Medicaid State Plan Option for Home and Community-Based Services

States have a new option to use Medicaid funds for home and community-based services for people considered disabled by a mental illness without their needing to obtain a waiver from the federal government. Iowa is the first state to receive approval for this benefit. Other states are working on applications. This issue brief summarizes this new state plan option and how Iowa is planning to use it.

Summary of the Law

Section 6086 of the Deficit Reduction Act of 2005 (DRA) gives states the option to provide home and community-based services (HCBS) as a state plan service. Previously, these benefits were only available through the home and community based services waiver under Section 1915(c).

A significant advantage of the state plan option compared with the waiver is that states do not have to demonstrate budget neutrality. It has been nearly impossible for states to secure HCBS waivers for adults aged 22-64 with mental illness because, due to the IMD rule, states have not had significant federal Medicaid institutional expenditures to transfer to community care. As a result, they could not meet the waiver requirement for budget-neutrality. (The IMD rule prohibits federal payment for services in an Institution for Mental Diseases (IMD) for persons aged 21-64.)

Other federal requirements for the state plan HCBS option are similar, but not entirely the same, as federal requirements for the HCBS waiver. Similarities between the state plan option and the waiver include:

• Services do not have to be offered statewide, but can be limited to a specified geographic area;
• Not all individuals who qualify need to be served. Instead, states may place caps on the numbers of people enrolled. (This differs from all other state plan services, which cannot limit the number of individuals who can receive services.)
• States may establish waiting lists for services.

Key differences between the new service option and the waivers include:

• The state plan option has a more limited services package. There are eight different services that can be covered as part of a HCBS state plan option: case management; homemaker services; home health aide services; personal care services; adult day health services; habilitation services; respite care; and day treatment and other partial hospitalization services, psychosocial rehabilitation services, and clinic services for individuals with chronic mental illness. Under a waiver, a state may request approval for additional services and most have done that in order to expand the service package.

• Income level. Individuals are eligible for the HCBS state plan option only if they have income no more than 150% of the poverty level. Many individuals eligible under a waiver program would not be financially eligible under the state plan option. (However, under certain circumstances (see below) children can be eligible based on their own income, disregarding parental income.)

• Expanded functional eligibility criteria. Under the waiver program, many individuals do not get needed services because they do not meet the strict criteria for institutional level of care. Under the state plan option, individuals are eligible not only if they would otherwise require an institutional level of care but also if they meet less strict needs-based criteria, the details of which are defined by the state. States are required to make the eligibility criteria for HCBS less restrictive than the criteria for institutional services.

For children, states may design the state plan option in a manner that permits children in families with incomes over 150% of poverty to be eligible. To do this, the state must first cover under the option those individuals who qualify through the medically-needy eligibility category of Medicaid. Then the state has the option to use institutional eligibility rules regarding income and resources. These allow parental income to be disregarded. Few children will have incomes above 150% of poverty, and thus will qualify for the services.

The state plan option also encourages states to permit individuals to self-direct their care and services.

For more information on similarities and differences between the waiver and the state plan option, see attached chart.

How Useful is This Option

Because it eliminates the rule regarding budget neutrality, this state plan option is more flexible and more applicable to adults between the ages of 22 and 64 than is the HCBS waiver. However, because the range of services is more narrow under the state plan option, there are few opportunities to expand services by adopting the option. Most of the potentially covered services under the state plan option can also be covered under the rehabilitation services or the clinic options of Medicaid. In the list of state plan services, only respite care is clearly a new service.

However, it may be possible for states to cover a broader array of community services under the term “psychosocial rehabilitation” than is currently permitted under the Rehabilitation Services option which traditionally has used the term “psychiatric rehabilitation”. For example, Iowa has included job coaching under its Supported Employment service – which is normally not covered under the Rehabilitation Services state plan option.

One potential drawback of the HCBS state plan service is that it may be difficult for states to craft a services package that is unique for persons with mental illness. The state plan option services must be made available to any Medicaid-covered person who needs them. Although Iowa has received approval from CMS for a plan that only covers persons with serious mental illness, Iowa has not incorporated services that might assist people with other disabilities, such as respite services. This issue may potentially negate the advantage of the option for mental health policy, given the broad array of community services that can already be covered under the law.

There is, however, another advantage to states of the state plan option. CMS has determined that under the HCBS option, states may pay for any one of the listed services in a bundled manner – using day rates and similar arrangements instead of having to justify each 15-minute increment of service as is currently being required under Medicaid Rehabilitation Services. This is because the HCBS state plan authority is in a separate section of the Medicaid statute (1915(i)) from other state plan services (1905(a)). However, states may not combine different services – such as case management and psychosocial rehabilitation – and bundle them together. Only a single service may be paid in a bundled manner. Iowa, for example, is paying some programs on the basis of daily rates (for 4-8 hours per day, daily and 1-4 hours per day, ½ day rates).

Iowa State Plan Amendment

Iowa is the first state to receive federal approval for a HCBS state plan amendment (approved in early April, 2007). Iowa sets an important precedent for using this option specifically for persons with serious mental illness.

Other states may choose to use the option in a different manner than Iowa, but all states should find it instructive to review the federally-approved Iowa plan prior to formulating their own state plan amendment.

Eligibility Criteria

Iowa has chosen not to limit service availability geographically and the services will therefore be available statewide. However, Iowa has set enrollment caps and there will be a waiting list for the HCBS. The state plans to serve 3,700 people in the first year, with the number of participants increasing to nearly 4,500 in the fifth year.

Financial eligibility is connected to existing Iowa Medicaid eligibility rules, and individuals who are covered by Medicaid as medically needy will be eligible.

The needs-based criteria are restrictive so as to limit services to those with a history of mental illness. In addition, the functional eligibility criteria are more restrictive than eligibility criteria states generally use for rehabilitation or clinic services. Specifically, the individual must have at least one of two risk factors:

• Have undergone, or be currently undergoing, psychiatric treatment more intensive than outpatient care more than once in a lifetime (e.g., emergency services, alternative home care, partial hospitalization or inpatient hospitalization). Individuals currently receiving inpatient hospital services demonstrate this risk factor, but cannot receive 1915(i) HCBS State Plan Services while in the institution.

• Have a history of psychiatric illness resulting in at least one episode of continuous, professional supportive care other than hospitalization.

Furthermore, the individual must have ongoing needs related to his or her disability. The person must meet at least two of the following five criteria on a “continuing or intermittent basis” for at least two years:

• Be unemployed, or employed in a sheltered setting, or have markedly limited skills and a poor work history.
• Require financial assistance for out-of-hospital maintenance and be unable to procure this assistance without help.
• Show severe inability to establish or maintain a personal social support system.
• Require help in basic living skills such as self-care, money management, housekeeping, cooking, or medication management.
• Exhibit inappropriate social behavior that results in demand for intervention.

Person-Centered Planning

Although consumer-direction is permitted under the HCBS DRA option, Iowa has chosen a provider managed service delivery method. The service plan will be person-centered. It will be developed by the participant and his/her interdisciplinary team. This team consists of the participant, a legal representative if applicable, the case manager and anyone else, including providers, the participant would like to have involved. The interdisciplinary team then develops a service plan based on the participant’s strengths, needs, and goals.

Services Covered

Iowa has elected to offer case management and habilitation as its HCBS state plan services. Habilitation services are divided in four components:

• home-based habilitation,
• day habilitation,
• prevocational habilitation, and
• supported employment habilitation.

Home-based habilitation assists with skills related to living in the community, day habilitation offers support with socialization and adaptive skills and takes place in a non-residential setting, prevocational habilitation helps prepare individuals for employment, and supported employment habilitation provides assistance in the work setting to help individuals maintain a job.

All services must be provided by a specific provider who meets certain qualifications. No payment may be made for any services provided by relatives, legal guardians, or legally responsible persons.

Iowa has placed limits on habilitation services for both the categorically and medically needy. Supported employment habilitation services are limited to 40 units of “supports to maintain employment” per week (one unit being equal to one hour).

The state will pay for the service components based on units of service. Except for supported employment habilitation services, a unit of service is hourly, half-day or a day. There is an upper limit for these services per hour, per half-day, or per day.

Iowa’s complete SPA can be found at http://www.ime.state.ia.us/docs/07-001-1915i-StatePlanHCBS-FINAL.doc. Additional information can also be found at: http://www.ime.state.ia.us/HCBS/HabilitationServices/documents.html

Iowa’s is the first approved state plan option, and there may well be very different approaches that other states will choose to take and that CMS will approve. In particular, other states may wish to have a more expansive list of services under the state plan option. Iowa has chosen to cover many of the services that can also be covered under the Rehabilitation Services category of Medicaid, whereas other states may wish to include respite care and other psychosocial rehabilitation services such as therapeutic recreation.

Other states may also want to consider using the state plan option to provide consumers with greater choice of services and to initiate programs that allow consumers to self-direct their care.

Bazelon Center for Mental Health Law
May, 2007

State Plan Home & Community Based Services Option and 1915© Waivers:
Similarities and Differences