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Keys to the Locks: Assisted Living as an Incurred Claim to Satisfy the Medical Loss Ratio
By Jason Bloome

The Centers for Medicare and Medicaid Services gives states the opportunity to apply for federal Medicaid waivers to provide beneficiaries home and community-based services (HCBS) as alternatives to nursing homes. Medicaid waivers are used by many states to develop nursing home diversion/transition programs for those with dual-eligibility (recipients on Medicare and Medicaid) residing at home at risk of premature institutionalization or in nursing homes on long-term services and supports (LTSS).

1915(c) Waivers
1915(c) waivers allow states to customize HCBS for particular target groups who, absent the waiver, would require institutionalization. The waivers have a cap on the number of eligible participants and provides alternatives to specific federal Medicaid requirements (eg, income limits). Since a 1915(c) waiver is limited to target populations, states typically utilize multiple 1915(c) waivers. Examples of 1915(c) waivers include their use for case management, personal care, home health care, adult day health care, and respite care. The duration of 1915(c) waivers is for three years, with renewals possible for five-year installments.

1115 Waivers
Unlike 1915(c) waivers which are limited in scope, 1115 waivers are broad based and allow for large-scale experimentation for the delivery of services to a large portion of the Medicaid population in a state. Frequently, these waivers are used in statewide experimental, pilot, or demonstration projects. States utilize 1115 waivers as alternatives to federal Medicaid rules governing eligibility, provider payments, and other benefits. 1115 waivers are currently in use for family planning, HIV/AIDS care, and substance abuse disorder treatment and to expand Medicaid to previously ineligible participants. The federal government requires all 1115 waivers be budget-neutral (eg, the program does not result in more federal Medicaid costs to the federal government than it would have absent the waiver).

Some states use 1115 waivers for managed LTSS (MLTSS), fiscal arrangements between a state and managed care organizations (MCOs) that receive capitated payments to provide LTSS to members. However, due to the strict “budget-neutral” requirements, many states find 1115 waivers problematic for MLTSS development.

For example, California, in 2014, used a 1115 waiver to establish the Coordinated Care Initiative (CCI), a MLTSS demonstration program in seven counties, with the plan to merge CCI with California Advancing and Innovating Medi-Cal (CalAIM), the state’s first step towards statewide MLTSS expected to begin in January 2022. California decided a 1115 waiver was not a viable option for CalAIM due to the strict “budget-neutral” guidelines.

Instead, California chose to use In Lieu of Services (ILOS). ILOS is not required to be “budget neutral” but “cost-effective” and includes services “in lieu of” nursing for beneficiaries on LTSS in nursing homes or at risk of premature institutionalization. While there is no definitive list of allowable ILOS, many states frequently include housing deposits, housing transition navigation services, short-term posthospitalization housing, respite services, day habilitation programs, recuperative care, personal care, and homemaker services. ILOS also includes costs for nursing home diversion/transition set-up and payments for assisted living homes.

ILOS and Medical Loss Ratio Requirements
The flexible nature of ILOS promotes nursing home diversion/transition by providing fiscal incentives to MLTSS MCOs by allowing ILOS’ costs to be captured as part of the Medical Loss Ratio (MLR): a financial measure intended to hold insurance companies accountable and to increase value to consumers. While MLR is widely used in the commercial insurance market, it wasn’t until the 2016 update to the Affordable Care Act that MLR was required for MLTSS MCOs.

The federal government requires MLTSS MCOs meet a minimum MLR of 85%. This means that at least 85 cents of every premium dollar must be used for consumer claims and activities that improve the quality of care or providers risk facing fiscal penalties.

The MLR is determined by the ratio of putting the incurred claims (eg, medical services, quality improvement, and fraud prevention) in the numerator and the plan revenue (eg, capitation payments, premiums, etc) in the denominator. The derived ratio indicates how much of the monies paid to the MCO by the state and federal government is utilized for patient services as opposed to administrative expenses, including profit margin. States and the federal government use the MLR as an oversite tool to ensure MCOs deliver high-quality and cost-efficient care to their consumers.

MLR incurred claims include medical services but not administrative expenses. Since ILOS (eg, housing, assisted living) is nonmedical, MCOs participating with MLTSS were unclear on how they could recapture the ILOS costs. The federal government provided guidance to the states in their 2016 Medicaid Managed Care Final Rules by clarifying ILOS should be counted as incurred claims for MLR calculations.

Applying assisted living as incurred claims towards the 85% MLR minimum threshold gives MLTSS MCOs sound fiscal incentives for developing program nursing home diversion/transition components (eg, establishing provider networks, consumer and provider outreach, contracting, care coordination, and care transition expenses).

Despite the abundance of HCBS federal waivers, every year states continue paying millions of LTSS dollars for expensive institutions rather than for more affordable HCBS options while tens of thousands of low-income seniors seek an exit out of nursing homes and back into the community. Opening the locked doors that prevent nursing home diversion/transition requires having the right tools, like ILOS, that turn perfectly in the keyhole.

— Jason Bloome is owner of Connections - Care Home Consultants, an information and referral agency for care homes for the elderly in California.