As Republicans in Congress continue to flesh out their plan to cut $880 billion in health care spending – most of it from Medicaid – two things are clear: historic cuts to Medicaid are looming and the ripple effect of these cuts will spread across state programs. Much has been written on their ideas to impose work requirements on low-income adults (the vast majority of whom are already working), reduce federal funding levels for Medicaid, and “tackle Medicaid fraud, waste, and abuse.” These ideas are often presented as “commonsense” changes needed to preserve the program for seniors and people with disabilities —those who need it “the most.” But in reality, these ideas, if acted upon, are anything but commonsense. They will have devastating effects on the most vulnerable populations who will experience loss of coverage, cuts to their benefits, and lower quality of care.

Medicaid is a critical source of coverage for older adults and people with disabilities, serving as the primary payor for long-term care, including the home and community-based services (HCBS) that help people remain in their own homes and communities. With nearly 21 million enrolled through disability and aging eligibility pathways, or about 25 percent of total Medicaid enrollment, over half of Medicaid spending is on these populations. In some states, like Alabama, Florida, Kansas, Mississippi, and North Dakota, the share of care dedicated to disabled people and seniors accounted for at least two-thirds of overall Medicaid spending. (These percentages are even higher when disabled people and older adults eligible through other pathways are included.)

Cutting federal Medicaid spending would have such negative consequences on older adults and people with disabilities because reductions in Federal reimbursements to states would leave states with tough choices: use more state dollars to pay for Medicaid (hard to do if the use of provider taxes is eliminated or severely cut), or cut Medicaid spending. If they cut Medicaid spending, that means covering fewer people, reducing covered benefits, cutting provider payment rates, or a combination of these. For each of these choices, Home and Community Based Services (HCBS) is a highly threatened area, despite assurances otherwise from Republicans in Congress.

HCBS In The Crosshairs

How can seniors and people with disabilities be harmed if assurances have been made to protect them? The answer is simple: HCBS are optional services and likely to be the first to see cuts if states receive less federal Medicaid spending. To be sure, many Medicaid benefits, such as nursing home services, are required by Federal law. But there are also a whole host of other benefits, including HCBS, that are available only at the discretion of the states. Because states have the option to cover HCBS, they can make changes based on available funding, meaning that they can easily limit enrollment, reduce benefits, or get rid of them entirely if they face spending pressures. To say it bluntly: States must pay for nursing home care, but they do not have to pay for HCBS.

This puts HCBS squarely in the cross hairs. In 2017, MACPAC found that just over half (51%) of state spending on optional Medicaid services goes to HCBS. Optional services for older adults and people with disabilities, including HCBS, comprise the vast majority (86%) of all optional Medicaid spending and nearly one-third (32%) of total Medicaid spending.

It’s not just benefits either. States also have the option to cover people who need HCBS but would not otherwise qualify for Medicaid, such as children whose parents work but still need help to pay for HCBS. The so-called Katie Beckett waiver provides exactly that kind of support in many states. But just like with optional benefits, states can reduce the number of people who qualify for HCBS programs, increase eligibility levels, or eliminate these optional eligibility pathways altogether.

Past Spending Cuts Foreshadow What’s To Come

When states have faced budgetary pressures in the past, they respond by cutting Medicaid eligibility, benefits, and provider payments. These cuts affect all facets of the Medicaid program, particularly HCBS programs. In 2009, Congress responded to the Great Recession with a stimulus package that included a large increase in Medicaid matching funds to help states balance their budgets in the face of sharply reduced revenues. In 2011, even though the economies of many states had not fully recovered, Federal funding returned to its pre-recession level and many states struggled to cope with large increases in their share of Medicaid spending.

An analysis of HCBS expenditure and participant data, conducted by the third author at the University of California San Francisco, indicates that every single state and the District of Columbia cut spending to one or more of its HCBS programs between 2010 and 2012, either by reducing inflation-adjusted, per-beneficiary spending or by reducing the number of beneficiaries (Exhibit 1). States were more likely to cut per-beneficiary spending, sometimes by capping or cutting benefits, than to limit enrollment, such as by reducing the number of “slots” for HCBS waiver services. Spending cuts averaged 11 to 12% for waiver and personal care services programs and 22% for home health, and reductions in the number of people served ranged from 2 to 15%, depending on the program.

While serving fewer people, or otherwise halting program expansion, many states saw large increases in waiting lists for HCBS Waiver programs. For services for people with intellectual and developmental disabilities, 23 states (out of the 34 that both maintain waiting lists and supplied data to researchers) saw a median 54% increase in the number of people on the waitlist. For waiver programs targeting other populations, 12 states (of 20 with available data) saw increased waiting lists, with a median growth of 138%.

If Republicans in Congress move forward with their plans to cut federal Medicaid funding, states will once again have to make hard choices on who to cover under their HCBS programs, what to cover, and how much to pay providers. For example, nearly every state has expanded optional income eligibility for people who use HCBS, covering about 7 million seniors and people with disabilities who would lose coverage if states eliminated these eligibility pathways. 

States would also face pressure to eliminate coverage of specific optional services, such as home modification, adult day care, home-delivered meals, and transportation. Other optional services that play a key role in helping people with significant disabilities to live outside of institutions, such as support for family caregivers and services in assisted living facilities, would also likely be on the chopping block.

Rounding out the trifecta of harmful reductions are cuts in provider rates, which are already so low that states are facing a workforce crisis, with providers declining referrals and closing down services despite high demand. States would face pressure to cut payment rates for HCBS providers, in part because over the last five years, states have used extra federal funds from the American Rescue Plan to increase payment rates for HCBS providers. The exhaustion of the extra federal funding will put pressure on payment rates even in the absence of new federal cuts, so any additional spending cuts would further exacerbate state spending burdens.

Finally, it is notable that the HCBS provider community is less well-funded and organized than other provider types, making payment rate cuts more likely for this group.

Sliding Backwards: Pressure To Move Back To More Nursing Home Care

Despite the optional nature of HCBS, we have seen a significant shift in the funding of long-term care away from nursing homes and towards HCBS; HCBS not only is more cost effective, but the vast majority of older adults and disabled people strongly prefer to remain in their homes and communities and age in place. As shown in Exhibit 2, HCBS spending exceeded institutional care spending in 2013, with 65 percent of all long-term care spending going towards HCBS in 2022.

If Republicans in Congress ultimately cut federal Medicaid spending, we’re likely to see a reversal of the significant progress made over the last decade in the use of HCBS. Helping people stay in their homes and communities has been a bipartisan issue for decades: in fact, it was President Reagan who established the Katie Beckett option, allowing children in middle class families to afford HCBS for their children. But according to a recent analysis by the fourth and fifth authors at the LeadingAge LTSS Center @UMass Boston, federal Medicaid cuts could force up to three million people aged 50 or over to seek institutional care rather than being able to get the HCBS they would otherwise receive in their homes.

The LTSS Center’s recent analysis shows how critical HCBS are to keeping people out of institutional care. In 2020, people over 50 who met criteria for nursing home level of care but did not receive HCBS were nearly five times more likely to have a nursing home stay and spend nearly five days more in a nursing home than similar individuals who did receive HCBS. The researchers estimated that even a 15% reduction in HCBS spending would result in over 1.5 million additional nursing home days and $467 million in additional costs. This jumps to more than three million additional days and $943 million in additional costs if HCBS spending is cut by 30%, and more than 5.6 million additional days and $1.7 billion in additional costs if spending is cut by 45%. 

Progress At Risk

Medicaid is the primary payor of long-term care in this country, making it a critical source of coverage for seniors and people with disabilities. States have steadily provided more HCBS over the last decades, but this progress is at risk given the optional nature of HCBS, the potential for significant cuts to federal Medicaid funding, and states’ struggle to finance their Medicaid programs. Despite assurances that older adults and disabled people will not be harmed, the plan that the Republicans in Congress have put forward will do just that, and the so called “savings” will actually be experienced as real costs to the most vulnerable Americans.