The Perfect Storm is Here for Medicaid Long-Term Services and Supports: Part 2
The nation’s long-term care system is broken. We need durable solutions.
Authors: Cindy Mann, Melinda Dutton and Stephanie Anthony
Editor: Patti Boozang and Amanda Eisenberg
tl;dr
Last week, The 80 Million focused on the need to stabilize Medicaid home and community-based services (HCBS) in the face of unprecedented fiscal, policy and political headwinds.
Stabilization is essential to protect access to care, but the vulnerability of HCBS reflects deeper structural problems in how long‑term care is financed and delivered in the United States.
Without durable reform to fix its structural problems, our nation’s long‑term services and supports (LTSS) system, a lifeline for older adults and people with disabilities, will remain fragile and ill-equipped to deal with rapidly growing demand — to the detriment of families and state and federal Medicaid budgets.
The 80 Million Impact
Medicaid was never designed to function as the nation’s primary long‑term care insurer, yet here we are. Medicaid is the nation’s primary payer for long-term care, also known as LTSS, including nursing facility care and HCBS. HCBS allow older adults and people of all ages with disabilities to receive services and supports in their own homes and communities, which can delay or avoid nursing facility care altogether.
Medicaid’s role in providing LTSS is not widely understood. Two in five adults “incorrectly believe that Medicare is the primary source of coverage for people who need nursing or home care,” according to a recent KFF issue brief. But it is Medicaid that has stepped up, paying for over half of all LTSS and providing HCBS to over 5 million people, including many who receive all of their other health care through Medicare. As with all Medicaid financing, LTSS is jointly funded by states and the federal government, with some states picking up a full 50% of the ever-mounting costs of LTSS.
Also not well understood, but true: Medicaid long‑term care coverage is not just for the poorest Americans, it is very much a middle-class benefit. The cost of LTSS is more than most of us can afford, and yet most of us will need these services at some point in our lifetime. Because private long‑term care insurance is rare and Medicare LTSS coverage is extremely limited, many families quickly exhaust their savings to pay for care and then rely on Medicaid. That broad reliance means that the pressures on Medicaid LTSS can and will ripple widely, affecting middle‑class families as well as those with the lowest incomes.
Short-term stabilization is essential, but not enough
The current crisis facing HCBS underscores a deeper truth: The U.S. long‑term care “system” is not a system at all. It is a patchwork approach that relies heavily on Medicaid — and therefore state and federal financing — with stark differences in services and eligible populations across states. As discussed in The 80 Million last week, nearly all HCBS are optional for states, which makes them particularly vulnerable to cuts if federal Medicaid funding drops (as initiated by H.R. 1) — and generally when state budgets are under stress. These structural weaknesses are becoming far more acute as the country confronts a rapidly aging population — the so‑called “silver tsunami” as Baby Boomers turn 80 this year — that is dramatically increasing demand for LTSS. As people live longer, often with chronic conditions and cognitive and functional limitations, the mismatch between need and the way long‑term care is financed and delivered is widening.
This problem cannot be solved through marginal policy adjustments or short‑term fixes. Without fundamental reform, the pressures facing the long-term care system, and HCBS in particular, will intensify making the system of care increasingly fragile as more people than ever depend on it.
Bold structural changes are long overdue
A thoughtful approach to strengthening — or replacing — the current patchwork system is long overdue. One option that has periodically surfaced in Washington is shifting responsibility to Medicare to pay for their beneficiaries’ LTSS. In 2003, Congress took a major step forward and made a similar change for prescription drugs that were not covered by Medicare, leaving Medicaid to cover the cost for people enrolled in both Medicaid and Medicare. Given the cost of LTSS, the price tag of a Medicare LTSS reform would be significant (though partly offset by federal Medicaid savings), coming at a time when Medicare financing itself needs shoring up. LTSS reforms could be addressed as part of an effort to address larger Medicare financing issues or adopted separately. To ease the burden on the Medicare trust fund, Medicare’s responsibility for LTSS could be phased in (for example, by increasing the federal Medicaid match rate for services over time and then transferring the LTSS benefits to Medicare).
Medicare LTSS reform could address several structural problems. Integrating long-term care coverage and funding into Medicare would create a nationally administered benefit, standardizing eligibility and coverage parameters nationwide, reducing disparities driven by state fiscal capacity, and centralizing oversight. It would consolidate responsibility for preventive, acute and long‑term care for older adults and people with disabilities within a single program — strengthening incentives for prevention and continuity of care. Finally, a nationally administered LTSS benefit through Medicare would provide a stable and sustainable funding mechanism that would support expansion of the flagging LTSS workforce.
Other potential reform options include converting HCBS from an optional to a mandatory benefit with an enhanced federal match rate or creating a new national social insurance program for LTSS. Notably, Congress attempted a federally administered, voluntary long-term care insurance approach through the Community Living Assistance Services and Supports (CLASS) Act adopted as part of the ACA, but the program was never implemented due to concerns about achieving long-term sustainability within the statutory requirements. Congress could resurrect a “CLASS 2.0” concept — one that addresses sustainability challenges like adverse selection and insufficient risk management tools that plagued the original effort. States are already pursuing innovation in this area: Washington State has established such a program, with limited benefits financed through an assessment on employees who do not purchase long-term care insurance.
It’s time to stop treating HCBS as optional
Allowing people to receive care at home rather than in institutions improves quality of life and reduces costs. Yet as an optional service under current law, states retain broad authority to limit Medicaid HCBS benefits, restrict eligibility, cap enrollment or even eliminate these services altogether — choices they do not have for nursing facility care.
As HCBS erode under the weight of immediate fiscal pressures and long‑standing structural misalignment, the predictable result will be increased rates of institutionalization for people who — with appropriate supports — could continue living in their homes or other community settings. When home‑based services are unavailable or unreliable, people do not simply go without care; they rely on family members where possible, experience avoidable hospitalizations, and many eventually turn to nursing facilities at far greater cost and often against their wishes. Families bear the human toll — disrupted lives, lost income, and diminished health and autonomy.
Whether by moving responsibility to Medicare, keeping HCBS in Medicaid but standardized and refinanced as a mandatory benefit, or adopting a new hybrid approach that potentially could include better leveraging the private sector, policymakers must grapple with structural changes to solve our nation’s growing LTSS crisis.
The Bottom Line
Part 1 of this blog series made the case for HCBS stabilization, which can avert immediate harm. But stabilization must be quickly followed by thoughtful action on structural changes. The fragility of HCBS and LTSS broadly is not just the result of temporary fiscal stress — it is the predictable outcome of a long‑term care system built on misaligned incentives and an unstable and unsustainable financing structure. As demand accelerates and the workforce strains under growing pressure, policymakers can no longer rely solely on incremental fixes. Meaningful long‑term care reform — grounded in durable coverage and financing, a stable workforce and a firm commitment to home‑based care — is no longer optional. It is essential to ensure that people can age and live with dignity, and that states and families are not perpetually forced to manage care through crisis.