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Medicaid: Challenges Beneath The Surface

Where The Action Really Is: Medicaid And The Disabled

Abstract

 
Discussions of Medicaid tend to focus on low-income children and their mothers and the institutionalized elderly as the principal beneficiaries, but Medicaid spends more on the nonelderly disabled than on any other group. In the past two decades Medicaid has helped finance the deinstitutionalization of the mentally retarded and a growing proportion of the mentally ill, but implementation of the Olmstead decision has deflected advocates’ attention from the more important issue of how managed care plans treat disabled Medicaid beneficiaries.

Long-term care for the frail elderly is a serious public policy and service delivery problem, on which we have made far too little progress. But it is not nearly as large a part of the Medicaid issue as people tend to think. In fact, none of the components of the conventional wisdom described in the previous paragraph are true, or even mostly true. While states—needless to say—vary enormously from one to another, spending on behalf of nonelderly disabled Medicaid beneficiaries has grown much more quickly in most states than spending on the elderly has. There are many more of the former than the latter, and total spending for the former greatly exceeds that for the latter. Indeed, more money is spent on long-term care for the nonelderly than for the elderly. And nursing home spending accounts for only a shrinking minority of total long-term care spending for disabled Medicaid beneficiaries.

The impact of the disabled on Medicaid enrollment, spending, and service delivery is less visible than it might be, because the Medicaid disabled are themselves so heterogeneous. At least four distinct groups are involved: disabled children; physically disabled but cognitively intact nonelderly adults; the developmentally disabled; and people with severe and persistent mental illnesses. Overlapping these categories, but significant on both quantitative and policy dimensions, are people with AIDS, those with substance abuse problems (although substance abuse as a primary source of disability disqualifies a person for Supplemental Security Income, or SSI, and Medicaid, it is a common comorbidity with qualifying conditions), the blind, and people with traumatic brain injuries.

What these diverse beneficiaries have in common, in addition to extensive, often costly medical needs, is that most of them fall into identifiable groups for whom care has long been a responsibility of the states. States have been the principal providers of support and services to disabled children and the blind since the enactment of the Social Security Act in 1935; their responsibilities for the mentally ill and developmentally disabled became recognized and codified almost a century earlier. The "Medicaidization" of these populations has occurred at different rates in different states at different times, and it is still going on in many parts of the country, but in the aggregate these changes have an economic and delivery system effect far larger than any other changes in Medicaid in the past two decades.

Because Medicaid spending for the disabled may supplant other state funds that had historically provided services to these populations, the fiscal implications of the growth in spending on the disabled may be more complicated than it initially appears. What is often most complicated is the political dynamic involving the state agencies that have historically been responsible for specific populations such as the mentally ill adults or disabled children, as they increasingly interact with the single state Medicaid agencies as well as budget offices, advocacy and provider groups, and representatives of local interests with a stake in existing institutions. These politics are very different from those surrounding nursing homes or community-based services to the elderly or other Medicaid populations, and they become increasingly salient as the disabled populations and the Medicaid spending on behalf of those populations continue to grow.

After briefly describing who the Medicaid disabled are and exploring how Medicaid finances services for them, this paper discusses the two most visible current issues: implementation of the Supreme Court’s decision in Olmstead v. L.C., which requires states to minimize institutionalization in care of the disabled; and the more than one million disabled Medicaid beneficiaries enrolled in managed care plans that lack specialized capabilities in caring for the disabled. The former issue, I argue, has attracted most of the advocates’ and policymakers’ attention, but the latter affects more beneficiaries more directly.

The Medicaid Disabled

Top The Medicaid Disabled Patterns Of Spending Olmstead And The Politics... The Politics Of State... Conclusions: The Disabled And... NOTES

 
Commentors on Medicaid often note that while the elderly and disabled account for roughly one-quarter of Medicaid beneficiaries, they account for upward of two-thirds of program spending, but people tend to remember only the first but smaller part of that combination. About seven million people qualify for Medicaid on the basis of disability, including about two million who are dually eligible for Medicare.¹ That constitutes 15–20 percent of all Medicaid beneficiaries, compared with about 10 percent of Medicaid beneficiaries who are elderly (almost all of whom, of course, are also eligible for Medicare). Furthermore, the actual number of elderly Medicaid beneficiaries has remained almost static for the past twenty-five years—with the elderly thus accounting for a shrinking share of all Medicaid beneficiaries as the program has grown—while the number of disabled beneficiaries has roughly doubled.²

Depending on how one accounts for disproportionate-share hospital (DSH) payments, the nonelderly disabled account for 40–43 percent of all Medicaid spending, as opposed to roughly 27–30 percent for the elderly. In most states, both the number of disabled eligibles and spending per eligible have been growing more rapidly in recent years than have the number of elderly or spending per elderly beneficiary (Exhibit 1).

View larger version (32K): [in this window] [in a new window]   EXHIBIT 1 Distribution Of Medicaid Payments By Eligibility Group, Fiscal Years 1978 And 1998

As scholars of all political stripes have long recognized, "disability" is an inherently plastic and culturally specific concept.³ Efforts to develop and enforce more objective criteria for disability status understandably preoccupy public officials but have never been entirely successful, and probably cannot be. In a society in which seventeenth-century concepts of "less eligibility" still dominate and in which access to health insurance is limited to those who are members of a "deserving" category, disability becomes a catchall bucket into which officials can classify all sorts of different folks who have real needs for which it is difficult or too uncomfortable to hold them personally responsible. Among the criteria that define categorical Medicaid eligibility, definitions of disability are certainly far less precise than age or parental status.

Reliable numbers of "the disabled" are extremely hard to come by, but the best guess is that roughly two million of the seven million Medicaid disabled are children.⁴ That number undoubtedly includes most of the developmentally disabled/mentally retarded people younger than age eighteen, but there is a large and growing number of mentally retarded disabled beneficiaries older than eighteen, including the roughly 400,000 who are receiving residentially based, Medicaid-covered long-term care services. Membership in the other subcategories of disabled beneficiaries is even harder to estimate.

Patterns Of Spending

Top The Medicaid Disabled Patterns Of Spending Olmstead And The Politics... The Politics Of State... Conclusions: The Disabled And... NOTES

 
Spending by category of disability is also hard to track, except when the services are provided under home and community-based service waivers, for which Charlene Harrington and colleagues have made the most sophisticated estimates. On average, Medicaid spends just under $10,000 per year per disabled enrollee, but for those in waiver programs, the amount varies from an average of roughly $3,600 per enrollee per year for people with AIDS to about $28,000 a year for the mentally retarded, and slightly more for those with traumatic brain injury.⁵

The mentally retarded. While the majority of Medicaid beneficiaries enrolled in home and community-based service waivers are elderly, roughly three-quarters of expenditures under such waivers are on behalf of the developmentally disabled. When the waiver provisions, Section 1915(c) of the Social Security Act, were enacted in 1982, they were explicitly targeted at providing an alternative to nursing homes for the frail elderly and modeled on prototypical programs in New York and California. But the early years of the waiver’s history coincided with the legal and political efforts to deinstitutionalize the mentally retarded. Home and community-based waivers became the principal vehicle for doing so. One statistic in that regard is especially compelling: In 1977, 54,000 people age twenty-one and younger resided in large state institutions for the developmentally disabled (large is defined as more than sixteen beds, although most such facilities maintained literally hundreds of beds). In 1998 that number was less than 3,000.⁶

Given that in many communities, relatively decent systems of community-based services have been established for people who previously would have resided in state facilities, it is no exaggeration to say that the deinstitutionalization of the mentally retarded constitutes one of the greatest advances in late-twentieth-century social policy. That process was primarily the result of tireless advocacy by clients’ families; enormously effective legal work, often provided by volunteer attorneys; some courageous judges; and some inspired public officials.⁷ But Medicaid was the financial vehicle that, if it did not make deinstitutionalization possible, at least made it much less fiscally painful for many states.

The mentally ill. In general—recognizing the special peril of generalizing about both Medicaid and state mental health policies in the same sentence—the deinstitutionalization of the seriously and persistently mentally ill has not been nearly as successful as that of the mentally retarded, either in the extent to which clients have been successfully relocated to community settings or in the quality and quantity of the services they have received when they got there. Medicaid’s prohibition on payments to "institutions for mental diseases" for beneficiaries ages 21–64 appears to have constrained the states more in this instance than in the case of the retarded, who tend to enter care at a younger age and to have much more effective advocates. But the lure of federal financial participation has remained strong, and it seems safe to conclude that an increasing share of expenditures on behalf of the chronic psychiatric population—whose care has been defined as a state responsibility since the days of Dorothea Dix before the Civil War—are now charged to Medicaid, either for community-based services or, in a few egregious remaining instances, as DSH payments to vestigial state mental hospitals.⁸ Whatever the quality of those services—and, once again, there appears to be almost infinite variability from one part of many states to another, let alone across the whole nation—the leverage of Medicaid matching funds has probably made more net dollars available to finance those services than were ever available in the past.⁹

People with AIDS. One smaller but significant group of disabled beneficiaries who have been "deinstitutionalized" in the past decade are people with AIDS. The decision by the Social Security Administration in 1983 to define all AIDS patients as disabled, combined with the flexibility inherent in Medicaid, permitted states to construct systems of care around Medicaid financing. In New York, California, Florida, and other states, AIDS activists and health professionals were able—albeit sometimes grudgingly and sometimes too slowly—to construct sophisticated systems of care for terminally ill people with a poorly understood disease in a remarkably short period of time. To be sure, some people continued to fall through the cracks between private insurance and Medicaid eligibility, especially after expensive antiretroviral drugs became available, but even after the Ryan White Act made federal categorical funds available, Medicaid remained the economic engine of AIDS services.¹⁰

Ironically, the impact of new drugs, which prolong the interval between initial HIV infection and symptomatic AIDS and thereby make early testing and diagnosis far more important, has shifted the center of AIDS services away from Medicaid beneficiaries. Understandably, public agencies have been reluctant to classify people whose illness is still asymptomatic as "disabled," but most newly infected HIV patients continue to be people of relatively low income, generally without health insurance, and thus without the means to pay for the drugs that will prevent them from becoming acutely ill, at least for some period of time. Some states have argued that it would therefore be in the best financial interests of the federal government to treat all HIV-infected people as disabled, thus assuring those of low income eligibility for Medicaid and full coverage of the drugs that would delay or eliminate future public spending for Social Security Disability Insurance (SSDI) and the (presumably more expensive) treatment of symptomatic AIDS. To date, however, only a handful of states have managed to get that argument past the cynics at the Office of Management and Budget (OMB), despite the energetic support of Health and Human Services (HHS) officials.¹¹

Nonetheless, while AIDS devastates nations throughout the world and continues at an inexcusably high level in this country, the prognosis for patients who get into the health care system is infinitely better than it was a decade ago, and the demand for inpatient care has plummeted, as people remain healthier longer.

Olmstead And The Politics Of Long-Term Care

Top The Medicaid Disabled Patterns Of Spending Olmstead And The Politics... The Politics Of State... Conclusions: The Disabled And... NOTES

 
Given the extent to which Medicaid coverage of services for the disabled has facilitated the deinstitutionalization of the mentally retarded and the mentally ill (and—another story altogether—in the symbolically powerful but small "Katie Beckett waivers," for institutionalized, severely technology-dependent, special-needs children), it may appear that the Supreme Court’s decision in the much-ballyhooed Olmstead case comes at least partially after the fact. In that 1999 decision, based on statutory interpretation of the Americans with Disabilities Act, the Court found that states have an affirmative obligation to provide services to disabled Medicaid beneficiaries in the least restrictive practicable setting consistent with operational and budgetary constraints.¹²

Of course, Olmstead and her fellow plaintiffs were real people, residing in nursing homes because the State of Georgia failed to make available adequate community-based services for them. Three years after the Court’s decision, though, it is still not clear just how many people are likely to be affected by it. Most nursing home residents still fit the stereotype of extremely frail, elderly people without surviving spouses or the means to remain in the community. To the extent that it would be much more expensive to Medicaid to reestablish and provide for them in the community, Olmstead clearly does not require states to do that. The aggregate data are often confused by the fact that to provide federal matching funds for community residences, many states still classify such facilities as intermediate care facilities for the mentally retarded (ICF-MR), even though most now resemble group homes more than nursing homes.

More to the point, the heart of the administrative issues surrounding Olmstead is the absence in most communities of appropriate alternatives to institutionalization for most of those who should be able to benefit from the decision. Institutionalization of the disabled is not primarily the result of the inertia of callous or indifferent state officials, but rather the consequence of the difficulty of developing and sustaining such services.

In this very sensitive area, it is important that I not be misunderstood: I think that the Olmstead decision is a good thing and that if there is a single Medicaid beneficiary in a nursing home who would rather be in the community, and for whom some kind of in-community services sufficient to keep that person alive and well are at all practical, then that is one too many residents in a nursing home. But Olmstead is the right answer to what is only the smaller part of the problem.

Medicaid managed care. The larger part of the problem has also bedeviled states’ efforts to enroll more of the Medicaid disabled in managed care plans of one sort or another: As of 1998 just over one-quarter of disabled beneficiaries were enrolled in any kind of managed care, including special-needs plans.¹³

In principle, capitated managed care plans (if the capitation rates are adequately risk-adjusted) should have the incentives and the tools to provide high-quality care to disabled enrollees, whose need for comprehensiveness, continuity, and effective care management fits well with managed care’s strengths.¹⁴ Programs that providers and advocates alike point to as models of good care for the disabled include several effective, specialized managed care plans, such as Urban Medical Group in Boston or Independence Care in New York City. But such plans are rare; only a handful of states have an appropriate risk adjustment in capitated payments for disabled beneficiaries; and the majority of such beneficiaries are enrolled in "general purpose" Medicaid managed care plans with, the limited evidence suggests, only the most rudimentary capacity to care for them.¹⁵

It is always important in evaluative discussions of managed care, and especially of Medicaid managed care, not to exaggerate the virtues of the existing system as some golden age of fee-for-service (FFS) medicine. For many of the disabled, the health care system has not worked very well for a long time, and at least some of the proponents of Medicaid managed care have argued that they could hardly make things any worse.¹⁶ In some cases, they have clearly made them much better, in mental health services in a few states, for example. But in a larger number of states, enrollment of the seriously and persistently mentally ill in Medicaid managed care, either specialty carve-outs or mainstream plans, has produced major service disruptions, reductions in access, and enormous client dissatisfaction. Enrollment of the physically disabled, both children and adults, in mainstream managed care plans has also produced substantial conflict and litigation.¹⁷

Comparison of costs. Part of the problem with mandatory managed care for seriously disabled people is that when done right, it may cost more than traditional FFS care, not less. The disabled are a severely underserved population; effective assessment, care planning, and case management may greatly increase their use of services. Moreover, as compared with low-income children and their mothers, who have traditionally encountered barriers to access for relatively inexpensive primary care and preventive services while overusing expensive emergency rooms and inpatient hospitalizations, the disabled have traditionally experienced access barriers to specialized therapists, sophisticated equipment, and so forth, which are themselves quite expensive. That is why appropriate risk adjustment is so important to mainstream plans’ ability to adequately serve disabled beneficiaries and why, when dealing with specialized plans serving only disabled beneficiaries, states are becoming less and less enamored with capitation. Capitating children at $150 or $200 a month is one thing; capitating disabled beneficiaries at $1,500 or $2,000 a month is an entirely different policy question.

Client autonomy. The Olmstead case was born and sustained largely from the increasing energy with which advocates for physically disabled adults, many of them disabled themselves, have focused on client autonomy and self-determination. Freedom from institutions is only one core element of this philosophy; clint-directed services are now a major focus. Disabled adults want to be able to select, train, hire, and fire their paid personal caregivers and to modify, if not create, their own personal plans of care. At the furthest end of the spectrum, this approach is being tested in three states (Arkansas, Florida, and New Jersey) in the Cash and Counseling demonstration project, in which estimated Medicaid benefits are monetized into an account controlled and allocated (within constraints) by the beneficiary.¹⁸

The emphasis on self-determination among disabled adults reflects the growing demands for autonomy and independence among members of many minority groups in an era of personal liberation, but it may also reflect years of frustration and despair with the performance of the conventional system. Clients are driven to take matters into their own hands because they want more say over their own lives, but also because they have concluded that this is the only way in which they will ever get satisfactory service. Even those who are more enthusiastic about self-determination in theory than in practice may see themselves as having little choice if they want to be confident about receiving the care they need.

The Politics Of State Government

Top The Medicaid Disabled Patterns Of Spending Olmstead And The Politics... The Politics Of State... Conclusions: The Disabled And... NOTES

 
As I fear the reader may already have concluded, attempting to provide a coherent discussion of the politics of Medicaid for the disabled is complicated by the heterogeneity of the disabled population and the distinctness of some of the political processes that involve them. Special-needs children, the mentally retarded/developmentally disabled, the severely and persistently mentally ill, physically disabled young adults, and people with HIV/AIDS—all have their own advocates, agendas, and relationships with both elected and executive branch officials. Having relatively little in common other than their dependence on SSI and Medicaid, these groups rarely work together in the political process.

Historically, the subgroups of the Medicaid disabled population have also had separate government agencies with which to work. Most states have had separate departments, or at least subdepartments, for mental health and mental retardation; all have had separate departments or divisions of vocational rehabilitation, sometimes connected with departments of labor, sometimes with education, which generally have had lead responsibility for all services to cognitively intact physically disabled people. Special-needs children have been the responsibility of crippled children’s bureaus, generally within departments of health.

As services for each of these groups have evolved from primarily categorical funding to Medicaid financing, the politics of service financing and delivery have also changed. Acknowledging again the dangers of generalization, in many states the traditional client-focused agencies have become, in effect, advocates for their constituents before Medicaid agencies and the budget officials who oversee them. On the other hand, such agencies have often been protective of their turf, reluctant to cede any control over their clients to Medicaid officials, and sometimes eager to protect their traditional providers—including, in some instances, facilities or organizations run by the agencies themselves—from competition from new entrants. In some instances in which state-operated facilities have been major sources of employment in relatively isolated communities, those communities and the facilities’ unionized workers have joined officials in the client-oriented agencies to frustrate or delay "Medicaidization" and deinstitutionalization.

At the federal level, these changes in state policies have given what is now the Centers for Medicare and Medicaid Services (CMS) an entirely new set of colleagues to which it has to pay attention, especially in the Health Resources and Services Administration (HRSA) and the Substance Abuse and Mental Health Services Administration (SAMHSA) within HHS. In the process of reviewing waiver requests from the states under both Section 1115 of the Social Security Act (for large-scale demonstrations) and Section 1915(b) (for mandatory managed care programs, prior to the Balanced Budget Act), this frequently led to protracted conflicts within HHS, as the client-oriented agencies sought additional protection (or exemption) of their constituents from new managed care arrangements, while what was then HCFA tended to defer more to the state Medicaid agencies, which were often indifferent to such protections. Recognition that HCFA now needed to deal with a much broader range of state agencies than just those directly engaged in Medicaid administration, and that this trend was likely to intensify in the future, was the reason that the Medicaid Bureau became the Center for Medicaid and State Operations in HCFA’s 1997 reorganization.

Conclusions: The Disabled And The Future Of Medicaid

Top The Medicaid Disabled Patterns Of Spending Olmstead And The Politics... The Politics Of State... Conclusions: The Disabled And... NOTES

 
One other dimension of the politics of the Medicaid disabled merits special note. While low-income children and their parents constitute one of the least influential groups in this society, and while elderly Medicaid beneficiaries tend to be disproportionately among the frailest and those with the fewest family supports, disabled beneficiaries are often much better connected to mobilized, or mobilizable, middle-class constituencies. The effectiveness of many organizations of parents of retarded children has been widely recognized, for instance.

This phenomenon has not been invisible, either, to advocates for the Medicaid program. Medicaid serves as the principal safety net for middle-class families suffering catastrophic events—whether the birth of an impaired child or traumatic injury to an adolescent or the onset of mental illness in a young adult. Of course, the quality of this safety net varies enormously from state to state, and even within states, and is often accompanied by all of the stigmatization and bureaucratic harassment that state and local officials can contrive. But in a society in which well-founded anxiety about continued access to health insurance and health care is an increasingly widespread phenomenon, it sure beats the alternative.

Thus, in 1995 and 1996, when Medicaid’s open-ended entitlements were under attack in the "Contract with America" Congress, defenders of Medicaid devoted considerable effort to redefining the general perception of the program from one that primarily benefited poor people to one that protected families that were or had been middle income. It is hard to accuse exponents of that strategy of dishonesty. And, as far as anyone can tell, the strategy seems to have worked, at least in the short term.

As the population as a whole continues to get healthier, medical science continues to advance, and private insurance protections continue to deteriorate, it is likely that Medicaid spending for the disabled will continue to increase, both absolutely and in proportion to other covered populations, barring major policy change. Discussion around Medicaid policy for the disabled (and the elderly) have revolved for two decades around the axis of deinstitutionalization and the development of community-based "alternatives." But for the disabled, the fight for deinstitutionalization has largely been won, in the courts if not always in the hearts and minds of policymakers. The challenge for the next decades is to build an adequate supply of high-quality community-based service systems. In many ways, that may prove to be a more difficult task.

Editor's Notes

 
Bruce Vladeck is a professor of health policy and geriatrics and senior vice-president for policy at the Mount Sinai Medical Center in New York City.

Eliot Fishman and Barbara Cooper provided substantial assistance in the preparation of this paper.

NOTES

Top The Medicaid Disabled Patterns Of Spending Olmstead And The Politics... The Politics Of State... Conclusions: The Disabled And... NOTES

 

1. Kaiser Commission on Medicaid and the Uninsured, "Medicaid Facts: Medicaid’s Role for the Disabled Population under Age Sixty-five" (Washington: Kaiser Commission, April 2001).
2. Centers for Medicare and Medicaid Services, A Profile of Medicaid: Chartbook 2000 (Washington: U.S. Government Printing Office, 2000), 22, 65–66.
3. D.A. Stone, The Disabled State (Philadelphia: Temple University Press, 1984).
4. Kaiser Commission, "Medicaid Facts."
5. C. Harrington et al., 1915 (c) Medicaid Home and Community-Based Waiver Participants, Services, and Expenditures, 1992–97 (San Francisco: Department of Social and Behavioral Sciences, University of California, San Francisco, November 1999), as cited in J. Tilly, S. Goldenson, and J. Kasten, Long-Term Care: Consumers, Providers, and Financing—A Chart Book (Washington: Urban Institute, March 2001), 47.
6. Tilly et al., Long-Term Care, 12.
7. D.J. Rothman and S.M. Rothman, The Willowbrook Wars (New York: HarperCollins, 1984).
8. M. Regenstein, C. Schroer, and J.A. Meyer, Medicaid Managed Care for Persons with Disabilities: A Closer Look (Washington: Kaiser Commission on Medicaid and the Uninsured, April 2000), 27–28.
9. I am indebted to an anonymous reviewer for this point.
10. "Fact Sheet: Medicaid’s Role for Persons with HIV/AIDS" (Menlo Park, Calif.: Henry J. Kaiser Family Foundation, October 2000).
11. Maine Department of Human Services, Bureau of Medical Services, Annual Report to the State Legislature: Medicaid in Maine, SFY 2000 (Augusta: Maine Department of Human Services, 2001), 7.
12. Olmstead v. L.C., 98 US 536 (22 June 1999).
13. Kaiser Commission, "Medicaid Facts: Medicaid’s Disabled Population and Managed Care" (Washington: Kaiser Commission, March 2001).
14. C.C. Boesz, R.C. Armstead, and B.C. Vladeck, "Managed Care: A Foundation for Evolution," in Health Care Management: State of the Art Reviews, ed. H. Jolt and M.M. Leibovici (Philadelphia: Hanley and Belfus, 1995).
15. Regenstein et al., Medicaid Managed Care for Persons with Disabilities, iv–vii.
16. D. Mechanic, "Managed Care for the Seriously Mentally Ill" (Editorial), American Journal of Public Health (June 1992): 788–789.
17. Regenstein et al., Medicaid Managed Care for Persons with Disabilities, 14–15.
18. A.E. Benjamin, "Consumer-Directed Services at Home: A New Model for Persons with Disabilities," Health Affairs (Nov/Dec 2001): 80–95.

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