The U.S. Department of Justice (DOJ) issued a memorandum in June asserting that Olmstead v. L.C. does not require states to provide services in the “most integrated setting appropriate.” The memo signals a major shift in the federal government’s interpretation of the Americans with Disabilities Act and could reduce the federal role in promoting home and community-based services (HCBS) as an alternative to institutional care. However, it does not change federal law, limit states’ authority to offer Medicaid-funded HCBS to people with disabilities, or affect the evidence states can use to inform their Medicaid policy decisions.
Regardless of how states interpret the DOJ memo, Medicaid leaders still face the same fundamental question: how to design long-term services and supports (LTSS), which are a combination of HCBS and institutional care, in a way that balances fiscal sustainability, beneficiary preferences, and access to care. Fortunately, states seeking ways to expand community-based services in their Medicaid LTSS can rely on a large body of research to help them answer this question.
Growing use of HCBS within LTSS
Although HCBS remain an optional Medicaid benefit, every state now offers HCBS through one or more Medicaid authorities, including Sections 1915(c), 1915(i), 1915(k), and 1115 demonstrations. Most states also serve a larger share of Medicaid beneficiaries through HCBS than through institutional LTSS, and the proportion of HCBS relative to institutional services has grown over time. Together, these trends underscore the central role of HCBS in state Medicaid programs, which started with the deinstitutionalization movement in the 1950s and was accelerated by Olmstead v. L.C. in 1999.
Decades of research suggest that offering Medicaid HCBS as an alternative to institutional care can advance several important state goals that Americans continue to value, including efficient use of Medicaid resources and support for beneficiary choice.
HCBS often cost less than institutional care.
Reports produced by Mathematica for the Centers for Medicare & Medicaid Services show that average Medicaid expenditures in 2023 were much higher for people receiving institutional services than for those receiving HCBS—$54,462 per user compared with $17,298. Evaluations of the Money Follows the Person (MFP) Demonstration, which account for differences in demographic and health care characteristics, show similar results. For example, the 2017 Report to the President and Congress reveals that Medicaid and Medicare monthly per-person costs in the community declined by $1,783 to $1,840 (about 23 percent) in the first year after the transition from an institution. A forthcoming report on the Second National Evaluation of the MFP Demonstration will contain updates on these findings.
Although circumstances differ across states, the evidence points in the same direction: Expanding community-based options can support both beneficiary needs and long-term stewardship of Medicaid resources.
Beneficiaries consistently report better experiences after moving to the community.
A 2014 evaluation of MFP shows that participants who moved from institutions to the community reported greater life satisfaction, more choice and control, and higher satisfaction with their care and living arrangements. One year after transition, 92 percent said they liked where they lived, an increase of 32 percentage points from the time they were in institutional care. These findings suggest that HCBS offer more than an alternative setting; for many people, HCBS provide a living arrangement that better reflects their preferences and supports greater autonomy and participation in community life. For state policymakers considering how to structure LTSS, these findings extend beyond consumer satisfaction and help clarify what beneficiaries truly value.
Looking toward the future of HCBS
Although federal interpretations of Olmstead might continue to evolve, the evidence guiding Medicaid policy decisions has been remarkably consistent. Decades of evidence on HCBS can help state leaders and policymakers more confidently navigate the future of their HCBS programs.
As these discussions continue, Mathematica will share more evidence from MFP and other HCBS-related work at the 2026 ADvancing States HCBS Conference in Baltimore this August.
