The massive pandemic relief bill the House is likely to approve by the end of this week includes billions of dollars in new funding for Long-Term Government Services and Supports (LTSS) for frail elderly and disabled young people. But the most profound change may be a temporary increase in funding for Medicaid Home and Community Services (HCBS).

The House bill would increase the federal contribution to Medicaid LTSS by 7.35%, or about $9 billion, for one year. But the markup would only apply to home and community services and exclude nursing home care.

While the additional federal funding is temporary, President Biden and congressional Democrats will no doubt want to make it permanent. And even as a temporary increase, it will likely accelerate a continued shift to home and community care that began long before the pandemic.

How Medicaid LTSS Works

In 2016, about 57% of Medicaid LTSS spending went to home care, twice as much as in 2000. At the same time, the share of Medicaid spending on institutional care fell from 73% to 43% . However, the pace of change has slowed in recent years.

Medicaid is run by the states but funded jointly by the states and the federal government. Typically, the federal government pays about 60% of the program, although in some states the federal government pays two-thirds of the cost.

Nursing homes remain the default setting for Medicaid long-term care. States can get special permission to move some of this care into people’s homes, but their use of HCBNS varies widely.

Funding and flexibility

The House bill would give states great flexibility in how they use additional HCBS funds. They could increase payments to home care agencies and other Medicaid service providers; increasing pay, training or paid leave for direct caregivers; and purchase emergency supplies such as personal protective equipment and testing. States could also use the funds to provide this equipment to family caregivers, buy assistive technology or help nursing home residents return home. Whatever they do, states should use the money to improve their programs.

Separately, the House bill would also increase funding for the Seniors Act by $1.4 billion. This chronically underfunded umbrella account funds programs critical to home care infrastructure, including Meals on Wheels and dozens of related programs. It would also add $4.5 billion to a federal low-income energy assistance program, critical support for low-income seniors living at home.

While some advocates would prefer to repeal Medicaid support for nursing homes, or at least end its bias toward institutional care, the House bill takes a more modest approach. It would create new financial incentives for states to adopt more robust home care without cutting funding for nursing homes or changing the basic design of Medicaid LTSS.

A new blueprint

This comprehensive approach has also been endorsed by consultancy ATI Advisory, which has close ties to the Biden administration. In its new “blueprint” for Medicaid LTSS reform, the ATI recommends permanently increasing the federal match for Medicaid HCBS, along with other broader reforms such as establishing minimum national standards for eligibility for Medicaid HCBS participants, implementing a minimum allowance for personal needs for those living at home, and adjusting state HCBS wait lists to focus on level of need.

ATI’s most ambitious proposal envisions the federal government paying all costs for HCBS catastrophic costs that exceed a specified threshold. Indeed, such a model would bring Medicaid closer to becoming a federal program without nationalizing it and while allowing states to tailor specific benefits to their populations.

Like the House Democrats’ approach, ATI would initially use the carrot of new financial incentives to encourage states to expand their HCBS programs rather than the stick of forcing them to cut nursing home benefits. This approach may not have much impact in some nursing home-heavy states, such as Louisiana, but it could boost Medicaid home care across much of the country.

The minimum wage conundrum

During this presidential campaign, Biden has supported more aggressive use of home and community care, proposing to spend about $450 billion over 10 years to improve these state programs. By increasing the federal contribution for Medicaid long-term home care, even temporarily, the House sends a strong signal that it supports this change.

Biden and congressional Democrats will face a challenge: the effects of a $15-an-hour minimum wage on Medicaid. Direct care workers are in desperate need of a pay rise and better working conditions, especially in the wake of the pandemic. But an increase to $15 an hour for home care workers, who average about $11, would likely consume much of the increased federal contribution to Medicaid HCBS and leave little for d other improvements.

On its own, the COVID-19 tragedy in long-term care facilities was likely to single-handedly accelerate the shift to Medicaid LTSS at home. But the House bill and the broader efforts it signals could accelerate that change even further.