OLR Research Report

February 25, 2008




By: Robin K. Cohen, Principal Analyst

You asked if any states have established long-term care trust funds using as revenue any savings resulting from diverting individuals from nursing homes into home and community-based alternatives.

We identified four states that have created such trust funds. None have diverted funds away from institutional care to capitalize their funds' revenue. A few states have established trust funds using revenues from penalties imposed on nursing homes that violate state and federal law. These funds' proceeds largely go back into the nursing home industry, so we have not included them in this report.


Iowa and Oregon are the only states we identified that presently have active long-term care trust funds whose proceeds are used to pay for home- and community-based services. Iowa's legislature created its fund in 2000. The fund initially received most of its revenues from a now-defunct federal intergovernmental transfer program, which allowed the state to get a higher Medicaid match for nursing home expenditures. Presently, the fund's revenues come primarily from interagency transfers and bond funds.

Although a main goal of Iowa's program is to provide more home- and community-based options, a substantial portion of its trust fund has been used to pay nursing homes using a case mix reimbursement

system. This approach recognizes that nursing homes are still an important part of the long-term care continuum, and that residents still requiring this care will likely have higher level of need.

Oregon's Trust Fund is newer and is relatively small ($12-$13 million). It was created in 2005 as an alternate (to general fund appropriations) way to fund a 30-year old program that offers home- and community-based services to individuals who are ineligible for Medicaid. The fund's revenues come from surplus state appropriations for an elderly property tax deferral program. The state's Legislative Fiscal Bureau asserts that the surplus will be gone by the next biennium (FYs 09-11), making the trust fund's future uncertain.

Vermont created a long-term care trust fund when passing a major initiative to shift long-term care funds away from institutional programs and into home- and community-based services. Its status is unknown at this time, but it appears to have been folded into a larger trust fund that supports health care for all Vermonters. (Please see OLR Report 2007-R-0025 for information on Vermont's current long-term care initiatives.)

In 1999, the North Dakota legislature established a program of nursing alternative loans and grants using the intergovernmental transfer strategy Iowa used.


In 2000, the Iowa legislature passed a comprehensive law aimed at re-balancing the state's long-term care system, with the goal of reducing the emphasis on institutional care. The legislature created a separate, senior living trust fund to pay for several programs designed to help the state meet this goal.

Senior Living Trust Fund (SLTF)

The trust fund is capitalized with money received from the intergovernmental transfers and other sources. Trust funds appropriated for home- and community-based services can be used only for activities related to the design, maintenance, or expansion of home- and community-based services for low- and moderate-income seniors, such as adult day, personal care, respite, and transportation. These services must delay the use of institutional care by seniors with low and moderate incomes (IAC Sec. 249H.4).

Intergovernmental Funds and Other Revenue Sources. When the trust fund was initially established, the revenue came almost exclusively from a now-defunct intergovernmental transfer. Essentially, the federal government agreed to pay a higher, Medicare rate (upper payment limit) for Medicaid-reimbursable nursing home costs.

The state calculated its nursing home expenditures as if it paid homes at the higher rate and claimed a federal match for that amount. Then it paid private nursing homes the regular Medicaid rate, with the remaining funds going to the state's government-owned homes. Using an Intergovernmental Transfer Agreement, the public homes agreed to return all but the usual Medicaid rate to the state. The returned amount would then be deposited in the trust fund.

The federal Medicaid agency was concerned about states' potential abuse of the upper payment limit reimbursement and phased it out beginning in 2001. Hence in FY 01, the trust fund had almost $100 million from these transfers; by FY 05, this amount had dwindled to just under $5.5 million.

Currently, most of the trust fund's revenues come from General Fund transfers and proceeds of taxable bond sales.

SLTF Expenditures

The SLTF has been used to pay for a number of long-term care initiatives since it began receiving revenues in FY 01. Attachment 1 provides a breakdown of fund revenues and expenditures from 2001 through the governor's recommendation for FY 09. Below we describe some of these initiatives in more detail.

Rent Subsidy Program. To ensure seniors can continue to live in the community, the state provides cash assistance to people unable to afford their rent. In FY 04, the legislature made the subsidies available only to people eligible for Medicaid home- and community-based services or the State Supplement. The program was moved into the Iowa Finance Authority in FY 05 (the trust fund still pays for it) and was capped at $700,000. The amount of the subsidy is based on the applicant's rent and gross income.

Conversion Grants. In nearly every year, the fund has been used to pay for the conversion of nursing homes into assisted living facilities. Nearly $10 million of trust fund expenditures was used for this in FY 05.

Medicaid Home and Community Based Services Elderly Waiver. Since FY 01, the state has spent nearly $4 million from the trust fund on its Medicaid home- and community-based services waiver to increase the number of slots in this program.

Nursing Home Case Mix Reimbursement. By far the largest trust fund expenditures have gone towards the state phasing in a case mix reimbursement system for the nursing home industry. (A case mix model recognizes that homes have residents with varying acuity levels, and that homes serving residents with high acuity levels should be compensated more than homes serving residents with lower acuity levels.) Additionally, beginning in 2002, a portion of a home's Medicaid rate was based on its achieving certain accountability measures that linked payments to quality of care.

Senior Living Program. Money from the trust fund goes to the Department of Elder Affairs, which then awards grants to the state's Area Agencies on Aging to design, maintain, or expand home- and community-based services. These services are expected to be provided to low-income seniors (defined as those with income under 300% of the federal Supplemental Security Income benefit level, $1,911 monthly for a single person in 2008, which is the same limit applied in state Medicaid home- and community-based services waiver programs).


Oregon has long been held up as an example of a state that has successfully shifted its long-term care emphasis away from institutional care with numerous programs designed to help its aging and disabled residents remain in their communities. The state has done this through a variety of mechanisms, including Medicaid waivers.

One of its earliest forays into re-balancing long-term care came in 1975, when the legislature created Oregon Project Independence (OPI). This program was funded exclusively with state appropriations and, according to a legislative staffer, has remained the “darling” of the legislature. Although the state subsequently has provided home- and community-based services largely through Medicaid waivers, OPI remains a program for residents ineligible for that program.

In 2005, the legislature created a dedicated trust fund for OPI to ensure that it would be less vulnerable to budget fluctuations. The fund takes surplus money from the state's senior and disabled elderly property tax deferral program, which previously reverted to the state's general fund. While surpluses have been common over the life of the tax deferral program, they are expected to disappear as the state has had to pay counties larger amounts in deferred property taxes, due to rising property taxes and delayed home sales, which generate more tax revenue when the deferrals end.

The OPI program serves individuals who (1) are age 60 or older or are younger and have been diagnosed with Alzheimer's or a related disorder and (2) have a nursing home level care need. Clients with income between 100% and 200% of the federal poverty level are expected to pay a fee for their services, and higher income residents pay the full hourly rate for the service provided. Services include personal care, homemaker-home care services, chore services, adult day care, and several others. The state's Area Agencies on Aging arrange the services.

A study of the program concluded that it keeps residents in their homes and prevents some of them from needing Medicaid.