The One Big Beautiful Bill Act (OBBA) is poised to reframe Medicaid, creating significant uncertainty regarding some optional services – including home- and community-based services.

A dramatically reduced Medicaid budget has created a “very daunting” situation in which states must now make difficult choices regarding budgets and risk undoing the expansion of home- and community-based services, according to an ATI advisory webinar on Tuesday. Still, the bill offers an additional pathway to covering optional home- and community-based services.

“Home and community-based services are mostly optional – so these are services that are available at the state’s discretion,” Michelle Herman Soper, managing director of state program and policy practice at ATI, said on the webinar. “It’s too early to say exactly how states will respond. But there is a lot of unknown around how states will manage some of these choices around some of this optional coverage.”

States have increasingly spent higher and higher proportions of Medicaid Long-Term Services and Supports (LTSS) dollars on home- and community-based services, according to Soper, from 1% of states’ budgets in the early 1980s to 65% in 2022. This increase reflects individual preferences for aging in place, Soper said, as well as the cost savings of home- and community-based services.

Despite the reasons to expand home-based services, historical evidence shows a precedent of states cutting home- and community-based services in times of economic distress. Research shows that in 2011, after the Great Recession, nearly every state cut home- and community-based services in terms of services, eligibility and spending per person, Soper said. The cutbacks resulted in a 2% to 15% decrease in the number of people served.

Tailwinds

While the OBBA presents numerous challenges for the home-based care industry, there is reason for some positivity.

A “clear bright spot” of the OBBA, according to Allison Rizer, executive vice president of payer solutions at ATI, is its expansion of the use of the 1915(c) waiver.

Home- and community-based services are not an entitlement, Rizer said, and states have to seek permission to cover them. The 1915(c) waiver is the most commonly used mechanism for states because it offers financial predictability.

“However, historically, 1915(c) has been limited because states can only use it for people who already qualify for institutional level of care, meaning they have such a level of frailty or disability that they would already qualify for an institutional level of care,” Rizer said. “What this law is doing is expanding 1915(c) authority so states can use it to catch people before qualifying for an institutional level of care.”

The waiver expansion will also help cover behavioral health services, Rizer said. States have historically struggled to utilize the 1915(c) waiver to cover behavioral health services; however, the expansion under the OBBA makes these services much more accessible.

Still, skepticism exists regarding whether states will take up the waiver expansion, Rizer said.

“States are gonna have a lot of pressures, administrative pressures, financial pressures, but I do think we need to acknowledge that there’s a very real chance for moving upstream with this provision, the potential to pay for or expand existing state programs and the potential to add more people to the Medicaid program, for example, moving partial dual eligible beneficiaries into full dual status,” Rizer said.