American Rescue Plan Act Home and Community-Based Services Funding: The Benefits and Challenges of an Infusion of Federal Support

Among the many resources for states included in the American Rescue Plan Act (ARPA) is enhanced federal funding to enable state governments to improve services for their rapidly increasing populations of older residents and people with disabilities. This funding reflects longstanding federal priorities around shifting the balance of Medicaid spending for these populations from institutional to home- and community-based settings (HCBS), as well as the Biden administration’s recognition of the need to enhance capacity, modernize systems, and expand the array of available services. This funding is also a response to the experience of the nation’s nursing homes during the COVID-19 pandemic, which accelerated consumer demand for community-based options for long-term services and supports.

While it’s an unqualified good that the federal government is making these investments, they also present significant challenges for states. Key examples of this include:

• The highly compressed time frame within which states were required to conceive of detailed plans for use of the funds, and submit those plans to the Center for Medicaid and CHIP Services (CMCS)
• State dependency on CMCS approval of underlying authorities, state enabling legislation, and, in some cases, state regulations, to move forward with their plans
• The reality that many states lacked standing contracts with expert consultants to help advise on ARPA plans, and could not procure such services rapidly enough to be of benefit
• The temporary nature of the funds, which unless ultimately made permanent by Build Back Better or another legislative vehicle, require either a focus on short-term investments or finding means to sustain both expansions to existing initiatives (e.g., increased participation in waivers) and new strategies
• Coordinating strategy and coming to agreement across multiple state departments — Medicaid, aging and disability, labor — as well as meaningfully incorporating stakeholder feedback
• Overall capacity constraints in the HCBS sector, which has historically been underfunded and is now being further affected by labor shortages.

Fundamentally, states need to find ways to improve their program capacity and management capabilities to make sure that these new resources transform systems of care and meet the needs of older adults and people with disabilities. Such improvements will also help states meet their own policy goals.

ARPA’s HCBS Funding & How States Are Using It

Before getting to capacity building, however, it’s important to understand what’s in the ARPA HCBS deal for states. Principally, for one year, Medicaid HCBS are eligible for a base year increase of 10 percentage points to their federal matching assistance percentage (FMAP). States can then leverage these funds with FMAP in the following two-year period, multiplying their value. Here is an example of what that means:

If a state’s typical FMAP was 52%, it was responsible for covering the remaining 48% of HCBS expenditures (the “state share”).  Under ARPA, the state’s FMAP becomes 62%, reducing the state share to 38%. This additional funding then essentially becomes state resources that qualify for the state share over the remaining ARPA period.

The funds for states are significant. The Congressional Budget Office estimates the value to be $12.7 billion in total — or an average of $250 million per state. Put another way, with a median FMAP of 60%, the average state is seeing an infusion of about half of its annual HCBS budget, which will generate additional funding through FMAP. Importantly, Medicaid HCBS spending typically represents over 50% of a given state’s spending on LTSS and that LTSS spend, overall, reflects approximately 40% of states’ entire Medicaid budgets.

What can states do with this infusion of federal funds? ARPA cited 15 eligible services that were grouped into four broad categories: increased access to HCBS for Medicaid beneficiaries; support and protection for the HCBS workforce; ensured financial stability for HCBS providers; and accelerated efforts toward LTSS reform.

So, what are states doing — or planning to do — with these additional resources? An analysis by the Centers on Budget and Policy Priorities of the initial plans that Medicaid agencies submitted to CMCS from 37 states shows that workforce concerns topped the list of planned uses for the HCBS funding.

Meeting the Challenges

Given this set of priorities, and that all states have submitted the required plans to CMCS, what can states do to address the related challenges of implementing them?

1. Focus on navigating the underlying authorities that are needed to proceed with ARPA plans.  States have little control over the pace at which CMCS reviews and approves their plans but should press for rapid cycle process on the changes to HCBS waivers and state plan amendments that are subsequently needed for their implementation. Further, state policymakers should look to support their Medicaid and aging and disability agencies by accelerating any needed enabling legislation and regulation. Non-exclusive examples include authority for waiver changes and changes to scopes of practice.
2. Explore means of getting expert assistance with planning and implementation. While a few states have standing arrangements with expert project management consultants, the majority do not. Since state purchasing and personnel systems are designed for control and integrity, not for speed, states generally lack fast processes for ramping up their own hiring or contracting with new entities. To address this challenge, in fall 2021, The SCAN Foundation quickly organized a collaborative effort among national health care funders (The John A. Hartford Fund, the Peterson Center on Healthcare, and the Milbank Memorial Fund) to deliver immediate technical assistance (TA) to states. In a matter of weeks, a competitive bidding process led to the selection of seven states and connected them with ADvancing States, the national membership organization of state aging and disabilities agencies, and a nationally recognized independent consultant. According to Project Director Camille Dobson, “all seven states shared that the TA that was provided — intensive project management planning for their ARPA initiatives — was invaluable in quickly garnering multi-agency buy-in and identifying critical barriers to success.” A second cycle of assistance, through which five states are receiving TA and state cohorts will meet as affinity groups on key topics, was released on March 8. This assistance is being supported by The SCAN Foundation, The John A. Hartford Fund, Arnold Ventures, and the Milbank Memorial Fund.
3. Focus on investments that optimize capacity. One of the biggest challenges associated with the ARPA funds is the temporary nature of the investment. To this end, many states are appropriately focusing on optimizing the use of the dollars by investing in their direct care workforce (DCW), information technology (IT), and other systems reform, and models that wrap around informal caregiving supports. Many investment ideas and strategies are evident in the state spending plans. A useful resource for cross-state comparisons of plans has been created by ADvancing States. Although many states are using a significant share of their ARPA funding to raise wages for their DCW, without appropriate planning for maintaining those increases, states will have to roll back those wage increases after the ARPA funds end in March 2024.
4. Continue to promote collaboration among state agencies and meaningful stakeholder engagement. While some states have fully integrated Medicaid, aging, and disability services under common leadership, that is not the norm. In many states, multiple agencies are involved in the issues and concerns to which ARPA funds can be applied; bringing these groups together and aligning their agendas can be time-consuming and tricky. Relatedly, the stakeholder engagement that is an appropriate, required component of ARPA HCBS plans will continue to require thought and care. States must prioritize and meaningfully address the lived experience of the people who will receive the services, with a special focus on Black, Indigenous, and People of Color, as plans move toward implementation.
5. Address state staffing and HCBS sector workforce capacity together. This major infusion of new funding is running up against constraints in federal and state staffing, as well as the HCBS workforce issues mentioned in #3 above. CMCS has demonstrably been strained in timely review of states’ ARPA plans. And even states that had the advantage of existing, state-level long-term services and supports rebalancing plans have reported challenges in moving forward to implementation. The state workforce is shorthanded and does not typically have extensive internal technical knowledge of long-term services and supports. These folks are also exhausted by two-plus years of pandemic response. States should look to retain civil servant leaders who have this expertise and to memorialize internal practices for their successors. In addition, the HCBS sector has historically been underfunded and is experiencing unprecedented workforce shortages. To help states to address this, the Milbank Memorial Fund has commissioned the Center for Health Care Strategies to produce a toolkit to be released in May that outlines actionable policy strategies around recruitment, training, retention, career path and overall economic security of the DCW.

We Get the Government We Pay For

While the ARPA funds represent a tremendous opportunity, demands will always exceed the available supply of dollars. State must therefore continue to focus on internal capacity, transparency, and the use of evidence and engagement of communities to make the best possible use of this watershed moment in time.

We get the government that we pay for. Public dollars that are spent on tax cuts, health care services, or other priorities tend to crowd out resourcing for the qualified state staff who are needed for day-to-day operations. While non-governmental funders can support staff with TA, states still need people in place to carry initiatives forward.

The pandemic has exacerbated longstanding challenges in enabling older adults and people with disabilities to live meaningful and independent lives in the settings of their choice. While the additional funding through ARPA is essential, the issues outlined above merit careful attention, both now and in any further infusion of federal support.