A CRS Review of 10 States: Home and Community-Based Services — States Seek to Change the Face of Long-Term Care: Arizona

A CRS Review of 10 States: Home and Community-Based Services — States Seek to Change the Face of Long-Term Care: Arizona

Order Code RL32065
CRS Report for Congress
Received through the CRS Web
A CRS Review of 10 States:
Home and Community-Based Services —
States Seek to Change the Face of
Long-Term Care: Arizona
August 21, 2003
Julie Stone
Analyst in Social Legislation
Domestic Social Policy Division
Carol O’Shaughnessy, Rob Weissert,
Sidath Viranga Panangala, Meridith Walters
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

A CRS Review of 10 States: Home and
Community-Based Services — States Seek to
Change the Face of Long-Term Care: Arizona
Summary
Demographic challenges posed by the growing elderly population and demands
for greater public commitment to home and community-based care for persons with
disabilities have drawn the attention of federal and state policymakers for some time.
In 2001, both public and private spending for long-term care services for persons of
all ages represented 12.2% of all personal health care spending (almost $152 billion
of $1.24 trillion). Federal and state governments accounted for almost two-thirds of
all long-term care spending. By far, the primary payer for long-term care is the
federal-state Medicaid program, which paid for almost half of all long-term care
spending in 2001.
Many states have devoted significant efforts to respond to the desire for home
and community-based care for persons with disabilities and their families.
Nevertheless, financing of nursing home care, chiefly by Medicaid, still dominates
most states’ spending for long-term care today. To assist Congress in understanding
issues that states face in providing long-term care services, the Congressional
Research Service (CRS) undertook a study of 10 states in 2002. This report presents
background and analysis about long-term care in one of those states, Arizona.
Arizona is the only state in the nation that uses a statewide mandatory managed
care system to deliver long-term care services to low-income Medicaid populations.
Arizona’s Medicaid program, Arizona Health Care Cost Containment System
(AHCCCS), through its Arizona Long-Term Care System (ALTCS), makes capitated
payments to managed care organizations which are contracted to deliver long-term
care services. The design of the contracts includes cost-effectiveness incentives to
encourage managed care organizations to serve persons in home and community-
based services when possible rather than in institutional settings.
Almost 22% of total AHCCCS expenditures in contract year (CY) 2002 paid for
long-term care services for 4% of total enrollees. Of ALTCS long-term care
expenditures in 2002, almost 51% was spent on home and community-based
services, 5% was spent on case management, and 39% was spent on institutional
care. In contrast, of all Medicaid long-term care spending in the U.S. as a whole in
FY2002, 30% was spent on home and community-based services and almost 70%
was spent on institutional care.
ALTCS staff, advocates and providers point to a number of issues, including
challenges Arizona faces in attracting and retaining nursing and paraprofessional staff
to provide Medicaid-covered long-term care services, the implementation of
Medicaid eligibility rules, equity of access to services, and delays in eligibility
determinations.
The 10-state study was funded in part by grants from the Jewish Healthcare
Foundation and the U.S. Department of Health and Human Services, Health
Resources and Services Administration, Office of Rural Health Policy.

Contents
Summary Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Demographic Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Administration of Long-Term Care Programs . . . . . . . . . . . . . . . . . . . . . . . . 3
Long-Term Care Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Long-Term Care Spending and Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Issues in Financing and Delivery of Long-Term Care . . . . . . . . . . . . . . . . . . 5
Demographic Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Demand for Long-Term Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Administration of Long-Term Care Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Arizona Health Care Cost Containment System (AHCCCS) . . . . . . . 11
Department of Economic Security (DES) . . . . . . . . . . . . . . . . . . . . . . 15
Department of Health Services (DHS) . . . . . . . . . . . . . . . . . . . . . . . . . 17
Eligibility Determinations for Long-Term Care Services . . . . . . . . . . . . . . 17
ALTCS Eligibility Requirements for Functional Level of Care . . . . . 17
ALTCS Financial Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
State Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Arizona’s Long-Term Care Services for the Elderly and Persons with
Disabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Trends in Institutional Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Trends in Home and Community-Based Care . . . . . . . . . . . . . . . . . . . . . . . 22
ALTCS Home and Community-Based Services . . . . . . . . . . . . . . . . . 23
State-Only Funded Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Assisted Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Arizona’s Long-Term Care Services for Persons with Mental
Retardation and Developmental Disabilities . . . . . . . . . . . . . . . . . . . . 26
Trends in Institutional Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Trends in Home and Community-Based Care . . . . . . . . . . . . . . . . . . . . . . . 27
ALTCS Home and Community-Based Services . . . . . . . . . . . . . . . . . 28
State Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Long-Term Care Spending and Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Medicaid Spending and Enrollment in Arizona . . . . . . . . . . . . . . . . . . . . . . 29
Federal, State and County Financing . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Medicaid Long-Term Care Spending for All ALTCS Beneficiaries . . 31
Enrollment in Medicaid Long-Term Care . . . . . . . . . . . . . . . . . . . . . . 33
Medicaid and Other State Spending on Services for Elderly and Persons
with Physical Disabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Other Long-Term Care Programs for the Elderly and Physically
Disabled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Medicaid and Other State Spending on Services for Persons with
MR/DD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

State-Only Funded Home and Community-Based Programs for
Persons with Mental Retardation and Developmental
Disabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Issues in Financing and Delivery of Long-Term Care Services in Arizona . . . . . 41
Cost-Effectiveness of Home and Community-Based Services . . . . . . 41
Integration of Acute and Long-Term Care Services . . . . . . . . . . . . . . 42
Cost-Containment Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ALTCS Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Lack of Presumptive Eligibility Authority . . . . . . . . . . . . . . . . . . . . . . 43
Eligibility for State-Only Funded Programs . . . . . . . . . . . . . . . . . . . . 44
Long-Term Care Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Assisted Living as an Alternative to Nursing Home Care . . . . . . . . . . 45
Other Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Appendix 1. About the Census Population Projections . . . . . . . . . . . . . . . . . . . 47
Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
List of Figures
Figure 1. Projected Percent Population Increases in Arizona Over 2000
by Population for Selected Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 2. Arizona’s Long-Term Care System . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 3. Native American Reservations in Arizona . . . . . . . . . . . . . . . . . . . . . 14
List of Tables
Table 1. Arizona Population Age 65 and Older, 1990 and 2000 . . . . . . . . . . . . . 5
Table 2. Elderly Population as a Percent of Total Population, Arizona and the
United States, 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3. Estimated Number of Persons with Two or More Limitations in
Activities of Daily Living (ADLs), by Poverty Status, in Arizona, 2002,
2005 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 4. Managed Care Organizations that Contract with ALTCS for
Services Provided to the Elderly and Persons with Physical Disabilities,
June 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table 5. Nursing Home Characteristics in Arizona and the United States
(data are for 1999-2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 6. Persons in Arizona with Developmental Disabilities and
Mental Retardation Served in Residential Settings by Type and Size
of Residential Setting, 1990, 1995, and 2000 . . . . . . . . . . . . . . . . . . . . . . . 27
Table 7. Federal and State Spending Combined for all Categories of the
State Budget, Arizona and the United States, 1990, 1995, 2000, and 2001 30

Table 8. State Spending for Medicaid (Excluding Federal Dollars), Arizona
and All States, 1990, 1995, 2000, and 2001 . . . . . . . . . . . . . . . . . . . . . . . . 31
Table 9. Total Medicaid Long-Term Care Expenditures for All ALTCS
Participants in Arizona, Contract Year 1999-2002 . . . . . . . . . . . . . . . . . . . 32
Table 10. Medicaid Long-Term Care Spending in Arizona on All
Beneficiaries, Contract Year 1999-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Table 11. ALTCS Enrollment (Managed Care and Fee-For-Service),
1999-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Table 12. Long Term Care Expenditures for Managed Care by Category
for the Elderly and Physically Disabled, Contract Years 1999-2002 . . . . . . 35
Table 13. ALTCS Capitation Rates Per Capita; Weighted Average for Elderly
and Physically Disabled by Component Contract Years 1995-2002,
Selected Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Table 14. Non-Medical Home and Community Based Services System
Arranged by the Arizona Department on Aging, State Fiscal Year 2001 . . 38
Table 15. ALTCS and Other Managed Care Expenditures for Persons with
MR/DD, Contract Years 1999-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Table 16. AHCCCS Capitation Rates Per Capita; Weighted Average for
DDD Population by Component, CY1999-CY2002 . . . . . . . . . . . . . . . . . . 40
Table 17. Enrollment and Funding for Arizona’s Non-Medical Home
and Community Based Services Program, 1995-2002 . . . . . . . . . . . . . . . . 40
Table A-2. Population in Large State Facilities for Persons with
Mental Retardation/Development Disabilities, Closure Date, and Per
Diem Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Acknowledgments
CRS wishes to acknowledge the significant time and contributions of the many
state officials and stakeholders who provided information on long-term care services
in Arizona. Without their invaluable experience and insight, this report would not be
possible. We would particularly like to acknowledge persons from the Arizona
Health Care Cost Containment System, the Arizona Department of Economic
Security and the Arizona Department of Health Services. We also would like to
thank the numerous advocates, providers and researchers who provided valuable
perspectives on the long-term care delivery system in Arizona.
The authors also gratefully acknowledge the excellent assistance of Rashelle
Butts and Flora Adams in the production of this report.

Preface
Demographic challenges posed by the growing elderly population and demands
for greater public commitment to home and community-based care for persons with
disabilities have drawn the attention of federal and state policymakers for some time.
Spending on long-term care by both the public and private sectors is significant. In
2001, spending for long-term care services for persons of all ages represented 12.2%
of all personal health care spending (almost $152 billion of $1.24 trillion). Federal
and state governments accounted for almost two-thirds of all spending. By far, the
primary payer for long-term care is the federal-state Medicaid program, which paid
for almost half of all U.S. long-term care spending in 2001.
Federal and state Medicaid spending for long-term care in FY2001 was about
$75 billion, representing over one-third of all Medicaid spending. Over 70% of
Medicaid long-term care spending was for institutions — nursing homes and
intermediate care facilities for the mentally retarded (ICFs/MR). Many believe that
the current federal financing system paid through Medicaid is structurally biased in
favor of institutional care. State governments face significant challenges in
refocusing care systems, given the structure of current federal financing. Many states
have devoted significant efforts to change their long-term care systems to expand
home and community-based services for persons with disabilities and their families.
Nevertheless, financing of nursing home care — primarily through the Medicaid
program — still dominates most states’ spending on long-term care today.
While some advocates maintain that the federal government should play a larger
role in providing support for home and community-based care, Congress has not yet
decided whether or how to change current federal policy. One possibility is that
Congress may continue an incremental approach to long-term care, without major
federal policy involvement, leaving to state governments the responsibility for
developing strategies that support home and community-based care within existing
federal funding constraints and program rules.
To help Congress review various policy alternatives and to assist policymakers
understand issues that states face in development of long-term care services, the
Congressional Research Service (CRS) undertook a study of ten states in 2002. The
research was undertaken to look at state policies on long-term care as well as trends
in both institutional and home and community-based care for persons with
disabilities (the elderly, persons with mental retardation, and other adults with
disabilities). The research included a review of state documents and data on long-
term care, as well as national data sources on spending. CRS interviewed state
officials responsible for long-term care, a wide range of stakeholders and, in some
cases, members or staff of state legislatures.
The 10 states included in the study are: Arizona, Florida, Illinois, Indiana,
Louisiana, Maine, Oklahoma, Oregon, Pennsylvania, and Texas. States were chosen
according to a number of variables, including geographic distribution, demographic
trends, and approaches to financing, administration and delivery of long-term care
services. This report presents background and analysis about long-term care in
Arizona.

A CRS Review of 10 States:
Home and Community-Based Services —
States Seek to Change the Face of
Long-Term Care: Arizona
Since Medicaid’s1 enactment in 1965, most states have relied on the program
as the primary payer for acute and long-term care services for low-income
individuals. Unlike most states, however, Arizona did not begin participation in
Medicaid until the 1980s. The state’s emphasis on private market solutions to fiscal
problems and support for decentralized government placed fiscal responsibility for
health care largely on private payers and county governments. In addition, Arizona’s
enactment of the state’s Howell Code in 1864 placed legal responsibility on counties
to provide health care for unemployable persons without relatives capable of
supporting them. Although Arizona’s county-centered approach allowed local
governments flexibility in program design, it also generated significant variation
across county programs and growing fiscal pressure.2
Stressed county budgets, combined with a limited revenue base (tax increases
in Arizona require citizen approval through ballot measures) through the 1970s,
impelled the state to seek federal matching dollars through the Medicaid program.3
In 1982, Arizona gained approval from the Center for Medicare and Medicaid
Services (CMS, then called the Health Care Financing Administration) to implement
a Medicaid managed care system based on capitated contracts with health plans
organized at the county levels for acute care services only. The state proposed this
program under a Research and Demonstration waiver authorized by CMS under
1 Medicaid is a federal-state matching entitlement program, established under Title XIX of
the Social Security Act, that provides medical assistance to certain groups of low-income
individuals, primarily children, adult members of families with children, pregnant women,
and individuals who are aged, blind, or disabled.
2 William G. Weissert, Timothy Lesnic, Melissa Musliner, and Kathleen A. Foley, “Cost
Savings from Home and Community-Based Services: Arizona’s Capitated Medicaid Long-
Term Care Program,” Journal of Health Politics, Policy and Law, vol. 22, no. 6, Dec. 1997.
3 The federal government’s share of a state’s expenditures for Medicaid is called the federal
medical assistance percentage (FMAP). The FMAP for each of the 50 states and the District
of Columbia is determined annually based on a statutory formula that uses the average per
capita income of each state and the United States for the 3 most recent calendar years for
which data are available from the Department of Commerce. This formula is designed to
pay a higher FMAP to states with lower per capita income relative to the national average
(and vice versa for states with higher per capita incomes). For the first two quarters of
FY2003, Arizona’s FMAP was 67.25. For the second two quarters it will be 70.20 as a
result of P.L. 108-027.

CRS-2
Section 1115 of the Social Security Act. Unlike the open-ended federal matching
funds for service expenditures traditionally provided through the Medicaid program,
AHCCCS receives a federal per capita matching payment for each eligible
beneficiary. Under the Section 1115 waiver, the Arizona Health Care Cost
Containment System (AHCCCS) was established as the state agency responsible for
overseeing the Medicaid program. In the absence of other statewide managed care
programs to serve as examples for Arizona’s Medicaid program, AHCCCS modeled
its managed care arrangements for acute care services largely on examples available
in the private insurance market.
As AHCCCS was originally established to deliver acute care service, counties
and private payers remained largely responsible for financing long-term care services
for low-income individuals. Counties were the sole payers for nursing home care on
behalf of low-income individuals, and major payers for residential board and care
assistance, assessment, case management and other services provided in the home.
A 1984 report by the Pritzlaff Commission on Long-Term Care forecasted that
Arizona’s population of low-income elderly with long-term care needs would
continue to grow and that county and state budgets would become increasingly
strained. The report also projected that the growth in the proportion of county and
state budgets needed to pay for institutional care would be unsustainable. The
Commission encouraged the state to enter into a new agreement with CMS to
establish a program of AHCCCS that would arrange for and fund Medicaid long-term
care services.4
In December 1988, the state amended its Section 1115 Medicaid waiver and
established a program of AHCCCS called the Arizona Long-Term Care System
(ALTCS). Through ALTCS, the state began obtaining federal matching dollars for
long-term care services authorized under the Medicaid program.5 Medicaid is now
the primary payer for long-term care services in Arizona. Arizona’s ALTCS system
provides services under a managed care approach, with services provided on a fee-
for-service basis to Native Americans living on reservations. ALTCS is the only
mandatory, statewide Medicaid managed care program for long-term care in the
nation.
4 Long-Term Care in Arizona: Final Report, The Pritzlaff Commission on Long-Term Care,
supported by the Flinn Foundation, July 1984.
5 In Dec.1988, ALTCS provided services to persons with mental retardation and
developmental disabilities (MR/DD). ALTCS extended services to elderly individuals and
persons with physical disabilities in Jan. 1989.

CRS-3
Summary Overview6
Demographic Trends
! Arizona has one of the fastest growing elderly populations in the
nation. Between 1990 and 2000 Arizona’s population of persons
age 65 and older increased by almost 40%, with the cohort of
persons age 85 and older growing dramatically, by 82%. Growth of
the older population will largely be fueled by more Arizonans aging-
in-place than ever before.7
Administration of Long-Term Care Programs
! Arizona’s service delivery system is centrally managed by ALTCS,
a program of AHCCCS. AHCCCS finances Medicaid long-term
care services for persons aged 65 and older and for persons with
physical disabilities. AHCCCS pays capitated payments to the
Arizona Department of Economic Security (DES) to arrange for
services for persons with mental retardation and developmental
disabilities (MR/DD);
! Arizona is the only state in the nation that uses a mandatory
statewide managed care system to deliver long-term care services.
Its managed care approach establishes incentives for managed care
organizations (MCOs) to provide access to home and community-
based services and reduce the traditional bias in the Medicaid
program toward institutional care; and
! Arizona’s long-term care system has demonstrated effectiveness in
shifting persons away from institutional care and into home and
community-based settings. This state could serve as one model for
other states that wish to accomplish the same objective.
Long-Term Care Services
! According to state reports and CRS interviews, Arizona’s guiding
principles in long-term care include expanding access to home and
community-based services; providing specialized care plans that are
tailored to individuals’ needs; supporting bounded consumer choice
within the managed care system; and assuring quality of care.
6 Information is based on data provided to CRS by AHCCCS, national data, and interviews
with state officials, advocates and providers. This report does not discuss programs for
persons with mental illness. It also generally excludes discussion of programs for infants
and children with disabilities, other than those serving persons with mental retardation and
developmental disabilities.
7 John Stuart Hall, The Coming of Age: A Research Report on Aging, Health and Arizona’s
Capacity to Care, Arizona State University, St. Luke’s Health Initiatives, May 2002.
(Hereafter cited as Hall, The Coming of Age.)

CRS-4
! Services provided under ALTCS comprise the majority of the state’s
long-term care system. For most ALTCS recipients, care is provided
in home and community-based settings.
! MCOs that contract with AHCCCS for the provision of long-term
care services also contract for the provision of Medicaid-covered
acute care services. The integration of acute and long-term care
services in this way could serve as a model to states interested in
developing a more seamless system of care delivery.
Long-Term Care Spending and Enrollment
The summary data below combine data for the elderly, persons with physical
disabilities and persons with mental retardation and developmental disabilities.
Spending
! State and federal spending on the Medicaid program in Arizona is
the second largest expenditure category of the state budget,
representing almost 16% of total state and federal expenditures.
! Almost 22% ($772 million) of total AHCCCS expenditures ($3.6
billion) in contract year (CY) 2002 paid for long-term care services
for 4% (35,450) of total enrollees (842,797). Of ALTCS long-term
care expenditures in 2002, almost 51% was spent on home and
community-based services, and almost 5% on case management. In
contrast, of all Medicaid long-term care spending in the U.S. as a
whole, spending on home and community-based services constituted
30%.
! Spending on institutional care in Arizona constituted 39% of
ALTCS spending, most of which paid for nursing home care. In
contrast, of all Medicaid long-term care spending in the U.S. as a
whole, spending on institutional care constituted almost 70%.
! Arizona spent $42 million on fee-for-service long-term care services.
Most of this funding paid for home and community-based services
for Native Americans living on reservations.
Enrollment
! Enrollment in ALTCS grew by 163% in the 12-year period from
1990 to 2002.
! Nearly three-quarters of all ALTCS enrollees received home and
community-based services in 2002, including almost 73% of
managed care enrollees and 65% of fee-for-service enrollees.
! Almost 56% of elderly and physically disabled program participants
and almost 98% of MR/DD participants received home and
community-based services in that year.

CRS-5
Issues in Financing and Delivery of Long-Term Care
! Arizona’s substantial enrollment in home and community-based
services may be partly a result of a number of cost containment
initiatives integrated into its managed care system.
! Advocates, providers, and state officials raised a number of concerns
pertaining to the implementation of eligibility rules, equity of access
to services, and delays in eligibility determinations. Some barriers
to enrollment may be partly due to federal and state laws as well as
state program administration.
! Arizona faces significant challenges in attracting and retaining
nursing and paraprofessional personnel, which threatens to impact
the state’s ability to provide quality care to the elderly and persons
with disabilities.
Demographic Trends
Arizona experienced dramatic population growth in the decade of the 1990s,
growing by 40%, from about 3.7 million in 1990, to 5.1 million in 2000. The most
dramatic increase among the age 65 and older population occurred among the
population of persons age 85 and older. This group grew by almost 82% during that
period. The age cohort of persons 75 to 84 increased by almost 56%. The cohort of
persons under age 65 grew by almost 40%. Table 1 shows Arizona’s population
increase by age groups for 1990 to 2000.
Table 1. Arizona Population Age 65 and Older, 1990 and 2000
2000
1990
2000
Population
Percent of
Percent of
Percent
rank in
total
total
change
U.S. (based
Age
Number
population
Number
population
1990-2000
on percent)
65+
478,774
13.1%
667,839
13.0%
39.5%
22nd
65-74
290,044
7.9%
363,841
7.1%
25.4%
10th
75-84
151,013
4.1%
235,473
4.6%
55.9%
21st
85+
37,717
1.0%
68,525
1.3%
81.7%
38th
Under 65
3,186,454
86.9%
4,462,793
86.9%
40.1%
30th
Total
3,665,228
100%
5,130,632
100%
40.0%
20th
Source: U.S. Census Bureau, Profile of General Demographics for Arizona: 1990. 2000:
[http://www.census.gov/census2000/states/az.html]. Percentages may not sum to 100% due to
rounding.
Arizona has a large population of older persons, with about 668,000 persons age
65 or older in 2000. Arizona’s older population is predicted to increase by 115.6%
by 2025 (See Figure 1). In 2025, 21.3% of Arizona’s population will be 65 years or
older, compared to 18.5% for the nation (Table 2).

CRS-6
Figure 1. Projected Percent Population Increases in Arizona Over 2000
by Population for Selected Years
160.0%
65-74
140.0%
120.0%
75-84
100.0%
80.0%
85+
60.0%
40.0%
65+
20.0%
0.0%
Under
2005
2010
2015
2020
2025
65
Source: CRS calculations based on data from the U.S. Census Bureau, Population Division,
Population Projections Branch. Detailed. Projections:
[http://www.census.gov/population/www/projections/st_yrby5.html]; analyzed data from State
Population Projections: Every Fifth Year.
Table 2. Elderly Population as a Percent of Total Population,
Arizona and the United States, 2025
Percent of total
Percent of total
Age
population in 2025 in
population in 2025 in
Arizona
U.S.
65+
21.3%
18.5%
65-74
12.5%
10.5%
75-84
6.7%
5.8%
85+
2.2%
2.2%
Under 65 pop.
78.7%
81.5%
Source: CRS calculations based on data from U.S. Census Bureau. Projections released in 1996.
See Appendix 1 for information about projections, their methodology and limitations.
At the heart of these anticipated increases is the aging of the baby-boom
generation (those persons born between 1946 and 1964) who will begin turning 65
in 2011. Growth will also be fueled by more Arizonans aging in place than ever
before. Arizona is also a popular location for older retirees, from all parts of the
nation, partly due to its year-round warm weather and relatively low income tax rate.
According to a report on Arizona’s aging population, The Coming of Age,
women will be expected to comprise the majority of Arizona’s 65-plus population.

CRS-7
The report also states that older persons will be more ethnically diverse in the future
than they are today, with a higher proportion of Hispanics and immigrants.8
Demand for Long-Term Care. As the population ages and working age
persons with disabilities live longer, the demand for long-term care will likely
increase significantly in Arizona in the upcoming decades. The Coming of Age report
predicts that this demand will be particularly significant in Arizona’s rural counties.9
Older Persons with Disabilities. Table 3 presents estimates of the number
of persons aged 18 and over who have limitations in two or more activities of daily
living (ADLs) in Arizona. These estimates were derived from data generated by The
Lewin Group, Inc. and combine national level data on persons with disabilities with
state-level data from the U.S. Census Bureau on age, income, and broad measures of
disability. Persons aged 85 and over with two or more limitations in ADLs will
likely increase by 37% by 2010.10 This growth will place pressure on public and
private long-term care resources.
Table 3. Estimated Number of Persons with Two or More
Limitations in Activities of Daily Living (ADLs), by Poverty
Status, in Arizona, 2002, 2005 and 2010
2002
2005
2010
Persons with 2+ ADLs by age and income
Percent of
poverty
18-64
65+
85+
18-64
65+
85+
18-64
65+
85+
up to 100%
3,266
2,753
559
3,449
2,959
638
3,634
3,378
766
up to 150%
5,329
5,981
1,503
5,627
6,448
1,715
5,929
7,324
2,060
up to 200%
6,904
8,992
2,327
7,290
9,695
2,654
7,682
10,961
3,187
All income
12,331
20,364
6,438
13,022
22,044
7,345
13,721
24,923
8,820
levels
Source: CRS analysis based on projections generated by The Lewin Group through the HCBS State-
by-State Population Tool on-line from [http://www.lewin.com/cltc]. Lisa M.B. Alecxih, and Ryan
Foreman, The Lewin Group Center on Long Term Care HCBS Population Tool, (2000).
For many older persons, needed assistance can be obtained through informal
caregivers, such as spouses, adult children, neighbors, and other friends. Census data
show that in 2000, 24.9% of Arizonans age 65 and older lived alone. Women
8 Hall, The Coming of Age.
9 Ibid.
10 CRS analysis based on projections generated by The Lewin Group through the HCBS
State-by-State Population Tool on-line from [http://www.lewin.com/cltc]. Lisa M. B.
Alecxih, and Ryan Foreman, The Lewin Group Center on Long Term Care HCBS
Population Tool, (2000). (Hereafter cited as Alecxih and Foreman, The Lewin Group
Center on Long Term Care HCBS Population Tool.)

CRS-8
comprise 72.8% of these persons living alone.11 Those without access to informal
supports may be able to purchase supportive services from private providers.
However, income of elderly women, the primary consumers of long-term care
services in the state, is only about one-half that of their male counterparts.12 This
disparity in income suggests that older women in Arizona are less likely to be able
to afford to pay out-of-pocket for their long-term care needs.
Access to affordable housing in the community is a major component of
community-based long-term care in Arizona as well as in the nation. With housing
in Arizona’s urban areas costing more than most other areas in Arizona (with the
exception of Yuma and Tucson),13 older persons with long-term care needs may need
to spend more on housing, resulting in less ability to pay for long-term care services.
Persons with Physical Disabilities and with Mental Retardation and
Developmental Disabilities (MR/DD). Improved medical technology and
research has enabled more persons with disabilities to live longer and more
independent lives. As of 2002, there were approximately 32,000 persons with
MR/DD aged 18 and over in Arizona, about 3,000 (9%) of whom were age 65 or
older. The number of persons with MR/DD aged 18 and over residing in Arizona is
expected to increase by 12.5%, to about 36,000 by 2010.14
Arizona’s Native-American Population. Of the 2.6 million Native
Americans15 residing in the United States as of 2000, about 10%, or 256,000, lived
in Arizona. Among Native American Arizonans, about 5%, or 14,000, were aged 65
and over. Native Americans comprise the fastest growing ethnic group in the United
States. According to the Indian Health Service (IHS), life expectancy at birth for
Native Americans is about 71.1 years. This is lower than the average life expectancy
for all races combined, which was 75.4 in 1995.16
11 CRS calculations based on data by state from the U.S. Bureau of the Census, Census 2000,
Summary File 1, p. 30: Relationship by Household Type (including Living Alone) for the
Population 65 Years and Over.
12 In 2000 the median income in Arizona for a single male 65 years of age or older was
$19,168 versus a single women at $10,899. (Arizona’s Community Based Services and
Settings Report, May 2002.) The 2000 federal poverty level (FPL) in the 48 contiguous
states and the District of Columbia was $8,350 for one person, or $696 per month. (HHS
Poverty Guidelines, Federal Register, v. 65, no. 31, Feb. 15, 2000. pp. 7555-7557.)
13 Statewide Economic Study: How Does Arizona’s Cost of Living Compare?, July 2002.
Prepared for the Arizona Department of Commerce by Marshall J. Vest, Director of
Economic and Business Research, University of Arizona.
14 CRS analysis is based on data from Alecxih and Foreman, The Lewin Group Center on
Long Term Care HCBS Population Tool.
15 For the purposes of this report, Native-American refers to American Indian and Alaskan
Natives as defined by the Census Bureau and does not include Native Hawaiians and Pacific
Islanders.
16 U.S. Department of Health Service, Indian Health Service, Office of Public Health
Program Statistics Team, Trends in Indian Health, Chart 4.57, 1998-1999; U.S. Census
(continued...)

CRS-9
Administration of Long-Term Care Programs
Responsibility for the administration and management of long-term care
services for the elderly and persons with disabilities in Arizona is spread across three
state agencies — Arizona Health Care Cost Containment System (AHCCCS),
Arizona Department of Economic Security (DES), and the Arizona Department of
Health Services (DHS). ALTCS, a program of AHCCCS, administers the long-term
care services funded by Medicaid. Figure 2 displays an organizational chart of these
state agencies and programs, including private, for-profit and not-for-profit managed
care organizations.
16 (...continued)
Bureau, Census 2000 Summary File 2, Matrices PCT3, PCT4, PCT5, PCT8, and PCT11.
Counts of persons on the U.S. Census include Alaska Natives in the count of American
Indians.

CRS-10
Figure 2. Arizona’s Long-Term Care System
Source: Prepared by CRS.
a Managed Care Organizations do not conduct eligibility determinations.

CRS-11
Arizona Health Care Cost Containment System (AHCCCS). The state
Medicaid agency, AHCCCS, funds all Medicaid-covered services provided in the
state. Within AHCCCS are two programs, the acute care program and the long-term
care program, also called Arizona Long Term Care System (ALTCS). Most of the
services provided under AHCCCS are arranged through a managed care system in
which AHCCCS contracts with managed care organizations (MCOs) and the
Department of Economic Security (DES) to arrange for Medicaid covered services.17
On a much smaller scale, AHCCCS also pays for services that are delivered on a fee-
for-service basis to certain Medicaid beneficiaries.
Under contract with AHCCCS, MCOs provide a continuum of acute and long-
term care services to elderly individuals and persons with physical disabilities who
meet the state’s functional eligibility criteria for long-term care services.18 AHCCCS
contracts with DES to provide long-term care services exclusively for persons with
MR/DD who meet the state’s functional eligibility criteria for long-term care.
ALTCS manages the provision of these services. Acute care services for persons
with MR/DD are managed by AHCCCS’ acute care program.
The state establishes fixed, prospective, monthly, per person rates referred to as
“capitation” payments to pay MCOs for these services. (The Long-Term Care
Spending and Enrollment section of this paper contains a discussion about the rates
paid to MCOs.) Contracts with MCOs and DES are risk-based, meaning that the
organization is fiscally responsible for the provision of all services agreed upon in the
contract, regardless of actual use by beneficiaries. AHCCCS offers limited
reinsurance coverage to MCOs for certain high-risk beneficiaries.
Elderly and Persons with Physical Disabilities. In 2002, ALTCS had
contracts with seven MCOs across the state to administer services for older persons
and persons with physical disabilities. Five of the MCOs were managed by county
governments, one was for-profit and another was not-for-profit. One county
(Maricopa) provided enrollees with a choice of plans (the county-based plan and two
private plans). Table 4 shows a summary of Arizona’s seven MCOs responsible for
providing long-term care services to the elderly and younger persons with disabilities.
17 About 14.6% of Medicaid recipients aged 65 and older and many working age Medicaid
enrollees with disabilities are also enrolled in the Medicare program. These individuals are
considered “dual eligibles.” In general, Medicare pays most of their acute care services and
Medicaid pays for their long-term care services and prescription drugs. Medicaid also often
pays for their Medicare cost sharing charges.
18 MCOs may be run on a profit or non-profit basis, as well as be county-run.

CRS-12
Table 4. Managed Care Organizations that Contract with ALTCS
for Services Provided to the Elderly and Persons with Physical
Disabilities,a June 2002
Managed care organization
Approximate number of
responsible for administering
enrollees eligible for
long-term care services
Description
long-term care services
Maricopa Long-Term Care Plan
Public, managed by county
7,500
Pima Health Systems
Public, managed by county
3,400
EverCare Select
For-profit, statewide
3,000
Cochise Health Systems
Public, managed by county
900
Mercy Care Plan
Not-for-profit
2,800
Pinal/Gila Long-Term Care Plan
Public, managed by county
1,000
Yavapai County Long-Term
Public, managed by county
1,000
Care Plan
Source: ALTCS, Oct. 2002.
a MCOs do not provide long-term care services to persons with MR/DD.
MCOs subcontract with local providers to supply long-term care services to
older persons and persons with physical disabilities who qualify for ALTCS. The
capitated payments they receive are used to pay for a range of long-term care
services, from nursing homes to home and community-based care. (These services
are described later in this report.) Payments to each MCO vary by service mix (e.g.,
nursing home utilization rates versus home and community-based service utilization
rates) and geographic region (e.g., MCOs serving urban areas receive higher
payments than MCOs serving rural areas), and account for differences in severity
levels of Medicaid long-term care enrollees. Although MCOs assume most of the
financial risk for exceeding their aggregate revenue, ALTCS reinsures the MCOs for
costs incurred on behalf of certain Medicaid recipients with very high medical
expenses.
ALTCS requires MCOs to design and implement quality management plans to
oversee both institutional and community-based providers. Case managers, hired by
MCOs, are required to assist in monitoring the quality of services offered by
providers. They must also investigate complaints, track and log monitoring
activities, and conduct consumer surveys.
Case managers also are responsible for coordinating the acute and long-term
care services for all enrollees, and they assist enrollees and their families in designing
care plans, including selecting between nursing home care or home and community-
based services. They assign enrollees to appropriate provider agencies, authorize
services, and review and approve provider claims. Case managers are required to
review the care plans of in-home service recipients every 90 days, and of institutional
service recipients every 6 months.

CRS-13
American Indians and Native Alaskans Age 65 and Older or with
Physical Disabilities Residing on Reservations. There are approximately
21 tribes in Arizona. ALTCS provides care to Native Americans residing on
reservations under a fee-for-service system.19 ALTCS contracts directly with service
providers — usually individuals rather than agencies — on reservations to provide
in-home services to ALTCS elderly and physically disabled enrollees. ALTCS has
intergovernmental agreements with six tribes for the direct delivery of case
management services by tribal employees.20 For the remaining tribes, AHCCCS
arranges to have their case management services provided by the not-for-profit
agency, Native American Community Health Center (NACHC), based in Phoenix,
Arizona.21 For case management services, ALTCS makes capitated payments to
tribes and NACHC. Care provided by institutions and in group-living arrangements
is primarily available to tribal ALTCS enrollees off the reservations. See Figure 3
for a map of the Native American Reservations in Arizona.
19 Fee-for-service is a payment system in which Medicaid-certified providers are paid
retrospectively for the services they provide Medicaid beneficiaries.
20 These tribes are Gila River, Navajo Nation, Pascua Yaqui, San Carlos Apache, Tohono
O’Odham Nation, and White Mountain Apache.
21 These tribes are Ak Chin, Camp Verde Yavapai Apache, Cocopah, Colorado River Indian
Tribe (CRIT), Fort Mohave, Fort McDowell, Havasupai, Hopi, Hualapai, Kaibab Paiute,
Quechan, Salt River Pima - Maricopa, San Juan Southern Paiute, Tonto Apache, and
Yavapai Prescott.

CRS-14
Figure 3. Native American Reservations in Arizona
Source: Map provided to CRS by ALTCS, 2002.

CRS-15
Persons with Mental Retardation and Developmental Disabilities ALTCS makes
capitated payments to DES to provide long-term care services for persons with
MR/DD.
Department of Economic Security (DES). Two divisions within DES are
responsible for long-term care services. The DES Division of Developmental
Disabilities (DDD) coordinates Medicaid and non-Medicaid home and community-
based services for persons with MR/DD. The DES Aging and Adult Administration
manages the state’s non-medical home and community-based programs, provided
through contracts with the Area Agencies on Aging (AAAs). These programs are
funded by state dollars, Title III of the Older Americans Act and the Social Services
Block Grant (SSBG). Services are provided to persons age 60 and older and, for
certain services, persons with physical disabilities.
Division of Developmental Disabilities (DDD). AHCCCS provides
capitated payments on a per person basis to the DES’ Division of Developmental
Disabilities to administer acute and long-term care services for enrollees with
MR/DD. The capitated payment levels are adjusted to reflect service utilization and
Medicare payments for services provided to dual eligibles.22 For the delivery of long-
term care services, DDD contracts directly with service providers.23
DDD has six district offices. District staff are responsible for provider billing
and payment, quality monitoring, and case management, among other functions. In
addition, there are approximately 60 local offices that report to the district offices.
These offices are responsible for assisting in the oversight of the state-run long-term
care facilities and group homes; coordinating service delivery to clients; and assisting
in quality oversight activities.
Case managers, employed by district offices, are responsible for coordinating
the acute and long-term care services for all enrollees. Like the case managers who
work with the elderly and persons with physical disabilities, DDD case managers also
assist enrollees and their families in designing care plans. For DDD clients, they
assist them in selecting between in-home services, group homes, adult or child
developmental homes, or ICF/MRs. They also assign enrollees to appropriate
provider agencies, authorize services, and review and approve provider claims. Case
managers are required to review the care plans of in-home service recipients every
90 days, and group home or institutional service recipients every 6 months.24
22 The term “dual eligibles” refers to individuals who qualify for both Medicare and
Medicaid. Persons qualify for Medicare because they have paid the Medicare payroll tax
and are either age 65 or older, or have a disability and have been receiving Social Security
Disability Insurance (SSDI) for a minimum of 2 years. The majority of dual eligibles are
entitled to Medicare and are also eligible for full Medicaid benefits as determined by the
state within federal guidelines. Medicare beneficiaries qualify for Medicaid because they
meet the income and asset requirements established by each state within federal guidelines.
23 Behavioral health services for persons with MR/DD are provided by the DHS Division
of Behavior Health Services through an intergovernmental agreement.
24 Case managers are required to review the care plans of individuals living in group homes
(continued...)

CRS-16
DDD also administers the state-only funded non-Medicaid home and
community-based services for persons with MR/DD who are ineligible for Medicaid.
Case managers in district offices are responsible for providing assistance in the
design of these care plans and for coordinating enrollees’ services.
Native Americans with Mental Retardation Residing on
Reservations. Like ALTCS, DDD arranges home care for persons with MR/DD
on reservations. DES contracts on a fee-for-service basis with providers on
reservations — most of whom are individuals certified by ALTCS — to provide in-
home care. Case management is provided by DDD on all reservations except the
Navajo Nation. DDD contracts directly with the government of the Navajo Nation
to provide case management on this reservation. As in the DES-managed care
program, district staff members in the local offices serve as case managers and assist
enrollees in developing care plans and monitoring quality of care.
Aging and Adult Administration. DES also houses the Aging and Adult
Administration (sometimes known as the State Agency on Aging).25 Programs
administered by this department include the state-funded home and community-based
services program for certain persons aged 60 and older who are ineligible for
Medicaid; services funded through Title III of the Older Americans Act for persons
age 60 and older; and the Social Services Block Grant (SSBG) for certain persons age
18 and older. The Aging and Adult Administration provides funding and oversight
to eight Area Agencies on Aging (AAAs), located in various counties across the
state.26 AAAs serve as the single point of entry for Arizona’s non-medical home and
community-based program. Case managers that contract with AAAs are responsible
for providing assistance in the design of care plans and for coordinating clients’
services. (A list of services can be found later in this report.)
AAAs in Arizona are either public or private non-profit entities and cover large
geographical areas, often requiring contracting with case managers and other
providers to drive long distances to offer services. Each AAA is given the flexibility
to tailor its programs to meet the needs of its local communities. According to some
advocates, AAAs sometimes authorize services that are not provided due to lack of
provider availability, which is particularly salient in rural areas.
24 (...continued)
with very high medical needs every 90 days.
25 Title III of The Older Americans Act authorizes grants to state and area agencies on aging
to act as advocates on behalf of, and to coordinate programs for, older persons. Nationwide,
the program supports 56 state agencies on aging, 655 area agencies on aging, and 29,000
service providers. The Act currently authorizes six separate service programs. States
receive separate allotments of funds for supportive services and centers, family caregiver
support, congregate and home-delivered nutrition services, U.S. Department of Agriculture
(USDA) commodities or cash-in-lieu of commodities, and disease prevention and health
promotion services.
26 For more information on Arizona AAA offices, see [http://www.de.state.az.us/links/aaa/
regions.asp].

CRS-17
Department of Health Services (DHS). The Arizona Department of
Health Services (DHS) is responsible for ensuring that long-term care service
providers are in compliance with both federal and state standards. The Office of
Long-Term Care Licensure, a department of DHS, licenses and monitors Arizona’s
nursing homes, intermediate care facilities for the mentally retarded (ICF/MRs), and
home health agencies. It also licenses assisted living facilities and monitors their
compliance with state regulations.
Eligibility Determinations for Long-Term Care Services27
Medicaid is a federal-state matching program, established under Title XIX of
the Social Security Act. The program covers medical assistance for certain groups
of low-income individuals, including individuals who are aged, blind, or disabled.28
Eligibility for Medicaid is means-tested. To qualify, applicants’ income29 and
resources,30 or assets, must be within certain limits defined by states and within
federal parameters. Arizona, like all other states, provides Medicaid coverage to
individuals who meet minimum income and resources eligibility standards and meet
certain categorical definitions of aged, blind, or disabled, among others. For
Medicaid long-term care services, persons must also meet certain functional criteria
for the level-of-care needed. The criteria used in Arizona are shaped in part by
estimates of spending that will occur as a result of these standards.31
ALTCS Eligibility Requirements for Functional Level of Care.
Arizona’s Medicaid-funded home and community-based long-term care services are
restricted to individuals who require a level of care provided in a nursing facility,
intermediate care facility for the mentally retarded (ICF/MR), or hospital. Arizona
has designed a tool known as the PreAdmission Screening (PAS) assessment that is
used to determine functional eligibility for ALTCS. The PAS for the elderly and
persons with physical disabilities assesses a person’s ability to perform basic types
of daily activities, referred to as activities of daily living (ADLs). ADLs include
bathing, dressing, toileting, transferring from a bed or a chair, eating, and getting
27 For more information on Medicaid eligibility, see CRS Report RL31413, Medicaid:
Eligibility for the Aged and Disabled, by Julie Stone.
28 Medicaid also covers certain low-income children, and adult members of families with
children and pregnant women. States have the option to cover many other groups as well,
including, women with breast or cervical cancer, individuals with tuberculosis, and working
individuals with disabilities.
29 Two types of income are generally considered: earned and unearned. Earned income
includes wages, net earnings from self-employment and earnings from services performed.
All other income that is not derived from current work, such as Social Security benefits,
other government and private pensions, veterans benefits, workers’ compensation and in-
kind support and maintenance, is considered “unearned.”
30 Resources, also referred to as assets, generally refer to liquid assets such as money in
bank accounts, stocks and bonds, mutual fund investments, and certificates of deposit.
31 Arizona uses its Section 1115 research and demonstration waiver to require enrollment
in managed care for most of its beneficiaries. For eligibility purposes, the state complies
largely with eligibility rules defined in Medicaid law and regulations.

CRS-18
around inside the home. Also included are measures of applicants’ continence,
sensory abilities, orientation, behaviors, and medical conditions.
The state uses four age-specific PAS tools for the MR/DD population. These
PAS tools are also used for non-MR/DD children under age 6. These tools assess
developmental milestones in children under 6 years old, motor and independent
living skills, cognitive and communication skills, behaviors, medical conditions and
medical stability.
ALTCS Financial Eligibility. To qualify for Medicaid long-term care
services, an applicant’s income must not exceed 300% of the maximum
Supplemental Security Income (SSI) payment. In 2003, this limit is $1,656 per
month. Persons with income in excess of this special income level may place it in
a special trust, or Miller Trust, and still receive Medicaid coverage for their care.
Once funds are placed in this trust, they are applied toward the cost of the
individuals’ Medicaid coverage and are not available for personal use by the
individuals. Following an individual’s death, the state becomes the beneficiary of
amounts in the trust. Between 5% and 10% of total ALTCS beneficiaries have Miller
Trusts.32
In addition to income criteria, applicants may not have countable resources that
exceed $2,000 for an individual. Countable resources generally refer to liquid assets,
such as money in bank accounts, stocks and bonds, mutual fund investments, and
certificates of deposit. Certain resources, however, are excluded, such as applicants’
homes of any value; up to $2,000 in household goods and personal effects; and
resources set aside to fulfill a plan to achieve self-support; among others. Under a
waiver authorized by the Secretary of the U.S. Department of Health and Human
Services (DHHS), Arizona also excludes in-kind support and maintenance from
unearned income.
State Programs. Eligibility for the state-funded home and community-based
services program for the elderly and persons with physical disabilities is restricted to
persons with limitations in two or more activities of daily living (ADLs), such as
bathing, dressing, toileting, or two or more limitations in instrumental activities of
daily living (IADLs), such as light housework, meal preparation, grocery shopping,
and transportation. Eligibility for these services is not means-tested.
To qualify for the state-funded DDD-administered non-Medicaid home and
community-based services program, persons with MR/DD must meet the state’s
statutory definition of a developmental disability. Under Arizona Revised Statutes
(ARS) 36-551, developmental disability is defined as “either a strongly demonstrated
potential that a child under the age of six years is developmentally disabled or will
become developmentally disabled, as determined by a test performed pursuant to
ARS Section 36-694 or by other appropriate tests, or a severe, chronic disability
which: (a) is attributable to mental retardation, cerebral palsy, epilepsy or autism, (b)
is manifest before age eighteen, (c) is likely to continue indefinitely, (d) reflects the
need for a combination and sequence of individually planned or coordinated special,
32 Personal communication with ALTCS staff, Dec. 2002.

CRS-19
interdisciplinary or generic care, treatment or other services which are of lifelong or
extended duration, and (e) results in substantial functional limitations in three or
more of the following areas of major life activity: self-care, receptive and expressive
language, learning, mobility, self-direction, capacity for independent living,
economic self-sufficiency.” There are no income or resources tests for this program.
Administration. ALTCS local offices are responsible for conducting all
financial and functional eligibility determinations. There are 14 local offices across
the state. In some local ALTCS offices, designated individuals are responsible for
conducting financial and functional eligibility determinations. This often requires
many applicants, or their authorized representatives, to make at least two
appointments with ALTCS eligibility workers before eligibility can be confirmed.
Most interviews that assess applicants’ financial eligibility are held on site at local
offices; however, many of these interviews are conducted with an authorized
representative of the applicant. Upon written request, ALTCS workers will visit the
homes of applicants to conduct financial eligibility determinations. Interviews to
determine functional eligibility are conducted at the residence of the applicant.
Under certain circumstances, ALTCS’ PAS assessors may conduct financial
eligibility determinations for applicants. In addition, eligibility workers often travel
to Native American reservations to conduct determinations.
Once eligibility is established, ALTCS assigns elderly individuals and
individuals with disabilities to appropriate MCOs. Persons with MR/DD are
assigned to DES. Native Americans living on reservations are assigned directly to
one of the six tribes or NACHC for case management and coordination of services.
Arizona’s Long-Term Care Services for the Elderly
and Persons with Disabilities
The establishment of the ALTCS program in 1989 came less than a decade after
Congress amended the Medicaid statute to provide opportunities for states to expand
home and community-based services to persons who would otherwise require
institutional care. In 1981, Congress enacted Section 1915(c) of the Social Security
Act, authorizing the Secretary of DHHSt33 to waive certain requirements of Medicaid
law in order to allow states to cover a range of home and community-based services
for persons who would otherwise be eligible for Medicaid-funded institutional care.
It also corresponded with nationwide advocacy concerning the reduction of state
reliance on institutional care as the primary means of caring for frail elders. The
design of the ALTCS program reflects a response to these activities as well as the
state’s interest in relieving fiscal pressure on its counties.
The ALTCS managed care model attempted to shift the service bias in the
Medicaid program away from institutionalized care and toward home and
community-based care. Yet it did so within certain limits imposed by the Centers for
33 The program is administered by states and the Centers for Medicare and Medicaid
Services (CMS).

CRS-20
Medicare and Medicaid Services (then the Health Care Financing Administration,
HCFA). When ALTCS was established, CMS placed a 5% cap on total expenditures
for home and community-based services for elderly individuals and persons with
physical disabilities. CMS imposed this cap to deter possible excessive new
enrollment and expenditures in ALTCS home and community-based services.34 The
cap was intended to constrain the rate of growth in ALTCS’ home and community-
based services. Despite CMS concern about possible increased costs, research
conducted by Weissert on commission to HCFA, in 1998,35 found no evidence of
utilization large enough to offset the savings from the substitution of home and
community-based care for nursing facility care. CMS changed its policy and raised
the cap on home and community-based care incrementally over the years. On
October 1, 1999, CMS lifted the cap entirely. Without a limit on access to services,
AHCCCS expects that participation in home and community-based services will
grow. There is currently no waiting list for home and community-based services
under ALTCS.
According to state reports, Arizona’s guiding principles in long-term care are
to provide: member-centered case management, consistency of services, accessibility
to services, care in the least restrictive settings available, and collaboration with
stakeholders to continuously improve the range of services available in the state.36
State staff identified goals of the Arizona long-term care system — expanding access
to home and community-based services; allowing the free market to determine
nursing home bed growth or decline; providing specialized care plans that are
tailored to individuals’ needs; supporting bounded consumer choice within the
managed care system; and assuring quality of care.37
Trends in Institutional Care
Arizona began to regulate nursing homes in the 1970s. In 1971, Arizona
required approval for the construction or acquisition of nursing homes. Then, in
1975, the state created a certificate-of-need (CON) requirement and established a law
mandating licensure of nursing home administrators. Shortly thereafter, in 1977,
Arizona established in-service training programs for staff and three levels of nursing
34 This is often referred to as the “woodwork effect,” as more persons may choose to apply
for ALTCS if more services would be provided in the community.
35 William Weissert, Ph.D., Michael Chernew, Ph.D., and Achamyeleh Gebremariam, M.S.,
Cost-Effectiveness of Home and Community Based Services in the Arizona Long-Term Care
System: An Update, a report to the U.S. Health Care Financing Administration, Oct. 21,
1998.
36 Arizona’s Community Based Services and Settings Report (3rd Biennial), May 2002.
Published by AHCCCS [http://www.ahcccs.state.az.us], ADES [http://www.de.state.az.us],
and ADHS [http://www.hs.state.az.us].
37 Materials collected from the state’s documents and personal communications with state
staff.

CRS-21
care institutions, similar to those established by Congress in 1972. These levels
consisted of skilled, intermediate, and personal care.38
By the 1980s, the legislature began to be concerned about the effect of some of
the regulations and repealed Arizona’s certificate of need program. Investment in
bed growth by private industry flourished in that decade. A 1983 survey conducted
by the Pritzlaff Commission on Long-Term Care identified 900 licensed nursing
home beds in Arizona. Between 1982 and 1985, the number of nursing home beds
increased by over 4,000. Despite the growth in supply of institutional care, Arizona
had a lower bed ratio to the elderly population (2.5 beds per 100 persons aged 65 and
older) in the early 1980s, compared to the national average (5 beds per 100 persons
aged 65 and older).39
The American Health Care Association (AHCA) reported that from 1999 to
2000, 153 nursing homes in Arizona served 13,459 residents.40 The number of beds
per 1,000 elderly persons in Arizona is significantly lower than the national average.
In 1999 to 2000, there were about 26.4 beds per 1,000 persons aged 65 and older,
57.9 beds per 1,000 persons aged 75 and older and 256.8 beds per 1,000 persons aged
85 and older, as compared to 52.7, 111.1, and 434.8 respectively for the United States
(Table 5). According to state officials, this is in part due to the number of nursing
home closures in recent years due to bankruptcies. The occupancy rate was 76.5%
for 1999-2000, slightly lower than the national average of 80.8%.
Table 5. Nursing Home Characteristics in Arizona and the
United States
(data are for 1999-2000)
United
Characteristic
Arizona
States
Number of facilities
153
17,023
Number of residents
13,459
1,490,155
Number of beds
17,600
1,843,522
Number of Medicaid beds
5,416 a
841,458
Number of beds per 1,000 pop. aged 65 and older
26.4
52.7
Number of beds per 1,000 pop. aged 75 and older
57.9
111.1
Number of beds per 1,000 pop. aged 85 and older
256.8
434.8
Occupancy rate
76.5%
80.8%
Sources: American Health Care Association (AHCA), Facts & Trends: The Nursing Facility
Sourcebook (2001).
a. According to ALTCS this number underestimates total Medicaid-certified beds.
38 Long-Term Care in Arizona: Final Report, The Pritzlaff Commission on Long-Term
Care, supported by the Flinn Foundation, July 1984.
39 Ibid.
40 This count includes residents paying out-of-pocket for care, persons covered under the
Medicare skilled nursing facility benefit and persons covered under Medicaid.

CRS-22
Arizona’s policies include a number of strategies that affect institutional care
utilization. Among the more prominent policies is an ALTCS requirement that
managed care organizations apply a cost-effectiveness test to determine the most
appropriate care settings for ALTCS clients. The test requires MCOs to compare the
total cost of the array of services that would be needed to keep an individual in the
community to the ALTCS’ nursing home rate in that area for the individual. If the
total cost is equal to or less than the nursing home rate, an MCO is expected to keep
an individual in the community — provided that the services an individual needs are
available, the home or community-based setting is safe, and the services are covered
by ALTCS or can be provided through another program. If the total cost exceeds the
nursing home rate, then the MCO is expected to place an individual in a nursing
home.41 Waivers for this test are subject to ALTCS approval.42
According to ALTCS staff, advocates, and some providers, disability levels of
patients in nursing homes have increased in recent years. This may be attributed to
greater use of home and community-based services that delays entry into nursing
home care.
Trends in Home and Community-Based Care
Arizona has a multi-layered approach to the provision of care for the elderly and
persons with physical disabilities in home and community-based settings. Although
services provided under ALTCS dominate the state’s long-term care system,
Arizona’s Medicaid acute care program covers limited home health services for these
individuals as well as for all acute care program enrollees, provided the services are
ordered by a physician under an approved plan of care. Among the services offered
are part-time nursing services provided on an intermittent basis by a home health
agency or, under certain circumstances, a registered nurse.43
On a much smaller scale, Arizona also provides non-medical home and
community-based services to a limited number of persons whose financial and/or
functional status do not meet the ALTCS eligibility requirements and, in some cases,
for persons who choose not to enroll in Medicaid. Another source of funding for
services offered by the state is Title III of the Older Americans Act. The Area
Agencies on Aging (AAA), funded by this Act, provide home care, congregate meals,
case management, and the long-term care ombudsman program to a variety of elderly
persons across the state. Some AAAs also provide additional supportive services,
such as emergency food and shelter services. There are also a number of private pay
assisted living facilities, congregate housing alternatives, home care aides and other
supportive services available to persons who can afford to pay out-of-pocket for care
41 States that provide home and community-based services under Section 1915(c) home and
community-based waivers are also subject to certain cost-effectiveness requirements. See
CRS Report RL31163, Long-Term Care: A Profile of Medicaid 1915(c) Home and
Community-Based Services Waivers, by Carol O’Shaughnessy and Rachel Kelly.
42 Interviews with ALTCS officials.
43 Also included are home health aide services, medical supplies, equipment, and supplies
for use at home and at the option of the state, physical and occupational therapy, or speech
pathology and audiology services.

CRS-23
or who have purchased long-term care insurance policies. Together all these
programs and services make up the state’s home and community-based long-term
care system.
The following describes the home and community-based services covered under
ALTCS and services paid for by the state-only funded non-medical home and
community-based services program. It also describes the categories of assisted living
facilities in Arizona, as specified through state statute.
ALTCS Home and Community-Based Services. ALTCS provides a
wide range of services to the approximately 9,843 elderly and physically disabled
enrollees receiving home and community-based services.
These services44 include:
Medically-Related Services:
! Home Nursing. Includes in-home intermittent skilled nursing
services, including health maintenance, continued treatments, or
supervision of a health condition.
Supportive Services:
! Home Health Aide. Includes in-home services, including
intermittent health maintenance, continued treatments or monitoring
of a health condition, and supportive care for activities of daily
living;
! Adult Day Health Care. Includes planned care and supervision,
recreation and socialization, personal living skills training, group
meals, health monitoring and various preventive, therapeutic and
restorative health care services;
! Attendant Care. Includes homemaker services, personal care,
coordination of services, general supervision and assistance,
companionship, socialization and skills development. Services are
provided by a trained attendant for members who reside in their own
homes;
! Housekeeping/Chore. Includes heavy indoor cleaning and may
include designated outdoor tasks;
! Home Delivered Meals. Delivers meals containing at least one-third
of the federal recommended daily allowance;
! Personal Care. Includes assistance with personal physical needs,
such as washing hair, bathing and dressing;
44 Descriptions of services are those found in Arizona’s Community Based Services and
Settings Report (3rd Biennial). The Arizona Health Care Cost Containment System, The
Arizona Department of Economic Security, and the Arizona Department of Health Services,
May 2002.

CRS-24
! Respite Care. Includes short-term care and supervision to relieve
primary caregivers for up to 24 hours per day. Respite may be
provided in groups or in an individual’s home;
! Home Modification. Includes funds for certain building
specification or items which allow individuals to function as
independently as possible in their own homes;
! Augmentative Communication Devices. Includes funds to purchase
devices that help a person communicate, such as a notebook or a
computer system; and
! Habilitation. Includes habilitative therapies (e.g., occupational,
physical and speech or audiology), special developmental skills,
behavioral intervention, sensory-motor development designed to
increase the person’s skill and functioning.
Residential Services:
As of June 2003, the state had about 250 adult foster care homes, 192 assisted
living centers, and 1,225 assisted living homes. ALTCS covers services provided to
many ALTCS enrollees residing in these residences.45 (See below for additional
information on assisted living.)
Case Management Services:
All participants are assigned case managers upon their enrollment in ALTCS.
Case managers assist clients and their families in making informed decisions about
care settings, e.g., home, assisted living, state-run homes, or nursing homes. They
also assist ALTCS enrollees in addressing problems in service delivery and
modifying care plans to reflect changes in clients’ health status or the availability of
informal supports. When necessary, they investigate complaints and advocate on
behalf of their clients. Case managers are required to visit in-home ALTCS
recipients every 90 days, and nursing home ALTCS recipients every 6 months.
State-Only Funded Program. The non-medical home and community-
based services (NMHCBS) program is intended to provide assistance to persons with
long-term care needs who are ineligible for ALTCS. By providing supportive long-
term care services to persons who are at risk of becoming ALTCS eligible,
NMHCBS may delay or prevent individuals from depleting their income and assets
on health care related services, and thus qualifying for ALTCS. Unlike ALTCS,
there are no income or resources tests to qualify. There are, however, functional
eligibility requirements. (See section on eligibility for state programs of this report
for more information.)
Services are statewide and are more limited in scope than those provided under
ALTCS. They include adult day care/adult day health care, home delivered meals,
home health aide, housekeeping, personal care, respite care and home nursing. Many
NMHCBS participants remain in the program until death or until they become
eligible for ALTCS. Once enrollment in ALTCS begins, the services provided under
45 Arizona Department of Health Services, June 2003.

CRS-25
MNHCBS cease. Persons may still remain eligible for AAA’s nutrition services as
well as other services administered by AAAs.
Participation in the state-funded NMHCBS program is capped according to the
amount of general revenue funding appropriated annually by the state legislature. As
a result, as of May 2003, there was a statewide waiting list of 625 persons.46
Assisted Living. Arizona has a variety of assisted living homes that provide
long-term care services, primarily on a private pay basis or, for those who meet
eligibility requirements, through ALTCS. It is one of just a few states that has
enacted legislation to regulate assisted living facilities. The legislature acted partly
as a result of a number of media reports in the late 1990s that identified some assisted
living homes that were providing poor quality services to elderly persons. In 1998,
the state legislature established rules pertaining to the health and safety of residents;
management of residents’ personal funds; abuse, neglect and exploitation; staff
training and qualifications; activity requirements; food services; and building
requirements; among other purposes.
In November 1998, the Department of Health Services published regulations
that established three levels of care that can be provided in assisted living residences
and the minimum staff training hours required. The regulations address homes
serving ten or fewer residents, 11 or more residents, and adult foster homes that serve
one to four residents.47
! Supervisory Care Services: Residents must be able to direct their
own self-care. Facilities may receive nursing services or health-
related services from a licensed home health agency, licensed
hospice service agency or private duty nurse. Forty hours of staff
training are required;
! Personal Care Services: Residents living in these facilities must be
able to direct their own self-care. In addition to 60 hours of staff
training, managers and caregivers must complete a minimum of 2
hours of ongoing training in providing personal care services every
12 months. Limited personal care services may be provided,
including certain skin maintenance services, hydration, medication
administration, and assistance with incontinence;
! Directed Care Services: Facilities may provide services to persons
who cannot direct their own self-care, including direct supervision,
coordination of communications, cognitive stimulation activities to
maximize functioning, encouragement to eat meals and snacks, an
assessment of a resident who is unable to direct self-care by a
primary care provider and ensure medication requirements are met,
among other services. In addition to 72 hours of staff training, each
manager and caregiver must complete a minimum of 4 hours of
ongoing training service every 12 months.
46 Aging and Adult Administration, June 2003.
47 See Arizona Revised Statute (A.R.S.) §36-401.

CRS-26
Arizona’s Long-Term Care Services for Persons with Mental
Retardation and Developmental Disabilities
The early history of services for persons with mental retardation in the United
States is characterized by the development of large state institutions or training
schools begun during the latter part of the 19th century and continuing through the
first part of the 20th century. Between 1920 and 1967 institutions quadrupled in size
and the number of residents peaked at almost 200,000 individuals nationwide in 165
free-standing state-operated institutional facilities.48 Arizona, on the other hand, did
not establish its first institution until 1952, when it opened the Coolidge facility for
persons with MR/DD. Three more institutions were opened in the 1970s. During
these years, institutional care comprised the bulk of care provided to persons with
MR/DD in Arizona. (See Appendix 2 for facility populations, and opening and
closures dates.)
Pressure from advocacy groups and legal action taken by advocates against
some states encouraged the development of alternative care systems that are intended
to promote self-determination, independence, and a higher quality of life for persons
with MR/DD. The ALTCS program’s investment in home and community-based
services combined with increasing pressure from advocacy groups resulted in the
closing of three large state institutions in 1988, 1994, and 1995 and the downsizing
of Coolidge. (See Appendix 1.)
Trends in Institutional Care
According to Braddock et. al., 445 individuals with MR/DD in Arizona, or 23%
of all persons with MR/DD in residential settings, were living in Arizona in
institutions of 16 or more beds in 1990. By 2000, Arizona had reduced this number
by 42%, to 258 individuals, or 7% of all residents. During this decade, the number
of persons living in group homes of six or fewer individuals grew by 128%, from
1,445 in 1990 to 3,298 in 2000. In that year, nearly all (92%) residents lived in small
facilities with six or fewer residents (Table 6).
48 For a detailed history of the development of services for persons with developmental
disabilities, see David Braddock, Richard Hemp, Susan Parish, and James Westrich, The
State of the States in Developmental Disabilities, University of Illinois at Chicago,
American Association of Mental Retardation, Washington, 1998. (Hereafter cited as
Braddock, et. al., The State of the States in Developmental Disabilities, 1998.)

CRS-27
Table 6. Persons in Arizona with Developmental Disabilities
and Mental Retardation Served in Residential Settings by Type
and Size of Residential Setting, 1990, 1995, and 2000
Persons served by residential setting
1990
1995
2000
Setting by size
1,938 (100%)
2,694 (100%)
3,598 (100%)
16+ persons
445 (23%)
372 (14%)
258 (7%)
Nursing Facilities
48
76
57
State Institutions
366
248
166
Private ICF/MR
16
48
35
Other Residential
15
0
0
7-15 persons
48 (2%)
44 (2%)
42 (1%)
Public ICF/MR
48
44
42
Private ICF/MR
0
0
0
Other Residential
0
0
0
<6 persons
1,445(75%)
2,278 (85%)
3,298 (92%)
Public ICF/MR
0
0
0
Private ICF/MR
0
0
0
Other residential
1,445
2,278
3,298
Source: Disability at the Dawn of the 21st Century and the State of the States, David Braddock,
editor, with Richard Hemp, Mary C. Rizzolo, Susan Parish, and Amy Pomeranz, American
Association on Mental Retardation, Washington, D.C., 2002.
Note: Percentages may not sum to 100 due to rounding.
Trends in Home and Community-Based Care
Arizona has made a significant effort to provide home and community-based
care options to persons with MR/DD. Similar to ALTCS services for the elderly and
persons with physical disabilities, DDD’s case managers conduct a cost-effectiveness
test. Under the test, case managers are required to compare the total cost of the array
of services that would be needed to keep an individual with MR/DD in the
community to the ALTCS’ ICF/MR rate in that area. If the total cost is equal to or
less than the ICF/MR rate, then the case manager must try to keep the individual in
the community. If the case manager’s calculation shows that the total cost to serve
an individual in the community would exceed the ICF/MR rate, then the case

CRS-28
manager would recommend placement in an institution.49 In 2003, 98% of the
ALTCS MR/DD population reside in home and community-based settings.
The following programs and services make up the majority of the long-term care
system for persons with MR/DD in Arizona. AHCCCS provides home health
services to qualifying individuals and a range of home and community-based long-
term care services for persons who meet the eligibility criteria. The state also
provides state-funded services to persons who do not meet the eligibility
requirements for ALTCS.
ALTCS Home and Community-Based Services. Under contract with
AHCCCS, DDD provides managed care services to all ALTCS enrollees with
MR/DD. Case managers assist clients and their families in designing care plans and
making informed decisions about care settings. In general, the case management
services provided to persons with MR/DD are similar to those provided to the elderly
and persons with disabilities (see section above).
Other services for persons with MR/DD are the same as those for older persons
and working age persons with physical disabilities (described above), but they
provide broader coverage of day services and habilitation. Day services include day
treatment and training, such as supervision, therapeutic activities and support to
promote skill development in independent living, self care, communication and
social relationships. Habilitation includes therapies such as occupational, physical
and speech or audiology therapy, special developmental skills, behavioral
intervention, and sensory-motor development designed to increase the person’s skill
and functioning. These services are intended to assist individuals in coping more
effectively with personal and environmental demands and in raising the level of
physical, mental and social efficiency.
ALTCS’ Housing Benefits with Services. Arizona’s ALTCS program
provides limited access to supported residential housing for persons with MR/DD.
The state runs, or contracts with, group homes, training program facilities,50 adult
developmental homes, child foster care homes, and state-operated service centers.
Each of the settings is described below:
! Group Homes. Residences for no more than six persons with
developmental disabilities that are operated by a service provider
under a contract with DDD. They provide room and board and daily
habilitation in a shared living environment;51
! Adult Developmental Homes. Homes are residential family-like
settings in which care, physical custody and supervision are provided
24-hours a day. Homes provide services for a group of siblings or
up to three adults with developmental disabilities;
49 Waivers for this test are subject to ALTCS approval.
50 A state-operated institution for persons with developmental disabilities.
51 Group homes do not include an adult developmental home, a child developmental foster
home, a secure setting or an intermediate care facility for the mentally retarded.

CRS-29
! Child Developmental Foster Homes. Homes are residential family-
like settings in which care, physical custody, and supervision are
provided 24-hours a day. These homes provide services for a group
of siblings or up to three children with developmental disabilities.
The state’s long-term goal is to move children out of foster care into
a permanent home;
! State Operated Service Centers. Centers are owned or leased by the
state and operated by DES. They provide temporary residential care
and space for child and adult services which include respite care,
crisis intervention, and diagnostic evaluation.
State Program. DDD’s state-only funded program provides home and
community-based long-term care services statewide to approximately 8,000
Arizonans with MR/DD. Although the majority of persons in the program receive
housekeeping and personal care, other services offered include respite, in-home
nursing, and cash assistance of up to $400 per month for specified purposes. This
program also covers care for program enrollees living in certain group homes and
adult and child developmental homes.
The state maintains a waiting list for the state-funded program. Many
participants remain in the program until death or until they become eligible for
ALTCS. Once enrollment in ALTCS begins, the services provided under this
program cease. By providing supportive long-term care services to persons who are
at risk of becoming ALTCS eligible, DDD’s state-only funded program may delay
or prevent individuals from depleting their income and assets on health care related
services, and thus qualify for ALTCS.
Long-Term Care Spending and Enrollment
In Arizona, as in most states, Medicaid is the largest single payer for long-term
care services in the state. Arizona’s Medicaid program is jointly funded by state,
county, and federal dollars.52 State general revenue funds are also used to pay for
non-Medicaid long-term care services in home and community-based settings for
older persons, persons with physical disabilities and persons with MR/DD. Other
services are funded through the Older Americans Act (Title III), Social Services
Block Grant (Title XX of the Social Security Act), and local and private funds.
Medicaid Spending and Enrollment in Arizona
Medicaid is a significant part of state budgets. After elementary, secondary and
higher education spending, Medicaid spending was the largest share of state budgets
in 2001. According to data compiled by the National Association of State Budget
Officers (NASBO), federal and state Medicaid spending represented almost 20% of
state budgets for the United States as a whole in 2001.
52 Arizona’s Community Based Services and Settings Report (3rd Biennial), May 2002.

CRS-30
In Arizona, Medicaid was the second largest single category of federal and state
spending combined in 2001, after elementary and secondary education. Of the state’s
$17.4 billion budget in 2001, federal and state Medicaid spending represented almost
16%. Spending for Medicaid increased from almost 11% in 1990 (Table 7). The
increase in spending for Medicaid is largely attributed to an increase in federal
spending. State spending for Medicaid services contributed from state funds only
(excluding federal funds)53 remained fairly constant during the 1990s. As a percent
of spending for all categories of state spending, state Medicaid spending rose from
6.2% in 1990 to 7.7% in 1995, and then declined to slightly more than 6% in 2000
and 2001 (Table 8).
Table 7. Federal and State Spending Combined for all
Categories of the State Budget, Arizona and the United States,
1990, 1995, 2000, and 2001
Arizona
U.S. total
Expenditure category
1990
1995
2000
2001
2001
Total expenditure
(in millions)
$5,985
$9,923
$15,366
$17,351
$1,024,439
Medicaid
10.7%
15.7%
13.5%
15.9%
19.6%
Elementary and
Secondary Education
23.6%
21.2%
19.0%
23.1%
22.2%
Higher Education
14.7%
11.5%
13.5%
12.4%
11.3%
Public Assistance
2.2%
3.0%
0.8%
0.7%
2.2%
Corrections
4.3%
4.1%
4.5%
4.1%
3.7%
Transportation
12.2%
8.0%
10.7%
9.4%
8.9%
All other expenses
32.2%
36.5%
37.9%
34.4%
32.1%
Source: CRS calculations based on National Association of State Budget Officers (NASBO), State
Expenditure Reports, 1990-2001.
Notes: Data reported are for state fiscal years. Percentages may not sum to 100% due to rounding.
Data from NASBO differ from data provided to CRS by AHCCCS for these years.
53 Federal and state governments share the costs of Medicaid spending according to a
statutory formula based on a state’s relative per capita income (Federal Medical Assistance
Percentage, or FMAP). In FY2001, the federal share for Medicaid in Arizona was 65.77%.

CRS-31
Table 8. State Spending for Medicaid (Excluding Federal
Dollars), Arizona and All States, 1990, 1995, 2000, and 2001
(in millions)
Arizona
All states
State spending
1990
1995
2000
2001
2001
Total state spending for
all categories of the
state budget (millions)a
$4,337
$6,738
$11,821
$13,600
$760,419
State funded Medicaid
spending (millions)
$267
$522
$721
$864
$85,141
State funded Medicaid
spending as a percent of
the state budget
6.2%
7.7%
6.1%
6.4%
11.2%
Source: CRS calculations based on data from the National Association of State Budget Officers
(NASBO), State Expenditure Reports, 1990-2001. Data reported are for state fiscal years.
Notes: Data reported are for state fiscal years. Percentages may not sum to 100% due to rounding.
Federal, State and County Financing. The federal government matches
Arizona’s contribution to Medicaid at a federal medical assistance percentage
(FMAP) of 67.25% for the first 2 quarters of federal fiscal year 2003.54 To provide
temporary fiscal relief to states, the budget reconciliation Act (P.L. 108-27) provided
$10 billion to state Medicaid programs. Under the Act, FMAPs for the last 2 quarters
of FY2003 and the first 3 quarters of FY2004 are held harmless for declines from the
prior year, and FMAPs are increased by 2.95 percentage points. Arizona’s FMAP
will increase from 67.25% in FY2003 (first 2 quarters) to 70.2% for the last 2
quarters of FY2003, and 70.21% for the first 3 quarters of FY2004. The FMAP will
fall to 67.26% in the last quarter of FY2004. FMAP payments are based on
aggregate AHCCCS expenditures.
Counties pay significantly more for the ALTCS program than for the acute care
program. Arizona requires counties to contribute 78% of the state share for ALTCS,
the balance is paid with state dollars. In comparison, counties pay 24% of the state’s
share of AHCCCS’ acute care program, and the state pays the remaining 76%.
54 The federal government’s share of a state’s expenditures for medicaid is called the federal
medical assistance percentage (FMAP). The FMAP for each of the 50 states and the District
of Columbia is determined annually based on a statutory formula that uses the average per
capita income of each state and the United States for the three most recent calendar years
for which data are available from the Department of Commerce. This formula is designed
to pay a higher FMAP to states with lower per capita income relative to the national average
(and vice versa for states with higher per capita incomes).

CRS-32
Medicaid Long-Term Care Spending for All ALTCS Beneficiaries.
Almost 22% ($772 million) of total AHCCCS expenditures ($3.6 billion) in contract
year (CY) 2002 paid for long-term care services for 4% (35,450) of total enrollees
(842,797). Of ALTCS long-term care expenditures in 2002, almost 51% was spent
on home and community-based services, 5% was spent on case management, and
39% was spent on institutional care. In contrast, of all Medicaid long-term care
spending in the U.S. as a whole in FY2002, 30% ($24.7 billion) was spent on home
and community-based services and almost 70% was spent on institutional care.55
Expenditures delivered on a fee-for-service basis on reservations constituted 5.4%
of ALTCS spending (Table 9). Table 10 shows ALTCS spending trends from 1999
to 2002 (estimated data).56
Table 9. Total Medicaid Long-Term Care Expenditures for All
ALTCS Participants in Arizona, Contract Year 1999-2002
(in millions)
Percent
change
1999
2000
2001
2002 (est.)
1999-2002
Total Medicaid (total AHCCCS
expenditures)
$2,266.9
$2,450.8
$2,828.9
$3,585.5a
58.2%
Total ALTCS Long-term care
$542.9
$589.7
$698.1
$771.7a
42.2%
Total ALTCS managed care
$511.7
$557.0
$660.1
$730.3
42.7%
Total institutional care
$244.6
$254.8
$280.4
$301.5b
23.3%
Nursing home services
$233.5
$243.2
$268.3
$287.6b
23.2%
ICF-MR
$11.1
$11.5
$12.1
$13.9b
25.5%
Total HCBS
$244.4
$276.2
$349.4
$393.7b
61.1%
Total Case Managementc
$22.7
$26.0
$30.3
$35.1b
54.5%
Total ALTCS fee-for-service
$31.2
$32.7
$37.9
$41.5
33.0%
Source: Data provided to CRS by AHCCCS, Dec. 2002.
Note: Table includes expenditures for elderly, persons with physical disabilities, persons with
MR/DD, and managed care. CY1999, 2000 and 2001 contain expenditures for fee-for-service delivery
to ALTCS beneficiaries. Numbers may not add to totals due to rounding.
a. CRS analysis of data provided by AHCCCS, Dec. 2002.
b. Number does not include ALTCS payments for fee-for-service.
c. For capitated expenditures only.
55 CMS 64 data for FY2002, Office of State Agency Financial Management, Centers for
Medicare and Medicaid Services.
56 Data provided to CRS by AHCCCS, Dec. 2002.

CRS-33
Table 10. Medicaid Long-Term Care Spending in Arizona on All
Beneficiaries, Contract Year 1999-2002
2002
1999
2000
2001
(est.)
Long-term care (LTC) spending as a % of
23.9%
24.1%
24.7%
21.5%
Medicaid spending
MCO spending as a % of long-term care spending
94.3%
94.5%
94.6%
94.6%
Institutional care spending as a % of LTC
45.1%
43.2%
40.2%
39.1%
spending
Nursing home spending as a % of LTC
43%
41.2%
38.4%
37.3%
spending
ICF/MR* spending as a % of LTC spending
2%
2%
1.7%
1.8%
Total home and community-based services
45%
46.8%
50.1%
51%
spending as a % of LTC spending
Case management as a % of LTC spending
4.2%
4.4%
4.3%
4.5%
Total fee-for-service as a % of LTC spending
5.7%
5.5%
5.4%
5.4%
Source: CRS analysis of data provided by AHCCCS, Dec. 2002.
Note: Table includes expenditures for elderly, persons with physical disabilities, persons with
MR/DD, and managed care. CY1999, 2000 and 2001 contain expenditures for fee-for-service delivery
to ALTCS beneficiaries. Percentages may not add to 100% due to rounding.
Enrollment in Medicaid Long-Term Care. Enrollment in ALTCS grew
by 162.6% in the 12-year period from 1990 to 2002. Nearly three-quarters of all
ALTCS enrollees received home and community-based services in 2002, including
almost 73% of managed care enrollees and 65% of fee-for-service enrollees. Almost
56% of elderly and physically disabled program participants and almost 98% of
MR/DD participants received home and community-based services in that year.
Table 11 shows ALTCS enrollment from 1999 through 2002.
Table 11. ALTCS Enrollment
(Managed Care and Fee-For-Service), 1999-2002
(as of September 30 for each year)
Percent
increase
(1990 to
1990
1999
2000
2001
2002
2002)
Total AHCCCS (all populations)
334,498
NA
533,724 668,196 842,797
152%
Total ALTCS (includes managed
about 27,438
29,700
32,482
35,450
162.6%
care and fee-for-service)
13,502

CRS-34
Percent
increase
(1990 to
1990
1999
2000
2001
2002
2002)
Institutional
NA
9,534
9,750
9,582
9,784
—
Home/community
NA 17,904
19,950
22,900
25,666
—
Total ALTCS managed care
(MC)
13,102 26,352
28,464
31,170
33,879
158.6%
Institutional
6,652
9,154
9,317
9,123
9,234
38.8%
Home/community
6,450 17,198
19,147
22,047
24,645
282.1%
Elderly and physically disabled
(MC)
8,299 15,983
17,119
18,717
20,251
144%
Institutional
6,556
8,950
9,090
8,874
8,961
36.7%
Home/community
1,743
7,033
8,029
9,843
11,290
547.7%
MR/DD (MC)
4,803 10,369
11,345
12,453
13,628
183.7%
Institutional
96
204
227
249
273
184.4%
Home/community
4,707 10,165
11,118
12,204
13,355
183.7%
Total ALTCS Fee-for-Service
about
(FFS)
400
1,086
1,236
1,312
1,571
292.8%
Institutional
NA
380
433
459
550
—
Home/community
NA
706
803
853
1021
—
Source: Data provided to CRS by AHCCCS, Dec. 2002.
Notes: Includes only those enrollees in ALTCS managed long-term care. Table includes managed
care and fee-for-service enrollees. The exact number of FFS enrollees in 1990 is not available.
Estimate is provided to CRS by AHCCCS.
NA = Not available. CRS has not obtained this data.
Medicaid and Other State Spending on Services for Elderly
and Persons with Physical Disabilities
Table 12 shows a breakdown of total expenditures for long-term and acute care
services, including capitation payments made to MCOs, other payments on behalf of
beneficiaries, and payment adjustments. Between CY1999 and CY2002,
administration was the fastest expenditure component of AHCCCS payments on
behalf of elderly and physically disabled persons enrolled in ALTCS, followed by
home and community-based services. Institutional care grew by 23.8%. According
to Arizona’s Community Based Services and Settings Report, growth in AHCCCS
payments has consistently been lower than the sum of annual enrollment and
inflationary trends.

CRS-35
Table 12. Long Term Care Expenditures for Managed Care by
Category for the Elderly and Physically Disabled,
Contract Years 1999-2002
(in millions)
Percentage
Payments by service
change
category
CY1999
CY2000
CY2001
CY2002 (est.)
1999-2002
Total expenditures
$382.1
$409.8
$487.2
$557.2
45.8%
Institutional
$230.2
$239.6
$263.9
$284.9
23.8%
HCBS
$66.9
$70.1
$103.4
$133.9
100.1%
Case management
$11.0
$12.8
$15.7
$16.4
49.1%
Acute care
$56.0
$66.7
$76.9
$85.0
51.8%
Administration
$18.1
$20.6
$27.3
$36.9
103.8%
Source: Data provided to CRS by ALTCS Officials, Dec. 2002.
Capitation Payments Per Capita. As described above, capitation rates are
determined on a per person basis and thus vary by MCO and case mix. Table 13
presents an example of the components of the capitation payments for various
components of Arizona’s long-term care program for CY1995-CY2002. The average
total capitation rate for CY2002 was $2,451.34. The rate is devised by summing the
following payment rates: net nursing facility (row 4); net home and community
based services (row 7); acute care (row 8); administration (row 9); case management
(row 10); and risk, profit and contingency costs (row 11). The resulting amount —
$2,750.95 in CY2002 — is then reduced by the individual enrollee’s share of the cost
(row 12) to equal the total capitation rate for the year.
Following is a detailed description of the components of the capitation rates.
The first three rows pertain to nursing facility payments:
! Expected nursing facility rate (row 2). This rate is the average
amount ALTCS expects to pay for total nursing facility services. It
is adjusted to account for expected utilization, geographic region and
MCO contract agreements.
! Nursing facility placement rate (row 3). This rate refers to the
percentage of people ALTCS expects will use nursing home care in
a given year. MCOs that place fewer individuals in nursing facilities
than ALTCS expects may apply the savings they incur to other
spending categories or keep the savings for profit.
! Net nursing facility payment (row 4). This percentage is the actual
amount paid to the MCO. It equals the product of rows 2 and 3.
The following three rows in the table pertaining to home and community-
based services (HCBS) can be described using a similar logic.

CRS-36
! Expected home and community-based placement percentage (row 5).
This is the average amount that ALTCS pays for the total cost of
home and community-based services. It is adjusted to account for
expected utilization, geographic region, and MCO contract
agreements.
! Expected home and community-based placement percentage (row 6).
This refers to the proportion of MCO enrollees ALTCS expects will
use home and community-based services.
! Net home and community-based services (row 7). This payment is
the product of rows 5 and 6. MCOs that pay less for home and
community-based services than the ALTCS allotment, may apply
their savings toward other spending categories or keep them for
profit.
The capitation rate also includes a payment by AHCCCS to cover the acute care
services provided to ALTCS recipients (row 8). These services include all other
Medicaid-covered services, such as prescription drugs, physician visits, therapy
services, hospitalization, etc. Administrative costs (row 9) and case management
(row 10) include payments for the administration and coordination of services for all
Medicaid covered long-term and acute care provided to ALTCS beneficiaries. The
row referring to risk, profit and contingency (row 11) refers to extra payments made
to the MCOs for potential liability for unexpected costs.
There are two ways in which members may be required to contribute toward the
cost of their care (row 12, Table 13), depending upon whether they use institutional
care or care provided in home and community-based settings. After enrollment in
ALTCS, beneficiaries receiving home and community-based services may become
responsible for paying some portion of the costs of their care, after deductions (or
income disregards) are made for their living expenses in the community. Arizonans
enrolled in the home and community-based services program may retain income up
to the maintenance needs allowance, or $1,656 per month in 2003, to be used by
beneficiaries receiving home and community-based services in the community. This
money may be used to cover living expenses, such as housing, personal items,
transportation, among other items. Beneficiaries that have income exceeding the
monthly maintenance needs allowance — such as income in a Miller Trust — must
apply this money toward the cost of their care. For persons in nursing homes or other
institutions, Medicaid requires states to reserve a personal needs allowance from a
beneficiary’s income. This amount may be used to cover various personal care items
not included in the institution’s basic charge, such as clothing, individual preferences
on personal care items (e.g., hair products or cosmetics), social support (telephone,
stationary, etc.), and occasional outings. As of 2003, Arizona’s personal needs
allowance is $82.80 per month. The remainder of nursing home residents’ income
must be applied to the cost of their care.

CRS-37
Table 13. ALTCS Capitation Rates Per Capita; Weighted
Average for Elderly and Physically Disabled by Component
Contract Years 1995-2002, Selected Years
CY1995
CY1997
CY1999
CY2001
CY2002
Rate component
Per member per month
1. Total capitationa
$2,075.74
$2,165.64
$2,233.32
$2,323.42
$2,451.34
2. Expected nursing facility
$2,525.17
$2,703.79
$2,811.67
$3,040.02
$3,243.73
3. NF placement percent (target)
69.52%
62.79%
58.26%
52.58%
48.03%
4. Net NF payment
$1,755.50
$1,697.71
$1,638.08
$1,598.44
$1,557.96
5. Expected HCBS
$685.13
$709.31
$772.98
$924.13
$1,048.01
6. HCBS placement percent
30.48%
37.21%
41.74%
47.42%
51.97%
(target)
7. Net HCBS
$208.83
$263.93
$322.64
$438.22
$544.65
8. Acute care
$276.20
$294.40
$344.83
$360.85
$376.52
9. Administration
$111.27
$138.85
$149.22
$146.56
$162.94
10. Case management
$48.00
$55.17
$58.94
$66.14
$72.65
11. Risk, profit, and contingency
$8.56
$38.08
$39.15
$38.02
$36.23
12. Member share of cost
($332.61)
($322.50)
($319.54)
($324.81)
($299.61)
Source: Data provided to CRS by AHCCCS, Dec. 2002.
a. Total capitation refers to the per capita weighted average across MCOs.
Other Long-Term Care Programs for the Elderly and
Physically Disabled
Funding for non-medical home and community-based services (NMHCBS)
system for elderly and physically disabled individuals with income and assets that
exceed Medicaid eligibility thresholds is provided by a state appropriation, Older
Americans Act, and the Social Services Block Grant, as well as other local funding
sources. Total expenditures for all services were $28.6 million in state fiscal year
(SFY) 2001.57 State and local funds made up more than one-half of the total dollars
spent on the NMHCBS system in Arizona (Table 14).
57 Arizona state fiscal year is from July 1 to June 30.

CRS-38
Table 14. Non-Medical Home and Community Based Services
System Arranged by the Arizona Department on Aging, State
Fiscal Year 2001
(in millions)
Source
Amount
Percent of total
Total funding for NMHCBS
$28.6
100%
Total state government allotment
$7.9
27.6%
Older Americans Act
$4.0
14%
Social Services Block Grant
$4.0
14%
Local funds
$7.1
24.8%
Other federal funds
$5.6
19.6%
Source: Arizona’s Community Based Services and Settings Report, May 2002.
Medicaid and Other State Spending on Services for Persons
with MR/DD
ALTCS spending for persons with mental retardation and developmental
disabilities in managed care totaled an estimated $388.4 million in 2002. This
amount includes payment for long-term care services as well as other Medicaid costs
for this population, including acute care, case management, and administration.
Slightly more than two-thirds of expenditures in CY2002 were used to pay for home
and community-based services, with a much smaller amount (4.3% in CY2002) used
to pay for institutional services. Managed care expenditures for persons with
MR/DD also included acute care, case management, other medical services and
administration (Table 15).

CRS-39
Table 15. ALTCS and Other Managed Care Expenditures for
Persons with MR/DD, Contract Years 1999-2002
(in millions)
Service category
CY1999
CY2000
CY2001
CY2002 (est.)
Total expenditures for ALTCS
$264.7
$311.8
$361.1
$388.4
and other services
Total institutional expenses
$14.3
$15.2
$16.5
$16.6
Skilled nursing
$3.3
$3.7
$4.4
$2.7
ICF-MR
$11.1
$11.5
$12.1
$13.9
Total HCBS expenses
$177.5
$206.1
$246.0
$259.8
State operated group homes
$4.2
$4.4
$4.5
$5.2
Vendor operated group homes
$92.9
$105.0
$123.1
$124.8
Assisted living center
$6.8
$7.2
$8.0
$9.5
Other
$73.5
$89.6
$110.4
$120.3
Acute care
$34.9
$46.7
$47.5
$54.6
Case management services
$11.7
$13.2
$14.6
$18.6
Other medical services
$3.0
$3.4
$3.8
$8.0
Administration
$23.2
$28.1
$32.7
$30.8
Source: CRS analysis of data provided to CRS by AHCCCS, Dec. 2002.
Note: Numbers may not add to totals due to rounding.
AHCCCS’ average capitation payment for persons with MR/DD was $2,623 per
enrollee in CY2002. This is $172 more than the average capitation payment ($2,451)
AHCCCS paid per aged or physically disabled enrollee in the same year. The
components of the capitation payment for persons with MR/DD are shown in Table
16. Capitation payments covered expected use of HCBS and institutional services,
Medicaid covered acute care services, and estimated administration costs associated
with service provision. AHCCCS also paid an amount for contingency costs to cover
the risk that service costs for participants may exceed the expected payments.
Payments for behavioral health services, a service provided through AHCCCS’ acute
care program, are also included.

CRS-40
Table 16. AHCCCS Capitation Rates Per Capita; Weighted
Average for DDD Population by Component, CY1999-CY2002
CY1999
CY2000
CY2001
CY2002
Total capitation
$2,302.81
$2,593.72
$2,496.45
$2,623
Home and community-based and
1,630.09
1,888.24
1,774.2
1,883.1
institutional services
Acute care services
350.43
339.92
339.92
320.39
Case management services
99.57
104.66
104.66
108.58
Administration
174.37
195.87
184.16
210.48
Risk/contingency
22.54
37.93
36.04
37.84
Behavioral health services
25.81
27.10
57.46
62.63
Source: Data provided to CRS by AHCCCS, Dec. 2002.
State-Only Funded Home and Community-Based Programs for
Persons with Mental Retardation and Developmental Disabilities.
Arizona provides general revenue from an annual state appropriation for the non-
medical home and community based services (NMHCBS) program for persons with
MR/DD whose income and assets exceed Medicaid eligibility thresholds. The
appropriation for SFY2002 was $2.4 million. This is $3.3 million less than the
allotment of $5.7 million in 2000, and $300,000 less than the amount allotted in
2001. Despite the decrease in funding, enrollment grew by 6% between 2000 and
2002 (Table 17).
Table 17. Enrollment and Funding for Arizona’s Non-Medical
Home and Community Based Services Program, 1995-2002
Date
Number of enrollees
Funding allotment
June 1995
6,998
not available
June 1999
6,955
not available
July 2000
6,952
$5.7 million
July 2001
7,190
$2.7 million
July 2002
7,377
$2.4 million
Source: DES state officials via telephone and email, Jan. 2002.

CRS-41
Issues in Financing and Delivery of
Long-Term Care Services in Arizona
Selected issues raised by Arizona state officials, consumers, providers and other
stakeholders as well as unique characteristics of the states’ long-term care programs
are discussed below. Concerns addressed through task forces developed by the
Arizona legislature, such as the intra-agency committee on long-term care and the
Elder Issues Task Force, are also identified.
Cost-Effectiveness of Home and Community-Based Services. For
years, program administrators, state legislatures, governors, and Members of
Congress have debated the cost-effectiveness of home and community-based care in
lieu of institutional care. Broad disagreement persists among stakeholders
concerning the savings that might occur if the Medicaid program were to invest in
a broader array of home and community-based services for more individuals
(Medicaid gives states the option to cover home and community-based services, but
does not mandate them). Many assert that the per capita costs would decrease for
persons living in the community with low care needs and increase for persons with
very high care needs. Others claim that a larger investment in home and community-
based services by Medicaid would encourage many more people to enroll in
Medicaid and thus increase total expenditures.
At the time of ALTCS’ inception, program administrators were committed to
using home and community-based services as an alternative to nursing home care.
Federal agency staff at CMS (then called the Health Care Financing Administration,
HCFA), were concerned that clients would use home and community-based services
as a complement to nursing home care rather than as a substitute, and that total
program expenditures would increase due to an overall increase in utilization. CMS
was also concerned that more Arizonans would be attracted to ALTCS’ home and
community-based service options, and substantial increases in enrollment would
result. To contain ALTCS’ growth, CMS capped total home and community-based
service expenditures at no greater than 5% of the ALTCS budget for the elderly and
disabled in 1989. This cap increased steadily over the years. By 1995, CMS had
raised the cap to 45%. The cap was removed on October 1, 1999, partly as a result
of a study commissioned by CMS.
A study by William Weissert, Ph.D. in 1997 found that the use of home and
community-based services for individuals with a high risk of a prolonged stay in a
nursing home resulted in substantial savings for ALTCS, even after subtracting the
cost of the home and community-based services that were provided in lieu of nursing
home care. He also found that the use of home and community-based services for
clients with a low probability of a long nursing home stay may be even greater than
what would otherwise have been spent for their care in nursing homes. Finally,
Weissert’s study did not find sufficient evidence of increased enrollment.58
58 William G. Weissert, Timothy Lesnick, Melissa Musliner, and Kathleen A. Foley, “Cost
(continued...)

CRS-42
Integration of Acute and Long-Term Care Services. Many states
divide the responsibility of providing Medicaid-covered long-term care services and
Medicaid-covered acute care services among different programs and/or agencies.
Payment and management of services for these individuals are often further
complicated for those dual eligibles that receive payment for many of their acute
care services by Medicare. For these persons, the coordination of care and the
payment sources for that care are divided across three programs and/or agencies.
Several advocates and constituency groups have asserted that this division of
responsibility in caring for dual eligibles has contributed to a fragmented health
services delivery system, fraught with administrative inefficiencies and incentives to
shift costs across programs.
Unlike other states, Arizona has arranged for the provision of Medicaid acute
and long-term care services under a single agency, AHCCCS. Persons that are
eligible for long-term care services and are enrolled in managed care, receive all of
their Medicaid-covered services through a single MCO. According to state officials,
centralizing the payment and administration for both categories of services allows the
state to use its spending authority to uniformly apply certain Medicaid policies across
all Medicaid-covered services provided to certain individuals and all providers of
those services. The fact that a single MCO is responsible for coordinating all
Medicaid-covered services may also simplify the program’s coordination with
Medicare for those beneficiaries who are dual eligibles. Arizona’s integration of
acute and long-term care services could serve as a model to states interested in
developing a more seamless system of care delivery.
Despite this integrated system, some advocates expressed an interest in
eliminating the administrative inefficiencies associated with using multiple payers
and delivery systems between Medicare and Medicaid for dual eligibles. One
suggestion pertained to the pooling of Medicare and Medicaid financing to promote
financial and service integration. Another suggestion was to consolidate the program
rules to promote improved administrative integration.
Cost-Containment Initiatives. The ALTCS system incorporates a number
of cost-containment initiatives integrated into its managed care system. The
following describes some of these initiatives:
! Capitation Payments. Capitation payments paid to MCOs are made
on a per month, per beneficiary basis. Payments are adjusted to
account for the number of clients ALTCS expects that the MCO will
place in home and community-based settings versus institutional
settings. By paying capitated payments to MCOs, AHCCCS shifts
a lot of the risk for cost overruns away from the Medicaid agency
onto the MCOs.
! Provider Payments. Rather than standardize provider
reimbursement levels at the same level, MCOs have flexibility to
58 (...continued)
Savings from Home and Community-Based Services: Arizona’s Capitated Medicaid Long-
Term Care Program,” Journal of Health Politics, Policy and Law, vol. 22, no. 6, Dec. 1997.

CRS-43
determine the amounts to pay providers. This flexibility allows
MCOs the opportunity to adjust payment levels according to their
needs to contain costs. Anecdotal evidence from state providers
suggests that there is significant variation in the amounts paid to
MCO providers.
! Cost-Effectiveness Tests. ALTCS requires that case managers apply
cost-effectiveness tests when developing care plans. This test
discourages placement in nursing homes or ICF/MRs for persons
whose needs could be met in home and community-based settings
at lower cost. State officials report that per capita spending on
individuals enrolled in home and community-based services is often
less than per capita spending on institutional care.
! Profit Incentive. State laws allow MCOs to keep excess funding not
spent on the cost of care as profit. Some advocates raised concerns
about the use of Medicaid dollars for profit. State officials
interviewed contend that the incentive for MCOs to earn profits has
contributed toward increasing home and community-based
participation in ALTCS. AHCCCS administrators monitor profit
margins of participating MCOs and may adjust payments for future
years to MCOs to control for continued high profits.
ALTCS Eligibility. Advocates, providers and state officials raised a number
of concerns pertaining to the implementation of eligibility rules, equity of access to
services and delays in eligibility determinations. While Arizona’s financial eligibility
standards enable the state to contain ALTCS spending, they may also make the
administrative process of applying for Medicaid difficult for some people. For
example, persons whose income exceeds 300% of SSI may place excess income into
a Miller trust (see eligibility section above). For many, the placement of funds in a
trust may require paid assistance, such as by an attorney or accountant. In addition,
persons may find the resources criteria particularly stringent, especially those who
need assistance to remain in their homes. For example, qualifying for Medicaid
would leave an enrollee without saved resources to pay for needed household
expenses and emergencies.
Despite the fact that the long-term care system is centrally managed, advocates
claim that inconsistencies in the implementation of the program exist across the state.
For example, advocates and consumers asserted that not all ALTCS eligibility
workers apply eligibility standards and income and resources counting procedures in
the same way. They asserted that one individual may be found eligible in one county
and denied coverage altogether in another county.
Advocates also have expressed concern about long delays in the eligibility
determination process, especially for persons who require home assessment visits.
Advocates assert that these delays are often too long to wait for persons with
relatively urgent long-term care needs.
Lack of Presumptive Eligibility Authority. The Medicaid statute prohibits
state Medicaid agencies from making retrospective payments to home and
community-based providers that serve persons before they are enrolled in the
Medicaid program. It does not, however, prohibit Medicaid agencies from making

CRS-44
retrospective payments to nursing homes for this purpose. Thus, home and
community-based providers generally do not serve persons until their Medicaid
eligibility is established, thus limiting their services to persons who can afford to pay
out-of-pocket and persons who are enrolled in ALTCS. These providers are often
hesitant to assume the financial risk of providing care to individuals pending ALTCS
determination because providers generally do not have sufficient resources to recover
the cost of uncompensated care.
In contrast, advocates explained that nursing homes are often the most reliable
providers for persons who need services immediately and cannot wait until they
receive notification of enrollment from ALTCS. Nursing homes can often assume
the risk of ALTCS denial because denial would require the individual to spend down.
Given the generally high price of nursing home care, the clients often deplete their
income and resources within a predictable period of time, usually 6 months to a year.
In addition, some Medicaid certified nursing homes facilitate the application process
by assisting applicants in the filing of eligibility forms. Once enrollment in ALTCS
is approved, federal guidelines require states to make retroactive payments for
covered services up to 3 months prior to the day of application.59 As a result,
advocates assert that this difference in the ability of providers to assume risk creates
excessive reliance on institutional care.
Eligibility for State-Only Funded Programs. Arizona, through its state-
only funded programs for the elderly, persons with physical disabilities and persons
with MR/DD have addressed some of the Medicaid financial eligibility barriers.
These programs allow persons with functional impairments to qualify without
undergoing financial tests. By providing services to persons before they deplete their
income on care, non-medical home and community-based services may help delay
or prevent persons from becoming eligible for ALTCS. State budget allocations,
however, limit the amount of funding available to serve all of the persons needing
assistance.
State-only funded programs may serve as models for other states that have the
financial capacity to expand the pool of eligibles. They may also serve as examples
for any federal initiatives that may be proposed to expand eligibility. The state
maintains a waiting list for this program.
Long-Term Care Staffing. As in all states, the majority of long-term care
in Arizona is provided by direct care providers, including registered nurses, licensed
practical nurses and paraprofessionals (home health aides, nursing aides, personal
care and home care aides). There have been widespread accounts across the nation
of hospitals, nursing homes, home health agencies and other long-term care providers
59 A state’s Medicaid plan must provide that Medicaid eligibility is effective no later than
the third month before the month of application if the individual (1) received Medicaid
services, at any time during that 3-month retroactive eligibility period, or a type covered
under the plan; and (2) would have been eligible for Medicaid at the time he received the
services if he had applied (or someone had applied for him), regardless of whether the
individual was alive when application for Medicaid was made. The state’s Medicaid agency
may make eligibility effective on the first day of a month if an individual was eligible at any
time during that month. Medicaid Manual §14,703.

CRS-45
having great difficulty attracting and retaining nursing and paraprofessional
personnel. Arizona faces this challenge as well.
Speculation by advocates suggest that a lack of sufficient child care and
affordable housing contributes to the state’s difficulty in hiring qualified staff.
According to advocates, this problem is particularly acute in Arizona’s rural areas
that have high costs of living, such as Prescott in Yavapai County. The need for
workers to travel long distances in rural areas between the homes of program
participants, often navigating unpaved roads, magnifies the difficulty of retaining
qualified staff. Advocates also explained that the relatively low wages, limited or no
employee benefits, and insufficient opportunities for professional development (such
as promotions and training opportunities) offered to paraprofessionals have
magnified the problem.
State officials and advocates also explained that training of staff on reservations
is often inadequate to meet ALTCS standards. Without a sufficient supply of
providers on reservations, ALTCS occasionally requires Native Americans to leave
their reservations to receive care. At the core of all these challenges are issues
concerning quality of care and adequacy of the supply of those nurses and
paraprofessionals who play a central role in providing long-term care services.
Arizona’s task force on the future of long-term care made a number of
recommendations to the state legislature. In response, AHCCCS raised rates in
CY2001 by 10%. These rates were intended to pay for increased wages and benefits
for nursing paraprofessionals. The following year, the state legislature passed an
approximately 15% rate increase to be paid to MCOs. These increases were
restricted for use toward higher wages and or benefits for nursing aides and became
effective in CY2002.
Assisted Living as an Alternative to Nursing Home Care. Providers
and advocates in Arizona expressed concern about increased disability levels of
clients in community-based settings in recent years. Anecdotal evidence suggests
that this increase is particularly apparent in assisted living facilities. Assisted living
residents, as reported by advocates and providers, are looking increasingly more like
nursing home residents of 5 years ago. Caring for persons with acute disabilities in
assisted living settings, raises concerns about safety and quality of care. States have
demonstrated significant variation in the degree to which they monitor the care that
is provided in these facilities as well as the training that is offered to caregivers.
Unlike most states, Arizona established rules in 1998 to oversee assisted living
facilities. In addition, AHCCCS requires MCOs to oversee the care provided to
ALTCS beneficiaries in assisted living facilities.
Other Issues. Other issues raised by advocates, providers and state officials
are:
! Consumer Choice. One of Arizona’s 15 counties offer participants
a choice between MCOs (Maricopa County). Once enrolled in a
MCO, ALTCS participants many select within the range of
providers available. Consumer-directed care on a larger scale is not
done formally in Arizona.

CRS-46
! Estate Planning and Avoidance of Estate Recovery. State officials
reported that although there may be a small number of people
sheltering assets in order to qualify for ALTCS sooner than they
otherwise would, the number is growing. Many people shelter assets
in trusts (i.e., Pooled Trusts), annuities and other financial
instruments that are deemed “not available” to the Medicaid
applicant to pay for long-term care. Anecdotal evidence was also
presented about the growing incidence of persons who shelter assets
so as to avoid Arizona’s Medicaid Estate Recovery program.
! Provider Costs Liability Insurance. Nursing home providers were
unanimous in their concern about the increasing costs of liability
insurance and the absence of state caps on punitive damages. This
issue was raised by many of the provider groups who were
interviewed for this study.
! Affordable Housing. State officials, advocates and providers raised
concerns about limited access to affordable housing for older and
working age persons with disabilities. They also expressed concern
about the limited ability to use Medicaid dollars to cover room and
board expenditures for ALTCS enrollees.
! Uneven Distribution of Providers. Advocates asserted that shortages
of certain providers, such as adult day care agencies or nursing
homes, were prevalent in some counties and available in only
limited supply in other counties. Part of this problem may be
attributed to MCOs’ flexibility in setting payment levels for local
providers. Another reason is that the majority of the population lives
in the Phoenix and Tuscon metropolitan areas and thus fewer
providers can be found outside of these areas. They explained that
rural areas often experience a higher scarcity of providers than urban
areas in the state.

CRS-47
Appendix 1. About the Census
Population Projections
“The projections use the cohort-component method. The cohort-component
method requires separate assumptions for each component of population change:
births, deaths, internal migration (Internal migration refers to state-to-state migration,
domestic migration, or interstate migration), and international migration. The
projection’s starting date is July 1, 1994. The national population total is consistent
with the middle series of the Census Bureau’s national population projections for the
years 1996 to 2025.” (Paul R. Campbell, 1996, Population Projections for States by
Age, Sex, Race, and Hispanic Origin: 1995 to 2025, U.S. Bureau of the Census,
Population Division, PPL-47. For detailed explanation of the methodology, see same
available at [http://www.census.gov/population/www/projections/ppl47.html].)

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Appendix 2
Table A-2. Population in Large State Facilities for Persons with
Mental Retardation/Development Disabilities, Closure Date, and
Per Diem Expenditure
Average
daily
Average per
Large state MR/DD
Year
Residents
MR/DD
diem
facilities or units
facility
Year
with MR/DD
residents
expenditures
operating 1960-2001
opened
closed
on 6/30/01
FY2001
FY2001
Arizona Training
1973
1988
—
—
—
Program (Phoenix)
Arizona Training.
1970
1995
—
—
—
Program (Tucson)
Arizona Training
1952
—
158
160
$270.23
Program (Coolidge)
Arizona State Hospital
1978*
1994
—
—
—
(Phoenix)
Source: Residential Services for Persons with Developmental Disabilities: Status and Trends
Through 2001, Research and Training Center on Community Living, Institute on Community
Integration/UCEED. University of Minnesota (June 2002).
* estimate.