Medicare, Medicaid, and the underinvestment in community life

The United States finances institutional care as essential while treating many of the supports that allow elders and people with disabilities to remain at home as optional, capped, or temporary. This is not a funding gap; it is a structural choice about whose independence policy chooses to protect.

There is a consistent underinvestment in community programs built into the architecture of Medicare and Medicaid. It hits hard on nonprofits that provide much of the home and community services. Financing decisions and allocation rules are disconnected from the lived experience of older adults, people with disabilities, family caregivers, direct-care workers, and the local organizations asked to hold an increasingly fragile care system—the safety net—together.

Medicaid has consequently become the nation’s principal public payer for long-term services and supports, yet federal law treats nursing-facility care differently from most home- and community-based services. Within this structure, community life is frequently treated as optional. This distinction shapes what is built, what is measured, and who carries the risk when formal services are unavailable.

Waiting until a person requires an expensive institutional response before reliably funding supports that might have preserved independence, choice, and family stability is expensive, undignified, and unfair. This issue is particularly urgent because population aging, disability, workforce shortages, rising care costs, and caregiver strain are converging. Current evidence makes the imbalance visible. Medicare expressly states that it does not cover most long-term care, including ongoing assistance with everyday activities provided at home or in a facility.

Treating community-based services as essential, not optional, would provide elders and people with disabilities the resources and support services they need—a meaningful step in placing their needs at the center. This includes, for example, adults with lifelong disabilities and those who are aging, as well as people with intellectual and developmental disabilities living with aging parents or other caregivers. Centers for Medicare & Medicaid Services (CMS) reports that nearly one million US households include an adult with an intellectual or developmental disability supported by an aging caregiver.

Understanding the gaps in our current system

Administrative systems often measure what is visible rather than what communities need. As such, the existence of a benefit or referral pathway does not mean meaningful access. Systems comply with their formal obligations while people still wait for services, families approach collapse, and community organizations operate without durable infrastructure.

There is a consistent underinvestment in community programs, built into the architecture of Medicare and Medicaid.

A recent example is parents of severely impaired children in Florida who were eligible for 80 hours of home care yet received significantly less. Community organizations fill gaps like this by providing navigation, meals, transportation, caregiver support, social connection, prevention, and advocacy—often through fragmented, non-guaranteed, or time-limited funding. The result is that families and community organizations become the default source of coordination and direct support when formal services are unavailable, functioning as the safety net but without adequate funding.

Medicare principally finances medical treatment and generally does not cover the sustained assistance many people need with assisted daily living activities such as bathing, dressing, eating, transportation, meals, and other activities required to remain at home. Medicaid fills part of that gap. However, its statutory structure contains a consequential imbalance: Nursing-facility and institutional services are mandatory for eligible persons, while many home- and community-based services are furnished at the state’s discretion through programs that cap enrollment, maintain waiting lists, and fail to provide the amount of service people need. As an enforceable obligation, institutional care is often prioritized over community care for funding.

Medicare and Medicaid create what might be called an “institutional guarantee” alongside a “community option.” The consequence is that a nursing-facility placement can become an entitlement once eligibility and level-of-care requirements are met. In this case, the assistance that could prevent or delay that placement depends on a waiver slot, an available worker, local program capacity, or unpaid family care.

Medicaid’s structural preference is visible in the numbers: nursing-facility services are mandatory for eligible adults, and CMS confirms that states may not cap that benefit or place eligible people on waiting lists—even though waiting lists are permitted for home- and community-based services. What occurs is pent-up demand. More than 600,000 people were on Medicaid homecare waiting or interest lists in 2025. The average reported wait for services was approximately 32 months, although list definitions and eligibility screening practices vary by state. Family caregivers provided an estimated 49.5 billion hours of unpaid care to adults in 2024. AARP valued that unpaid work at approximately $1.01 trillion—more than combined federal, state, and local Medicaid spending that year. Caregivers may reach a point when two members of the same household need support simultaneously.

Medicaid has consequently become the nation’s principal public payer for long-term services and supports, yet federal law treats nursing-facility care differently from most home- and community-based services.

These are not isolated service gaps. They reveal an adequacy ceiling: the point at which formal compliance is accepted as sufficient even though people cannot obtain the support the system nominally recognizes. A state can maintain a waiver program ostensibly offering services while leaving thousands waiting. A hospital can complete a medically successful discharge while doing little to determine whether a person will remain safely at home. A program can document a referral even when the referred service is unavailable.

How we might address the gaps together and move forward

The result is a transfer of responsibility. Public systems finance episodes of medical treatment and institutional placement, while families and local organizations absorb the daily work of sustaining community life. Community resilience is real but celebrating it without adequate funding can obscure the extraction on which the system depends.

The steps needed are:

1. Establish a community-first financing standard. Federal and state policy should begin with a presumption that people will receive support in the setting they choose, consistent with their needs and safety. Access to home- and community-based services should not be structurally less reliable than access to institutional care.
2. Create enforceable measures of access. States should report waiting times, unmet assessed needs, authorized versus delivered service hours, workforce vacancies, avoidable institutional admissions, caregiver strain, and person-reported choice and community inclusion. The Medicaid Access Rule’s transparency requirements should be treated as a floor, not as proof of adequacy.
3. Fund community organizations as infrastructure. Area agencies, community centers, centers for independent living, disability-led organizations, caregiver programs, transportation providers, nutrition services, and other community partners need stable operating support, not restricted grants for short-term projects.
4. Invest in direct-care workers and family caregivers. Higher and more reliable compensation, benefits, training, career pathways, respite, paid leave, tax support, and appropriate caregiver payment are necessary if authorized services are to become actual services.
5. Integrate Medicare and Medicaid around the person. For people eligible for both programs, financing should connect medical treatment with the supports required to live at home. Integration should be judged by autonomy and continuity, not merely administrative consolidation or short-term savings.
6. Give clients and people served governing power. People who rely on services—including those waiting for them—should help design benefits, set quality standards, allocate funds, and evaluate results. Person-centered care cannot emerge from systems in which the person has little influence over governing decisions.

The structural governance choices in long-term services and supports directly penalize nonprofit community organizations by trapping them below an “adequacy ceiling.” Because state Medicaid reimbursement rates are rigidly fixed well below the true cost of providing care, nonprofits are forced to continuously subsidize state-mandated programs through private fundraising and operating reserves just to maintain basic operations.

This financial bottleneck severely restricts their ability to pay competitive wages to direct-care workers, triggering chronic turnover, high recruitment overhead, and severe staffing shortages. At the same time, state contracts mandate exhaustive compliance, reporting, and administrative standards without providing the funding required for essential IT, organizational infrastructure, or staff development. As families wait years for capped waiver services, nonprofits inevitably absorb the uncompensated burden—acting as a safety net of last resort by delivering unpaid crisis intervention and emergency case management.

Ultimately, this system forces community-based organizations to prioritize rigid regulatory compliance over true community impact, driving high rates of moral injury and burnout among staff while diluting opportunities for meaningful, client-led governance.

The central tenet is straightforward: Community living must be funded as a durable public commitment, not offered as a discretionary alternative after families and local nonprofit organizations have exhausted their capacity. Community is not an optional benefit; it is the infrastructure that enables us to thrive.