Medicaid funds most publicly supported long-term care services for persons with developmental disabilities. In 1995, Medicaid provided more than $13.2 billion to support over 275,000 individuals with these services. To be eligible for Medicaid, individuals must generally meet federal and state income and asset thresholds. To be considered developmentally disabled, individuals must also have a mental or physical impairment, with onset before they are 22 years old, that is likely to continue indefinitely and they must be unable to carry out some everyday activities, such as making basic decisions, communicating, taking transportation, keeping track of money, keeping out of danger, eating, and going to the bathroom, without substantial assistance from others. Until recently, states provided the bulk of services for this population through the Medicaid ICF/MR program. The ICF/MR program funds large institutions and smaller settings of 4 to 15 beds, and both sizes of settings are subject to the same regulatory standards. ICF/MR program services are available and provided as needed on a 24-hour basis. These services include medical and nursing services, physical and occupational therapy, psychological services, recreational and social services, and speech and audiology services. ICF/MR program services also include room and board. Providers of ICF/MR program services must adhere to an extensive set of regulations and are subject to annual on-site inspections as mandated by Medicaid. In 1981, the Congress enacted the 1915(c) waiver allowing states to apply to HCFA for a waiver of certain Medicaid rules to offer home and community-based services. By 1995, 49 states had 1915(c) home and community-based waiver programs for persons with developmental disabilities. Waiver program services vary by state, but include primarily nonmedical services such as chore services, respite care, and habilitation services, which are all intended to help people live more independently and learn to take care of themselves. (See apps. II and III for a list of waiver program services and definitions in the three states we visited). Unlike ICF/MR program services, waiver program services do not include room and board and are often provided on less than a 24-hour basis. HCFA carries out its waiver program oversight responsibilities through review of applications and renewals and monitoring of implementation through on-site compliance reviews. In approving waivers, HCFA reviews applications to ensure that (1) services are offered to individuals who, “but for the provision of such services . . . would require the level of care provided” in an institutional setting such as an ICF/MR; (2) total Medicaid per capita costs for waiver program recipients are not greater than total Medicaid per capita costs for persons receiving institutional care; and (3) states properly assure quality. The waiver program enables states to control utilization and costs in ways not permitted under the regular Medicaid program. The waiver program has a cap for the number of persons served at HCFA-approved levels. It also allows states, with HCFA permission, to target services to distinct geographic areas or populations, such as persons with developmental disabilities or the elderly; offer a broader range of services; and serve persons with incomes somewhat higher than normal eligibility thresholds. In contrast, the regular Medicaid program generally requires that each state provide eligible beneficiaries with all federally mandated services and any optional services it chooses to offer. States, however, provide some community-based services to developmentally disabled individuals through the regular Medicaid program. These services include federally mandated services, such as home health care, and other services that states may elect to provide, which are called optional services. Some of the more important optional services for the population with developmental disabilities are rehabilitative services, case management, and personal care. Because the regular Medicaid program operates as an entitlement—that is, all eligible individuals in a state are entitled to receive all services offered by the state—states have less control over utilization and the cost of services than in waiver programs. Through the use of waivers, states have changed long-term care nationally for persons with developmental disabilities in two ways. First, states have significantly expanded the number of individuals being served. Second, states have shifted the program balance from serving most people through the ICF/MR program to serving most through the waiver program. Generally the shift to the waiver program has been part of an evolution of services away from large and more restrictive settings to providing services in small and less restrictive settings, which are preferred by recipients and their families. Some state waiver programs are continuing to evolve from their earlier approach of providing services primarily in group home settings to one of serving people at home. From 1990 to 1995 the number of persons served by the waiver and ICF/MR programs combined rose at an average annual rate of 8 percent (see table 1). The number served by the waiver program more than tripled to over 142,000 persons during this period and accounted for the entire increase in the number of persons served by both programs. States dramatically increased the number of people who received waiver program services using a variety of strategies, including substituting waiver program for ICF/MR program services, services provided under state-only programs, and services to persons who were not being served before. More people are now served through the waiver program than the ICF/MR program. Although the percentage of persons served through the waiver program varies by state, 30 states provide services to more people through the waiver program than the ICF/MR program (see fig. 1). With the support of recipients and their families, state officials have made changes to serve more people through the waiver program. All three groups have come to believe that the alternatives possible through the waiver can better serve persons with developmental disabilities. They believe that in many cases individuals can have a higher quality of life through greater community participation, including relationships with neighbors, activities in social organizations, attendance at public events, and shopping for food and other items. This can result in expanded social networks, enhanced family involvement, more living space and privacy, and improvements in communication, self-care, and other skills of daily living. States believed that they could use the waiver program to expand services while simultaneously reducing or limiting access to ICF/MR program care as a means to control growth in expenditures. As a result, many states have closed large institutions or held steady ICF/MR capacity even as the population in need has grown. Some states have also reduced smaller ICF/MR settings by converting them to waiver programs. The number of people in ICF/MR settings has dropped 7 percent from 1990 to 1995. These actions have been part of an overall strategy to change the way services are provided and financed. States have used the flexibility of the waiver program to pursue distinct strategies and achieve different program results as shown in the three states we visited (see table 2). These states used the waiver program to substitute for ICFs/MR that were being closed, expand the number of persons being served, or both. Rhode Island targeted waiver program services as a substitute for ICF/MR program care with little change in the number of persons served. The state began the 1990s with short waiting lists for services and a goal of closing all large institutions of 16 or more beds. Providing waiver program services to many of its former residents, the state closed the Ladd Center, its last large institution, in 1994 to become one of only two states along with the District of Columbia to close all its large institutions. Rhode Island also substantially reduced the number of recipients of services in smaller ICFs/MR by converting the ICFs/MR to the waiver program. As a result, a substantial number of persons who had been supported through the state’s ICF/MR program are now supported by its waiver program. The number of developmentally disabled persons served through the waiver and ICF/MR programs in Rhode Island, however, did not expand significantly. In contrast, Florida’s strategy for the waiver program was to expand services to a much broader population rather than using the waiver program to close ICF/MR settings. Florida began the 1990s with substantial waiting lists for services and fewer ICF/MR beds than most of the country relative to the size of the population with developmental disabilities. Florida chose to greatly expand the number of persons with developmental disabilities served to include people who had not been served or who needed more services. The overwhelming source of growth has been from the large increase in waiver program recipients, although Florida has also experienced modest growth in the number of ICF/MR recipients. The state’s increase in waiver program recipients includes persons who were receiving services from state-only programs and persons who were not previously served. Michigan used the waiver program in the 1990s to continue pursuing its goals of closing large institutions, offering placements for persons leaving small ICFs/MR, and expanding services to those with unmet needs. Michigan, like Florida, began the 1990s with many persons who needed but had not received services. Michigan, however, had more ICF/MR capacity than Florida. Most of Michigan’s ICF/MR capacity was in smaller settings, many of which had been developed to help the state close some of its large institutions. As a result, Michigan has closed all but about 400 beds in large institutions and significantly increased the number of persons served. State officials told us that by 1995, Michigan was serving more individuals in the waiver program than in its ICF/MR program. In the continuing evolution of services for persons with developmental disabilities, some states, such as Florida, Michigan, and Rhode Island, are changing the focus of waiver program services from group home care to more tailored services to meet individuals’ unique needs and preferences at home. These states and most others began their waiver programs by providing services primarily in group homes. Recently, state officials have come to believe that for many persons, services are best provided on a more individualized basis in a recipient’s home—his or her family’s home or own home or an adult foster care home—rather than in group home settings.