The Perfect Storm Is Here for Medicaid Long-Term Services and Supports: Part 1
Medicaid Home and Community-Based Services are at immediate risk. Here’s what policymakers can do now.
Authors: Cindy Mann, Melinda Dutton and Patti Boozang
Editor: Amanda Eisenberg
tl;dr
Medicaid is the nation’s largest payer for long‑term care, financing nursing home services and the home and community‑based services (HCBS) that allow millions of older adults, and children and adults with disabilities to receive care at home.
HCBS are under immediate and growing pressure from a perfect storm of forces: rapidly rising demand as the population ages, a severe workforce crisis, deep federal Medicaid cuts, tight state budgets, and unprecedented federal threats to HCBS under the banner of fraud, waste and abuse (FWA).
Most types of HCBS remain optional for states under federal law, making them uniquely vulnerable in this moment. Without short‑term stabilization strategies, access to HCBS will erode quickly, reversing years of progress and pushing more people into institutional care.
There is a harder truth here — that the fragility of HCBS and the gaps in our long-term services and supports (LTSS) coverage and financing system more broadly are longstanding, structural problems that will require bold, difficult choices to fix. We’ll take up those longer‑term solutions in a second blog in this series.
The 80 Million Impact
The fundamental contradiction in long‑term care
America’s long‑term care system rests on a fundamental contradiction: while most people who need long‑term care receive most of their health care through Medicare, Medicare does not pay for long‑term care — also known as LTSS. Instead, the burden falls to Medicaid, which has become the nation’s primary payer for LTSS — including long-term nursing home care and HCBS that allow people to receive assistance in their own homes and communities. Through Medicaid, states cover and fund personal care, home health services, behavioral health supports, and residential and day services for older adults, people with disabilities, and children with complex medical needs — often for years, not months.
Against that backdrop, states’ limited fiscal bandwidth to meet the needs of a rapidly growing aging population — combined with federal Medicaid funding cuts — has set the stage for an HCBS crisis.
HCBS are fast‑growing, optional benefits under Medicaid
The original authorizing legislation for Medicaid made nursing home care a mandatory benefit. During the 1980–81 session, Congress created a new waiver option for Medicaid to cover HCBS, including for people whose incomes are above regular Medicaid eligibility limits (with limits on allowable assets). Some states also cover care at home under other authorities, which also are mostly optional.
Aside from certain mandatory services for children and youth, states can choose whether to cover HCBS. They can also limit coverage to certain groups of people and cap the number of people served or the dollars committed.
Over the past several decades, federal and state policymakers have intentionally sought to “rebalance” Medicaid LTSS away from institutions and toward HCBS. That shift reflects three distinct motivations. Legally, the Americans with Disabilities Act requires certain supports to help people with disabilities live in the community. Economically, care delivered in homes and communities is less costly than institutional care and avoids the unnecessary use of nursing facilities for people who can be safely served at home. Most importantly, it aligns with what people overwhelmingly want: to live with dignity and independence in their homes and communities, and to avoid institutionalization whenever possible.
Rebalancing has driven significant growth in HCBS and expanded access for millions of people, outpacing spending and enrollment for nursing home care. In 2023, HCBS accounted for 63.8% of Medicaid’s long‑term care spending, up from about 50% a decade earlier. Nonetheless, limits apply, and many people remain on long waiting lists.
And because most of these services remain optional under federal law, they sit on far shakier ground than institutional care, even as demand accelerates. This optional status is not a technical detail. It is the reason HCBS is especially exposed when budgets tighten.
An ongoing workforce crisis is already weakening the HCBS delivery system
Even as demand for HCBS continues to grow, the delivery system is being steadily hollowed out by a deep and persistent workforce crisis. Direct care workers — the backbone of HCBS — are chronically underpaid, face physically and emotionally demanding work, and often lack benefits, training opportunities or clear career pathways.
The Biden administration’s HCBS Access Rule, paired with the enhanced federal funding provided under the American Rescue Plan Act (ARPA) Section 9817, were serious efforts to interrupt this downward spiral by ensuring that increased Medicaid spending reached the direct care workforce, exposing long hidden HCBS waiting lists, and building durable systems for HCBS oversight and accountability. ARPA’s one-year, temporary FMAP increase gave states the fiscal room to begin raising rates, investing in workforce supports, modernizing systems and preparing to comply. But states may have a hard time sustaining the ARPA-driven investments in light of H.R.1’s significant cuts alongside the significant – and costly – reforms to implement work requirements and other new measures. And the timing and enforcement of the Access Rule’s key provisions on home care provider compensation , while still intact, remain vulnerable to delay; indeed, CMS has already announced delays in certain Access Rule provisions affecting HCBS (here and here).
Finally, federal policy actions affecting non‑citizens and aggressive immigration enforcement — including mass deportation policies — have further tightened an already fragile labor pool, a meaningful share of which is made up of non‑citizen workers.
Federal funding cuts and FWA scrutiny threaten to further destabilize HCBS
With nearly $1 trillion in federal Medicaid cuts projected over the next decade, optional services like HCBS are at extreme risk. Already, impending federal cuts and stagnant or declining revenue growth have prompted several states to consider reducing HCBS provider rates, tightening eligibility or scaling back services. Following the Great Recession, researchers found that every state responded to fiscal pressures by cutting some aspects of their HCBS programs.
Adding to this fiscal pressure is a recent high‑profile push by the White House to link Medicaid to fraud and by CMS to portray HCBS — along with several other Medicaid services- as a focal point of FWA concerns. Notably, CMS has taken unprecedented steps in Minnesota to suspend and recoup hundreds of millions of dollars related to program integrity concerns in certain services, including HCBS. CMS has also sent inquiries to additional states demanding extensive documentation about their HCBS program integrity practices, potentially setting up future enforcement actions. Similar letters were sent to states by House committee leadership.
No state or federal policymaker should tolerate fraud in HCBS or any part of the Medicaid program. But the use of broadly applied, blunt and punitive tools — particularly large‑scale funding freezes — risks destabilizing HCBS delivery systems before investigations are even complete.
We need short-term solutions to stabilize HCBS now.
Given the fragility of HCBS and the harm that abrupt disruptions in access to HCBS can cause, immediate federal action is needed to stabilize the system.
First, the Trump Administration should proceed to implement the HCBS Access Rule, signaling that access, workforce stability and transparency matter and giving states the certainty they need to continue rate-setting, contracting and workforce strategies already underway.
Second, Congress should pair strengthened accountability with targeted, time limited federal investments to stabilize HCBS, modeled explicitly on ARPA Section 9817. A renewed, time limited federal investment — structured to supplement state funding and tied to clear expectations that dollars support workforce compensation, service capacity and program integrity — could again help states protect these key services in a moment of crisis.
Finally, the administration and Congress should rein in use of blunt, system‑wide fraud, waste and abuse actions that destabilize HCBS delivery. Broad payment suspensions, mass recoupments, and sweeping enforcement actions targeted at entire HCBS programs rather than proven bad actors can create immediate budgetary shocks for states, existential threats for providers operating on thin margins, and disruptions in care for the people who rely on those services to live safely in the community.
Effective program integrity efforts require collaboration between the federal government and states, a focus on prevention, and when federal payment is withheld while investigations are ongoing, the action should be targeted, proportional and timely, with safeguards to prevent widespread service disruptions.
The Bottom Line
HCBS is vulnerable in the current fiscal and political environment — not because it is ineffective or unwanted, but because it is a costly service that remains optional under federal law in an era of federal funding retrenchment in the Medicaid program. This reality places millions of older adults and people with disabilities at risk of losing services they depend on to live safely and independently in their homes and communities. Stabilization is urgently needed.
But stabilization alone will not fix the deeper structural flaws in how the United States finances long‑term care. The fragility of HCBS and the gaps in our LTSS coverage and financing system more broadly are longstanding, structural problems that will require bold, difficult choices to fix. That challenge demands long‑term structural solutions that we will take up in next week’s The 80 Million.