Individuals needing long-term care have varying degrees of difficulty in performing some activities of daily living without assistance, such as bathing, dressing, toileting, eating, 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 physical or mental disability may occur at any age, the older an individual becomes, the more likely it is that a disabling condition will develop or worsen. Assistance for such needs takes many forms and takes place in varied settings, including care in nursing homes or alternative community-based residential settings such as assisted living facilities. For individuals remaining in their homes, in-home care services or unpaid care from family members or other informal caregivers is most common. 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. 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 the $137 billion spent on long-term care from all public and private sources. 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 long-term care 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 state Medicaid plan as approved by the Centers for Medicare & Medicaid Services (CMS), 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 the requirement that states 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 number 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 an 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 facilities and home health care. Medicare spending accounted for 14 percent (about $19 billion) of total long-term care expenditures in 2000. A new home health prospective payment system was implemented in October 2000 that would allow a higher number of home health visits per user than under the previous interim payment system while also providing 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. 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 home health, and to state optional home and community-based care, such as in-home personal support, adult day care, and care in alternate residential care settings. As the following examples illustrate, 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. New York spent $2,463 per person aged 65 or older in 1999 on Medicaid long-term care services for the elderly—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 state optional long-term care services, such as personal support services. Because most home and community-based services in New York were covered as part of the state Medicaid plan, these services were largely available to all eligible Medicaid beneficiaries needing them without caps on the numbers of individuals served. Louisiana spent $1,012 per person aged 65 or older, slightly higher than the national average of $996. Nursing home care accounted for 93 percent of Louisiana’s expenditures, higher than the national average of 81 percent. Most home and community-based services available in Louisiana for the elderly and disabled were offered under HCBS waivers, and the state capped the dollar amount available per day for services and limited the number of recipients. For example, Louisiana’s waiver that covered in- personal care and other services had a $35 per day limit at the time of our work and served approximately 1,500 people in July 2002 with a waiting list of 5,000 people. Kansas spent $935 per person aged 65 or older, slightly less than the national average. Most home and community-based services, including in- home care, adult day care, and respite services, were offered under HCBS waivers. As of June 2002, 6,300 Kansans were receiving these HCBS waiver services. However, the HCBS waiver services were not currently available to new recipients because Kansas initiated a waiting list for these services in April 2002, and 290 people were on the waiting list as of June 2002. Oregon spent $604 on Medicaid long-term care services per elderly individual and, in contrast to the other states, spent a lower proportion on nursing facilities and a larger portion on other long-term care services such as care in alternative residential settings. Oregon had HCBS waivers that cover in-home care, environmental modifications to homes, adult day care, and respite care. Oregon’s waiver services did not have a waiting list and were available to elderly and disabled clients based on functional need, serving about 12,000 elderly and disabled individuals as of June 2002. Appendix I summarizes the home and community-based services available in the four states through their state Medicaid plans or HCBS waivers and whether the state had a waiting list for HCBS waiver services. Most often, the 16 Medicaid case managers we contacted in Kansas, Louisiana, New York, and Oregon offered care plans for our hypothetical individuals that aimed at allowing them to remain in their homes. The number of hours of in-home care that the case managers offered and the types of residential care settings recommended depended in part on the availability of services and the amount of informal family care available. In a few situations, especially when the individual did not live with a family member who could provide additional support, case managers were concerned that the client would not be safe at home and recommended a nursing home or other residential care setting. The first hypothetical person we presented to care managers was an 86- year-old woman, whom we called “Abby,” with debilitating arthritis who is chair bound and whose husband recently died. In most care plans, the case managers offered Abby in-home care. However, the number of offered hours depended on the availability of unpaid informal care from her family and varied among case managers. In the first scenario, Abby lives with her daughter who provides most of Abby’s care but is overwhelmed by also caring for her own infant grandchild. Case managers offered from 4.5 to 40 hours per week of in- home assistance with activities that she could not do on her own because of her debilitating arthritis, such as bathing, dressing, eating, using the toilet, and transferring from her wheelchair. One case manager recommended adult foster care for Abby under this scenario. In the second scenario, Abby lives with her 82-year-old sister who provides most of Abby’s care, but the sister has limited strength making her unable to provide all of Abby’s care. Case managers offered Abby in-home care, ranging from 6 to 37 hours per week. One case manager also offered Abby 56 hours per week of adult day care. In the third scenario, Abby lives alone and her working daughter visits her once each morning to provide care for about 1 hour. The majority of case managers (12 of 16) offered from 12 to 49 hours per week of in-home care to Abby. The other four case managers recommended that she relocate to a nursing home or other residential care setting.