Medicaid Long-Term Services Reforms in the Deficit Reduction Act

Policy Implications Through the Deficit Reduction Act of 2005 (DRA), the Congress has made significant changes to the rules that states must follow in extending eligibility for Medicaid, it has altered the role of Medicaid vis à vis private long-term care insurance, and it has created new incentives and opportunities for states to re-focus their Medicaid long-term services delivery systems away from nursing homes and toward a greater community orientation. In all of these areas, the policy changes represent an effort to ensure that the federal and state financing obligation is either limited—or at least, directed to the most cost-effective and desirable services for seniors and people with disabilities. The ultimate impact of these changes remains to be determined by how states and other stakeholders respond. Although the changes are considerable, they reflect somewhat piecemeal reforms aimed at promoting community-based care and limiting access to institutional care. In many cases, these changes reflect a long-sought policy direction by beneficiaries.Other changes reflect an effort to limit the public role in financing long-term services for low-income Americans. As beneficiaries, states, and providers continue to advance their own policy agendas, the DRA is an indication of emerging federal policy in this area.

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The DRA was signed by the President in February 2006.* Long-term services and supports, sometimes called long-term care, provide assistance with everyday activities, such as assistance with dressing, bathing, using the bathroom, preparing meals, taking medication, managing a home, and managing money. The DRA makes several major changes to long-term services policies in Medicaid. Key changes include:

• Asset Transfers:Requires states to lengthen the look-back period for asset transfers to establish Medicaid’s eligibility for nursing home coverage from 3 to 5 years and changes the start of the penalty from the date of the transfer to the date of Medicaid eligibility; requires annuities to be disclosed and states to be named a beneficiary for cost of Medicaid assistance; requires state to use the income first rule; and excludes coverage for individuals with home equity in excess of $500,000 (or up to $750,000 at state option), with an exception when a spouse or child with a disability is residing in the home.
• Long-Term Care Partnership Programs:Lifts the moratorium on states expanding new partnership programs to increase the role of private long-term care insurance in financing long-term services; requires programs to adopt National Association of Insurance Commissioners (NAIC) model regulations; and requires the Secretary to develop standards for making policies portable across states.
• Family Opportunity Act: Creates a new option for states to extend Medicaid “buy-in” coverage to children with disabilities with family income up to 300% of poverty; coverage is phased in starting in 2007 for children up to age 6 and rising to age 19 by 2009; states are permitted to charge income-related premiums, and parents must participate in employer-sponsored insurance if the employer covers at least 50% of the premium.
• Money Follows the Person Demonstration: Authorizes the Secretary to grant competitive awards to states to increase the use of community versus institutional services; provides for an enhanced federal medical assistance percentage (FMAP) for 12 months for each person transitioned from an institution to the community during the demonstration period; eligible participants must have resided in an institution for a period from 6 months to 2 years, as determined by the state; and states must continue to provide community services after the demonstration period for as long as the individual remains on Medicaid and in need of community services.
• State Option to Provide HCBS Services: Creates a new state option for states to provide all HCBS waiver services without needing to get a waiver to seniors and people with disabilities up to 150% of poverty; there is no requirement that eligible beneficiaries require an institutional level of care; requires states to establish more stringent eligibility criteria for institutional services; and permits states to cap enrollment, maintain waiting lists, and offer the option without providing services statewide.
• Cash and Counseling Option:Permits states to allow for self-direction of personal assistance services without needing to get a waiver; includes consumer protections consistent with the cash and counseling demonstration; prohibits individuals from participating in self-direction under the option if they live in a home or property owned or controlled by a services provider; and does not require comparability or statewideness.

For the full report, click here - (courtesy of The Henry J. Kaiser Family Foundation)

*The President signed the bill, the Deficit Reduction Act of 2005 (S. 1932), on February 8, 2006, and it has since been designated Public Law 109-171. Subsequently, it was learned that both the Senate and the House of Representatives did not pass the bill in identical form. While the White House and Congressional leadership have stated that they believe this is a minor technical issue and that the bill is a law, others have asserted that, based on the Bicameralism Clause of the U.S. Constitution, the Deficit Reduction Act was not lawfully enacted. The Congressional Budget Office has estimated that differences in the bill affect $2 billion of federal spending. Resolution of this issue may require the involvement of the federal courts. For purposes of this analysis, the author has reviewed the signed bill as though it is a federal law.