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Does substituting home care for institutional care lead to a reduction in Medicaid expenditures?

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Abstract

In 1981 Congress introduced Home and Community Based Services (HCBS) waivers in an attempt to contain Medicaid long-term care expenditures. This paper analyzes the efficacy of the waiver program. To date, little is known about its impact on cost containment. Using state-level Medicaid data on expenditures and the number of individuals participating in HCBS waivers between 1992 and 2000, this study estimates the impact of HCBS waivers on total Medicaid expenditures as well as on Medicaid institutional, home health and pharmaceutical expenditures. A fixed effects model is used to analyze Medicaid expenditures using variation in the size of HCBS waiver programs across states and over time. The results, robust across multiple specifications, show increases rather than decreases in total Medicaid spending as well as increases in the other Medicaid spending categories analyzed. This implies that there is no evidence of substitution from institutional care to the HCBS waiver program or that cost-shifting is occurring. In fact, the large magnitude of the estimated spending increases suggests the waivers may induce more people to enter the Medicaid program.

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Notes

  1. Table 4 shows that average Medicaid expenditures for the elderly and for the disabled are each approximately 6 times greater than spending for an average adult participant.

  2. For the purpose of these estimates long-term care expenditures consist of nursing home expenditures and home health expenditures. Individual components are available from Centers for Medicare and Medicaid Services.

  3. Press release: “Releasing the HHS Proposed Budget for FY 2006”

  4. This group consists of Aged waivers, Aged/Physically Disabled waivers, and Physically Disabled waivers.

  5. 42 U.S.C. 1396n(c)(2)(D) Section 1915 (c)(2)(D) states “under such waiver the average per capita expenditure estimated by the State in any fiscal year for medical assistance provided with respect to such individuals does not exceed 100% of the average per capita expenditure that the State reasonably estimates would have been made in that fiscal year for expenditures under the State plan for such individuals if the waiver had not been granted”

  6. The conceptual framework and ensuing empirical investigation focus on the effect of all waivers. The empirical section does, however, compare the impact of different types of waivers on spending.

  7. Clearly waiver expansion has no effect on institutional spending for those already living in the community.

  8. Arizona is excluded in the analysis because it uses an 1115 waiver rather than a 1915(c) waiver. Oklahoma and Hawaii are excluded from the analysis because Medicaid caseload data are not available in all years.

  9. The adult Medicaid caseload is used in order to avoid using any variation that may be due to Medicaid expansions which increased the number of families eligible for Medicaid as well as the Balanced Budget Act of 1997 that established the State Children’s Health Insurance Program (SCHIP) which led to increases in the number of children on Medicaid.

  10. Because the compensation paid to Medicare approved home care workers are determined by statute, there is no obvious correlation between home care supply and either WAIVERCASE or EXPENDCASE, and thus no obvious bias in the estimate of β1 caused by its omission. Moreover, the inclusion of the state and year fixed effects mitigate any systematic bias that may nevertheless exist.

  11. The Medicaid categories chosen to estimate are not collectively exhaustive and represent 52% of total Medicaid expenditures. Total Medicaid expenditures do include HCBS waiver expenditures.

  12. A specification that included an indicator variable as the policy variable would not be able to adequately control for the variation across states in size of HCBS waiver programs. A larger problem with an indicator variable specification is that by 1999 every state had an HCBS waiver program, which eliminates any control states and thus obviates a difference-in-difference estimation. The policy variable would then not be able to identify the impact of the HCBS waiver program after 1998 even though states continue to expand their waiver programs.

  13. For the interested reader, expenditure and caseload data from CMS, nursing facility bed data, the components of women’s labor force participation from the Current Population Survey, and population data from the Census Bureau website are all publicly available. All other data is available from author on request.

  14. The sum of marginal impacts on the individual Medicaid categories do not sum to the marginal impact on total Medicaid expenditures because total Medicaid expenditures is comprised of more than these four individual categories.

  15. To allow for direct comparison, the figures in Harrington et al. are adjusted for inflation.

  16. Results for MR/DD and AGEDIS waiver participants were similar to Tables 6 and 7 and are available from the author upon request.

  17. Estimated marginal impacts in this model would include the impact of both WAIVERCASEs,t and WAIVERCASEs,t+2. The purpose of this specification is to determine the validity of the policy variable not necessarily the magnitude.

  18. Some examples of personal care services are help with activities such as bathing, dressing, eating, toileting, meal preparation, and laundry.

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Acknowledgments

I am grateful to Hilary Hoynes, Douglas Miller, Colin Cameron, William Herrin, Steve Eiken, Melanie Guldi, Marcella Carrillo Hemmeter, Jeffrey Hemmeter for helpful discussions and comments.

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  1. Department of Economics, University of the Pacific, 3601 Pacific Ave., Stockton, CA, 95211, USA

    Michelle M. Amaral

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Correspondence to Michelle M. Amaral.

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Amaral, M.M. Does substituting home care for institutional care lead to a reduction in Medicaid expenditures?. Health Care Manag Sci 13, 319–333 (2010). https://doi.org/10.1007/s10729-010-9132-9

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