In 2011, the Baby Boomer wave began to crash upon the shores of retirement. By 2030, 72.8 million Americans will be over the age of 65, an increase from 43.1 million in 2012. While developments in health care have added quality as well as quantity to the average lifespan, aging often still brings the need for assistance with Activities of Daily Living (ADLs). Many individuals retain the majority of their physical and mental abilities and yet still require some assistance with one to three ADLs. A segment of these individuals without the physical capacity to care entirely for themselves are low- to moderate-income seniors unable to afford traditional assisted living (AL) services. These individuals present an opportunity for operators and states to think creatively about how best to care for their financial, physical and mental needs.
In past years, a low- to moderate-income individual requiring any level of assistance would likely have had only one option through Medicaid: a skilled nursing facility (SNF). While these facilities meet residents’ physical needs, such settings may not be appropriate for all seniors, particularly those needing assistance with a minimal number of ADLs. For such individuals, it is important for them to maintain a sense of freedom and independence in a supportive setting, and the full spectrum of care offered in a SNF may curtail that independent spirit. In addition, a state’s Medicaid payment for an AL facility may be 60% of the cost of a SNF, generating potential Medicaid cost savings for the state.
Combining this reality with the constraints on state Medicaid budgets creates an impetus for positive change. In 2012 dollars, total state and federal Medicaid spending increased from $263 billion in 2000 to $429 billion in 2012, with the average state responsible for 59.1% of the total spent. Medicaid is designed to offer health care for vulnerable Americans, and the dramatically increasing number of seniors will continue to place pressure on these budgets. Gardant Management Solutions, the largest provider of affordable AL services in the country, reports that 70% of seniors with income less than 60% of the Area Median Income (AMI) ($26,000 to $32,000) have less than $10,000 in assets. By 2024, 6.5 million 50-and-over households will have income under $15,000, a 37% increase in a single decade. As these seniors look to Medicaid for assistance in finding safe and affordable housing, states have the opportunity to be proactive about preparing solutions for the level of care desired.
Supportive Living Facilities
Illinois is an example of a state attempting to proactively address the financial crunch while simultaneously ensuring that low- to moderate-income seniors can have access to affordable housing that meets their physical needs. Starting in the mid-1990s, Illinois launched Supportive Living Facilities (SLFs) with the “aim of preserving privacy and autonomy while emphasizing health and wellness for persons who would otherwise need nursing care.” Illinois encourages the construction of facilities built for the purpose of accepting Medicaid patients who need support with several ADLs. There are 143 such sites that offer 11,575 units to Illinois residents, and another 19 facilities have been approved but not yet certified by the Department of Healthcare and Family Services.
The approval process and limited number of licenses creates a barrier to entry as well as a clear signal to the target population about which facilities are designated to work with the Medicaid program. This clear signal will also benefit the facility in allowing them to work directly with the community and identify individuals who would be a good fit for the program. In examining cost data, Illinois pays a median daily rate of $62 for an individual in a SLF, while the median Medicaid daily rate for a SNF in Illinois is $141.
Rod Burkett, the CEO of Gardant, which has been operating in Illinois under the SLF program for 16 years, believes this is an illustration of government and private industry combining at their best. “There have been thousands of positive stories at the individual level of how the program has allowed residents to have a dignified lifestyle when they’re at some of their most vulnerable points, and the program is saving the state money at the same time.”
There are numerous funding options for those looking to construct SLFs. Agency and private sector debt capital can be used, as well as both private equity and low-income housing tax credit (LIHTC) equity. The program works well with U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) Sec. 232 financing because it focuses on low-income individuals, which matches HUD’s mission to assist vulnerable populations. Due to the complexity of options facing the developer, it’s important to work with a financial partner who is familiar with both the senior living space as well as affordable housing offerings in order to best structure the financing to allow the facility to serve its clients without being weighed down by overly burdensome debt.
Another existing program that can serve as a pressure release valve on state budgets is Medicaid waivers. These waivers offer income, age, and need-qualified senior candidates alternatives to SNFs by steering them towards solutions that are most appropriate to their needs while also offering the state significant savings.
T.J. Griffith, vice president and practice director of Principle Valuation’s seniors housing division, sees the benefit of these programs from multiple perspectives. “Residents are able to live in a residential type facility while the states realize significant savings, up to 50% on a per-resident-day basis. Operators with expertise and scale can experience healthy margins while participating in these programs.”
Indiana is using Medicaid Aged and Disabled waivers to support individuals who might otherwise require care in a nursing facility. These waiver services offer flexibility to the recipients, allowing the individual to remain in their own home or to be in a community setting such as apartments or AL. Of the approximately 16,000 waiver slots, around 10% are used by individuals in AL settings. Depending on the availability of services desired, the individual can appropriately choose the level of care and setting that works best for them. Since there are no specific facilities designated for the program, an individual can choose from a directory of facilities that is available through the Indiana Family and Social Services Administration, each of which must be a licensed Residential Care Facility pursuant to Indiana State Department of Health regulations. These providers are paid a per diem depending on the level of care (ranging from $62 to $82/day), and the patient would pay room and board, capped at supplemental security income (SSI), less a $52 personal allowance.
Zach Cattell, president of Indiana Health Care Association, sees the program as a good first step for the state in providing alternatives for appropriate care in lower cost settings, while recognizing that there is still work to be done in aligning the incentives for individuals, the state and providers of care. “With the growing focus by policy makers and regulators to rebalance the spending on long-term services and supports, enhancing waiver options is critical to providing quality options for patients and the providers that serve them. One key is to determine how to provide the right types of capacity for growth in this area.”
Indiana and Illinois provide two examples of states addressing the growing demographic of low- and moderate-income seniors who need assistance with ADLs but are not in need of the full scope of care provided by a SNF. An economic and political opportunity exists on both the state and federal levels for creative solutions that will both best serve seniors in need of affordable options while simultaneously relieving some of the pressure on Medicaid budgets. Illinois has chosen to address this opportunity by encouraging specific facilities with lower reimbursement rates than SNFs, allowing seniors the independence they desire and yet still offering daily assistance. Indiana has taken a different tack, giving seniors the freedom to choose the specific level of care that best fits their situation as well as a number of facilities that will accept the Aged and Disabled waiver if circumstances do not allow them to remain in their own home.
As the demographic wave continues to swell and an increasing number of seniors look to the states for assistance, more innovative thinking will be required to ensure that the financial, physical and mental needs of seniors are met amidst the economic constraints of state and federal budgets.
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