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Health Care Costs and Financing

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State governments assumed an increasing role in funding home care after passage of the 1997 Balanced Budget Act

After increasing dramatically between 1987 and 1996, use of paid home care peaked in 1996 at 6.6 million individuals receiving such care and nearly $34 billion in home care expenditures. Home care use and expenditures subsequently fell between 1996 and 1999, largely due to decreased Medicare funding following the Balanced Budget Act (BBA) of 1997. At that point, State and local governments began to play a greater role in funding home care, according to a study by William D. Spector, Ph.D., and Joel W. Cohen, Ph.D., of the Agency for Healthcare Research and Quality, and Irena Pesis-Katz, of the University of Rochester.

By 1996, the government (Federal, State, and local) funded more than three-quarters of all home care, and Medicare alone paid for more than half (compared with 19 percent in 1987) of home care. However, the overall Medicare share fell to a low of 25 percent in 1999, while the overall share grew for Medicaid (from 17 percent in 1996 to almost 33 percent by 1999) and other State and local programs (from 1.7 percent in 1996 to more than 25 percent of home care expenditures in 1999).

This shift was accompanied by changes in the mix and intensity of services. After the BBA, fewer skilled services were provided to the elderly population (which is consistent with a decline in Medicare funding, which mainly funds skilled care), and more unskilled services were provided to the nonelderly population (most State and local programs focus on personal care). However, with the introduction in 2000 of prospective payment for Medicare home health care and increasing fiscal pressures at the State level, these trends may not continue, note the researchers. Their findings are based on analysis of data from the 1987 National Medical Expenditure Survey and the 1996, 1998, and 1999 Medical Expenditure Panel Surveys.

See "Home care before and after the Balanced Budget Act of 1997: Shifts in financing and services," by Drs. Spector and Cohen and Ms. Pesis-Katz, in the January 2004 Gerontologist 44(1), pp. 39-47.

Reprints (AHRQ Publication No. 04-R039) are available from the AHRQ Publications Clearinghouse.

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