Mustard Seed Village Faces Medicaid Cuts to Assisted Living

We would never kick people out because they can’t pay.”

Medicaid Changes Under HR 1

Between 200,000 and 320,000 Washington residents are expected to lose Apple Health coverage (Medicaid) in the next few years as the state adapts to new federal mandates. The impacts began last year when the federal government stopped paying health care subsidies, raising the price on the state health exchange.

—Postponing a scheduled increase to Medicaid reimbursements (July 1, 2027) cut $21 million in state funding, together with the loss of matching federal Medicaid funds for a total of $44.9 million. The Washington Health Care Association and LeadingAge Washington filed a lawsuit in June challenging the budget maneuver as unconstitutional.

—Medicaid Work Requirements (Jan. 1, 2027): Able-bodied adults aged 19 to 64 must certify every six months that they work, are in school, or do community service 80 hours a month to retain Apple Health coverage. The state estimated that about 600,000 people will be affected. Gov. Bob Ferguson signed an executive order Sept. 3 to coordinate state efforts to keep as many Washingtonians insured as possible and to track how many people lose coverage.

—Noncitizen Eligibility Restrictions (Oct. 1, 2026): Federal Medicaid eligibility will be reduced for refugees, asylum seekers, and other legal noncitizens. The Washington State Health Care Authority estimated 30,000 individuals will be affected while it attempts to finance the gap; 14,000 are expected to lose coverage immediately.

—Reduced Retroactive Coverage (Jan. 1, 2027): Backdated medical coverage is cut to one month from three months before application for expansion enrollees.

—Long-Term Care Restrictions (Jan. 1, 2028): Home equity limits for long-term care eligibility will be reduced to $1 million, and federal hardship waivers eliminated.

The Mustard Seed Village, three connected assisted living homes located in Key Center, is facing a significant drop in income due to a state freeze on Medicaid reimbursements.

The freeze responded to a $1 trillion cut over the next decade and a series of new federal requirements initiated by the Trump Administration with House Resolution 1, the “Big Beautiful Bill Act,” which became law July 4, 2025.

“Medicaid reimbursed us at about 70% or so on the dollar versus private pay,” said Eric Blegen, CEO of The Mustard Seed Project, which owns and manages the Village. “Now, it’s 61 cents on the dollar.”

Facing a budget shortfall, the Washington Legislature delayed a scheduled Medicaid reimbursement increase from its 2022 levels by a year to July 1, 2027. The delay eliminated $21 million in state funding and matching federal funds, for an approximate total of $44.9 million, according to Washington Apple Health (Medicaid) and the Washington State Standard.

“Over the course of the year, if we had all private pay, we’d have about $400,000 more in annual revenue,” Blegen said. “The impact of that one-year delay (in receiving the postponed reimbursement) is about $65,000, which is pretty substantial for us.” That is out of the Village's $2.67 million budget. The Mustard Seed Project budget, funding staff and programs in the Crandall Center, is $1.4 million.

Basic care for assisted living at the Village starts at about $6,000 a month; the memory care home is closer to $8,000.

Building the Village was a long-term goal of TMSP almost since its inception 20 years ago. Construction began in 2021, and residents arrived in 2023. Three homes were built as a single longhouse, one of which is designated for elders needing memory care. Each home has 10 rooms for single residents or couples, with common areas, gardens, a beauty salon, and three central kitchens. There are nearly as many staff members as there are residents.

“It’s above the state minimum requirements, but I would find it difficult to imagine how we could provide the kind of care we want to provide with fewer staff,” Blegen said.

It was always the intention for one-third of the beds in the Village to be reserved for Medicaid residents, including those who started with private pay until they ran out of money. One of the construction grants TMSP received depends on maintaining that policy.

“Part of the funding we got was from Pierce County Affordable Housing to build a building,” Blegen said. “It’s a grant, but it becomes a loan if we don’t meet the requirement that 30% of the beds be set aside for lower-income folks.”

That means nine rooms for the three buildings.

“We have three elders over there now who are converting; they’ve spent most of their money, and they’ve applied for Medicaid,” he said. “In the past, that approval process from the state has been pretty straightforward and relatively quick. Now, all three of them are having delays. I did a little bit of checking on that, and it does seem to be a national issue.”

Such a delay would not usually be a problem, Blegen said, because Medicaid allowed up to three months for retroactive billing. But starting in January, that will go down to one month to comply with the new requirements of HR 1.

“We would never kick people out because they can’t pay,” Blegen said. “When we opened the building, we took people who were already on Medicaid, which was a really lovely thing to be able to do, because they wouldn’t have had any place else to go.”

But the Village is no longer in a position to do that, he said.

“What I’m concerned about is we’re seeing a lot more Medicaid folks from outside, who want a bed right now,” he said. “But we have to make sure that those (Medicaid) beds are available for the people who are already here and who are spending down.”

In addition to the state passing along federal cuts, Washington tripled the annual fee all care facilities must pay per resident.

“So that cost us another $10,000 or so,” Blegen said.

“We don’t want to raise the rates for private pay any further because we don’t want to be above market rate; we want to be as affordable as we can be,” he said. “But we’ve gradually raised our rates so that we’re pretty close to most other places around here because we just have to.”

Blegen also said there are no plans to eliminate staff or programs, but that there will be more coordination with other Key Peninsula nonprofits to distribute food to elders in their homes, and to provide transportation and social connection, since neighboring organizations are feeling the same financial strain.

Board President Robert McCrossin said TMSP is pursuing several strategies to keep the budget balanced, including modifying a $7.8 million USDA construction loan used for the Village.

“We have good relationships with their local people, and we’re working with them to lower our payment from principal-interest to an interest-only payment for the year until we get Medicaid back up,” he said.

TMSP is also working with local referral agencies and hospitals to attract more residents who can pay, and to help Medicaid-only people they must turn away.

“It’s not easy,” McCrossin said. “There’s also the possibility of moving outside of the peninsula and allowing people to move in from other areas as well. Maybe it’s the family who lives on Key Peninsula, but the elder lives in Seattle or Tacoma, or even cross-country. But we’re not there yet.”

TMSP is also working on raising more funds.

“People can buy a brick, or a paver, or a bench, and we will have some naming rights. And if they can’t donate money, there’s always volunteer opportunities,” he said.

“We’re trying to reach out to local people who have the ability to put us in their wills, just to remember us. If it wasn’t for Lois Crandall, we wouldn’t have the Crandall Center, and we certainly wouldn’t have assisted living. So it started with one person, and that’s how we continue to operate.”

KP News asked State Senator Deb Krishnadasan (D-26th) what the Legislature might do to mitigate the problem.

“I don’t want to prejudge what the Legislature will do next year, especially because of the surrounding Medicaid funding and our state budget,” she said. “We all feel it. But I think what we really need to do is work on a system that will reflect the actual costs, keeping competitive wages so that (caregivers) stay in the industry.”

State Rep. Adison Richards (D-26th) also weighed in

“There’s no silver bullet answer,” he said. “We passed all this new revenue, but none of it went toward improving Medicaid reimbursement rates, which is the best way to serve people in need across the state. It should have been one of the core priorities of the past session and unfortunately was not. It certainly needs to be one of our highest priorities coming into this next biennium. We have not felt the worst of HR 1.”

For more information on the effects of HR 1, go to: https://app.leg.wa.gov/committeeschedules/Home/Document/289751