## Abstract

Findings from a national survey of state mental retardation/developmental disability agencies regarding use of the Medicaid Home and Community Based Waiver to fund supported employment were reported. Numbers of individuals and funding levels were requested for day habilitation services for FYs 1997 and 1999, before and after the Balanced Budget Act of 1997 (P.L. 105–33), which removed eligibility restrictions for this service. Findings show that growth rates for this service far exceeded growth rates for other day services, with high growth rates in a small number of states. However, supported employment accounted for less than 16% of those receiving day habilitation services through the Waiver and only 12% of day habilitation funding, with the remainder going to day support, prevocational services, and other segregated options.

Editor in charge: Steven J. Taylor

The Medicaid Home and Community-Based Services (HCBS) Waiver program is the largest long-term care program for persons with mental retardation and other developmental disabilities (Lakin, Prouty, Smith, & Braddock, 1995). This program allows states to use Medicaid funds to provide home and community-based care to Medicaid beneficiaries who otherwise would require institutional services in nursing facilities or Intermediate Care Facilities for Persons With Mental Retardation (ICFs/MR). Participants in the HCBS waiver program grew 320% between 1992 and 1999 (Prouty & Lakin, 2000). In 1995, the number of individuals served by HCBS Waivers surpassed those served in ICFs/MR—149,432 and 134,855, respectively (Smith, Prouty, & Lakin, 1996). In 1999, the number of individuals with developmental disabilities participating in HCBS Waiver programs reached 261,930 nationwide (Prouty & Lakin, 2000).

The HCBS Waiver program has had a profound impact on residential placement patterns, reversing an “institutional bias” that had plagued the ICF/MR system since its inception (Smith et al., 1996). Through the Waiver, many individuals with mental retardation and related conditions have been able to avoid out-of-home or out-of-community placement or return to their home communities with necessary support services (American Counseling Association, 1997; Gettings, 1991).

Certainly one reason for this tremendous growth is the cost-effectiveness of the HCBS Waiver program compared to ICF/MR services. According to Prouty and Lakin (2000), the average cost of care for individuals served in ICF/MR settings in 1999 was $78,448 compared to$33,324 for those served in HCBS Waiver-funded services.

Regulations of the Health Care Financing Administration (HCFA), the federal administering agency for the HCBS Waiver program, allow states to use these funds to reimburse service providers for extended habilitation services, including supported employment. Supported employment is an employment service alternative, traditionally funded by state vocational rehabilitation agencies, for individuals with the most severe disabilities who are in need of long-term support to maintain competitive employment in integrated settings. The supported employment program grew rapidly in early years, enabling thousands of individuals with significant disabilities to enter employment (Wehman & Kregel, 1995; Wehman, Revell, & Kregel, 1997).

In contrast to vocational rehabilitation-funded supported employment, the HCBS Waiver program has had far less impact on increasing employment opportunities for Medicaid recipients. Smith (1994) found that approximately 30% to 40% of HCBS Waiver participants were potentially eligible for supported employment services under Waiver guidelines, yet only about 3% actually received such services. Two questions arise: (a) Why has a program (the HCBS Waiver) that has so radically transformed residential services for individuals with disabilities had so little impact on employment services? and (b) Why has a program (supported employment) that has had such tremendous success in vocational rehabilitation systems had such dismal results in the Medicaid system?

West, Revell, Kregel, and Bricout (1999) addressed these questions through a national survey to which representatives of 48 states responded. That study revealed that 5,261 individuals were receiving HCBS Waiver-reimbursed supported employment services at the time of the survey, comprising approximately 2.5% of all HCBS Waiver participants. In addition, 11 states indicated that they had waiting lists for Waiver-reimbursed supported employment services, and 10 were able to provide the number of individuals on the waiting list. The total number of individuals known to be waiting for supported employment was nearly three times the number identified as currently receiving services. The unmet need for Waiver-funded supported employment is presumably even greater because even in states without formal waiting lists, there are individuals waiting for services (Lakin, 1998).

Federal law at the time of the survey allowed for use of HCBS Waiver funds for supported employment only for those recipients who had a history of prior institutionalization (i.e., persons who, before entering the Waiver program, had resided in an ICF/MR or a nursing facility), a restriction removed by the Balanced Budget Act of 1997, effective October 1, 1997. This restriction on service utilization was identified by respondents in the West et al. (1999) study as the greatest barrier to using the HCBS Waiver to provide supported employment to eligible participants.

To assess the impact of the Balanced Budget Act, the National Association of State Directors of Developmental Disability Services (NASDDDS) and the Rehabilitation Research and Training Center (RRTC) at Virginia Commonwealth University entered into a partnership to develop a baseline state-level survey concerning the status of supported employment and other vocational services in HCBS Waiver program. in this paper we address portions of that survey identified as critical by both the NASDDDS and the respondents of the West et al. (1999) survey, namely, the extent to which the 1997 Balanced Budget Act has resulted in increased supported employment opportunities for Medicaid Waiver participants.

## Method

### Sample

The sample for the survey was the state mental retardation/developmental disabilities (MR/DD) directors from all 50 states and the District of Columbia, all of whom are members of the NASDDDS. A total of 41 surveys were completed, for an overall response rate of 80%. The only states not responding were Alaska, Arizona, Arkansas, DC, Illinois, Iowa, Louisiana, Minnesota, North Carolina, and Rhode Island. Detailed financial and consumer data were required for completion of the survey. However, states maintain unique and varying levels of information on their Waivers. Therefore, not all 41 states were able to complete every question.

### Instrument

The survey was designed as a follow-up to the previous Rehabilitation and Training Center study (West et al., 1999) in response to common concerns and questions from state MR/DD directors regarding the use of HCBS Waver funding for supported employment. A written survey, developed for this study, was focused on statewide policy and utilization of the HCBS Waiver across service categories. The specific survey items that were analyzed for the purposes of this article included (a) numbers of individuals served in various day services during fiscal year (FY) 1997 and 1999 and (b) service expenditures across these same services during the same FYs.

### Procedure

#### Instrument development

The survey was designed by a long-time NASDDDS staff member with extensive experience in Waiver design and implementation, who was also a former vocational rehabilitation supported employment developer/policy analyst and a former state MR/DD agency director. The draft of the survey was then reviewed by the directors or key Waiver managers of 3 states (Georgia, Rhode Island, and Virginia) to assess the face validity of the items and the potential accuracy of the data elicited. The final version of the instrument included improvements suggested by these state agency representatives.

#### Data collection

The survey form and instructions were mailed to the state directors along with a letter from the NASDDDS executive director urging cooperation. The state director remained the key respondent for the completion of the survey; however, in most cases the researchers were directed to other staff members who provided the information requested. The NASDDDS also distributed the survey materials via their Waiver Manager Listserv to prepare Waiver staff members for the upcoming questions and additional work from their directors.

#### Data analysis

Data analysis for this section of the survey consisted of descriptive statistics, including total numbers of individuals, total dollars expended, and percentage increases across the reporting time period.

## Results

Totals for numbers of participants and state expenditures for FY 1997 and 1999 are presented in Tables 1 and 2, respectively. For both participants and expenditures, two sets of comparisons are presented. The first includes all individuals and dollars identified by the respondents. The second comparison is for adjusted totals, eliminating states that were not able to provide complete data for both FYs. We felt that elimination of states with missing data would give the most accurate indication of actual growth, in participants and dollars, of supported employment as a Waiver option.

Table 1

Total Number of Unduplicated Recipients of Waiver-Funded Habilitation Services

As shown in Table 2, there was an overall increase from FY 1997 to FY 1999 in state HCBS Waiver day habilitation program participants of 32.9%, 39.9% adjusted for missing data. The increase in supported employment participants in the same time period was 206.4%, 212.5% adjusted. In FY 1997, supported employment participants constituted 6.8% of identified HCBS Waiver-funded day habilitation participants, 6.9% adjusted for missing state data. In FY 1999, they constituted 15.7% of all day habilitation participants, 15.5% adjusted.

Table 2

Total Expenditures for HCBS Waiver-Funded Day Services

The mean percentage of supported employment participants, as a subset of all HCBS Waiver participants within a state, was 12.8%, with a median of 7.4%, indicating that the data were positively skewed. A closer look at the data showed that 6 states had over one fourth of their HCBS Waiver participants in supported employment. Those states included Connecticut (44.3%), Massachusetts (42.1%), Colorado (36.9%), New Mexico (30.4%), South Dakota (29.7%), and Oklahoma (29.5%). Of the 31 states that could provide raw numbers of supported employment participants for both FYs 1997 and 1999, 27 (87.1%) reported growth. The remaining 4 states showed declines in supported employment participation between FYs 1997 and 1999.

As with number of participants, substantial increases were found for total state expenditures (Table 2). Overall expenditures for HCBS Waiver-funded day habilitation services increased by 48.6% from FY 1997 to 1999, 31.0% adjusted. Expenditures for supported employment increased by 238.1%, adjusted to 282.3%. In FY 1997, expenditures for supported employment accounted for 4% of all day habilitation expenditures, using the adjusted totals. By FY 1999, the percentage of day habilitation funds expended for supported employment had increased to 12%. As with participants, the mean increase in state expenditures for supported employment for FY 1999 far exceeded median increase, indicating that the data are positively skewed, with a small number of states reporting exceptionally high increases in expenditures.

## Discussion

The findings of this survey indicate that use of supported employment as an HCBS Waiver service is growing, which should provide some optimism to service consumers, families, and policymakers. Some caution in interpreting these findings, however, is warranted. First, we noted that 20% of state MR/DD agencies did not complete the survey, and their experiences may not be consistent with those reported here. However, it is also notable that the respondent states encompassed approximately 82% of the nation's population, including 8 of the 10 most populous states. Thus, there is evidence that the survey's findings are representative of the national picture.

As a second precaution, the findings represent pre- and post-Balanced Budget Act utilization of supported employment through the HCBS Waiver. However, the study design cannot confirm a causal relationship between the two phenomena. Certainly, other factors contributed to differences between FYs 1997 and 1999. Still, the removal of the prior institutionalization restriction was a much-anticipated watershed event that was identified in the West et al. (1999) study as a critical need of the states. Surely the Balanced Budget Act was the primary, if not the sole, causal factor for differences between FYs 1997 and 1999.

As a final caveat, we note that West et al. (1999) found that a large number of participants were receiving community-based vocational services under the HCBS Waiver but not under the supported employment service category. For example, this service might be reimbursed as consultation. Thus, states were finding ways to provide community-based employment with support even when individuals might not have been eligible under pre-Balanced Budget Act regulations. That finding raises the possibility that at least some of the growth in the use of supported employment might be an artifact of states' and providers' ability to report their participants' activities more accurately rather than true growth in participation.

Nonetheless, the findings of the current study provide strong evidence that many states have taken advantage of the window of opportunity afforded by the Balanced Budget Act to increase utilization of supported employment through the HCBS Waiver. Although participants in all Waiver-funded day habilitation services grew at a rate of 16% to 20% annually, supported employment participation under the Waiver grew at a rate averaging over 100% annually. The majority of states (27, 87.1%) responding to these items reported increases in supported employment participation, with 6 states reporting that over one fourth of their HCBS Waiver participants were receiving the service in 1999. Similar increases were seen in expenditures. It would appear that the revised eligibility criteria under the Balanced Budget Act was a major factor in expansion of supported employment participants and funding that far exceeds other day services.

These findings would seem to bode well for those individuals waiting for supported employment services, whether through the vocational rehabilitation system or the Waiver program. As noted by West et al. (1999), another restriction on using the Waiver to fund supported employment was that the service had to be unavailable through the state vocational rehabilitation agency, and this restriction was unaffected by the Balanced Budget Act. The Waiver provides an alternative avenue for providing the service to those with severe disabilities who want integrated, competitive employment but are waiting for necessary support services.

Reducing waiting lists and waiting times is a critical need in state MR/DD systems. Davis (1997) reported that 223,562 individuals were on waiting lists for residential, vocational, or supportive services (with some probable duplication across the lists). This total did not include individuals in 7 states that do not maintain waiting lists, nor did it include approximately 49,000 individuals who were then residing in institutions and who are typically not included in waiting list data. Lakin (1998) noted that growth in service need appears to be outpacing growth in service capacity. Without radical changes in service funding systems, current waiting lists will continue to grow and frustrate those who need services and their families. The post-Balanced Budget Act activities of the states regarding community-based employment appear to be a good start in the direction of needed changes in service funding.

Despite growth in participants and dollars, individuals in supported employment were a distinct minority (less than 16%) of those receiving day habilitation services through the Waiver. Moreover, only 12% of all known habilitation funding went toward supported employment services, with the remainder going to day support, prevocational services, and other segregated options. It is evident that even in exemplary states, the predominant mode of Waiver-funded day habilitation service delivery continues to be segregated work and non-work activities, and supported employment continues to be underutilized by Waiver-provider agencies and consumers.

This finding is in sharp contrast to employment services funded through the vocational rehabilitation system, where integrated employment has long been the goal for the overwhelming majority of consumers, including those with mental retardation. Gilmore and Butterworth (1997) examined vocational rehabilitation closure data from 1993 for 25,000 individuals with mental retardation and found that 87% were closed in competitive employment and only 3% in sheltered employment. Furthermore, the U.S. Department of Education recently issued final rules for the vocational rehabilitation program (Federal Register, 2001) that amended the regulatory definition of employment outcome under the vocational rehabilitation program to include only competitive outcomes that occur in integrated settings. This rule change essentially eliminates segregated employment as a successful closure option for any vocational rehabilitation consumer.

Only time will tell whether the momentum towards community-based competitive employment that we found in this study can be sustained or even possibly accelerated. What can policymakers do to expand use of Waiver-funded supported employment in the post-Balanced Budget Act era?

The prior institutionalization restriction was not the only reason for low utilization of HCBS Waiver-funded supported employment. West et al. (1999) reported that reimbursement rates to service provider agencies were generally very low in comparison to rates paid through the more traditional vocational rehabilitation route. In addition, they found that many states placed other restrictions on provider agencies, such as limiting the number of individuals who could be served, the number of service hours that any individual could receive, or the amount of total reimbursements. Thus, provider agencies had little financial incentive to use the HCBS Waiver to provide this service to a significant portion of their day habilitation programs. Addressing these financial disincentives is crucial to expanding supported employment opportunities at the local provider level. In addition, states that have shown the strongest use of the HCBS Waiver to provide integrated employment, such as Connecticut, Massachusetts, Colorado, New Mexico, South Dakota, and Oklahoma, warrant closer examination to determine which aspects of their program can be replicated in other states.

Finally, the U.S. Supreme Court's recent Olmstead decision, like the Balanced Budget Act, provides a window of opportunity for states to expand competitive employment opportunities for HCBS Waiver participants. In June 1999, the Supreme Court ruled in L.C. & E.W. vs. Olmstead that it is a violation of the Americans With Disabilities Act for states to discriminate against people with disabilities by providing services in institutions when the individual could be served more appropriately in a community-based setting. Further, the Court encouraged states to develop plans for placing qualified people in less restrictive settings at a reasonable pace. As of March 2001, 37 states have developed or are developing those plans (Fox-Grage, Folkemer, & Horahan, 2001). Although the Olmstead decision focused specifically on deinstitutionalization, most states are taking a comprehensive approach to better utilize Medicaid HCBS Waiver funds across service needs (Fox-Grage et al., 2001). Community-based employment can and should be included in the planning process as a cost-effective means of providing habilitation services for individuals served under the Waiver, both those exiting institutions and those currently living in the community.

NOTE: Preparation of this manuscript was made possible by Grant 133B980036 from the National Institute on Disability and Rehabilitation Research (NIDRR), U.S. Department of Education, and Cooperative Agreement (H128U7003) from the Rehabilitation Services Administration (RSA), Office of Special Education and Rehabilitative Services (OSERS), U.S. Department of Education. The opinions expressed here do not necessarily reflect those of the supporting entity, and no official endorsement should be inferred.

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## Author notes

Michael West, PhD, Research Associate ( mwest@saturn.vcu.edu); Grant Revell, MS, Research Associate, John Kregel, EdD, Research Director, and Leanne Campbell, BS, Applications Analyst, Rehabilitation Research and Training Center, Virginia Commonwealth University, PO Box 842011, Richmond, VA 23284–2011; Janet W. Hill, MSEd, Assistant Professor, School of Psychiatry, Medical College of Virginia, Virginia Commonwealth University, PO Box 980710, Richmond, VA 23298–0710; Gary Smith, BA, Senior Project Director, Human Services Research Institute, 850 Lancaster Drive SE, Salem, OR 97301 (formerly of the National Association of State Directors of Developmental Disability Services)