The U.S. healthcare system must continue to accelerate the rebalancing of long-term care services for the elderly, an approach that improves quality of life and saves money. Rebalancing means substituting home-based care for nursing home or other institutional care. It is critically important for rebalancing to become more prevalent, to help state governments better manage the mandated costs associated with Medicaid programs.

Due to frailty and other issues related to aging, many older people move into nursing homes for care, where the out-of-pocket costs can be higher than costs associated with living at home or in other settings such as assisted living. Because so many Medicare recipients are also poor, however, Medicaid pays about 60% of the long-term care cost, an expense that is borne by the taxpayer. The financial drain due to nursing home care has led states to turn away people who need care, because the money is simply not there.

There is a solution. Research shows that people lead better lives when they stay at home. They are also less expensive to support. So we need to hasten this trend that healthcare industry executives call rebalancing.

When I was assistant secretary for aging at the U.S. Department of Health and Human Services, about 85% of the Medicaid budget was being spent on nursing homes. That has dropped to 55% due to a push to give people the freedom and choice to live on their own.

The Supreme Court hastened the process in 1999 when it ruled that, under the Americans with Disabilities Act, people who live in nursing homes but were able to live on their own had a civil right to receive care at home.

The Older Americans Act provides some of that home care coverage. Passed in 1965, it requires states to match federal funds at 25% for family caregiver support and 15% for supportive services, preventive health and meals. This federal match of funds for services at home incentivizes states to achieve more rapid rebalancing.

But that’s not enough. The public should support experimental programs and financial incentives that give people a chance to come back home from hospitalizations and receive support. The U.S. Department of Health and Human Services estimates that the average cost of a year-long stay in a semi-private room in a nursing home is approximately $75,000. At ILS, the organization in which I am employed, we have been successful in reducing the cost of care to nearly $25,000 by providing it in the home.

Care in the home offers a lower cost, better quality, it’s what the individual prefers and a significant amount of taxpayer financing is saved. We must do more to accelerate the movement of individuals from nursing homes back into their residence. We’re aging as a nation faster than European countries. Baby boomers are increasing in numbers, and people are living longer due to healthier lifestyles and advances in medicine.

An important initiative of many states is to move Medicaid long-term care into managed care companies by capitating these companies for the costs of long-term care. This moves the responsibility for rebalancing from the states to the managed care companies. MCOs can rebalance more rapidly than the states because of their more intensive care coordination and case management activities and their ability to assist people after hospital discharge and avoid unnecessary or premature nursing home placement. These companies also can build more robust networks of home- and community-based providers to accommodate the increase in patients served in a home setting.

Our system of long-term care must keep pace. The more healthcare services we deliver to homes — preventive care, nutrition and nursing — the more we can hold down costs. That, in turn, will enable government programs to extend benefits to more people in need and place a smaller burden on taxpayers.

Josefina Carbonell is senior vice president of long-term care and nutrition at Independent Living Systems. In 2001, she was appointed by President George W. Bush as the assistant secretary for aging at the U.S. Department of Health and Human Services, where she directed all operations including a $4.1 billion budget for federal grant programs to support community-based long-term care services for the U.S. elderly. She also co-led the implementation of the Medicare Modernization Act, Special Needs Plans and Part D Benefits, as well as served as a principal advocate in the U.S. for independent living for the elderly. Carbonell established, modernized and guided numerous programs, campaigns and networks in HHS until she joined the ILS management team in January 2009.