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Among the many resources for states included in the American Rescue Plan Act (ARPA) is enhanced federal funding to enable state governments to improve services for their rapidly increasing populations of older residents and people with disabilities. This funding reflects longstanding federal priorities around shifting the balance of Medicaid spending for these populations from institutional to home- and community-based settings (HCBS), as well as the Biden administration’s recognition of the need to enhance capacity, modernize systems, and expand the array of available services. This funding is also a response to the experience of the nation’s nursing homes during the COVID-19 pandemic, which accelerated consumer demand for community-based options for long-term services and supports.
While it’s an unqualified good that the federal government is making these investments, they also present significant challenges for states. Key examples of this include:
Fundamentally, states need to find ways to improve their program capacity and management capabilities to make sure that these new resources transform systems of care and meet the needs of older adults and people with disabilities. Such improvements will also help states meet their own policy goals.
Before getting to capacity building, however, it’s important to understand what’s in the ARPA HCBS deal for states. Principally, for one year, Medicaid HCBS are eligible for a base year increase of 10 percentage points to their federal matching assistance percentage (FMAP). States can then leverage these funds with FMAP in the following two-year period, multiplying their value. Here is an example of what that means:
If a state’s typical FMAP was 52%, it was responsible for covering the remaining 48% of HCBS expenditures (the “state share”). Under ARPA, the state’s FMAP becomes 62%, reducing the state share to 38%. This additional funding then essentially becomes state resources that qualify for the state share over the remaining ARPA period.
The funds for states are significant. The Congressional Budget Office estimates the value to be $12.7 billion in total — or an average of $250 million per state. Put another way, with a median FMAP of 60%, the average state is seeing an infusion of about half of its annual HCBS budget, which will generate additional funding through FMAP. Importantly, Medicaid HCBS spending typically represents over 50% of a given state’s spending on LTSS and that LTSS spend, overall, reflects approximately 40% of states’ entire Medicaid budgets.
What can states do with this infusion of federal funds? ARPA cited 15 eligible services that were grouped into four broad categories: increased access to HCBS for Medicaid beneficiaries; support and protection for the HCBS workforce; ensured financial stability for HCBS providers; and accelerated efforts toward LTSS reform.
So, what are states doing — or planning to do — with these additional resources? An analysis by the Centers on Budget and Policy Priorities of the initial plans that Medicaid agencies submitted to CMCS from 37 states shows that workforce concerns topped the list of planned uses for the HCBS funding.
Given this set of priorities, and that all states have submitted the required plans to CMCS, what can states do to address the related challenges of implementing them?
While the ARPA funds represent a tremendous opportunity, demands will always exceed the available supply of dollars. State must therefore continue to focus on internal capacity, transparency, and the use of evidence and engagement of communities to make the best possible use of this watershed moment in time.
We get the government that we pay for. Public dollars that are spent on tax cuts, health care services, or other priorities tend to crowd out resourcing for the qualified state staff who are needed for day-to-day operations. While non-governmental funders can support staff with TA, states still need people in place to carry initiatives forward.
The pandemic has exacerbated longstanding challenges in enabling older adults and people with disabilities to live meaningful and independent lives in the settings of their choice. While the additional funding through ARPA is essential, the issues outlined above merit careful attention, both now and in any further infusion of federal support.
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