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Keeping Long-term Care Affordable Today, and for the Long Term

  • For people on Medicaid who need long-term services, home care and community-based care is less expensive than the same services delivered through nursing homes.
  • States that want to utilize more home care and community-based services for Medicaid recipients face significant challenges due to inherent institutional bias.
  • UnitedHealthcare leverages 20+ years' experience working with different states to lower long-term care cost, while improving the quality of care and outcomes for patients.

A comprehensive, systemic and widespread solution

Although long-term care services represent a large and growing percentage of total Medicaid expenditures, opportunities exist to serve more of those requiring long-term care in less costly community-based settings. At 37 percent, the average cost for HCBS is almost a third of the cost of equivalent care when it's delivered through a nursing home. Therefore, the greatest opportunity for reducing the cost of long-term care lies in successfully reducing the reliance on nursing homes as the primary source of care, and increasing the utilization of more cost-efficient HCBS and PCS programs whenever possible and appropriate.

However, the current system poses significant challenges that states must overcome if they are to achieve this goal. First is the inherent institutional bias, which may limit eligibility for Medicaid for some until nursing home care is required and, once admitted, ties eligibility to nursing home placement. Second is the lack of an effective mechanism to allow early identification of those in potential need of long-term care, which prevents providing proactive and preemptive alternatives to nursing homes. And third is the lack of coordination between the care and benefits delivered by Medicare and Medicaid, which creates confusion and results in costly duplication of services provided.

Successfully overcoming these challenges requires a systemic and widespread solution. Only by taking a comprehensive, integrated approach will states be able to succeed in reducing the costs of providing long-term care today, and keeping them affordable in the future.

For more than 20 years, UnitedHealthcare has been working with different states to identify better and more efficient ways to deliver long-term care. Today, we serve over 125,000 long-term care recipients through eight long-term care programs operating in seven states. Leveraging our extensive practical experience, UnitedHealthcare has developed an integrated long-term care model that not only delivers significant cost savings but also improves outcomes and increases satisfaction for the patients involved.

The escalating costs of providing long-term care, coupled with the steady increase in the elderly population, is creating a looming health crisis for state and federal governments. Traditionally, most states have relied heavily on nursing homes to care for the aged, blind and disabled. However, this has proven to be a very expensive option. Now, facing ever-increasing budgetary pressure, more and more states are looking for a more cost-efficient and sustainable solution to meet the needs of their most vulnerable and frail Medicaid beneficiaries.

The fundamental strategy of integrated long-term care is to reduce the reliance on nursing homes and instead increase the utilization of appropriate community-based alternatives. Rather than defaulting to full-time institutionalized care, integrated long-term care tailors services to the specific needs of each individual. Providing the right amount and type of care to address the individual's needs, and delivering it through more cost-efficient HCBS, results in significant cost savings. It also allows beneficiaries to stay in the least restrictive setting and often in their own homes for as long as possible, which is almost always the preferred choice for individuals and their families. Most important of all, it enables states to meet the needs of more people using the same budget.

Integrated long-term care truly is a case where less is more. However, for states to achieve the full benefits for cost-savings and quality of care, the design, delivery and funding of the integrated long-term care program is central to its success.

Overcoming the institutional bias toward nursing homes
Under the traditional system, most people who require long-term care become eligible for Medicaid only after their condition has deteriorated to the point that institutionalization is the only option. However, before they can qualify, they must first deplete all their personal financial assets. As a result, they may become completely dependent on Medicaid for their continued care. And since eligibility is often dependent upon institutionalization, returning to the community may no longer be option, even for those who become well enough to do so.

Similarly, low-income people have few options for substitute HCBS that could help them avoid being placed in a nursing home. And once admitted, their placement is then often continued unnecessarily simply to maintain eligibility for Medicaid benefits.

Today, every state provides long-term care services through nursing homes as a mandatory Medicaid benefit without service or spending limits. Conversely, many states may restrict access to HCBS alternatives with enrollment caps or spending limits. Breaking the institutional bias toward costly nursing home care requires appropriate financial incentives to divert patients away from nursing homes and, if possible, repatriate those who are able to go back into the community.

Individual cost neutrality is an important safeguard that ensures the cost of community-based care doesn't exceed the cost of serving someone in a nursing home setting. Using this measure helps determine which cases are still best served by placement in nursing homes, and HCBS can be reserved for cases when it is capable of addressing the individual's needs and doing so in a cost-effective manner.

Early identification of those at risk
In most states, there is no organized system that identifies people who are in imminent need of long-term care. Typically, it is only after an acute episode that the need suddenly becomes apparent, at which time institutionalization becomes the routine option for care.

In contrast, a key component of integrated long-term care is to establish a system to readily identify people who are at risk for decline or advancing chronic illness. This allows service coordinators to assess each individual's needs and then proactively arrange the most appropriate resources to care for them. With the right combination of community and social services, and with benefits such as personal care attendants, many times the need for long-term placement in a nursing home can be avoided. Even when acute events do make institutionalization necessary, it does not necessarily become a permanent situation. The care manager will continue to monitor the patient's condition closely and develop a comprehensive plan of care that, whenever possible, involves a safe transition back to community-based services.

A holistic approach to care
Individuals who are eligible for long-term care are often forced to maneuver between highly complex and uncoordinated health care systems. Over 70 percent of ABD Medicaid beneficiaries are also eligible to receive Medicare.7 However, there is little coordination between which services are provided and paid for under each program. This not only creates confusion for the beneficiary but also results in redundancy and duplication of services provided, which needlessly drives up the cost.

More than 80 percent of the aged and disabled have at least one chronic condition and 46 percent have more than one.8 Individuals with just one chronic condition are seen by an average of three physicians. But those with seven or more chronic conditions are seen by as many as 11 physicians. In these cases, care is particularly fragmented and duplicative, and the predominant fee-for-service model only serves to compound the cost issues.

Ideally, integrated long-term care programs should include comprehensive benefits to minimize the distinction between Medicare, Medicaid, and other benefits individuals may receive. Seamlessly incorporating as many benefits as possible allows for a holistic approach to care management and reduces duplication. Programs that integrate acute, long-term care, HCBS, behavioral, and pharmacy benefits provide the flexibility to ensure that each patient's needs are properly addressed without the confusion of which system is responsible.

The need for mandatory enrollment
Although early identification is critical to reduce the rate of institutionalization, it can be achieved only if a large number of individuals are enrolled in managed care programs. Of the estimated 15 million ABDs in the United States today, only 3.7 million, or approximately 25 percent are served in managed care programs.9 Furthermore, of the 3.3 million ABDs who require long-term care, less than 10 percent are enrolled in managed care.10 As a result, the vast majority of the ABD population remains completely unmanaged, preventing early identification and effective intervention.

To succeed, integrated long-term care programs must be designed to include as large a population as possible. Otherwise, it will be difficult to attract partners to manage the population and enrollment will be low. Past experience shows that requiring mandatory enrollment is the most effective way to achieve critical mass. For states that are unable to institute a mandatory program, the next best choice would be to implement automatic enrollment with an opt-out option.

Proven success in multiple states
By any measure, Arizona has to be the standard-bearer for demonstrating the success that can be achieved with integrated long-term care programs. When the state first started its program back in 1989, 95 percent of people who needed long-term care were placed in nursing homes. Over the next 20 years, Arizona was able to steadily reduce the placement rate in nursing homes to just 33 percent by 2008. As early as 1996, Arizona calculated the total cost savings resulting from better utilization of community-based care to be $111 million. Equally impressive is the high level of consumer satisfaction the program has achieved. In a 2008 survey conducted among beneficiaries enrolled in the program, approval ratings were higher than 90 percent for the responsive care they received from their care manager.

Florida has also achieved impressive results with its nursing home diversion program, which provides a full range of acute and long-term care benefits for Medicaid recipients through care management organizations. Participants in this program were 9 times less likely to be admitted into a nursing home within 24 months, compared to individuals who did not participate. In addition, program participants were also 4 times more likely to leave a nursing home for a community-based care setting, compared with the control group.11 As a result, Florida saves an average of $10,000 to $15,000 per person per year in the cost of providing long-term care for Medicaid beneficiaries who are included in the program.12

A number of other states have also demonstrated how a coordinated care approach delivers significant savings compared to fee-for-service models, by reducing expensive hospitalization and emergency room visits, as well as postponing nursing home care. Texas, for example, successfully reduced avoidable inpatient care by 22 percent, acute outpatient care by 15 percent, emergency room visits by 38 percent, and long-term care by 10 percent among urban Medicaid patients.1314 This saved the state $78 million in 2 years.15 The same strategy in Minnesota also reduced the rate of preventable hospitalizations and ER visits among program participants compared to a control group.16 And Wisconsin credits coordinated care for an estimated $17 million per year or 10 percent savings compared to the fee-for-service experience.17

Maintaining individuals in a community setting for as long as possible has a direct, positive impact on the cost of care. And the results are especially significant for programs that match Massachusetts' Senior Care Options, where just 8.7 percent of clients entered a nursing home compared to 12 percent in the control group, and those who were admitted had a substantially higher frailty level.18

Adequate access is a prerequisite
Although the cost advantages make integrated long-term care programs highly appealing, it is only possible to capitalize on them if adequate access to community-based care options is made available. Indeed, this was the catalyst that caused Tennessee to embark on a comprehensive initiative to modernize its long-term care program.

In 1999, HCBS accounted for less than 1 percent of all long-term care provided in the state of Tennessee.19 In fact, it wasn't until 2003 that a statewide program that offered an alternative to nursing home care even became available. Using 1115 waivers to cover those not eligible for Medicaid and implementing universal enrollment enabled Tennessee to bring its entire Medicaid population of 1.2 million people under managed care. Following a dedicated effort and controlled expansion of the infrastructure to make HCBS more widely available, Tennessee had made some progress in shifting the balance of care, but by 2009 less than 10 percent or roughly 6,000 people were served by HCBS.20

However, starting in 2010, Tennessee introduced the aptly named TennCare CHOICES program to provide a wider variety of options for home and community-based care, and to give recipients greater control over where and from whom they receive these services. In the first eight months after being introduced in the Middle Tennessee region, the program increased the share of HCBS by 8.6 percentage points—or nearly 50 percent—from 17 to 25.6 percent.21 The program was later rolled out in the East and West regions and achieved similarly impressive increases of 5 and 4.4 percent, respectively, in just three months.22 In total, TennCare CHOICES almost doubled the number of people utilizing HCBS within the first year.23 These results are indicative of the overwhelming consumer preference for home and community-based care. They also demonstrate how integrated long-term care programs help states stretch available funds. Tennessee not only succeeded in better serving the needs of more people but it did it using the state's existing budget for managing long-term care.

Establishing the blueprint for quality in long-term care
The Deficit Reduction Act of 2005 mandated that the Agency for Healthcare Research and Quality develop measures for assessing the quality of home and community-based services delivered under Medicaid programs. The result was the HCBS Quality Framework, which focuses on desired outcomes from the participants' perspective and measures success according to seven key criteria: (1) participant access to ensure individuals have a choice of programs in their community; (2) service planning and delivery, to ensure that care is planned and effectively implemented in accordance with each participant's unique needs and stated preferences; (3) provider capacity and capabilities, to ensure sufficient coverage and requisite skills among HCBS providers; (4) safeguards, to ensure the safety and security of participants; (5) rights and responsibilities, to ensure participants are able to exercise their rights and accept responsibility for their own choices and actions; (6) outcomes and satisfaction, to ensure participants are happy with the services they receive and outcomes achieved; and (7) system performance, to ensure ever-increasing efficiency and continually improve quality.

Now, taking the HCBS Quality Framework one step further, UnitedHealthcare is developing a defined methodology to translate that ideal into proven practice. This process entails dissecting each of the seven key criteria, and then identifying ways to capture or generate the necessary data to establish benchmarks and baseline targets for evaluating ongoing performance against each one. When it's completed, UnitedHealthcare will have created the first-ever blueprint to build long-term care programs using measurement and analysis of quality of care as the foundation. It will also provide a comprehensive plan to help states design and implement the most effective integrated long-term care program to meet their specific needs and circumstances.

The potential opportunity
Without exception, every state that has implemented an integrated long-term care program has experienced dramatic savings through more cost-efficient delivery of services. However, when one considers that an estimated 44 percent of people receiving long-term care are currently in nursing homes, the magnitude of the total potential savings opportunity becomes very clear.

What if all states were able to achieve similar results as Arizona? According to UnitedHealth Group projections, we estimate that if the balance between nursing home and HCBS care could be reduced to 33 percent nationwide over the next ten years, the resulting savings could be as high as $140 billion, of which $60 billion would accrue to states. Of course, the size of the opportunity, and the relative share of these savings, varies from state to state depending on current utilization levels for HCBS versus nursing homes, as well as other factors. For an estimate of the specific savings in your own state, we encourage you to view the savings model published in Appendix 8 of Working Paper 3 Coverage for Consumers, Savings for States: Options for Modernizing Medicaid by UnitedHealth Center for Health Reform & Modernization.

Download Working Paper 3 (PDF 742.25 KB)

  1. Kaiser Family Foundation,
  2. Kaiser Commission on Medicaid and the Uninsured. Medicaid's Long-term Care Beneficiaries: An Analysis of Spending Patterns. November 2006.
  3. Kaiser Family Foundation,
  4. Ibid.
  5. AARP Public Policy Institute's reference report: Across the States 2009: Profiles of Long-Term Care and Independent Living.
  6. Kaiser Family Foundation,
  7. Ibid.
  8. Hoangmai H. Pham, "Care Patterns in Medicare and their Implications for Pay for Performance," New England Journal of Medicine, 356.11 (2007) 1130 – 1139.
  9. Centers for Medicare and Medicaid Services, Medicaid Statistical Information System
  10. Ibid.
  11. Florida Office of Program and Policy Analysis & Government Accountability. The Nursing Home Diversion Program Has Successfully Delayed Nursing Home Entry. May 2006. Florida's program is called the Florida LTC Community Diversion Program and is a voluntary program in operation since 1998.
  12. Jennifer R. Salmon, and Glenn Mitchell, II, "Preliminary Evaluation of Medicaid Waiver Managed Long-term Care Diversion Programs: Final Report." November 27, 2001. Florida Policy Exchange Center on Aging, University of South Florida.
  13. Elizabeth Shenkman, STAR+PLUS Enrollees' Satisfaction with Their Health Care. Institute for Child Health Policy, October 2003.
  14. "Actuarial Assessment of Medicaid Managed Care Options," The Lewin Group, for the Texas Health and Human Services Commission, December 15, 2003.
  15. The Lewin Group, 2003.
  16. Robert L. Kane, et. al., "Patterns of Utilization for the Minnesota Senior Health Options Program," Journal of the American Geriatrics Society, 2004.
  17. Medicaid Managed Care Cost Savings — A Synthesis of 24 Studies, The Lewin Group, March 2009, p. 23.
  18. Jen Associates, Inc., 2007.
  19. TennCare data, 2010.
  20. Ibid.
  21. Ibid.
  22. Ibid.