Long-term care includes many types of services needed when a person has a functional disability, whether physical or cognitive. Individuals needing long-term care have varying degrees of difficulty in performing some activities of daily living without assistance, such as bathing, dressing, eating, toileting, and moving from one location to another. They may also have trouble with instrumental activities of daily living, which include such tasks as preparing food, housekeeping, and handling finances. They may have a mental impairment, such as Alzheimer’s disease, that necessitates supervision to avoid harming themselves or others or need assistance with tasks such as taking medications. Although a chronic physical or mental disability may occur at any age, the older an individual becomes, the more likely a disability will develop or worsen. Assistance for such needs takes many forms and takes place in varied settings, including institutional care in nursing homes or alternative community-based residential settings such as assisted living facilities, in- home care services, and unpaid care from family members or other informal caregivers. Approximately 64 percent of all elderly individuals with a disability relied exclusively on unpaid care from family or other informal caregivers; even among almost totally dependent elderly—those with difficulty performing five activities of daily living—about 41 percent relied entirely on unpaid care. Long-term care is financed through a variety of sources, primarily public programs. Nationally, spending from all public and private sources for long-term care for all ages totaled about $137 billion in 2000, accounting for nearly 11 percent of all health care expenditures. Medicaid, the joint federal-state health-financing program for low-income individuals, continues to be the largest funding source for long-term care. In 2000, Medicaid paid 46 percent (about $63 billion) of total long-term care expenditures. Individuals’ out-of-pocket payments represented the second largest source of payments for long-term care—a larger part of long-term care spending than for other types of health care services such as physicians and hospitals. These out-of-pocket payments accounted for 23 percent (about $31 billion) of total long-term care expenditures in 2000. Medicare, private insurance, and other public or private sources financed the remaining shares of these expenditures. States share responsibility with the federal government for Medicaid, paying on average approximately 43 percent of total Medicaid costs. Within broad federal guidelines, states have considerable flexibility in determining who is eligible and what services to cover in their Medicaid program. Among long-term care services, states are required to cover nursing facilities and home health services for Medicaid beneficiaries. States also may choose to cover additional services that are not mandatory under federal standards, such as personal care services, private-duty nursing care, and rehabilitative services. For services that a state chooses to cover under its CMS-approved state Medicaid plan, enrollment for those eligible cannot be limited but benefits may be. For example, states can limit the personal care service benefit through medical necessity requirements and utilization controls. States may also cover Medicaid home and community-based services (HCBS) through waivers of certain statutory requirements under section 1915(c) of the Social Security Act, thereby receiving greater flexibility in the provision of long-term care services. These waivers permit states to adopt a variety of strategies to control the cost and use of services. For example, states may obtain CMS approval to waive certain provisions of the Medicaid statute, such as comparability, which generally requires states to make all services available to all eligible individuals statewide. With a waiver, states can target services to individuals on the basis of certain criteria such as disease, age, or geographic location. Further, states may limit the numbers of persons served to a specified target, requiring additional persons meeting eligibility and need criteria to be put on a waiting list. Limits may also be placed on the costs of services that will be covered by Medicaid. To obtain CMS approval for a HCBS waiver, states must demonstrate that the cost of the services to be provided under a waiver (plus other state Medicaid services) is no more than the cost of institutional care (plus any other Medicaid services provided to institutionalized individuals). These waivers permit states to cover a wide variety of nonmedical and social services and supports that allow people to remain at home or in the community, including personal care, personal emergency response systems, homemakers’ assistance, chore assistance, adult day care, and other services. Medicare—the federal health financing program covering nearly 40 million Americans who are aged 65 or older, disabled, or have end-stage renal disease—primarily covers acute care, but it also pays for limited post- acute stays in skilled nursing care facilities and home health care. Medicare spending accounted for 14 percent (about $19 billion) of total long-term care expenditures in 2000. During the early and mid-1990s, Medicare became an increasingly significant funding source for individuals receiving continuing home health care, including home health aide services that may at times substitute for other long-term care services. The adoption of an interim payment system in 1997 to better control spending growth was followed by a sharp reduction in the number of home health visits and spending covered by Medicare. A new home health prospective payment system was implemented in October 2000 that was intended to more closely align Medicare payments with patient needs. While it provides funding that allows a higher number of home health visits per user than under the interim payment system, it also provides incentives to reward efficiency and control use of services. The number of home health visits declined from about 29 visits per episode immediately prior to the prospective payment system being implemented to 22 visits per episode during the first half of 2001. Most of the decline was in home health aide visits. Each of the states we reviewed—Kansas, Louisiana, New York, and Oregon—covered home and community-based services in their Medicaid programs, but differed in how much of their Medicaid spending for long- term care for the elderly they dedicated to home and community-based care and how they designed their programs for these services. In general, Kansas and Louisiana spent a smaller portion of their Medicaid long-term care expenditures on home and community-based services than the other two states, and many of these services had recently not been available to new clients because both states had waiting lists. New York had the highest Medicaid spending on long-term care services for the elderly, with per capita spending nearly two-and-a-half times the national average. In addition, most of New York’s home and community-based services were covered through its state Medicaid plan, making the services available to all eligible Medicaid beneficiaries. Oregon spent much less on nursing home care than other states, with a higher share of its long-term care expenditures for the elderly dedicated to home and community-based care. The four states we reviewed allocated different proportions of Medicaid long-term care expenditures for the elderly to federally required long-term care services, such as nursing facilities, and to state optional home and community-based care, such as in-home personal support, adult day care, and other home and community services. (See table 1.) New York’s expenditures for Medicaid long-term care services (including nursing facilities, home health, personal support, and other care) for the elderly was $2,463 per person aged 65 or older in 1999—much higher than the national average of $996. While nursing home care represented 68 percent of New York’s expenditures, New York also spent more than the national average on long-term care services provided at the state’s option, such as personal support services. Kansas and Louisiana spent near the national average of $996 per person aged 65 or older ($935 and $1,012, respectively), but nursing home care accounted for a higher portion of these expenditures in Louisiana (93 percent) than the national average (81 percent). Oregon spent $604 on Medicaid long-term care services per elderly individual. In contrast to the other states, Oregon spent much less per capita on nursing home care, and spent a larger portion for other long- term care services such as care in alternative residential settings. The states also differed in how they designed their home and community- based services, influencing the extent to which these services were available to elderly individuals with disabilities. In some instances, as the following examples illustrate, not all services were available to all clients, with Kansas and Louisiana having waiting lists for HCBS waiver services for new clients. Kansas: Most home and community-based services for the elderly in Kansas were offered under HCBS waivers. These services included in- home help such as personal care, household support, night supervision, assistive devices (such as shower seats), personal emergency response systems, adult day care, and respite care. As of June 2002, 6,300 Kansans were receiving these HCBS waiver services. Because Kansas recently initiated a waiting list for these services in April 2002, they were not currently available to new recipients, with 290 people on the waiting list as of June 2002. Louisiana: Most home and community-based services available in Louisiana for the elderly and disabled were offered under HCBS waivers, allowing the state to limit the number of recipients and cap the dollar amount available per day for services. One waiver, which includes such services as personal care, environmental modifications to the home (such as wheelchair ramps), and personal emergency response systems, served approximately 1,500 people in July 2002 with a waiting list of 5,000 people. The dollar cap on services provided through this waiver increased in September 2002 from $35 per day to $55 per day. The other waiver, which is exclusively for adult day health care, served approximately 525 people, with 201 individuals on the waiting list as of July 2002. New York: New York relied less on HCBS waivers for home and community-based care for the elderly and disabled than other states because these services were largely available through the state Medicaid plan.