Exploring Human Potential

The Bob Butler Tribute: Day 7 – Financing Home Health Care


Financing Home Health Care

Mike Magee

Home healthcare covers an increasingly important constellation of health services being delivered in a patient’s home setting. Under this banner exists a complex array of professional, diagnostic, and equipment-support entities which together have, with some success, kept the frail and disabled out of hospitals and out of nursing homes.(1)

Professional services include those of doctors, nurses, dentists, dieticians, rehabilitation therapists, social workers, psychologists, podiatrists and home health aids. Diagnostic services include phlebotomy, ECG, Holter Monitors, Doppler testing, oximetry, radiographic studies and a variety of point-of-care tests. Equipment support includes IV infusion sets, ventilators and oxygen, dialysis, medical alert devices, hospital beds, wheelchairs, commodes and lifts.

The size and complexity of the investment reflects the enormity of the challenge and the multiple benefits that accrue to home-based health solutions. A surprisingly large portion of the American public is home based or home bound, and the numbers are rising. In America, four- and five-generation families are now commonplace; and third-generation Americans, voluntarily or involuntarily, have become the backbone of the unpaid family caregiver movement. (2).

Nineteen percent of the U.S. population over 5 years of age has a disability. (3). Forty two percent of those over 65 have a disability. Of those 14 million disabled Americans 65 and older, only 1.6 million are in nursing homes, leaving 12.4 million as home based. (4). Nine and one-half million people over the age of 50 need assistance with at least one daily living activity. (5).

Coverage of home health services comes from a variety of sources. More than 28 percent is funded through Medicare; 18.5 percent from Medicaid; 23.5 percent from private insurance, 24 percent from patient out-of-pocket, and 5.2 percent from other sources. (6). Private insurers generally dedicate approximately one percent of their budgets to home care coverage. (7).
Medicare coverage has fluctuated wildly in the past ten to fifteen years. To place the numbers in perspective, let’s looks at total home health care expenditures in the U.S. for the year 2000. About $30 billion was paid to home health agencies; $3.5 billion expended on respiratory therapy; $4.5 billion spent on home infusions, and $3 billion invested in home medical equipment. (6).

Now let’s look at Medicare’s contribution. In 1990, Medicare expended a total of $3.9 billion on home care. (8). At the time, it covered primarily acute and post-acute hospital care. But a variety of forces – including aging demographics, early discharge, cost-based home care financing, and declining nursing home beds – helped support a large expansion of services, with more than half of the total resources going to patients who had not been hospitalized. (9).

By 1997, Medicare expenditures for home health services had risen to $17.2 billion, or nine percent of the total Medicare budget. (10). The 1997 Balanced Budget Act provided a financial push back, moving away from non-post-acute care and support for items like blood testing and home aids. (10). As a result, by 1999 Medicare expenditure for home health care had declined to $9.7 billion, or just four percent of the Medicare budget. In human terms, Medicare, in 1997, served 3.5 million home-based patients with 256 million visits. By 2001, it served 2.4 million patients with 73 million visits. (10).

Yet home-based care continues to grow. It is clearly favored by patients and families, and has well-defined benefits. They include improved patient satisfaction compared to nursing homes or hospitals; more accurate information transfer, including medical diagnosis, social assessments, and medication lists; five to seven percent fewer medication errors; and a 22 to 26 percent decline in acute hospitalization. (11.12. 13).

Who’s paying for home care, since the largest portion of the care is largely unfunded? The short-term answer is America’s families – contributing not only their money, but also blood, sweat, and tears. Fully 25 percent of all U.S. citizens are unpaid home care providers. Their contributions are critical to maintaining frail and disabled patients in home settings. In fact, their contributions, translated into dollars, exceed real dollars spent by 600 percent. And for their good works, they are repaid in poorer personal health outcomes, depression and social isolation. (14,15,16).

What’s the good news? People are living longer and happier, largely in home-based settings. But they are managing on the backs of, primarily, third-generation female family members who are stretched thin in every imaginable way.

Home-based caregivers need inclusion and support within care teams. If we wish to use this approach long term, support for family caregivers must include financial, logistical, and emotional expenditures to stabilize what is currently, at best, a rapidly overstressed and over burdened voluntary work force.


1.Levine SA, Barry PP. Home Care. In: Cassel CK, Leipzig RM, Cohen HJ, Larson EB, Meier DE, Capello CF, eds. Geriatric Medicine: An Evidence-Based Approach. 4th ed. New York, NY: Springer-Verlag New York; 2003.

2.Census 2000 Brief. The 65 years and over population: 2000.

3.Census 2000 Brief. Disability status: 2000.

4.Census 2000 Brief. The 65 years and over population: 2000.

5.Kassner E, Bectel RW. Mid-life and Older Americans With Disabilities: Who Gets Help? A Chartbook. Washington, DC: Public Policy Institute, American Association of Retired Persons; 1998.

6.Van der Walde L, Daniels T. CMS Office of Research, Development, and Information. Health care industry market update: home health.

7.Capitation Rates and Data: Volume IV. Atlanta, GA: National Health Information, LLC; 2003.

8.Cotterill PG, Gage BJ. Overview: Medicare Post-acute care since the Balanced Budget Act of 1997. Health Care Finac Rev. 2002;24:1-6.

9.Welch HG, Wennberg DE, Welch WP. The use of Medicare home health services. N Engl J Med. 1996; 335:324-329.

10.Chen Q, Kane RL, Finch MD. The cost effectiveness of post-acute care for elderly Medicare beneficiaries. Inquiry. 2000-2001;37:359-375.

11.Ramsdell JW, Swart JA, Jackson JE, Renvall M. The yield of home visits in the assessment of geriatric patients. J Am Geriatr Soc. 1989;37:17-24.

12.Yang JC, Tomlinson G, Naglie G. Medication lists for elderly patients: clinic-derived versus in-home inspection and interview. J Gen Intern Med. 2001;16:112-115.

13.Meredith S, Feldman P, Frey D, et al. Improving medication use in newly admitted home healthcare patients: a randomized controlled trial. J Am Geriatr Soc. 2002;50:1484-1491.

14.Donelan K, Hill CA, Hoffman C, et al. Challenged to care: informal caregivers in a changing health system. Health Aff (Millwood). 2002;21:222-231.

15.Arno PS, Levine C, Memmott MM. The economic value of informal caregiving. Health Aff (Millwood). 1999;18:182-188.

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