Containing the Cost of Medicaid by Providing Housing for Homeless Individuals

Massachusetts Behavioral Health Partnership (MBHP) and Massachusetts Housing and Shelter Alliance (MHSA)

Boston, MA

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The Cost of Doing Nothing

Jane was 50 years old and had lived for years in the woods in a suburb of Boston. A defining characteristic of her life had been the repeated physical and sexual assaults she had experienced in childhood and which continued throughout her adult life. Suffering from Post Traumatic Stress Disorder, Major Depression and severe anxiety, she was hospitalized often and was so guarded that she was barely able to look people in the eye. Her medical issues, which included diabetes and asthma, were also very difficult to manage in her makeshift “home” in the woods.

In 2006, Jane had the opportunity to enter a permanent supportive housing program with nursecase management services funded through MassHealth, the Commonwealth’s Medicaid insurance program. She moved into a home with twelve other women who had similar traumatic life stories. Through daily visits and intense work with her nurse-case manager, Jane gradually began to connect with roommates, health care providers and her community. In the words of Jane’s physician, she had “an unbelievable turn-around.” For the first time in her life, she felt safe. Treatments for her mental illness and medical conditions were possible and she was even able to finally comply with regular primary care and psychiatry visits. Jane had a life that was unimaginable to her five years before.

Because of her newfound stability and work with her nurse-case manager, Jane was able to get documentation of her mental illness, which made her eligible for Medicare. This created a cruel twist of fate, however: once Jane became “dually eligible,” or eligible for both Medicaid and Medicare, MassHealth would no longer fund her nurse-case manager to work with her. The funding for the crucial work that led directly to Jane’s improvements in health and decrease in emergency service usage was gone. Jane’s health and stability in housing were in jeopardy.

Jane’s story demonstrates two important points. The first is that for the medically vulnerable population of chronically homeless individuals, housing is a medical intervention that improves health conditions. Secondly, Jane’s story makes it clear that the issue of chronically homeless individuals losing vital case management services when they become dually eligible for Medicaid and Medicare must be solved. If it isn’t, the Commonwealth of Massachusetts will continue to spend millions of dollars managing acute and long-term health conditions of chronically homeless individuals on the streets or in shelter – an extremely ineffective use of resources.

The truth is that homelessness is expensive. We all pay for the costs of homeless people on the street, in emergency rooms and in shelters. However, once individuals have a permanent home with supportive services, their lives can finally stabilize. Empirical studies show that their need for expensive state-funded emergency services drops dramatically. Health improves and health care costs decrease.

Brief Overview

Chronically homeless people, as defined by the federal government, are those with a disabling condition who have been continually homeless for a year or more or who have been homeless four times in three years, and constitute about ten percent of the homeless population. Yet this population consumes more than half of all resources dedicated to homelessness. This subset of homeless people suffers from extraordinarily complex medical, mental and addiction disabilities that are virtually impossible to manage in the unstable setting of homelessness.

The lack of stable housing is associated with significant health concerns and consequently homeless people have disproportionately poor health. It has been well documented that mortality rates in homeless individuals are approximately 3.5 times higher than the general population<sup>1,2</sup> and homeless people are hospitalized for medical issues five times as often.<sup>3</sup> Determinants of health, including access to quality health care coverage, access to a non-violent living situation and the ability to prioritize health over other competing concerns such as shelter and hunger, are critically influenced by a person’s living environment.

From a medical perspective, chronically homeless people are uniquely vulnerable to a complex interplay of medical, mental and addiction disabilities that lead to extraordinary rates of emergency room usage and inpatient hospitalization. Medical illnesses frequently go untreated until advanced stages. Conditions commonly experienced in this population mirror that of the general population although they are often more advanced and layered on top of each other. They include hypertension, cirrhosis, HIV infection, diabetes, skin diseases, osteoarthritis, frostbite and immersion foot.

With an extreme level of disability, these individuals are among the most frequent users of the Commonwealth’s health care systems. Research shows that 52 out of the 75 highest-end utilizers of the emergency rooms at Massachusetts General Hospital, Boston Medical Center and New England Medical Center are homeless adults. Boston Health Care for the Homeless Program (BHCHP) catalogued some of the medical needs and costs associated with living unsheltered on the streets for an extended period of time. Throughout a five year period, a cohort of 119 street dwellers accounted for an astounding 18,384 emergency room visits and 871 medical hospitalizations. The average annual health care cost for individuals living on the street was $28,436, compared to $6,056 for individuals in the cohort who obtained housing.

The Corporation for Supportive Housing recently described the problem of “frequent users” well:

“These persons – often referred to as ‘frequent users’ or ‘high utilizers’ of public services – face the double jeopardy of having complex health and behavioral health problems but having no coordinated systems of care. This dynamic – coupled with a lack of stable housing – forces them through a revolving door of multiple, costly crisis and institutional settings such as emergency rooms, inpatient care, detox facilities, long-term care facilities, and correctional facilities. The clear alternative is a more appropriate, more humane, and less expensive approach to integrated care that includes housing.”

A growing body of evidence in the mental and public health literature shows dramatic improvement in health outcomes, residential stability and cost to society when homeless people receive supportive medical and case management services while living in permanent, affordable housing units. This model, known as Housing First or “low-threshold housing,” has been implemented in several cities, including Seattle, San Francisco, New York City, and Philadelphia. Outcome data has been reported in chronically homeless people with severe mental illness who were housed in New York City between 1989 to 1997.<sup>4</sup> This study showed that a supportive housing intervention in more than 4,600 people resulted in lower rates of emergency public service usage and their associated costs. Following placement in supportive housing, homeless people in this study experienced fewer and shorter psychiatric hospitalizations, a 35 percent decrease in the need for medical and mental health services, a 38 percent reduction in jail use, and a greater than 60 percent reduction in shelter usage. Furthermore, costs of the housing units mostly subsidized by the state and federal governments were offset by savings in governmental spending on health services for this mentally ill, homeless population.

The problem: How does government effectively utilize its resources contain costs while providing the resources necessary for tenants to secure housing stability, which in turn conserves scarce resources because of a reduction in the use of expensive emergency services?

Solving Jane’s problem – which is an expensive problem for the Commonwealth – requires overcoming the belief that the answer to homelessness is emergency shelter. Pairing supportive services with permanent housing, not simply temporary shelter, has been proven to improve lives and simultaneously save resources across systems of care.

Solution: Supportive Housing as Cost Containment

The solution to the stated issue is to more effectively utilize Medicaid to contain costs associated with health care expenditures on chronically homeless individuals. Contrary to some common misperceptions, because of their long history of disability and engagement with state systems of care, MassHealth already covers significant numbers of chronically homeless individuals. Unfortunately, the instability associated with homelessness, including the inability of homeless patients to prioritize their health concerns over basic needs such as food and shelter, results in their costly crisis mode of health care utilization across emergency systems of care.

Massachusetts has reacted to homelessness with an emergency response for more than 20 years. While this emergency response has saved lives, it has not provided a permanent solution to homelessness. It has done little to decrease the number of individuals entering the front doors of homeless shelters. The state has constructed a massive infrastructure for temporarily combating the symptoms of homelessness, and shelters have become an accepted residential response for an entire segment of poor people. However, sheltering has done little to actually reduce the prevalence of homelessness or lessen the deep medical costs associated with homelessness. Over the past few years, the Massachusetts Housing and Shelter Alliance (MHSA) and Massachusetts Behavioral Health Partnership (MBHP) have pioneered Housing First in Massachusetts with significant cost savings as a result.

Housing First represents a significant systems change in addressing the costly phenomenon of homelessness. This policy strategy anticipates better outcomes, including health outcomes, if people are supported in a permanent, housed environment, rather than targeted for intensive services in shelters or streets. Once stabilized in housing, chronically homeless individuals are able to utilize mainstream health care resources in a far more effective and less expensive manner. They are also afforded the dignity of making health care choices for themselves. The emphasis upon case management moves away from clinical outcomes and focuses instead upon supporting successful tenancies and doing everything necessary to help keep individuals in their housing.

MHSA proposes “carving out” the defined chronically homeless population to receive the community-based services of Medicaid as a mainstream resource to support housing as a medical and cost saving intervention. This results not only in health care savings, but it provides a mainstream resource for permanent supportive housing that will no longer have to be funded specifically through the Massachusetts Department of Housing and Community Development (DHCD), Executive Office of Health and Human Services (EOHHS), or any other state budget line item.

Cost Savings: Does it Work?

As indicated earlier, several empirical studies across the country and outcome-based practices have proven that providing permanent supportive housing to chronically homeless individuals decreases health costs. One study from the Chicago Housing for Health Partnership (CHHP) shows that offering housing and case management to homeless adults with chronic illnesses creates housing and health stability and dramatically reduces hospital days and emergency room visits. The California HealthCare Foundation and The California Endowment created the Frequent Users of Health Services Initiative (FUHSI) in 2002. “They found connecting homeless frequent users to permanent housing made significant differences in their ability to reduce inpatient and emergency department charges. In fact, inpatient days and charges decreased by 27 percent for permanently housed clients, but for those who remained homeless, inpatient days grew by 26 percent and inpatient charges increased by 49 percent.” What has not been accomplished in the nation and where Massachusetts can become a leader is in the integration of these findings into a cost management system of care that finances the appropriate response for the appropriate population.

In Massachusetts, we have gone beyond looking at general cost savings and have focused on cost reductions to Medicaid that result from supportive housing interventions. Through two programs, the Community Support Program for People Experiencing Chronic Homelessness (C-SPECH) administered by MBHP, and the Home & Healthy for Good (HHG) Housing First initiative administered by MHSA, we have demonstrated that housing itself, when targeted to the appropriate high-cost population, actually reduces Medicaid costs.

C-SPECH provides Medicaid reimbursement for community-based case management for chronically homeless individuals who are placed in permanent housing. C-SPECH, having served 372 tenants, estimates that this intervention results in a net Medicaid savings of more than $3 million. Home & Healthy for Good has provided housing with supportive services to more than 400 chronically homeless individuals. Actual Medicaid costs pre-housing and post-housing were obtained from MassHealth in March 2009 for the first 96 HHG participants. The Medicaid analysis is limited to these 96 participants because these are the individuals who have been in housing long enough so that medical claims data are complete for an entire year after moving into housing. Total Medicaid costs reported include any medical service that was paid for by MassHealth, including inpatient and outpatient medical care, transportation to medical visits, ambulance rides, pharmacy, dental care, etc. Before housing, the mean annual Medicaid cost per tenant was $26,124. After housing, the mean annual Medicaid cost dropped to $8,500. If this number is extrapolated, it shows that successfully housing this population saved Medicaid nearly $1.7 million. Simply put, directing resources toward services for formerly chronically homeless individuals in permanent supportive housing, rather than managing their medical conditions on the streets or in shelters, is a much more efficient use of resources.

Start-Up Costs

Our policy innovation does not require start-up costs per se because it is an intervention upon an already enrolled population within MassHealth. We are not proposing the case management services as a universal benefit, but rather as a cost containment measure for a specific and significantly costly population. The expense of this population has been indicated in the findings noted above. The most liberal estimate of the number of chronically homeless individuals in Massachusetts is approximately 3,000. The statewide point-in-time count (an annual homeless census) puts this number even lower. Ultimately, Medicaid reimbursement could be used for case management services instead of other costly service resources provided through state agencies, thus maximizing federal return on the Commonwealth’s investment and reducing expense to the state budget. MBHP would be charged with monitoring the Medicaid usage of this population and be responsible for ensuring eligibility and measuring appropriate outcomes in partnership with MHSA and its participating agencies (those providing the housing and services). Because we are speaking of already existing clients, any costs associated with the service provided would be more than offset by the savings gained in a reduction of acute and emergency health care usage alone.

How is it funded?

This initiative would be funded through the MassHealth Section 1115 Research & Demonstration Waiver. The waiver presently allows reimbursement for a limited number of chronically homeless individuals already being managed through the behavioral health carve-out administered by MBHP and resembles similar services aimed at managing cost. The difficulty with this population of chronically homeless individuals is that given their disabilities and long histories of homelessness they often are removed from the management of MBHP when they become eligible for Medicare. This “dual eligibility” issue occurs if they secure Medicare by aging out or obtaining Social Security Disability Insurance (SSDI) – which is exactly what happened in Jane’s case. As a result, they are then no longer eligible for the supportive services associated with their housing that helped them to achieve successful tenancies at a reduced cost to society. This acts as a disincentive for agencies or property managers housing chronically homeless individuals because of a fear that tenants will lose critical services that help them maintain their tenancies.

The outcomes of C-SPECH and Home & Healthy for Good indicate great possibilities for significant cost reduction in the state’s Medicaid system. We estimate, based on evidence to date and the assumption of roughly 3,000 chronically homeless individuals in the Commonwealth, that cost reductions to MassHealth through this initiative could result in net savings of close to $30 million. Aside from this outcome, there is evidence to date that suggests that an increase in permanent supportive housing opportunities also results in a reduction in the need for shelter capacity. Focusing on cost-effective permanent supportive housing is the first step toward dismantling the costly and ineffective use of emergency resources to address homelessness that Massachusetts has relied upon for decades.

Implementation: Making it Happen in Massachusetts 

Medicaid is presently one of the Commonwealth of Massachusetts’ biggest budget busters. The services we propose to offer would be funded in the state budget within line item 4000-0500. In order to accomplish the appropriate cost containment and management of this population, we are proposing the following amended language to the state budget:

“…provided that the commonwealth’s behavioral health contractor shall administer the behavioral health benefit for Medicaid eligible persons who meet the federal definition of chronic homelessness inclusive of those persons who may be eligible for coverage under MassHealth and Medicare, commonly referred to as dually eligible;”

Such a measure would be one step toward addressing the dual eligibility issue noted above. The second way of implementation is administrative. As noted above, C-SPECH was implemented based on the MassHealth Section 1115 Research & Demonstration waiver. One of the key objectives of this waiver is: “Demonstrating successful cost-containment by reducing the rate of spending growth in the Medicaid budget for eligible populations.” Based on the existing waiver and precedence related to other designations of care we believe the executive branch of government could advance this policy.

Future Goals

Although Housing First efforts to date show great promise in reducing both health care costs and shelter utilization, this approach has not been fully adopted as a strategic way to permanently end homelessness in Massachusetts. Thus, it has not expanded at a rate significant enough to seriously affect the numbers of homeless individuals in the Commonwealth. Although MBHP has served nearly 372 persons in C-SPECH, they have only an average of 200 units of service at any given time. The problem is one of scale that does not allow the full impact of providing Medicaid as a resource to interdict this costly population. As noted above, the dual eligibility issue also acts as a deterrent for agencies to adopt Housing First practices for fear of a growing caseload without a sustainable resource to support tenants in housing. A “carve-out” solves both issues.

Massachusetts could be a national leader in demonstrating how Medicaid can be used to address the problem of frequent users of costly systems of care while demonstrating a potential viable mainstream resource for ending chronic homelessness. The issue of “frequent users” of health care systems is a nationwide problem. As the Corporation for Supportive Housing has pointed out: “directing public dollars toward solutions that work better, cost less, and mitigate expensive, avoidable emergency and institutional responses is an effective remedy for frequent users.” Massachusetts has proven that using Medicaid dollars to support health care services for formerly chronically homeless tenants in housing is a much more efficient use of mainstream resources that drastically reduces costs and improves the quality of health care. Expanding this model would ensure a better return on the substantial federal investment in the issue of chronic homelessness.

MHSA has set a goal of housing 1,000 of the Commonwealth’s 3,000 chronically homeless individuals over the next two years. Accessing Medicaid dollars to support medically-focused case management services for these individuals in housing is a clear and efficient way to improve lives while conserving health care resources. With results showing that providing permanent supportive housing to chronically homeless individuals results in a 67 percent reduction in Medicaid costs per person, cost savings would be significant.


Central to the mission of the Massachusetts Housing and Shelter Alliance is reducing the Commonwealth’s addiction to emergency resources for addressing homelessness. Annually, the Commonwealth spends a quarter of a billion dollars on homelessness without ever seeking a return on its investment. MHSA and MBHP see the appropriate cost management of the chronically homeless population as essential to addressing the expensive problem of homelessness. The potential for cost savings throughout the system is significant. Medicaid resources could replace supportive service dollars presently being spent by the Commonwealth. Because chronically homeless individuals consume approximately 50 percent of the resources dedicated to homelessness, as we focus on housing this population, the need for shelter capacity reduces. Existing resources for shelter could be converted to create housing opportunities for specific sub-populations. Shelters could become triage for rapid return to work and housing for those for whom homelessness is truly a temporary short-term problem. We see cost containment and better use of Medicaid resources as the first step toward permanently dismantling a shelter system that has managed homelessness instead of ending it.

Contact the Authors:
Joe Finn
President and Executive Director
Massachusetts Housing and Shelter Alliance
PO Box 120070
Boston, MA 02112
Phone: 617-367-6447
George Smart
Vice President of Clinical Operations
Massachusetts Behavioral Health Partnership
100 High St 3rd Floor
Boston, MA 02110
Phone: 617-790-4172
  1. Hibbs JR, Benner L, Klugman L, Spencer R, Macchia I, Mellinger AK, Fife D. “Mortality in a Cohort of Homeless Adults in Philadelphia.” NEJM 1994; 331: 304-309.
  2. Hwang SW, Orav EJ, O’Connell JJ, Lebow JM, Brennan TA. “Causes of Death in Homeless Adults in Boston.” Ann Internal Med 1997; 126 (8): 625-628.
  3. Martell JV, et al. “Hospitalization in an Urban Homeless Population: the Honolulu Urban Homeless Project.” Ann Internal Med 1992; 116: 299-303.
  4. Kuhn R, Culhane DP. “Applying Cluster Analysis to Test a Typology of Homelessness by Pattern of Shelter Utilization: Results from the Analysis of Administrative Data.” Am J Community Psychol 1998; 26 (2): 207-232.
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