more rigorous than those for other 

waivers and the Federal Office of Management 

and Budget reviews for budget neutrality. There is 
220 Understanding Medicaid Home and Community Services: A Primer

no limit on the amount of time CMS may take to 

review the application. In short, this waiver can do 

the most, but can only be used to test a true innovation. See Table 8-2 for an example of the use of this 

authority.

Concurrent §1915(b) and

§1915(c) Waivers 

Section 1915(b) waivers are used to create mandatory managed care programs. They may not be used 

to offer benefits that are not included in the Medicaid State Plan, nor may they be used to expand 

financial eligibility for HCBS beyond State Plan eligibility levels. An exception is that a managed care 

plan can offer expanded or additional services with 

program savings. Section 1915(b) waivers provide 

the opportunity for states to offer to enrollees additional services paid for through savings achieved 

under the waiver. In order to provide these §1915(b)

(3) services, CMS must approve a state’s request for 

authority under subsection 1915(b)(3) in conjunction with either subsection 1915(b)(1) and/or (b)

(4).16

Section 1915(c) waivers do not allow capitated 

managed care arrangements, but have been used 

since the 1980s to provide home and community 

services not covered in the Medicaid State Plan. 

Thus, concurrent use of §1915(b) and §1915(c) waivers allows states to cover both State Plan services 

(e.g., home health, personal care, and rehabilitative 

services) and non-State Plan home and community 

services (e.g. homemaker services, adult day health 

services, and assistive technology) in their managed care programs’ capitation rate for individuals 

eligible for §1915(c) waivers. States may also include 

home and community services in their §1915(b) 

waivers as §1915(b)(3) services. 

The §1915(c) authority also allows states to use 

institutional financial eligibility criteria, which, as 

discussed above, expands income eligibility criteria 

to 300 percent of the Federal SSI benefit; applies 

spousal impoverishment rules; does not deem 

parental income for dependent children; and allows 

exclusions from countable income when determining financial eligibility for services. By using these 

two authorities concurrently, states can create an 

MLTC program, as has New Mexico. See Table 8-3. 

Table 8-2. Arizona Long-term Care System (ALTCS)

Start Date 1988–89

Target Group Older persons, persons with physical disabilities, or persons with intellectual or other developmental disabilities, all of whom must be clinically certified to need an institutional level of care. 

Enrollment is mandatory. However, dually eligible persons continue to receive their Medicare 

benefits through the fee-for-service system, a Medicare Advantage Plan, or a Special Needs Plan. 

Service Area Statewide

Scope of 

Medicaid 

Capitation

All Medicaid services, including primary and acute health care, long-term care services (institutional and HCBS), and behavioral services.15

Authorities Section 1115 waiver. Arizona has operated its entire Medicaid program under a §1115 waiver 

from its inception in 1982. ALTCS was truly experimental when it was implemented in 1988—no 

state had undertaken any significant MLTC, and Arizona was proposing it statewide on a mandatory basis. The population is similar to that served in §1915(c) waiver programs. If ALTCS were 

proposed today, a §1915(b) and (c) waiver combination would likely be considered. 

More information is available at: http://www.azahcccs.gov/reporting/default.aspx
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 221

Section 1915(a) 

The §1915(a) authority allows states to create 

voluntary managed care programs without a waiver 

or a Medicaid State Plan amendment. It does not 

allow selective contracting, which means that states 

cannot engage in competitive procurement of contractors under this authority. The state may, however, define the contractors’ qualifications and offer 

contracts to all who meet them, and participating 

contractors may limit specific providers when they 

create their networks. This authority can also be 

used to waive comparability and to limit a program 

geographically.

This authority alone is not sufficient to create an 

MLTC initiative because without a concurrent 

§1915(c) waiver or a §1915(i) State Plan benefit, it 

limits the state to offering existing State Plan services and using regular State Medicaid Plan financial 

eligibility criteria. However, §1915(c) waiver services 

can count as services offered under the State Plan.17 

Services not expressly contained in the approved 

§1915(c) waiver or in the §1915(i) State Plan amendment for which payment is made under the contract, may be provided as “in lieu of” services at the 

state’s election.18 

Thus, states that offer many long-term services 

through their State Plan or existing §1915(c) waivers 

may find this authority adequate for establishing an 

MLTC program—as does Pennsylvania, which uses 

the §1915(a) authority to operate a program for 

adults with autism. See Table 8-4 for an example of 

the use of this authority.

Table 8-3. New Mexico Coordination of Long-Term Services (CoLTS)

Start Date 2008

Target Group Older persons and persons with physical disabilities. Enrollment is mandatory.

Service Area Statewide

Scope of Medicaid 

Capitation

Most Medicaid services, including primary and acute health care and long-term care services 

(institutional and HCBS). Behavioral services are carved out to a separate managed care organization.

Authorities Concurrent §1915(b) and (c) waivers. New Mexico is the latest state to implement an MLTC 

program, and has used the (b)(c) combination to create a mandatory, statewide program that 

includes primary and acute health care and long-term services in one package. 

More information is available at: http://www.nmaging.state.nm.us/COLTS_overview.html.

Table 8-4. Pennsylvania Adult Community Autism Program (ACAP)

Start Date 2009

Target Group Adults (age 21+) with Autism Spectrum Disorder who require an Intermediate Care Facility (ICF) 

level of services, but can live in a community setting. Enrollment is voluntary. 

Service Area Four counties.

Scope of Medicaid 

Capitation

Primary care, ICF level of services in the community, and behavioral services. Acute care and 

pharmacy are carved out. 

Authorities Section 1915(a) authority. Pennsylvania operates this program without waivers. Although the 

§1915(a) authority does not authorize selective contracting, only one contractor to date has met 

the required qualifications and is the sole vendor. 

More information is available at: http://www.dpw.state.pa.us/ServicesPrograms/Autism/.
222 Understanding Medicaid Home and Community Services: A Primer

Section 1932(a) 

Section 1932(a) was enacted as part of the Balanced 

Budget Act of 1997. As previously discussed, the 

BBA recognized that Medicaid managed care had 

become the service delivery mode for more than 

half of all Medicaid beneficiaries by the late 1990s, 

and made mandatory managed care a State Plan 

option under certain conditions. Section 1932(a) 

is basically the same as the §1915(a) authority 

with the exception that it allows mandatory enrollment—except for dually eligible persons and 

children with special needs. However, these populations can be included on a voluntary basis. It can be 

used to create a managed care plan for either health 

care or long-term care or both.

See Table 8-5 for an example of a program that uses 

§1932(a) in combination with a §1915(c) waiver and 

Medicare Special Needs Plan authority to create a 

voluntary MLTC program for dually eligible adults of 

all ages with disabilities.

Table 8-5. Wisconsin Family Care Partnership (FC-P)

Start Date 1996

Target Group Older persons and persons under age 65 with physical disabilities who are clinically certified to 

need institutional level of care. Enrollment is voluntary.19

Service Area 16 counties, with expansion underway. 

Scope of 

Medicaid 

Capitation

All Medicaid services, including primary and acute health care, long-term care services (HCBS 

and institutional), and behavioral services. (Medicare services are also fully capitated in a separate payment that FC-P receives from the Medicare program.) 

Authorities Section 1915(c) waiver and §1932(a) State Plan amendment. Wisconsin borrowed from the PACE 

model to create a program that includes all Medicaid and all Medicare services in one package 

for dually eligible persons. (But FC-P does not require enrollees to be dually eligible.) Because 

the program deviates substantially from PACE (e.g., it includes persons under 55 years of age), 

it could not use the §1934 PACE authority. Instead, it combined a §1915(c) HCBS waiver with 

the State Plan managed care option of §1932(a). Section 1932(a) is usually used for mandatory 

managed care programs, but it can also be used with exempt populations (e.g., dually eligible 

persons) on a voluntary basis. Medicare services are provided using the Medicare Special Needs 

Plan authority. 

More information is available at: http://dhs.wisconsin.gov/wipartnership/.

Section 1934

Section 1934 was also enacted as part of the BBA, 

making PACE a Medicaid State Plan optional benefit. 

In combination with Medicare statutory authority in 

Title XVIII, this authority makes PACE a non-waiver 

option for fully capitated Medicare and Medicaid 

managed care for dually eligible persons. Enrollment is voluntary. The major limitation is that the 

authority applies specifically to the PACE model and 

may not be used to authorize an MLTC program that 

does not adhere to the model. See Table 8-6 for a 

description of PACE.
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 223

Table 8-6. Program of All-inclusive Care for the Elderly (PACE)

Start Date 1983 at On Lok in California; 1990 in replication sites.

Target 

Group

Persons 55 or older who ae clinically certified to need a nursing facility level of care. 

Service Area 72 PACE providers operate programs in 30 states, as of September 2009. 

Scope of 

Medicaid 

Capitation

All Medicaid services, including primary and acute health care, long-term care services 

(HCBS and institutional), and behavioral services. (Medicare services are also fully capitated in a separate payment that the PACE program receives from the Medicare program.) 

Authorities Section 1934 State Plan amendment. After several years operating under a §1115 waiver, 

the Balanced Budget Act of 1997 made PACE a State Plan option. The authority may only 

be used to establish a PACE program, which is a specific model of care that features an Interdisciplinary Team, adult day health centers where members receive primary health care, 

and staff model care networks that include physicians who work for the PACE provider 

organization. Parallel Medicare authority is contained in Title XVIII of the Act at §1894.

For more information: http://www.npaonline.org/website/article.asp?id=4/.

Medicare Special Needs Plans 

Because such a high proportion of individuals who 

need long-term services are dually eligible for Medicaid and Medicare, some states offering MLTC have 

contracted with Medicare Special Needs Plans to 

create integrated programs for dually eligible persons. Special Needs Plans are authorized under the 

Medicare Advantage managed care program. Unlike 

regular Medicare Advantage plans, Special Needs 

Plans may limit enrollment to one of three authorized groups: dually eligible persons, beneficiaries 

requiring institutional level of care, or beneficiaries 

with specified chronic conditions.20

A state uses the appropriate Medicaid authorities to 

craft a managed Medicaid program and contracts 

with a Special Needs Plan, which has a separate contract with CMS to deliver Medicare managed care 

services. The two are combined at the plan level to 

create an integrated Medicaid and Medicare program for dually eligible persons. Because no authority exists for mandatory Medicare enrollment, integrated plans must be voluntary. See Table 8-7 for an 

example of contracting with Special Needs Plans to 

create integrated Medicare-Medicaid programs.

As noted above, §1934, which authorizes PACE 

programs, is the other authority that may be used to 

offer integrated Medicare-Medicaid programs.
224 Understanding Medicaid Home and Community Services: A Primer

Section 1915(i)

Section 1915(i) was enacted as part of the DRA of 

2005 and amended by the Affordable Care Act. 

This authority allows states to offer HCBS under 

their Medicaid State Plan to individuals eligible for 

Medicaid under an eligibility group covered by the 

State Plan. Unlike the §1915(c) waiver authority, 

the §1915(i) authority does not tie the provision of 

HCBS to people who require an institutional level 

of care, unless the state uses the 300 percent of SSI 

income rule to determine financial eligibility. This 

authority also does not by itself allow managed care 

approaches, and would need to be used in combination with another authority to implement an 

MLTC program.21

All Quality and Other Requirements of Each 

Authority Must Be Met 

For many states, combining two waivers or a waiver 

and a State Plan amendment will be an effective 

way to create the program desired while avoiding 

the greater burdens associated with a §1115 waiver. 

However, states must be prepared to meet the 

requirements of each authority they invoke (e.g., 

a program that combines managed care authority 

and HCBS authority must meet all the requirements 

of both). In addition, if partnering with a Medicare 

Special Needs Plan to create a program for dually 

eligible persons, the Special Needs Plan will be accountable to CMS for all Medicare managed care 

requirements.

In the area of quality, for example, a program under 

the authority of §1915(a), §1915(b), or §1932(a) 

must meet continuous quality improvement requirements for Medicaid managed care, including 

performance improvement projects for health status and outcomes. The state must also provide for 

an External Quality Review Organization to evaluate 

outcomes and access to care. In addition, for the 

first two renewals of a §1915(b) waiver, the state 

must provide to CMS an independent assessment 

on access and quality requirements. Under §1915(c), 

states must meet CMS quality requirements in 

several areas, including safeguarding waiver participants’ health and welfare.22 (See the Appendix for an 

overview of CMS requirements for quality management and improvement systems.)

Table 8-7. Minnesota Senior Health Options

Start Date 1997

Target 

Group

Older persons (65+) who are dually eligible for Medicaid and Medicare, whether or not 

they have long-term care needs. Enrollment is voluntary.

Service Area Nearly statewide

Scope of 

Medicaid 

Capitation

All Medicaid services, including primary and acute health care, HCBS, and up to 180 days 

of institutional long-term care services. Behavioral services are also included. (Medicare 

services are fully capitated in a separate payment to Minnesota Senior Health Options 

from the Medicare program.) 

Authorities Section1915(a) authority and §1915(c) waiver. When this program began in 1997, it 

was an experimental model to combine Medicaid and Medicare and integrate financing 

for primary and acute health services and long-term care services under a §1115 waiver. 

By renewal time, other states had developed combination approaches without a §1115 

waiver and its difficult budget test, and Minnesota agreed to change to the (a)(c) combination at that time. Medicare authority also shifted over time, from special payment authority and variances under the Medicare statute, to Medicare Special Needs Plan authority. 

More information is available at: http://www.dhs.state.mn.us/main/idcplg?IdcService=GET_DYNAMIC_CONVE

RSION&dDocName=id_006271&RevisionSelectionMethod=LatestReleased
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 225

Resources

Since the Primer was first published in 2000, numerous reports and other resources have become available 

on the Internet. This section includes key resources relevant to Medicaid managed care authorities. Most of 

the publications cite additional resources and the websites also have links to other sources of information.

Publications

Bella, M., and Palmer, L. (2009). Supporting Integrated Care for Dual Eligibles: Policy Options. Baltimore, 

MD: Center for Health Care Strategies.

This policy brief addresses opportunities for integrating care for this high-cost, high-need population. The 

brief outlines the rationale for integrating care for dually eligible persons, reasons why integration has been 

slow to progress, and emerging vehicles to accelerate the adoption of fully integrated care models. A companion resource paper provides additional details on promising integrated care models and the challenges and 

opportunities for supporting integrated approaches.

Available at http://www.chcs.org/publications3960/publications_show.htm?doc_id=982564

CMS (2009). Providing Long Term Services and Supports in a Managed Care Delivery System. Enrollment 

Authorities and Rate Setting Techniques: Strategies States May Employ to Offer Managed HCBS, CMS Review Processes and Quality Requirements.

CMS has developed a brief technical assistance paper that outlines the enrollment authorities that states may 

consider when designing managed HCBS programs, the CMS review and approval process for each, and rate 

setting techniques that may be useful. This resource is the product of a CMS central and regional workgroup 

with expertise in managed care and HCBS, which reflects the progressive efforts underway in a number of 

states.

Available at http://www.cms.hhs.gov/CommunityServices/Downloads/ManagedLTSS.pdf

CMS State Medicaid Director Letter. May 20, 2010. Community Living Initiative.

This letter provides some basic information on the Patient Protection and Affordable Care Act, P.L. 111-148, 

enacted March 23, 2010, and the Health Care and Education Reconciliation Act of 2010, P.L. 111-152, enacted 

March 30, 2010, (together referred to as the Affordable Care Act), and includes a link to the online technical assistance guide entitled Long Term Services and Supports in a Managed Care Delivery System. 

Available at http://www.cms.gov/smdl/downloads/SMD10008.pdf
226 Understanding Medicaid Home and Community Services: A Primer

Saucier, P., Kasten, J., and Burwell, B. (2009). Federal Authority for Medicare Special Needs Plans and 

Their Relationship to State Medicaid Programs. Prepared by Thomson Reuters for the U.S. Department of 

Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy.

This brief, the first in a series of three, reviews the history and current status of the Federal Medicare Special 

Needs Plan authority, with particular attention to provisions of interest to state Medicaid programs.

Available at http://aspe.hhs.gov/daltcp/reports/2009/leghist.htm

Saucier, P., Burwell, B., and Gerst, K. (2005). The Past, Present and Future of Managed Long-Term Care. 

Prepared by Thomson Reuters and the University of Southern Maine Muskie School for the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy. 

The focus of this study is Medicaid-financed long-term care, though the discussion includes Medicare since 

most Medicaid long-term care beneficiaries are dually eligible. Thus the study includes both Medicaid-only 

programs and integrated programs that manage both Medicaid and Medicare benefits. The study focuses 

on older persons and persons with physical disabilities, and excludes programs that are primarily targeted to 

persons with developmental disabilities or serious and persistent mental illness.

Available at http://aspe.hhs.gov/daltcp/reports/mltc.htm#section1

Saucier, P., and Fox-Grage, W. (2005). Medicaid Managed Long-Term Care. Washington, DC: AARP, Public 

Policy Institute.

This issue brief reviews the limited but important experience of states that had implemented Medicaid managed long-term care programs at the time of publication, identifies key policy issues, and assesses the likelihood of future growth in these programs.

Available at http://www.aarp.org/health/medicare-insurance/info-2005/ib79_mmltc.html
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 227

Websites

Centers for Medicare & Medicaid Services 

The following site provides information about combining §1915(b) and §1915(c) authorities to provide a continuum of services to disabled and/or elderly populations. By combining these authorities, states can provide 

long-term care services in a managed care environment or use a limited pool of providers.

Web address: http://www.cms.hhs.gov/MedicaidStWaivProgDemoPGI/06_Combined1915bc.asp

The following site provides a list of resources that are currently available to provide information and assistance 

when developing integrated Medicare and Medicaid models of care.

Web address: http://www.cms.hhs.gov/IntegratedCareInt/2_Integrated_Care_Roadmap.asp

The following site provides an Overview of Special Needs Plans and includes several downloadable resources.

Web address: http://www.cms.hhs.gov/specialneedsplans/

National PACE Association

The National PACE Association works with CMS staff and members of Congress who work on policy issues 

affecting PACE organizations. Because PACE organizations are innovative programs that work with both the 

Medicare and Medicaid programs, the model has its own regulations that govern its operation. Information 

about Federal and state policy can be found at the following sites, respectively.

Web address: http://www.npaonline.org/website/article.asp?id=730and http://www.npaonline.org/website/

article.asp?id=731
228 Understanding Medicaid Home and Community Services: A Primer

Center for Health Care Strategies (CHCS)

The Center for Health Care Strategies is a nonprofit health policy resource center dedicated to improving 

health care quality for low-income children and adults, people with chronic illnesses and disabilities, frail 

elders, and racially and ethnically diverse populations experiencing disparities in care. CHCS works with state 

and Federal agencies, health plans, providers, and consumer groups to develop innovative programs that 

better serve people with complex and high-cost health care needs. The following website includes numerous 

publications and other resources about dually eligible persons and integrated care.

Web address: http://www.chcs.org/info-url_nocat5108/info-url_nocat_list.htm?attrib_id=8408

In particular, the website has two links that are directly relevant to this chapter:

http://www.chcs.org/publications3960/publications_show.htm?doc_id=747565 

This webinar explored progress that states have made in integrating care for dually eligible populations via 

Special Needs Plans, the challenges for integrating care, as well as new non-Special Needs Plan alternatives for 

states to consider.

http://www.chcs.org/publications3960/publications_show.htm?doc_id=504045 

Download resources from this webinar, which featured state and health plan best practices for managing the 

long-term care of Medicaid beneficiaries, and integrating acute and long-term care for adults solely covered 

by Medicaid or dually eligible for Medicaid and Medicare.
Chapter 8: Medicaid Authorities for Delivering Home and Community Services through Risk-Based Managed Care Systems 229

Endnotes: Citations, Additional Information,

and Web Addresses

1 Paul Saucier is the author of this chapter.

2 Categorical groups eligible for SSI include those age 65 or older, and children and adults under age 65 

who meet SSI disability criteria.

3 Kaye, N. (2005). Medicaid Managed Care: Looking Forward, Looking Back. Portland, ME: National Academy for State Health Policy. 

4 Saucier, P., Burwell, B., and Gerst, K. (2005). The Past, Present and Future of Managed Long-Term Care. 

Prepared by Thomson Reuters and the University of Southern Maine Muskie School for the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, 

Office of Disability, Aging, and Long-Term Care Policy. Available at http://aspe.hhs.gov/daltcp/reports/

mltc.htm#section1. 

5 CMS. National Summary of Medicaid Managed Care Programs and Enrollment as of June 30, 2008. 

Available at http://www.cms.hhs.gov/MedicaidDataSourcesGenInfo/downloads/08Trends508.pdf.

6 CMS. Number of Managed Care Entity Enrollees by State as of June 30, 2008. Available at http://www.

cms.hhs.gov/MedicaidDataSourcesGenInfo/downloads/08MCE-%20Enrolleesf508.pdf. 

7 Kaye, N. (2005), op. cit.

8 The 11 states operating MLTC outside of PACE are Arizona, California, Florida, Hawai’i, Massachusetts, 

Minnesota, New Mexico, New York, Texas, Washington, and Wisconsin. Tennessee has received Federal 

permission to implement an initiative scheduled to begin in 2010.

9 Evaluations of early MLTC programs have found consistently that hospital and nursing home use decreases and community services increase. For a review of the literature, see Saucier, P., Burwell, B., and 

Gerst, K. (2005), op. cit.

10 Saucier, P., and Fox-Grage, W. (2005). Medicaid Managed Long-Term Care. Washington, DC: AARP, 

Public Policy Institute. Available at http://www.aarp.org/health/medicare-insurance/info-2005/ib79_

mmltc.html.

11 If a state has made the policy decision to cover persons who meet certain financial or other criteria, 

capping enrollment could upset advocates and raise valid issues related to equity. If a state can get 

Federal financial participation for all eligible persons, they would of course prefer this, but because 

the Office of Management and Budget puts an overall cap on expenditures, the state must either cap 

enrollment or pay costs only with state dollars once the expenditure limit is reached.

12 The requirements for a §1115 waiver can lead to enrollment caps, which are politically difficult and can 

strain relations with contractors. Capping per person costs can be done easily by setting the capitation 

rate to not exceed the per person cap.
230 Understanding Medicaid Home and Community Services: A Primer

13 For more on Medicaid rate setting in PACE, see National PACE Association (2009). Pace Medicaid RateSetting: Issues and Considerations for States and PACE Organizations. Available at http://www.npaonline.org/website/navdispatch.asp?id=2871. 

14 The Affordable Care Act amended §1915(h) of the Social Security Act. 

15 Behavioral services include mental health and substance abuse services.

16 CMS. (2009). Providing Long Term Services and Supports in a Managed Care Delivery System. Enrollment Authorities and Rate Setting Techniques: Strategies States May Employ to Offer Managed HCBS, 

CMS Review Processes and Quality Requirements. Available at http://www.cms.hhs.gov/CommunityServices/Downloads/ManagedLTSS.pdf.

17 Ibid. CMS may consider the inclusion of HCBS in a stand-alone §1915(a) contract in those cases where 

the state operates an approved section §1915(c) waiver or §1915(i) State Plan benefit for the same 

population served through the contract, in the same geographic region as the contract, containing 

the same services offered through the contract, and the costs of such services may be included in 

contract payments. These HCBS would be expressly contained in the managed care contract, and the 

individual need not be enrolled in a §1915(c) HCBS waiver or be receiving services through a §1915(i) 

HCBS State Plan program. Because this is a voluntary vehicle, an individual must be able to have the 

option to receive the services through another Medicaid approved authority in the state (i.e., State 

Plan or HCBS waiver). 

18 Ibid.

19 Adults age 17 years, 9 months and older are eligible.

20 For an overview of the Federal Special Needs Plan authority, see Saucier, P., Kasten, J., and Burwell, B. 

(2009). Federal Authority for Medicare Special Needs Plans and their Relationship to State Medicaid 

Programs. Prepared by Thomson Reuters for the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term 

Care Policy. Available at http://aspe.hhs.gov/daltcp/reports/2009/leghist.htm.

21 To date, there are no known MLTC programs invoking this authority.

22 42 CFR 441.302. Available at http://law.justia.com:80/us/cfr/title42/42-3.0.1.1.10.7.html.
Appendix: Medicaid HCBS Quality 231

Guide to Appendix

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

An Evidence-Based Approach to Quality Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

Continuous Quality Improvement (CQI) Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Continuous Quality Improvement: Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Continuous Quality Improvement: Discovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Crafting Performance Measures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Continuous Quality Improvement: Remediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240

Continuous Quality Improvement: Improvement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

Beyond Assurance-Based CQI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .244

The CMS Review Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

Technical Assistance for Medicaid HCBS Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .246

Endnotes: Citations, Additional Information, and Web Addresses. . . . . . . . . . . . . . . . . . . . . . . 248

Appendix: Medicaid HCBS Quality 233

Appendix

Medicaid HCBS Quality

Introduction

Under Federal statute, the Centers for Medicare & Medicaid Services (CMS) have the authority to oversee and 

regulate states’ approaches to quality assurance for Section (§)1915(c) home and community-based services 

(HCBS) waiver programs (hereafter called HCBS waiver programs). Over the last 10 years, CMS has mounted a 

vigorous initiative to promote and enhance quality oversight of HCBS waiver programs, an initiative that has 

required changes by the states and CMS.

Until 2004, Federal oversight of HCBS waiver program consisted of periodic reviews focusing on whether programmatic requirements had been met. During this period, CMS did not collect representative data on waiver 

system performance, nor did it require the states to collect such information for use in quality monitoring and 

improvement activities. Moreover, there was appreciable variation in how CMS Regional Offices conducted 

quality reviews.

A major impetus for increased Federal attention to quality in the HCBS waiver programs was a 2003 Government Accountability Office (GAO) report.

 The report cited as problematic the minimal information required in the waiver application about a state’s approach to monitoring quality, as well as the absence of a minimum level of routine reporting from the states to 

CMS. The GAO urged greater oversight by CMS and the provision of increased guidance to the states on waiver 

monitoring practices. 

An Evidence-Based Approach to Quality Monitoring

In response to the GAO report, CMS designed and adopted an evidence-based approach to HCBS waiver 

program quality. The evidence-based approach is premised on the expectation that states have first-line 

responsibility for program monitoring to ensure the waiver operates as it was designed (i.e., as specified in the 

approved waiver application) and that program participants’ health and welfare are safeguarded. States, on a 

periodic basis, must provide CMS with evidence that the program is indeed operating as specified in the approved waiver and that participants’ health and welfare are safeguarded. The evidence CMS requires is related 

to the six statutory assurances that states make to CMS as a condition of approval of a waiver. CMS’s role is 

to review the evidence the state submits, along with other information about the waiver’s performance, and 

render a determination about the waiver’s compliance with the Federal assurances. 
234 Understanding Medicaid Home and Community Services: A Primer

Continuous Quality 

Improvement (CQI) Model 

CMS’s evidenced-based approach, while new to the 

Medicaid HCBS enterprise, is based on a well-established management tool known as Continuous 

Quality Improvement—or CQI. The CQI concept is 

generally credited to W. Edwards Deming, a statistician who pioneered this approach in his work 

with manufacturers in Japan in the late 1940s. At 

the heart of the CQI model is the use of empirical 

information—that is, evidence—to drive continuous, cyclical improvement. CMS has embodied the 

CQI principles in its Design, Discovery, Remediation, 

Improvement (DDRI) model. The DDRI model has 

been the operative framework for HCBS waivers 

since the early 2000s and is the common vocabulary that links CMS’s expectations and state quality 

efforts. CQI is best envisioned as a cyclical process, 

one component feeding into the next. 

Figure 1. The DDRI Model 

It is CMS’s expectation that Medicaid HCBS programs embrace the CQI approach and nurture a 

culture of quality improvement. 

Continuous Quality Improvement: 

Design

“Design” refers to a state’s plan for how it will monitor a waiver program and make improvements 

when systemic problems are detected. States must 

describe this plan in the waiver application. In 2005, 

CMS issued a new waiver application format, which 

elicits specific information about a state’s design of 

its quality monitoring and improvement strategy.

In the waiver application, a state must describe how 

it will “discover” when the assurances have not been 

met, its plans for monitoring whether the individual 

problems it uncovers are “remediated” or fixed, and 

how it will engage in system “improvement” activities when it discovers that there are systemic problems responsible for an accumulation of individual 

problems. A state’s CQI design must be organized 

around the Federal assurances, described in Table 1.

Each assurance embodies more than one programmatic expectation. In the waiver application, CMS 

has articulated many subassurances—in order to 

operationalize the six assurances in concrete terms 

in accordance with CMS policy. CMS’s articulation of 

subassurances seeks to ensure that states monitor 

the aspects of the program CMS deems fundamental. A few examples of subassurances are presented 

in Table 2. A full listing of the subassurances may be 

found in the most current version of the §1915(c) 

waiver 
Appendix: Medicaid HCBS Quality 235

Table 1. Section 1915(c) Federal Assurances

Level of Care Persons enrolled in the waiver have needs consistent with an institutional level 

of care.

Service Plan Participants have a service plan that is appropriate to their needs and preferences, and receive the services/supports specified in the service plan. 

Provider 

Qualifications

Waiver providers are qualified to deliver services/supports.

Health and Welfare Participants’ health and welfare are safeguarded.

Financial 

Accountability

Claims for waiver services are paid according to state payment methodologies 

specified in the approved waiver.

Administrative 

Authority

The state Medicaid agency is actively involved in the oversight of the waiver, 

and is ultimately responsible for all facets of the waiver program.

Table 2. Examples of Subassurances (Version 3.5 of the §1915(c) Waiver Application)

Level of Care The levels of care of enrolled participants are reevaluated at least annually or as 

specified in the approved waiver

Service Plan Service plans are updated/revised at least annually or when warranted by 

changes in the waiver participant’s needs 

Service Plan Services are delivered in accordance with the service plan, including in the 

type, scope, amount, and frequency specified in the service plan.

Service Plan Participants are afforded choice: between waiver services and institutional care; 

and between/among waiver services and providers. 

Provider 

Qualifications

The state verifies that providers initially and continually meet required licensure 

and/or certification standards and adhere to other state standards prior to their 

furnishing waiver services.
236 Understanding Medicaid Home and Community Services: A Primer

application. (See the Resources section of this appendix for a link to the application.) 

Continuous Quality Improvement: 

Discovery

Discovery refers to the monitoring process states 

use to uncover deviations from program design in 

a timely fashion. Discovery allows states to know 

when program processes are not being followed 

and when the assurances (subassurances) are 

not being met. The discovery monitoring process 

requires a state to establish performance measures 

that enable it to assess whether—and the extent 

to which—it is complying with each of the Federal 

assurances. 

In the waiver application, a state must specify one 

or more performance measures for each subassurance. In addition, it must provide information on 

(1) the data source(s) for each performance measure; (2) how the representativeness of the data will 

be ensured; (3) information on the party or parties 

responsible for collecting, reviewing, and using the 

data to manage the program; and (4) how frequently summary (i.e., aggregated) reports will be generated and reviewed. 

Crafting Performance Measures

Most importantly, performance measures should 

be actionable. Because their purpose is to help the 

state evaluate its program and the health and welfare of program participants, the measures should 

be able to identify when a subassurance is not 

being met, so that actions can be taken to bring the 

program into compliance. Performance measures 

must also meet four criteria (see Box).

Criteria for Crafting Performance 

Measures

• Be measurable and stated as a metric

• Have face validity

• Be based on the correct unit of analysis

• Be representative

The first criterion is that the performance measure 

be measurable and stated as a metric. This means 

that the performance measures must be able to 

take on different values. States frequently make 

the mistake of describing a process for monitoring a subassurance, rather than focusing on the 

outcome of the monitoring reported in the form of 

a metric. Typically, assurance-based performance 

measures are stated in the form of a percentage. 

The performance measure data must also be able 

to be aggregated across individual waiver participants, providers, or claims—depending on the unit 

of analysis (discussed below). Aggregating performance measure data allows the state to generate 

reports on a specific aspect (subassurance) for the 

program as a whole, assess the operation of the 

program on that given aspect, and determine the 

level of compliance.

A Performance Measure 

Should Be a Metric

Acceptable: Percent of waiver participants 

whose service plans were reviewed and updated 

annually. (Outcome)

Unacceptable: The Division of Aging conducts 

record reviews to assess whether services plans 

of waiver participants are reviewed and updated 

annually. (Process)
Appendix: Medicaid HCBS Quality 237

The second criterion is face validity, the property 

of a performance measure that reflects whether it 

will indeed measure what it has been designed to 

measure—in this case, a subassurance. To meet this 

criterion, state staff have to ask the following: Does 

the performance measure truly capture and measure the essence of a specific subassurance? “On 

the face of it” does it track with the subassurance? A 

performance measure with face validity will enable 

a state to monitor its performance on a given subassurance, and for CMS to judge the state’s demonstration of compliance with the 

A Performance Measure Should Have 

Face Validity

Service Plan Subassurance: Service plans 

address all participants’ assessed needs (including health and safety risk factors) and personal 

goals, either by the provision of waiver services 

or through other means.

Unacceptable: Mean risk fall score for waiver 

participants.

• Metric, but lacks face validity.

• Does not tell you to what extent risks were 

addressed in service plan.

• May be a good assessment item, but is not 

a performance measure with face validity 

for the subassurance.

Acceptable: Percent of participants’ service 

plans that address their risk.

• Metric.

• Has face validity vis-à-vis the subassurance. 

subassurance. If a performance measure lacks face 

validity, the state runs the risk of collecting potentially useless information, wasting resources, losing 

the ability to monitor one aspect of its program, 

and not demonstrating compliance to CMS. States 

should be careful to not use performance measures 

that are stated as a metric but are lacking face validity vis-à-vis a given subassurance. 

The third criterion is the correct unit of analysis. 

Choosing the correct unit of analysis for a performance measure is crucial. The unit of analysis refers 

to the group/entity which the performance measure references. Typically, the unit of analysis for 

Level of Care, Service Plan, and Health and Welfare 

subassurances is the waiver participant; for Provider 

Qualification subassurances it is providers, and for 

Financial Accountability it is claims. Data for generating performance measures can come from several 

sources (administrative data, claims data, reviews 

of participants’ records, automated care coordination systems, critical incident data bases, mortality 

reviews, etc.), and sometimes from a combination 

of data sources. Whatever the data source, it is key 

to make sure that the unit of analysis is appropriate 

to the subassurance that the performance measure 

will be used to monitor. 

A Performance Measure (PM)

Should Use the Correct Unit of Analysis

Service Plan Subassurance: Service plans 

are updated/revised at least annually.

Incorrect Unit of Analysis: Percent of Supports Coordination Agencies that updated/

revised annual service plans on time.

• PM focuses on Supports Coordination 

Agencies (provider) rather than waiver 

participants.

• May be a more appropriate measure for a 

Provider Qualifications PM.

Correct Unit of Analysis: Percent of waiver 

participants who received an annual updated/revised service plan.

The fourth criterion is representativeness. When 

monitoring a waiver, CMS is interested in knowing 

how the waiver as a whole is performing on any 

given subassurance. If the performance measure 

data are not representative of the waiver population 

(or of providers or claims), neither the state nor CMS 

can be confident that the resulting measure accurately portrays the waiver’s performance. 
238 Understanding Medicaid Home and Community Services: A Primer

By definition, the data for generating a performance 

measure are representative if they derive from the 

entire population (e.g., service plans of ALL waiver 

participants, reviews of ALL providers, reports on 

ALL claims). However, collecting data from the 

entire population can be very costly—particularly 

for larger waiver programs. Thus, performance 

measures frequently are based on data taken from 

a sample (i.e., a subset of the population). The 

estimates derived from a sample can represent the 

entire population, as long as random selection is 

used in drawing the sample. 

CMS expects performance measure data to be 

representative because if not, then the state cannot assert with confidence that the data represent 

the waiver as a whole, and CMS cannot conclude 

compliance due to insufficient evidence.

CMS elicits information about the state’s plan for 

generating representative data for its performance 

measures within the quality section of the waiver 

application labeled “Sampling Approach.” These 

sections require states to specify whether a performance measure will be based on population data 

or whether the state will use a sampling approach. 

If the state opts for sampling, CMS does not require 

the state to specify the size of the sample, but rather 

asks the state to specify the sampling parameters 

that will be used to determine sample size. CMS has 

certain expectations about the values these parameters must take on for the resultant sample to be 

considered representative (see Box.) 
Appendix: Medicaid HCBS Quality 239

Using Sampling Parameters to Determine a Representative Sample

Three parameters must be set to determine sample size: (1) Confidence Level, (2) Confidence Interval (also called the Margin of Error), and (3) Distribution (of the variable) in the Population. CMS considers a sample to be sufficiently representative if the Confidence Level is .95 or larger and the Confidence Interval (Margin of Error) is +/– 5 percent or less. A Confidence Level of 95 percent 

ensures that one can be 95 percent certain that the estimate derived from the sample is accurate. A Confidence Interval of +/– 5 

percent ensures that the actual population value is within +/– 5 percent points of the estimate provided by the sample. A Distribution value of .5 is always acceptable (discussed in more detail below.)

For most states, determining a credible sample size will involve using a sample size calculator. Many calculators may be found online by searching the term “sample size calculator.” These calculators will prompt the user for values for Population Size, Confidence 

Level, and Confidence Interval (Margin of Error). 

Many calculators will not prompt the user for a value for the Distribution (of the variable) in the Population, but will assume a .5 

value. The best calculators, however, will allow the user to specify the Distribution value. It is not possible here to delve into the 

conceptual underpinnings of this parameter; suffice it to say that under certain conditions states may vary this parameter (from 

.5), thereby lowering the recommended sample size, and still have a sample that is considered large enough to be representative. 

There is a rule of thumb states may follow in varying the Distribution parameter: If the state is drawing a sample for the first time in 

order to collect data for a performance measure(s), it must assume a 50-50 Distribution and use the .5 value. 

However, if the state has collected data on a given performance measure(s) previously, and derived the estimate from the entire 

population or a representative sample, they may alter the distribution to reflect that previous experience. For example, in Year 1 of 

data collection the state discovered that 90 percent of service plans addressed participants’ needs, but 10 percent did not. In Year 

2, they would be justified in using a 90–10 split (.9 Distribution value) in the sample size calculator. To illustrate the difference in 

sample size that altering the Distribution can make, let us use the example of a waiver with 3,000 participants. With a Distribution 

value of .5, the recommended sample size is 341, but with a Distribution of .9 (or .1, its reciprocal), the recommended sample is 

133.5

If a state can justify using a Distribution other than the standard .5, it can decrease sample size while simultaneously generating 

performance measure estimates that are credible and representative. 

One error states should avoid is simply choosing sample size based on a percentage of the population (e.g., 10 percent of all 

waiver participants). This approach will often either yield a sample that is not large enough to deliver credible results or will specify 

a sample that is larger than necessary. Sample size should always be calculated by specifying the sampling parameters discussed 

above.

Sample Stratification. Sometimes states are interested in obtaining information on how various subgroups—or strata—are 

performing. For example, a state may want to monitor the performance of care coordination agencies in their responsibility for 

conducting timely annual level-of-care determination. So, the state decides to “stratify” its record review sample by care coordination agency. However, before doing so, states need to consider several implications of a stratification approach. First, if there is a 

desire to compare subgroups, then it is important that the sample for each subgroup be large enough to be representative of each 

subgroup. In general, the more subgroups, or strata, the larger the overall sample size will need to be. The state must balance its 

need for information on subgroups with available resources. 

Although CMS elicits information from states on the waiver application about stratification, stratification is not a CMS requirement; 

it is entirely at the state’s discretion whether to stratify. However, if stratification is used, it is important that the data be “re-weighted” so that they represent the entire population; a simple averaging of results from the various strata will not produce a valid 

estimate.6 A statistician or someone with expertise in sampling statistics should be consulted. Technical assistance is also available 

from CMS as described later in this appendix. 

When states use the same quality improvement strategy (QIS) across multiple waivers or across waivers and state-funded HCBS 

programs (sometimes referred to as a “Global QIS”), they may be tempted to draw one sample for all the waivers and programs 

combined. However, CMS requires that evidence be reported for each waiver separately, and that the samples for each waiver be 

large enough, on their own, to be representative of a given waiver’s population/providers. In this context, one might hear the issue 

referred to as “stratifying” by waiver. If the state wants to sample across multiple programs, it will have to stratify by program and 

ensure that the sample size for each program is large enough to be representative. 
240 Understanding Medicaid Home and Community Services: A Primer

Continuous Quality Improvement: 

Remediation

The purpose of discovery activities is to identify 

instances where the program is not operating as 

intended and is out of compliance with the Federal 

assurances. Discovery activities, however, are not an 

end in themselves but rather (and most importantly) a means to identifying problems so that they can 

be addressed. In the CQI waiver cycle this is called 

Remediation. The focus of remediation is to address 

and resolve all individual problems uncovered in 

the course of discovery. 

The rate of compliance is measured through the 

performance measures as discussed above. CMS expects states to be in compliance with the statutory 

assurances. If a performance measure indicates that 

the state achieved less than 100 percent compliance, the state must remediate all instances of noncompliance discovered. While a state may not be in 

compliance initially, it may come into compliance 

by taking remedial actions. Compliance can occur 

by appropriately addressing all detected problems. 

It is clearly preferable, however, for the state to 

achieve compliance by preventing problems in the 

first place (i.e., having a high level of performance 

initially). 

As states design their quality strategies they must 

build in systematic mechanisms for addressing 

problems as they are uncovered. In the waiver application, states are required to specify these methods. States should have policies and procedures 

describing (1) who is responsible for monitoring 

remediation activities and verifying that problems 

are appropriately addressed, (2) the explicit expectations for timeframes within which problems 

should be resolved, and (3) what sanctions may be 

imposed in the event that corrective action is not 

taken by the responsible party. It is also important 

that remediation methods be appropriate to the 

problems uncovered. Corrective actions will differ 

depending upon the assurance, subassurance, and/

or performance measure for which non-compliance 

was discovered.

Like discovery evidence, states should also be able 

to aggregate remediation evidence. The aggregation of remedial activities is a state’s way of summarizing the types and numbers of actions taken in 

response to non-compliance with regard to a given 

performance measure. Aggregated data about 

remediation actions, in the form of remediation reports, provide the evidence CMS requires to ensure 

that the state has addressed instances of non-compliance. Remediation reports can also be used by 

the state, along with discovery reports, to identify 

and analyze trends related to non-compliance. 

Table 3 illustrates what a summary discovery and 

remediation report might look like for one level-ofcare subassurance. The discovery and remediation 

reports are linked because the number and types 

of remediation actions necessarily follow from the 

instances of non-compliance uncovered through 

the state’s discovery activities. In this example, over 

the course of one calendar year, the state uncovered 

30 instances where a reevaluation to determine the 

level of care was not conducted on time (Discovery 

Results). 
Appendix: Medicaid HCBS Quality 241

Table 3. Fictitious State Waiver Quality Monitoring Report, Generated 1-1-2009

Period of Performance: January 1, 2008 through December 31, 2008

Performance Measure: Number and percent of waiver participants who received an annual re-determination of eligibility within 12 months of their initial level-of-care evaluation or within 12 months of their last 

annual level-of-care re-determination.

Discovery Results

Compliance Rate Sample

Compliance 91% 300

Non-compliance 9% 30

Total 100% 330

Remediation Actions

Actions Number of Actions

Reevaluation conducted, still eligible 25

Reevaluation conducted, not eligible 4

Referred to state-funded program 4

Claims from period of ineligibility excluded from Federal Financial 

Participation(FFP)

4

# of remediations completed in < 30 days 26

# of remediations completed in 31-60 days 2

# of remediations completed in > 60 1

Outstanding remediation actions 1*

Total instances of non-compliance addressed 29

* In a record review on 12/22/08, a person was discovered to be 35 days overdue for a re-determination. Due to the 

holidays, the re-determination had not occurred at the time this report was generated.
242 Understanding Medicaid Home and Community Services: A Primer

Twenty-nine of the 30 instances were addressed 

through the state conducting a reevaluation on 

each tardy re-determination (Remediation Actions). 

In 25 of the 30, the person was found to still be 

eligible at reevaluation and thus no further action 

was necessary. However, in 4 cases the person reevaluated was deemed ineligible for the waiver, and 

in these instances the state took further actions to 

refer these individuals to the state-funded program 

and to ensure that no FFP was claimed for waiver 

services provided during the period of ineligibility. 

In this example, the state had a policy that all 

remediation actions related to late level-of-care 

re-determinations must be accomplished within 30 

calendar days of discovery; as such, the state is also 

tracking whether appropriate remedial actions are 

taken within the specified timeframe. In addition, 

the remediation report identifies the number of 

outstanding problems not addressed on the date 

the report was generated. 

The example provided in Table 3 is a summary 

report for one year and might be the type of report 

a state would submit to CMS as evidence. However, 

the state should have a data system 

capable of generating more frequent reports, to enable performance monitoring as the discovery and 

remediation results come in. A key component of 

a quality assurance system is the ability to discover 

problems close to their occurrence, which then 

enables a quick response—be it fixing the original 

problem or uncovering remediation actions that are 

inappropriate and/or untimely.

Continuous Quality Improvement: 

Improvement 

Fixing individual problems as they occur is an essential component of CQI, but if the same type of 

problem occurs repeatedly, it would be helpful for 

the state to step back and assess what systemic 

causes might be responsible. Having determined 

the potentially largest contributor(s) to the problem, the state is then in a position to develop an 

intervention to prevent future occurrences of the 

problem. Examining summary discovery and remediation data over several months is a good way to 

determine if there are trends indicating the need 

to go beyond interventions to address individual 

problems and initiate those that are more systemic 

and would result in better performance. 

While Remediation focuses on addressing individual 

problems, Improvement focuses on making adjustments to the system’s processes or procedures in 

order to prevent or minimize future individual problems. When system improvements work, discovery 

data improve.

Typically, the discovery metrics of the performance 

measures enable the state to assess whether an 

improvement action actually resulted in better performance; for example, the state will conduct a “prepost” analysis using the performance measure data 

to evaluate the impact of the improvement action. 

The “pre” data is the performance on a measure(s) 

prior to the implementation of the improvement 

intervention, and the “post” data constitutes performance on the same measure(s) in the months 

following the intervention. 

If the improvement action is effective, the state will 

see improvement in the performance measures. 

If improvement is not achieved after a reasonable 

amount of time has passed (i.e., sufficient time to 

allow for full implementation of the improvement 

action), the state needs to go back to the drawing 

board and figure out why the improvement project did not work. One reason why an intervention 

might not be successful is because the intervention 

really did not occur as it was designed (e.g., a newly 

instituted procedure was not followed). The other 

reason for failure is that the intervention was not 

the right intervention. If a state does not get the 

results anticipated, it needs to assess both possible 

causes. In most instances, states are very astute 

about targeting the right intervention, and more 

often than not a new procedure has the intended 

result. 
Appendix: Medicaid HCBS Quality 243

Example of a Quality Improvement Project

A State was concerned that the compliance rate on its performance measure “Percent of service plans that address 

participants’ risk” consistently hovered around an unacceptable 75 percent for several months. The State’s waiver 

manual specifies that risks should be evaluated during an assessment and enumerates the various aspects of risk 

(i.e., health risks, behavioral risks, cognitive risks, fragility of the informal support system, etc.). Yet, case managers’ 

practice did not always meet the State’s expectations as stated in the manual. 

When the Quality Unit, as part of their quality monitoring, reviews participants’ service plans and discovers that 

risk has not been addressed, the case manager is required to revise the service plan and then the Quality Unit must 

follow-up to verify that the service plan has indeed been updated. Continually having to remediate these individual instances of non-compliance are costly to the State (in addition to the lack of compliance possibly jeopardizing 

the health and welfare of program participants). 

To improve the situation, the State decided to reconfigure its assessment form by adding a risk assessment protocol that must be completed by the case manager during every assessment. After reviewing other states’ approaches to risk assessment, the Quality Unit and Program Operations staff developed its own protocol, piloted it with a 

small group of case managers, and revised it based on the pilot’s findings. Prior to rollout of the new Risk Assessment Protocol, Program Operations staff conducted multiple training sessions in the use of the new protocol for 

case managers and supervisory personnel throughout the State. They also assigned one of their staff as a “go to” 

person to answer questions case managers might have when using the new protocol.

Because the Quality Unit conducts record reviews on an ongoing basis, it was able to assess the effect of the new 

Risk Assessment Protocol. Three months after the new protocol was implemented, 86 percent of service plans 

addressed risk, and after 6 months, the compliance rate was at 97 percent; but by month 12 it had fallen back to 

90 percent. Upon investigation, the State determined that the decrease was attributed to new case managers who 

had not received the initial training on the new protocol. In order to sustain a high compliance rate, the State is 

exploring the development of an online training module that all new case managers must view, combined with 

close supervision for their first 3 months of employment. 

While the State’s initial quality improvement project was successful, the success was not sustained. Thus, they continue to fine tune their training processes to achieve their goal of high compliance rates. 
244 Understanding Medicaid Home and Community Services: A Primer

CMS expects states to engage in CQI activities, 

especially if there is consistent non-compliance over 

a period of several months. States are required to 

specify in the waiver application the party responsible for assessing the need for, prioritizing, and 

implementing quality improvement activities, as 

well as the state’s processes for conducting these 

activities. They also are required to specify how they 

will assess the impact of the changes they made 

and whether they resulted in quality improvements. 

See Box below for an example of a quality improvement project. 

Quality improvement is a necessary and essential 

component in any CQI endeavor, and states should 

design deliberate processes to ensure that the 

waiver program’s performance undergoes routine 

evaluation to identify and improve its operation. At 

least once during the waiver’s approved period, and 

as part of its quality improvement responsibilities, 

CMS expects a state to 

evaluate the effectiveness of its quality monitoring 

processes (i.e., to determine if the state’s monitoring 

processes work as well as they were intended). This 

evaluation provides an opportunity for the state to 

consider exploring more efficient and/or effective 

approaches to its quality monitoring processes. 

Appendix H of the waiver application requires states 

to describe how and when they will conduct this 

self-review.

Beyond Assurance-Based CQI

While CMS requires states to engage in quality 

improvement activities related to the assurances 

and subassurances, many states of their own accord 

will identify aspects of their program they wish to 

improve or enhance—aspects that are not directly 

related to any of the assurances or subassurances. 

For example, the state may install an automated 

case management system or decide to upgrade its 

information technology system. These types of improvements are encouraged by CMS, but they are of 

a different nature than the improvement activities 

associated with the assurances and subassurances. 

States may also choose to track additional aspects 

of program performance that go beyond the Federal requirements, and CMS is supportive of states 

taking such initiatives. 

The CMS Review Process

On a periodic basis, CMS requires states to submit 

evidence that demonstrates their active monitoring of their waivers, as well as compliance with the 

assurances and subassurances. This evidence should 

consist of summarized findings of the Performance 

Measures (Discovery Data), and summarized results 

of all remediation actions taken when the state discovered any non-compliance related to any Performance Measures. Table 3 depicts what summarized 

evidence might look for one performance measure. 

States are also expected to report on any quality improvement actions they have initiated, the reasons 

for conducting the quality improvement project, 

the nature of the intervention, and the empirical 

results of the improvement action (i.e., to what 

extent it worked, as measured by an improvement 

in the Performance Measure’s compliance rate). Currently, CMS requires states to submit information 

on waiver quality on an annual basis in a 372 report, 

a report that is waiver-specific and also includes 

waiver cost and utilization data.

In addition to the annual reporting, prior to waiver 

renewal CMS conducts an in-depth review of the 

waiver program and requires the state to submit 

evidence on all performance measures covering all 

discovery, remediation, and improvement activity 

reports for the first 3 years of the waiver (and for the 

first 18 months for a new waiver). After reviewing 

the state’s evidence package, CMS issues a Findings 

Report detailing whether the state met the assurances. For a state that could not demonstrate it met 

an assurance, the Findings Report will specify what 

it must do to come into compliance if CMS is to 

renew the waiver upon its expiration. A state found 

out of compliance is typically required to submit an 

action plan to CMS; once approved and the state 

begins implementation, CMS will monitor the state’s 

progress through state-submitted reports, teleconferences, and on-site visits. 

States should also expect to be visited by CMS staff 

at least once during a waiver cycle. The purpose of 

these visits is for CMS to verify that the monitoring 

strategies that the state described in the approved 

waiver application are actually being implemented, 

and that monitoring reports are being generated in 
Appendix: Medicaid HCBS Quality 245

the frequency specified in the application and used 

by the state in operating the waiver. While on site, 

CMS may (1) interview state staff to better understand the processes and operations associated with 

the quality improvement strategy, (2) ”shadow” 

quality oversight staff as they conduct monitoring 

activities, (3) observe the state’s quality oversight 

meetings where performance measure data and 

remediation reports are reviewed and where quality 

improvement activities are planned and evaluated, 

and (4) visit providers to verify that the state is conducting provider reviews as described in the waiver 

application. 

CMS may also visit a state if there are reports about 

program participants’ health and welfare being seriously jeopardized, or in the case of serious provider 

infractions. Additionally, through-out the waiver’s 

cycle, states should expect an ongoing dialogue 

with CMS about waiver quality; both state staff and 

CMS staff are expected to take responsibility for this 

interchange. 

Technical Assistance 

for Medicaid HCBS Quality

CMS staff, be they Regional Office staff assigned to 

the waiver and/or staff in the Baltimore Central Office, are available to answer states’ questions about 

Medicaid HCBS quality and to provide guidance. In 

addition, since 2001 CMS has made available to the 

states free quality-related technical assistance (TA) 

through the National Quality Enterprise (NQE). The 

NQE provides one-on-one TA for states targeted 

to specific waivers. In addition, the NQE conducts 

HCBS Quality Training Forums consisting of teleconferences open to all states where topics related 

to HCBS quality oversight are addressed by CMS, 

national experts, and state HCBS staff. The NQE also 

publishes periodic manuscripts on various HCBS 

quality issues and maintains a website. This site includes links to many CMS documents pertaining to 

HCBS quality, as well as manuscripts and resources 

endorsed by CMS. Those joining the website are 

able to post questions to peers in other states. Also, 

states may request TA from the NQE through this 

website. (See the Resources section for a web link to 

the site.)
246 Understanding Medicaid Home and Community Services: A Primer

Resources

National HCBS Quality Enterprise Website

This website provides information on quality improvement for Medicaid §1915(c) HCBS waivers and the CMS 

Quality Enterprise project. It also provides state Medicaid quality staff an opportunity to connect with one 

another and pose questions to Quality Enterprise staff. Visitors must create a member’s account to access the 

full site or can browse using a preview option. 

Resources include CMS Quality Communications, technical assistance manuscripts, PowerPoint presentations, 

and audio-recorded training calls. All of the materials posted on this website have been reviewed and approved by CMS. Material is added to the website on an ongoing basis and interested parties are encouraged to 

check the website for updates. Below are some examples of material that may be found on the NQE website as 

of the publication date of this Primer.

Web address: http://www.nationalqualityenterprise.net/

• B. Edwards, CMS Quality Communication #15: Web Based §1915(c) Waiver Application; Instructions and 

Technical Guide; Resource Documents; 372 Online Form, CMS Disabled and Elderly Programs Group, 

January 25, 2010.

• S. Galantowicz, Implementing Continuous Quality Improvement (CQI) in Medicaid HCBS Programs, National Quality Enterprise, January 21, 2010.

• B. Jackson, PowerPoint presentation and audio recording: Examples of Performance Measures for the 

§1915(c) Waiver Assurances (first installment), January 14, 2010.

• B. Jackson, PowerPoint presentation and audio recording: Examples of Performance Measures for the 

§1915(c) Waiver Assurances (second installment), March 11, 2010.

• G. Arden, CMS Quality Communication #12: Revised Interim Procedural Guidance (IPG) and Technical Assistance Products, CMS Disabled and Elderly Health Programs Group, February 6, 2007.

• R. Freedman and S. Taub, Sampling: A Practical Guide for Quality Management in Medicaid HCBS Waivers, 

National Quality Contractor, March 2006.

• S. Galantowicz and B. Selig, Risk Management and Quality in HCBS: Individual Risk Planning and Prevention, System-Wide Quality Improvement, National Quality Contractor, February 2005.
Appendix: Medicaid HCBS Quality 247

Centers for Medicare & Medicaid Services. (2008). Application for a §1915(c) Home and CommunityBased Waiver [Version 3.5]: Instructions, Technical Guide and Review Criteria. Baltimore, MD: Department 

of Health and Human Services.

This publication contains extensive information concerning Federal policies that apply to the operation of an 

HCBS waiver. In particular, Appendix G: Quality Improvement, Health and Welfare and Appendix H: System 

Improvement are relevant to the forgoing discussion on Medicaid HCBS Quality. The instructions include technical guidance to aid states in designing an HCBS waiver, and incorporate the review criteria that CMS uses in 

order to determine whether a waiver meets applicable statutory, regulatory, and other requirements.

Available at https://www.hcbswaivers.net/CMS/faces/portal.jsp under links and downloads, entitled §1915(c) 

Waiver Application and Accompanying Materials. 
248 Understanding Medicaid Home and Community Services: A Primer

Endnotes: Citations, Additional Information,

and Web Addresses

1 Beth Jackson is the author of this appendix. CMS funded the development of this appendix on quality 

management systems.

2 CMS’s expectations for state responsibility for quality in Medicaid HCBS programs is most clearly 

articulated for the §1915(c) waiver programs; however, the agency increasingly is looking to the 

§1915(c) quality requirements as a model for further articulation of quality requirements for home 

and community-based services provided under other Medicaid authorities, such as the §1915(a) and 

§1915(b) authorities and the §1115 demonstration authority.

3 U.S. Government Accountability Office. Long-Term Care: Federal Oversight of Growing Medicaid Home 

and Community-Based Waivers Should Be Strengthened. GAO-03-576, June 2003. 

4 Version 3.1 of the waiver application was issued in a Word format in 2005. In November 2006, CMS 

launched the application in a web-based format under Version 3.4. In January 2008, CMS released 

Version 3.5 where the quality-related portions were re-designed to elicit even more specific information from the states on quality monitoring and improvement. As of April 1, 2010, use of the web-based 

application is mandatory.

5 Assumes a Confidence Level of .95 and a Confidence Interval (Margin of Error) of +/–5.

6 Typically, stratification violates the simple random sample assumption that every unit within the 

sample contributes equally. The sample size of the strata are often disproportionate to their representation in the population, and thus the sample must be statistically adjusted so that an estimate of the 

entire population can be made, and to avoid having members of any one subgroup (strata) contributing more or less than a member of another subgroup.

7 This quality review process was instituted by CMS in January 2004 when they issued Interim Procedural Guidance. CMS updated aspects of this process in February 2007 with the Revised Interim 

Procedural Guidance issued under Quality Communication #12 from the Director of the Disabled and 

Elderly Health Programs Group.

8 From 2001–2008, the CMS-funded National Quality Contractor provided technical assistance to states. 

In October 2008, CMS changed the funding mechanism to a grant and renamed it the National Quality 

Enterprise.

Understanding Medicaid Home and Community Services: A Primer 2010 Edition

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