Community-Based Medicaid Funding for People with Intellectual and Developmental Disabilities

By Richard Hemp, David Braddock and Martha King | Vol . 22, No. 7 | February 2014

NCSL NewsDid you know?

  • States began to realize they could save money by accommodating people with intellectual and developmental disabilities in community-like settings.
  • In 2011, the HCBS Waiver and related Medicaid services constituted 71 percent of Medicaid long-term services and support spending for people with intellectual and developmental disabilities.
  • The District of Columbia and 12 states have closed their state-operated institutions entirely.

State governments have been funding residential services for people with intellectual and developmental disabilities (I/DD) for more than 160 years. As illustrated in Figure 1, large, state-operated institutions were at their peak in 1967 and housed 195,000 people with intellectual and developmental disabilities.

Federal Action

In 1972, Medicaid began paying for services for I/DD facilities called Intermediate Care Facilities for the Mentally Retarded (ICF/MR), now referred to as ICF/ID. Such facilities housed as many as 1,000 or more people and provided services such as medical care, occupational therapy and rehabilitation. In the 1980s, people with disabilities and their families began advocating for the opportunity to live in community- based residential and family settings. In addition, states began to save money by accommodating people in smaller homelike settings rather than in large, costly institutions subject to more federal regulations. The landmark 1999 Supreme Court decision, Olmstead v. L.C., required that people with disabilities receive services in the most integrated setting appropriate to their needs, thus adding momentum to the movement toward community care and family support services, and away from institution-based care.

In 1981, Congress authorized the Medicaid Home and Community-Based Services (HCBS) Waiver, allowing states to request federal permission to use Medicaid funds to pay for long-term services and supports in community settings. The authorization “waives” some federal Medicaid requirements to allow states more flexibility in determining specific populations to be served for example, frail elderly, children with autism and those with I/DD—as well as the services provided under each waiver. Those services may include non-medical support such as home modifications, family-member training and respite care, and supported employment. HCBS Waiver spending in 2011 for all 1.4 million participants with disabilities and the elderly totaled $38 billion. People with intellectual and developmental disabilities represented 45 percent of all waiver participants and 73 percent of waiver spending in 2011. HCBS Waivers have thus become a popular cost-effective alternative to institutional ICF/ID spending.

State Action

The HCBS Waiver today finances a wide array of community residential services programs for approximately 627,000 people with intellectual and developmental disabilities. Figure 2 illustrates growing HCBS Waiver spending and declining institutional ICF/ID spending from 1993 to 2011. In 2011, the HCBS Waiver and related Medicaid services—such as targeted case management, personal care, and clinic and rehabilitation services— constituted 71 percent of total Medicaid spending for people with intellectual and developmental disabilities.

The use of HCBS Waivers varies widely among states. As summarized in Table 1, 49 percent of total nationwide spending on I/DD long-term services and supports in 2011 came from waiver funding, ranging from a high of 84 percent in Vermont to a low of 12 percent in Mississippi. Many states that use the waiver extensively—such as Alaska, Arizona, Maine, Minnesota, New Hampshire, New Mexico, Oregon, Rhode Island and Vermont—rank high in their percentage of people in small group residences, apartments and family homes. In addition, some states—including Alabama, Alaska, Hawaii, Maine, Michigan, Minnesota, New Hampshire, New Mexico, Oregon, Rhode Island, Vermont and West Virginia—and the District of Columbia have closed their state-operated I/DD institutions entirely.

The State of the States in Developmental Disabilities project distributes periodic analyses of state spending and revenues for I/DD services and maintains a website profiling each state’s use of the HCBS Waiver, the ICF/ID program and a range of other community supports.

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