How are States Implementing New Requirements for Medicaid Home- and Community-Based Services?

In January 2014, the Centers for Medicare and Medicaid Services (CMS) published a final rule that created new requirements for Medicaid home- and community-based services (HCBS) programs. That rule has been informally called the “settings rule.” Enforcement of the rule was delayed multiple times, so the requirements only took effect this year, nearly a decade after the rule was originally finalized. States are still coming into compliance with the rule’s provisions. It will have significant effects on how HCBS are delivered to the four million people using Medicaid HCBS services, and on the states implementing the rule. In 2023, 47 states provided HCBS through a combined 258 1915(c) waivers and 14 provided HCBS through an 1115 waiver, all of which are required to comply with the settings rule.

The settings rule aims to ensure that individuals receiving services through HCBS programs are integrated into the community and creates tangible requirements for what it means to provide Medicaid HCBS through the most integrated setting that is appropriate, as is required under the Supreme Court’s Olmstead ruling. As the 25^th anniversary of Olmstead nears, the Administration released a proposed rule that would codify the Olmstead decision more broadly and apply to services beyond those covered in the settings rule. States’ challenges—and successes—in implementing the settings rule may foreshadow barriers to more widespread integration and promising practices to overcome those barriers.

In KFF’s 2023 survey of state Medicaid HCBS programs, 10 states reported that compliance with the rule was the top priority for one or more of their HCBS programs, and an additional 22 states reported that it was the second priority for one or more of their programs. This issue brief describes the settings rule, implementation of the rule across states and HCBS waivers, and what to watch as implementation continues. Key takeaways include:

• The settings rule establishes new requirements for HCBS settings, including full integration of individuals into the community and rights to privacy, dignity, and autonomy for people receiving services.
• 24 states report full implementation of the settings rule among all HCBS waivers, and 19 states report partial implementation of criteria across waivers.
• Most 1915(c) and 1115 waivers serving people with intellectual or developmental disabilities, seniors or people with physical disabilities, and people with traumatic brain or spinal cord injuries have components of the settings rule that they are still working to implement.

What is the settings rule?

The HCBS Settings Rule made numerous changes to Medicaid HCBS programs, the most notable of which include updating the requirements for the settings in which HCBS are provided. For HCBS that are provided under sections 1915(c) and 1115, the rule requires all HCBS settings to:

• Be integrated into the larger community with individuals having full access to community resources and opportunities;
• Be selected by the individual seeking care among different options;
• Ensure rights to privacy, dignity, respect, and freedom from coercion and restraint;
• Optimize autonomy and independence of residents and participants; and
• Provide people with choices of services and providers.

There are additional requirements for provider-owned or controlled settings, which include: a lease or other legally enforceable agreement for residents, privacy in the unit with lockable doors, freedom to choose roommates and furnish the unit, control of schedule, access to food at any time, allowance of visitors at any time, and physical accessibility.

Beyond establishing requirements for the settings in which HCBS are provided, the rule made other changes intended to improve people’s access to HCBS. Such changes include:

• Allowing states to streamline the administration of programs by combining multiple waivers into one,
• Requiring HCBS programs to use a person-centered approach when establishing plans of care for participants and ensuring that participant goals and preferences guide the delivery of services, and
• Implementing section 1915(i) of the Affordable Care Act, which allows states to provide optional HCBS through their state Medicaid plans and establish new eligibility categories for people who need HCBS.

The rule was finalized in 2014, but only took effect in March 2023 and many states are continuing to implement some of the rule’s requirements. The rule went into effect in March 2014 and states were initially given one year to submit a transition plan for existing services and five years to come into compliance. In total, states had until 2020 to implement the requirements. However, in 2017, CMS extended the compliance period until 2022 in recognition that states had many reforms underway, but would also need more time to complete the transition. In 2020, CMS once again extended the transition period to 2023 to account for the impact of the COVID-19 pandemic.

In May 2022, CMS updated the implementation strategy and introduced the option for states to request corrective action plans (CAPs). The new strategy required states to receive approval on their final Statewide Transition Plan and to implement all settings criteria not impacted by the COVID-19 public health emergency. Some examples of settings criteria that states may have needed more time to comply with include ensuring that individuals have access to the broader community, facilitating opportunities for employment, and providing the option for a private housing unit or choice of roommate. CMS encouraged states to apply for CAPs if they needed additional time to achieve full compliance.

Which HCBS waivers are most likely to have fully implemented the settings rule?

In KFF’s most recent survey of state HCBS programs, 43 states reported that at least one HCBS waiver had fully implemented the settings rule, and of those states, 24 reported full implementation by all waivers. In contrast, only 7 states report that no waivers have fully implemented the criteria. Most states (37) have requested or been granted a CAP for at least one waiver and among those states, the timelines for full implementation range from July 2023 to January 2026.

Use of CAPs was most common for waivers serving people with intellectual or developmental disabilities and people who are ages 65 and older or have physical disabilities (Figure 1, Appendix Table 1). Among the 45 states with waivers for people who have intellectual or developmental disabilities that responded, 16 states had fully implemented the rule and 29 had CAPs. Among the 43 states with waivers for people who are over age 65 or have physical disabilities that responded, 20 had fully implemented the rule and 23 had CAPs.

What to watch as states implement the settings rule?

What have been states’ biggest challenges in implementing the rule? Some of the biggest challenges for states in implementing the settings rule stem from the requirement for waivers to determine compliance for all HCBS providers that serve waiver participants. Several states indicated that full implementation was pending because only one provider or agency was yet to be deemed compliant, including Montana’s waiver for people with intellectual or developmental disabilities and Connecticut’s waiver serving people who are ages 65 and older. For other states, the biggest challenges have been tied to the COVID-19 pandemic, which particularly affected the HCBS workforce. New York reported that the state applied for a corrective action plan because they needed time to hire sufficient staff to support community integration on account of workforce challenges, and 9 states reported full implementation of all settings criteria except for those impacted by the pandemic.

How is the settings rule expected to affect the services received by people with disabilities through the Medicaid program? The settings rule is intended to provide people with disabilities with greater autonomy and independence while they receive HCBS in the most integrated community settings, as is required by the Olmstead ruling. People affected by the rule note that it improves their quality of life in a number of areas, including rights to work a job, choose one’s schedule, and privacy within one’s home. However, some have raised concerns with the rule including its generalization of the needs of all people receiving HCBS and the impracticality of states being able to implement all criteria. States’ progress on implementing the settings rule and addressing these challenges could have implications for a new proposed rule on discrimination, that may apply the principals of the settings rule to more Medicaid HCBS settings.