Stretching Medicaid Dollars With “Affordable” Assisted Living Models

This is the second in a multi-part series following “Will the Nation Go Broke Paying for Senior Housing & Long-Term Care?” Read the first installment about nursing home census declining as states seek to stretch Medicaid dollars.

The combination of a fast-growing senior population that is largely unprepared to pay for their retirement costs, and an overextended Medicaid program that’s being increasingly relied upon to fund long-term care for many low-income individuals, could result in a sizable dilemma in just a couple years’ time.

Less expensive senior care options such as assisted living facilities could be a possible answer, but even though they generally don’t cost as much as nursing homes, many individuals still aren’t able to afford them.


Generally speaking, assisted living facilities aren’t eligible on a federal level for Medicaid funding, so if individuals qualify as “low-income” for the Medicaid program, they’re almost always sent to a nursing home.

With nursing home costs continuing to rise, and Medicaid funding becoming scarce, some states are looking for ways to save money.

One way states can make assisted living “affordable” is to obtain a Medicaid waiver, and Illinois has created its own affordable model with its Supportive Living program.


The program uses a Medicaid waiver to fund patients’ care who would otherwise qualify for and be placed in a nursing home, but are able to be cared for—at a less expensive rate—at an assisted living facility.

Developing “Affordable Assisted Living” in Illinois

More than 100 facilities belong to Illinois’ Supportive Living program, and while it’s not the first to have created this sort of model, it is one of the best, according to Wayne Smallwood, executive director of the Affordable Assisted Living Coalition and the man who spearheaded the system’s creation.

It’s been around for about two decades, now, and began in the mid 1990s when the state of Illinois was facing a severe budget crisis. Then-governor Jim Edgar wanted to look at solutions in the long-term care segment, Smallwood says, and pointing toward the skyrocketing costs of nursing home care, he asked if there were ways to reduce these expenses.

Studies at the time showed that about 20-30% of nursing home residents at the time didn’t actually need skilled nursing, and could be taken care of adequately in an assisted living setting.

In 1995, the federal government came out with a new waiver program option that allowed states to use alternatives to institutional care while still qualifying for Medicaid, as long as the spending wasn’t greater than if a resident was in a nursing home.

That’s when the supportive living program got started, Smallwood said, and they applied for the program and launched a demonstration to test the model.

Three years later, in 1998, the fledgling program held requests for proposals to see which facilities wanted to participate. It started with just 12 participants, out of 16 requests, and the first Supportive Living Facility opened in 1999. Now, in 2012, there are 133 that are currently part of the program, with more than 10,000 apartments.

Results: Medicaid Enrollees Stay Out of Nursing Homes, State Saves Money

“It’s been very successful, and it’s a simple model,” said Smallwood. “Participating facilities get 60% of nursing home rates in the geographic areas they use to calculate rates. It helps the state to save money and reducing reliance on nursing homes.”

He says the state is saving millions of dollars each year by offering the program. “The people in these buildings, if this program didn’t exist, many of them would be in nursing homes,” he said.

In 2009, for example, the state of Illinois spent about $24,000 a year for each person living in a nursing home. In contrast, a person living in a supportive living facility cost the state about $14,000 a year. And according to a report studying the costs of nursing home vs. supportive living care shows the state would have spent another $50 million were it not for the assisted living program.

And for those who know how to operate “wisely,” being part of a model similar to Illinois’ program could be quite profitable.

“It is a good model for making money, and people are trying to get into the Supportive Living program because it does make money,” said Smallwood. “If you know what you’re doing, it’s shown that it will make money.”

He said Illinois facilities can make a 12% to 20% profit a year, assuming that the state keeps up with Medicaid payments. And facility residents in the program aren’t all Medicaid—they’re about 40% private pay.

Other States Looking to Join the Movement

Smallwood named Massachusetts and Washington as states with “similar” systems, and said that Texas had looked into Illinois’ system as it looks into creating its own affordable assisted living model.

“We have a lot more interest in states working to develop the assisted living waiver in the last couple of years,” Martha Roherty, executive director at the National Association of States United for Action in Aging and Disabilities, told SHN during a discussion about AARP’s report on the transformation of long-term supports and services delivery in the states.

“It is one of the complicated areas we’ve been working on, however, since there is no federal definition of what assisted living is,” she continued, adding that each state needs to determine what would be included under “assisted living.”

Multiple states are already using Medicaid to cover services in “residential care facilities,” according to the Assistant Secretary for Planning and Evaluation, the principal advisor to the Secretary of the U.S. Department of Health and Human Services on policy development.

And many states are looking to “transform” the way they deliver long-term supports and services, with a recent AARP report showing a trend away from nursing homes in favor of other types of care, especially since Medicaid enrollment is expected to increase in 2014 eligibility expands under the Affordable Care Act.

When this happens, Medicaid dollars will have to be stretched further to accommodate a greater number of people, and putting Medicaid-eligible individuals into assisted living rather than nursing homes could potentially save states millions, according to Smallwood.

Written by Alyssa Gerace