Cutting Costs, Improving Care: The Financial Impact of Self-Direction

As the population of older adults grows — both in absolute numbers and as a share of the overall U.S. population — the cost and availability of care is becoming an increasingly urgent concern. 

Surveys consistently show a strong preference for aging in place, with large majorities of older adults wishing to avoid assisted living facilities and nursing homes. The steady growth in home- and community-based services reflects ongoing efforts to meet this preference, as it has become clear in recent decades that many seniors and people with disabilities who need long-term services and supports can live happier, more fulfilling and healthier lives in their own homes and communities if provided with the right level of assistance. 

Home care is also typically less expensive than institutional care, although costs across the continuum of care levels vary significantly by state. According to the Genworth Cost of Care Survey, the national average annual cost for a semi-private room in a nursing home in 2024 was $111,325 ($127,750 for a private room), while the average cost for a full-time home health aide was $77,792. But home care is more flexible as well; individuals can pay only for the services they need, meaning that many use fewer caregiver hours. 

Home- and community-based services promote the “least restrictive” model of care, which emphasizes respect for the autonomy, dignity and rights of the individual receiving care, with a focus on highly tailored, person-centered services rather than one-size-fits-all measures. Taking this philosophy one step further, self-directed services — which allow individuals to choose who provides their care and how that care is delivered — give individuals even greater control and independence than traditional agency-based home health or adult day care programs. Self-direction programs can offer additional health and well-being advantages for participants, as well as financial advantages for both participants and payers.

Flexible spending for more cost-effective, personalized care

Self-directed care is based on personalized care plans, ensuring that authorized funds are used efficiently for essential services rather than paying for standardized facility services that may or may not be helpful for a given individual. Funds may be allocated across categories as needed, including goods as well as services. For example, a person might choose to make an up-front investment, such as installing grab bars in their bathroom or purchasing assistive technologies, that will enable them to remain more self-sufficient and use fewer caregiver hours moving forward. 

Program participants can directly hire people they know, trust and like as their caregivers, who may include friends or family members in some states. In addition to supporting an existing trusted relationship, this approach reduces external personnel expenses and dependence on traditional home health agency staffing models, which often experience higher turnover. 

Medicaid self-directed programs allow some participants to manage their own care budgets, often at a lower cost than agency-based home health services or institutional care. States with Medicaid funded self-direct models have reported savings of up to 15% per patient compared to traditional nursing home care.

Improved health outcomes

Self-directed services can also support improved health outcomes by reducing emergency room and hospitalization costs, for instance. And when acute health issues do arise, individuals receiving personalized, home-based care following discharge are less likely to need costly rehospitalizations or long-term nursing care. 

In addition, personalized support combined with participants’ greater satisfaction with the services they receive from their caregivers, tends to result in fewer complications and chronic condition flare-ups, further reducing healthcare spending.

More efficient workforce utilization

Finally, participants’ ability to hire members of their existing support network as caregivers can help address ongoing workforce shortages. Many institutional care facilities are chronically short-staffed, and, particularly in rural areas, home healthcare agencies frequently struggle to hire enough caregivers. Allowing individuals to hire trusted friends and family members to assist them broadens their options and brings in individuals who might not otherwise consider a career in caregiving. 

A financially sustainable solution

People who need support and services know best what they need to get along day-to-day. By giving them control over their authorized budgets from their state and program, they can make good use of Medicaid dollars because they will put the money to use where they need it most, whether that is hours of support from a caregiver or assistive goods and services to make their home a safe and supportive environment.

At the same time, self-direction programs can ease the burden on Medicaid and insurance providers by optimizing use of Medicaid and individual care budgets, reducing institutional care costs, and improving health outcomes. 

As the population ages and costs continue to rise, the healthcare industry, insurers and government will need to work together to meet the growing need for care. Expanding self-directed care models could be one of the most financially sustainable approaches to giving people what they want: greater freedom, flexibility, and control over their care and their life.