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States Have Immediate Opportunities for New Federal Funding Of Home and Community-Based Services

As AARP’s Long-Term Services and Supports State Scorecard makes clear, states are offering consumers more choices for long-term services and supports (LTSS), but we still have far to go to balance institutional care and home and community-based services (HCBS).   Now we have a major opportunity to pick up the pace of that change. States need to act quickly, although they will have more opportunities to adjust their plans over the next few years.

In March, Congress passed the American Rescue Plan Act of 2021 (ARPA), the comprehensive COVID-19 relief bill that includes enhanced funding for Medicaid home and community-based services (HCBS). ARPA establishes a temporary enhanced Federal Medicaid Assistance Percentage (FMAP) of 10 percent for eligible state HCBS expenditures spent by states between April 1, 2021 to March 31, 2022.  The law stipulates that the FMAP must be used to supplement (not supplant) current state HCBS spending, and to enhance, expand, or strengthen home and community-based services under a state’s Medicaid program.

In a State Medicaid Directors letter issued on May 13, 2021 (SMD #21-003), the Centers for Medicare & Medicaid Services (CMS) requested that states submit their initial HCBS spending plans and narratives for the enhanced federal funding, made available under Section 9817 of the ARPA (P. L. 117-2), by June 12, 2021. The insert below provides a hypothetical example of how CMS will implement the enhanced FMAP for HCBS over the next three years.

How CMS will Administer Enhanced Federal Funding Available to States Under ARPA: A Hypothetical Example

State Z estimates that it will spend $1 billion on eligible Medicaid HCBS services in the 12 months beginning April 1, 2021 and ending on March 31, 2022.  Its usual Medicaid FMAP percentage is 50 percent, meaning that the federal government and State Z each pay 50 percent of the total expenditures made. Under the provisions of Section 9817 of ARPA, state Z is eligible for a 10 percent increase in the FMAP over this period, such that the FMAP increases from 50 percent to 60 percent.   Under this scenario, the federal government will pay for 60 percent of the total cost of HCBS expenditures over this period ($600 million) and state Z will pay 40 percent ($400 million).   Thus, in this scenario, State Z saves $100 million in the initial ARPA program year.

Under the provisions of Section 9817, states must expend funds “equivalent to the amount of federal funds attributable to the increased FMAP…to enhance, expand, or strengthen HCBS under the Medicaid program.” A May 13 CMS guidance provides that states have three years to spend the funds saved by enhanced FMAP during the first program year. Thus, State Z has three years, from April 1, 2021 to March 31, 2024, to spend the $100 million in enhanced federal funding received from the savings earned in the first program year.

State Z can spend its savings from the enhanced FMAP in any way it chooses, as long as the funds are used to “enhance, expand, or strengthen” HCBS services under Medicaid.  For example, state Z can use the funds to include innovative HCBS program models, and/or serve more people in its HCBS program, including people who are currently on waiting lists. It could raise payment rates for specific HCBS providers, such as direct care staff who provide care in recipients’ homes. State Z can also use its savings to strengthen its program infrastructure, such as workforce recruitment, training, or one-time financial incentives to providers, such as incentives to retain workers.  In addition, state Z can expend its enhanced funding through investments in other HCBS program infrastructure, such as to implement better IT systems to process HCBS applications, enroll and monitor providers, or implement value-based payment systems. Finally, state Z can choose to spend its enhanced funding to design entirely new programs for HCBS recipients, such as new models to integrate Medicaid and Medicare services into a single uniform program.

CMS is requiring that states submit their initial spending plans for estimating the amount of funds eligible for the enhanced 10 percent FMAP, as well as initial plans for how they intend to spend the enhanced funding amount, by June 12, 2021.   In addition to budgetary estimates, states must also include a narrative plan on their proposed use of the enhanced funds over the next three years.   States must update these initial HCBS spending plans and HCBS spending narratives every quarter starting with the first quarter of federal fiscal year 2022. Quarterly updates are due 75 days prior to the start of each federal quarter, with the first update due July 18, 2021. CMS will monitor both the actual HCBS expenditures eligible for the enhanced FMAP and how the savings achieved from the enhanced FMAP are spent on HCBS and HCBS-related services through the regular submission process (i.e., Form CMS-37 and Form CMS-64), with some special provisions for HCBS services provided through capitated managed care contracts.

States are currently at work preparing their initial HCBS spending plans and HCBS spending narratives. The preparation of these plans is made more difficult in that the amount of enhanced federal funding involved is currently estimated at around $12.7 billion, with many states receiving more than $100 million in new funding for HCBS services that must be spent over the April 1, 2021 through March 31, 2024 timeframe. While the amount of new funding is considerable, states may be hesitant to make long-term commitments to HCBS program expansions that they must continue to meet after they fully utilize the ARPA funds. Thus, many states are looking to make shorter-term investments in their HCBS infrastructures that will contribute to more efficient delivery of HCBS services and higher quality outcomes for Medicaid beneficiaries.

In a follow-up conference call held with states on May 17, CMS stated its intention to post all quarterly reports submitted by states on their use of the ARPA funds on the CMS website to promote information sharing and lessons learned across state Medicaid programs. In response to questions about the extent to which CMS would hold states to their submitted HCBS spending plans, CMS stated that it would be flexible in allowing states to alter their plans during implementation. However, CMS still wants states to be as specific as possible in estimating the amount of HCBS funding that will be subject to the enhanced federal match, and how states intend to use their savings from the enhanced match for reinvestments in their HCBS systems over the next three years. It is important to note that states will offer their plans; they are not proposals. CMS will provide guidance to states on those plans, and is already offering assistance in answering questions from states.

Undoubtedly, there will be ongoing conversations between all the states, advocacy groups, Congress, and CMS as this significant expansion in federal funding for HCBS services proceeds. But as stakeholders work through the details, a certain element of perspective should not be lost: This is an unprecedented opportunity for states to pick of the pace of balancing their LTSS systems.  There are more resources on the table now than either of us have seen in our careers.

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