Decreased Medicare funding affects health plans and patients outside of just one federal health insurance program in ways that many may not be aware of. Recent federal budget reconciliation legislation, also known as the One Big Beautiful Bill Act (OBBBA), will reduce the proportion of Medicare and other public funding that pays for long-term services and support (LTSS), affecting Medicaid patients as well as dual-eligible individuals who can enroll in both programs.

The True Cost of Aging: LTSS on the Rise

Despite changes being made by the OBBBA to long-term services and support, Medicaid LTSS claims are increasing. According to a report from the Congressional Research Service, Medicaid LTSS spending increased from 42.1% to 45.6% between 2013 and 2023, rising to $257 billion.

While some states have already started to feel the effects of OBBBA on home-based care, others are still making the difficult decisions on what funding they can continue to provide in the face of shrinking state and federal Medicaid funding.

Understanding the Funding Changes

As the demand for specialized services, including long-term services and support (LTSS), rises, the payments for them are changing partially due to the decrease in the proportion of Medicare and other public funding that currently covers costs, largely because of the One Big Beautiful Bill.

Medicaid has been covering LTSS for many years and has evolved to include more comprehensive coverage for people with disabilities and chronic conditions. According to Congress.gov, “Medicaid funds are used to pay for a variety of health care services and LTSS, including nursing facility care, home health, personal care, and other home and community-based services.” The dramatic reduction in the Medicaid budget will leave states to make difficult choices regarding budgets and risk cutting the success and expansion of home- and community-based services they have had.

How Payors and Providers Are Responding to Funding Cuts

As states adjust to figuring out how to finance the fragmented system of long-term care, many payors have begun to focus on the following initiatives in efforts to help healthcare organizations ease into the changes:

• Incentivizing the use of ambulatory surgery facilities (ASCs) rather than hospitals, since they are less expensive.
• Advocating for patients to receive their vaccines at pharmacies rather than hospitals or health systems. This push will allow physicians to receive reimbursements for vaccinations and credit for eligible patients’ meeting quality metrics, all at a lower cost.
• Working with community-based organizations to address social determinants of health and health literacy to reduce avoidable high-cost utilization.

Moving forward, it’s going to be vital for providers, commercial, and private payors to work together to create a more cost-efficient, diverse healthcare system that utilizes different sectors of healthcare to ultimately provide aging Americans with the high-quality care they need to enable them to continue to live in their homes.

According to a recent study by Johns Hopkins Bloomberg School of Public Health, “An integrated public health delivery system with full support for aging in place, such as increasing opportunities for home-based care, improving access to affordable housing, and providing solutions to satisfy older adults’ transportation and social participation needs, will be critical to meet care needs of the aging population.”

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