Chapter 3. Evolution of Self-Directed Medicaid Services

Personal Care/Personal Assistance Services

Self-direction initially emerged as a Medicaid funding alternative under the "personal care" state plan coverage option. Although personal care was recognized as a state plan option in the mid-1970s, for years services had to be prescribed by a physician and delivered in the beneficiary’s home by a qualified provider under the supervision of a registered nurse. Because of the strong medical orientation of the service, comparatively few states elected to offer personal care services as a state plan coverage, and those that did often restricted the circumstances under which such services would be treated as Medicaid-reimbursable costs (e.g., limiting such services to a recuperative period following a period of acute hospitalization).

By the late 1980s, however, a few states (e.g., California, New York) began to broaden the scope of reimbursable personal care services offered under their state plans, permitting such services to be furnished outside the individual’s home and allowing individuals to self-direct their services and supports. Responding to the growing demand for a more flexible array of HCBS, Congress in 1993 added personal care to the list of optional services that states could cover under their Medicaid state plans.15  In adopting a new statutory definition of personal care, Congress granted states explicit authority to provide such services outside the recipient’s home. The legislation also removed a previous regulatory requirement that the delivery of personal care services be supervised by nurses, and allowed such services to be authorized by methods other than a physician prescription if a state so elected. In November 1997, the Health Care Financing Administration (HCFA); later renamed the Centers for Medicare and Medicaid Services (CMS) promulgated regulations reflecting the above statutory provisions.16  In January 1999, HCFA released a State Medicaid Manual transmittal that completely revised the agency’s guidance on the coverage of personal care services.17  The new guidance made it clear that personal care services could include both assistance in performing essential ADLs as well as assistance in performing IADLs, such as light housework, laundry, meal preparation, transportation, grocery shopping, medication management, and money management. HCFA also indicated that relatives, except for "legally liable relatives" (e.g., parents of a minor child), could act as paid providers of personal care services.

In addition, the 1999 manual transmittal clarified the agency’s policies with respect to personal care services for people with cognitive and mental disabilities by pointing out that "cueing along with supervision to ensure the individual performs the tasks properly" constitutes a reimbursable activity. Moreover, HCFA’s guidance explicitly recognized for the first time that personal care services could be directed by the beneficiary. Consumer direction had been a key feature of the personal/attendant care program in several states for many years (e.g., California, Massachusetts) but had never been formally reflected in federal policy. The 1999 manual transmittal, however, officially sanctioned such practices, including consumer training and supervision of personal aides/attendants.

Since federal policy governing Medicaid-reimbursable personal care services was relaxed during the mid- to late 1990s, states’ claims for such services have increased significantly. According to an analysis performed by Thomson Reuters Healthcare, total Medicaid payments for personal care services increased from $2.9 billion in fiscal year (FY) 1996 to $12.5 billion in FY 2008.18  However, more than three-fifths (61.9%) of FY 2008 payments were directed to two states: California and New York. The vast majority of states still prefer to include personal care services as one of several services covered under Section 1915(c) home and community-based waiver programs because of the greater flexibility it affords them in defining the scope of such services, and the protections against escalating service demands that are built into the waiver authority.

Home and Community-Based Waiver Services

As discussed earlier in this paper, states began to introduce self-directed HCBS as part of their Section 1915(c) waiver programs in the wake of the Self-Determination and Independent Choices demonstrations sponsored by RWJF. Soon, states that had not participated in these demonstrations began to ask CMS for authority to add self-directed service options to their HCBS waiver programs. Observing this development, CMS decided in 2002, as part of President Bush’s New Freedom Initiative, to spell out the circumstances under which a state could offer self-directed HCBS services under Section 1915(c) waiver and Section 1115 waiver/demonstration programs by issuing a special, "Independence Plus" waiver application template.

The term self-directed services was defined in CMS’ Independence Plus guidelines as "a state Medicaid program that presents individuals with the option to control and direct Medicaid funds identified in an individual budget."19  States interested in operating an Independence Plus waiver program were required to ensure that each participant would have (1) a person-centered plan developed in collaboration with the participant and, where appropriate, his/her family members and other allies; (2) an individual budget "… under the control of and direction of the program participant"; (3) access to financial management services (FMS) to assist in administering the individual budget and complying with federal and state withholding and reporting requirements; (4) access to support brokerage services to help the participant arrange and orchestrate paid, voluntary and generic community supports; and (5) a quality assurance plan designed to protect the health, safety, and wellbeing of each participant.20

Between 2002 and 2004, 11 Independence Plus waiver requests were approved by CMS in 10 states. In addition, 12 states were awarded 2003 Real Choice System Change grants to assist them in developing Independence Plus waiver proposals by 2006. Furthermore, as noted above, RWJF, in partnership with the HHS Office of the Assistant Secretary for Planning and Evaluation and the Administration on Aging, awarded Cash and Counseling development grants to 11 additional states in October 2004.

The Independence Plus waiver template was folded into a new Section 1915(c) Web-based application template in late 2005. The instructions accompanying the new HCBS waiver template incorporated an expanded version of the original Independence Plus guidelines.21  States were given the option of requesting authority to operate a separate waiver program for people choosing to self-direct their services or establishing a self-direction component of a broader HCBS waiver program. States electing the former option (a separate self-directed waiver program) could ask that their programs be designated an "Independence Plus" waiver if all participants had the opportunity to self-direct their services and the program provided access to "a full-range of supports for participant direction."22   Since there are no financial advantages to the Independence Plus designation, in practice most states elected to build a self-direction component into a broader waiver program, avoiding the administrative hassle and overhead cost involved in operating separate waiver programs. In 2009, 94 waiver programs in 36 states offered some form of self-direction, while 15 waiver programs required self-direction for some or all services offered under the program.23

HCBS State Plan Options

The Deficit Reduction Act of 2005 (DRA; P.L. 109-171) established two optional Medicaid state plan coverages of HCBS: Section 2086 of the DRA added Section 1915(i) to the Social Security Act, allowing states to offer HCBS under their Medicaid state plan, rather than under Secretarial waivers only; and Section 6087 added Section 1915(j) to the Act, permitting states to provide self-directed PAS as part of their Medicaid plans.

A state must stipulate that Section 1915(j) beneficiaries otherwise would be eligible to receive agency-directed PAS under the state’s Medicaid plan. In addition, a state must ensure that beneficiaries choosing to self-direct their PAS receive choice counseling and (1) are allowed to manage their own budgets, planning and purchasing services of their own choosing; (2) have their needs, strengths, and preferences assessed before services are designed and initiated; (3) have an individual service plan developed on their behalf; and (4) have access to FMS to assist them in paying providers, tracking costs, and filing required reports.

States may limit the number of people receiving self-directed PAS and restrict the provision of such services to certain geographic areas of the state. In addition, at the option of the state, people who enroll in Section 1915(j) may (1) hire legally liable relatives (such as spouses and parents of minors); (2) manage a cash disbursement; (3) purchase goods, services, and supplies that increase their independence or substitute for human assistance; and (4) use a discretionary portion of their individual service budgets to purchase nonlisted items or items previously reserved for permissible purchases.24 

The Patient Protection and Affordable Care Act of 2010 (ACA) included revisions to Section 1915(i) of the Act aimed at making the HCBS state plan option more attractive to the states.25  In particular, the ACA amendments to Section 1915(i) (1) affords states enhanced flexibility in delineating the group(s) eligible to receive HCBS state plan services; (2) gives states the option of providing services to people with income up to 300 percent of the federal Supplemental Security Income (SSI) payment standard (in addition to people with income at or below 150 percent of the federal poverty level, as permitted under the original 2005 legislation); (3) permits states to design distinctive service packages for different groups of targeted beneficiaries; and (4) allows states to claim federal reimbursement for all HCBS authorized under Section 1915(c)(4)(B) of the Social Security Act, including "other services" approved by the Secretary of HHS, as well as day treatment, partial hospitalization, psychosocial rehabilitation, and clinic services for people with chronic mental illnesses.

In keeping with the requirement of the original 2005 legislation, states still may establish need-based eligibility criteria that include individuals who do not require an institutional level of care. As a result, states may qualify people with psychiatric disabilities under its Section 1915(i) coverage who otherwise would be ineligible for Medicaid-reimbursable HCBS due to the institution for mental diseases exclusion.26  However, under the provisions added by the ACA, states no longer are permitted to restrict the number of individuals eligible for Section 1915(i) state plan services or establish waiting lists for such services. In addition, under the ACA amendments, states no longer have the option of providing Section 1915(i) services on less than a statewide basis. States, however, still have the option of providing self-directed services to Section 1915(i) beneficiaries on terms similar to those applicable to recipients of Section 1915(j) services.27

In addition to amending the provisions of Section 1915(i) of the Social Security Act, the ACA also added two further inducements for states to serve Medicaid-eligible people with chronic disabilities in home and community-based settings. First, the 2010 legislation added another HCBS state plan option under Section 1915(k) of the Act, called the Community First Choice Option. Under this state plan option, participating states are eligible to receive a 6 percentage point increase in their federal Medicaid matching ratio for community-based attendant and other services aimed at assisting people with ADLs and IADLs deficits and helping them acquire and maintain the skills necessary to independently perform such tasks. States must offer recipients of Section 1915(k) services the option of self-directing their services and supports.28

Second, the ACA authorized an enhanced matching ratio for states choosing to participate in the State Balancing Incentive Payments Program (hereafter referred to as the Balanced Incentive Program), an initiative aimed at helping states improve their capabilities to manage and deliver HCBS to people with disabilities, thereby increasing the proportion of Medicaid beneficiaries served in home and community-based settings. Participating states that expend less than 25 percent of their long-term services dollars on HCBS are eligible to receive a five point increase in their Federal Medical Assistance Percentage FMAP rate, but must raise the proportion of long-term services expenditures devoted to HCBS to 25 percent by September 30, 2015, when the program ends. States spending between 25 percent and 50 percent of their LTS dollars on HCBSs are eligible to receive a 2 percentage point increase in their FMAP rate but must increase the proportion of long-term services expenditures devoted to HCBS to 50 percent by the end of the program. In addition, states choosing to participate in the Balanced Incentive Program must agree to (1) implement a No Wrong Door – Single Entry Point system,  (2) establish "conflict-free" case management services, and (3) develop and use a standardized assessment instrument. As of September 2012, eight states (Georgia, Indiana, Iowa, New Hampshire, Maryland, Michigan, Missouri, and Texas) had received Balanced Incentive Program grants.29  Funding for the program is capped at $3 billion over four fiscal years (October 1, 2011, through September 30, 2015).

The Section 1915(i) and Section 1915(j) coverage options became effective January 1, 2007, while the Section 1915(k) coverage option went into effect on October 1, 2011. CMS issued final regulations governing the coverage of self-directed PAS on October 3, 2008.30  Revised, proposed regulations implementing HCBS under Section 1915(i), along with final regulations governing the Community First Choice Option, were issued by CMS on May 3, 2012.31

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