Medicaid home and community-based services spending for older adults: Is there a "woodwork" effect?

Although older adults prefer to age at home, Medicaid has a longstanding institutional bias in funding long-term services and supports (LTSS). Some states have resisted expanding Medicaid funding for home- and community-based services (HCBS) due to budgetary concerns related to the so-called "woodwork" effect whereby individuals enroll on Medicaid to access HCBS.

To examine the implications associated with state Medicaid HCBS expansion, we obtained state-year data for 1999-2017 from various sources. We estimated difference-in-differences regressions comparing outcomes in states that expanded Medicaid HCBS aggressively versus those that expanded less aggressively, controlling for several covariates. We examined a range of outcomes including Medicaid enrollment, nursing home census, Medicaid institutional LTSS spending, total Medicaid LTSS spending, and Medicaid HCBS waiver enrollment. We measured HCBS expansion by the total share of state Medicaid LTSS spending for aged and disabled persons devoted to HCBS.

HCBS expansion was not associated with increased Medicaid enrollment among individuals ages 65 and older. A 1% increase in HCBS spending was associated with reductions in the state nursing home population of 47.1 residents (95% confidence interval [CI]: -80.5, -13.8) and institutional Medicaid LTSS spending of $7.3 million (95% CI: -$12.1M, -$2.4M). A $1 increase in HCBS spending was associated with $0.74 increase (95% CI: $0.57, $0.91) in total LTSS spending, suggesting each dollar directed to HCBS was offset by $0.26 savings from decreased nursing home use. Increased HCBS waiver spending was associated with more older adults receiving LTSS at a lower cost per beneficiary served relative to the nursing home setting.

We did not find evidence of a woodwork effect in those states that expanded Medicaid HCBS more aggressively, as measured by age 65 and older Medicaid enrollment. However, they did experience Medicaid savings from reduced nursing home use, suggesting states that expand Medicaid HCBS are able to use these additional dollars to serve more LTSS recipients.