The demand for home- and community-based health services (HCBS) in Medicaid has risen considerably over the last few decades. These services, however, are particularly vulnerable to becoming defunded by states because of cuts in Medicaid proposed in the 2025 Budget Bill, which the Senate passed on July 1. Since the federal government, on average, pays 69 percent of the cost of Medicaid services, a shortfall in money from Washington creates a serious budget problem for the states.

While it is mandatory for states to provide personal care services in nursing home facilities to receive federal Medicaid dollars, similar services intended to allow seniors and people with disabilities to remain at home – such as help bathing, dressing, and cooking – are mostly optional. “My concern is that home-based health care is going to be cut,” said Rachel M. Werner, Executive Director of the Leonard Davis Institute of Health Economics.

The Senate-passed reconciliation bill, which calls for about $940 billion in Medicaid cuts over 10 years as well as less support for insurance exchanges, will reduce the number of insured Americans by 11.8 million, the Congressional Budget Office estimates. While people newly ineligible for Medicaid obviously won’t be able to access the program’s home health services, what happens to those who remain on Medicaid? The expectations of LDI experts are that more of these beneficiaries will enter nursing homes and more families will step in to provide unpaid services. Here’s how the changes may play out.

Why Medicaid Should Require Home- and Community-Based Care

“If we were designing Medicaid now, with what we know, we would make home- and community-based health services a mandatory benefit rather than an optional one,” said LDI Senior Fellow Alison K. Hoffman, Professor of Law at the University of Pennsylvania Carey Law School. “Then people could get their care in the setting that works best, whether it’s in their home or a nursing home.” In the current situation, states cover Medicaid home health care (as HCBS is also called) through various pathways including by applying for waivers from the federal government, resulting in a system that is “complex and varies widely by state,” according to KFF, the health policy, polling and journalism group.

Initially, the bulk of funding for long-term services and supports went to nursing home institutions. “And then starting in the 1980s, there was a belief that it would be much cheaper to provide care in home-based settings than in institutional settings,” Hoffman said. “And families of some beneficiaries also wanted the option to have care in home-based settings rather than institutions.” 

In the 1999 case Olmstead v. L.C., the U.S. Supreme Court said that institutionalizing a person when it’s not necessary can be a violation of the Americans with Disabilities Act. “That decision propelled states to create more opportunities for care in home-based settings, and then the federal government created more pathways or opportunities for states to pay for that care,” Hoffman explained.

By 2013, spending on HCBS surpassed spending on similar institutional care for the first time. In 2022, Medicaid home health payments accounted for 65% of Medicaid’s expenditures on long-term services and supports.

Medicaid Home Care Faces Worker Shortages and Long Wait Lists

Even before the proposed Medicaid home care cuts, those services were “inadequate,” said LDI’s Werner. “While it’s better than nothing, the amount of care received through home- and community-based services is not adequate to fully replace nursing home-level care. So people have to rely on unpaid caregivers and family members to help fill in those gaps. There’s also more demand for home- and community-based services than there is supply. The majority of states end up having waiting lists of people who want to get home-based care through Medicaid but can’t because there’s a cap on the number of people that can be enrolled in the program,” she added.

Some 700,000 people are on wait lists for Medicaid home care, according to KFF.

In addition, there is a chronic worker shortage. One reason is that wages for Medicaid home care workers have stagnated in the $11-$12 an hour range, according to research by LDI Senior Fellows Pilar Gonalons-Pons (Associate Professor, Sociology), Norma Coe (Director of Research, LDI), Hoffman, and former LDI Associate Fellows Katherine E. M. Miller and Amanda R. Kreider. Almost half of these workers receive public benefits like SNAP (formerly food stamps) to survive.

A new contributor to the worker shortage is the current crackdown on immigrants, noted Werner. In an opinion piece, she and coauthor Kreider explained that nearly one in three Medicaid home workers is an immigrant.  An estimated 15% of workers at home care agencies are undocumented, but “even lawful permanent residents have been caught up in recent deportation efforts.”

Medicaid Cuts Will Pressure States to Slash Home Care

The looming cuts in Medicaid funds pose a dilemma for governors. “There’s only a few levers states have. The nursing home benefits are a required part of Medicaid, and states can’t eliminate that benefit. But states could reduce the number of people they’re allowing to enroll in home- and community-based services, they could cut the generosity of covered services, and they could reduce the rates that they’re paying for home and community services,” Werner said.

“Historically home and community-based services have been on the cutting block when state funds are short,” added Hoffman.

The result? “Either more people are going to go into nursing homes, which may not be consistent with their preferences, or people who stay at home may have to get their needs met by their family members or close friends who don’t get paid to do it,” Werner said.

In addition, there’s a risk that fewer services may be available. In March of this year, the Trump administration abolished the Administration for Community Living (ACL), which provides coordinated support for non-institutionalized seniors and people with disabilities, including those on and off Medicaid. The ACL offered such programs as fall prevention, elder abuse, disease-prevention, and health-promotion.

The ACL’s responsibilities will be spread out among various agencies but with staffing cuts looming, no one is sure what will remain. “What’s concerning for me is once all of this takes place, who is going to be responsible for some of the programs that people on Medicaid are highly dependent on?” asked LDI Senior Fellow Adriana Perez, who called for maintaining ACL’s work even if it’s split up among various agencies, in a piece for the Journal of Gerontological Nursing. Still, Perez, who’s Associate Professor of Family and Community Health at  Penn Nursing, said she “holds onto hope that these are going to be restructured and reorganized under different areas within HHS or the Administration on Aging.”

Federal Oversight Might Fix Medicaid’s Patchy Home Care System

Medicaid is a cumbersome system that is often a target of cost-cutters. “Part of the reason it’s so complicated is that Medicaid is a state-run program that’s underfunded. There have been rules and workarounds that try to accommodate the fact that states feel like they don’t have enough money to run their Medicaid programs.

One way to streamline the system is to make the Medicaid system administered at the federal level so that it’s more consistent across states,” Werner said.

“The other option, which I think is potentially more attractive, is to make home-based care a Medicare benefit. There’s a rational argument to be made that Medicare should be paying for the long-term services and supports that people need because of their medical conditions. That would be more streamlined than the state-run Medicaid programs and would be more consistent across states also,” Werner said. Werner and Hoffman expand on these ideas in an upcoming article in the Journal of Health Politics, Policy and Law.  

Hoffman added some context. “How to fund home and community-based services is a longstanding problem. So this administration may pull the rug out from under Medicaid funding more broadly, which will affect home and community-based services. But no administration has figured out how to get good access to long-term care in an equitable way for people in this country.”

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The study “Increasing Expenditures on Home- and Community-Based Services: Do Home Care Workers Benefit?” was published on October 18, 2024 in Health Services Research. Authors include Katherine E. M. Miller, Norma B. Coe, Amanda R. Kreider, Allison K. Hoffman, Katherine Rodhe, and Pilar Gonalons-Pons.

The study “Addressing Problems with Medicaid Home and Community-Based Services in the Age of Rebalancing” was published in October 2024 in Health Affairs. Authors include Katherine Rodhe, Norma B. Coe, Pilar Gonalons-Pons, Katherine E.M. Miller, Amanda R. Kreider, and Allison K. Hoffman.

“Long-term care in the U.S. Faces Two Existential Threats: An Immigration Crackdown and Medicaid Cuts,” was published on May 30, 2025 in Stat News. The authors are Rachel M. Werner and Amanda R. Kreider.

The study “The Administration for Community Living: More than a Decade of Policies Promoting the Health of Older Adults, People Living with Disabilities, and their Families and Caregivers,” was published on May 1, 2025 in Journal of Gerontological Nursing. The author is G. Adriana Perez.

The study “The Evolution of Long-Term Care and Health Policy in the United States,” was published June 20, 2025 in Journal of Health Politics, Policy and Law. Authors include Rachel M. Werner, Allison K. Hoffman, and R. Tamara Konetzka. 

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