South Carolina wants Medicaid to cover home care for emotionally disturbed children who are currently institutionalized and is seeking a waiver from federal regulations to be able to do it.

Care for about 4,000 children is currently paid for by Medicaid at a cost of about $58 million last year, according to Jeff Stensland, spokesman for the state Department of Health and Human Services.

Many of these children don't need to be in institutions, he said, but Medicaid won't pay for home care. Under the proposal to the U.S. Centers for Medicare and Medicaid Services, a pilot program would be set up to provide care for most of these children in home and community settings. Institutions would be reserved for only the most serious cases.

The new plan is designed to provide better care while holding down Medicaid costs, Stensland said.

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"We know that relying on therapeutic residential care as much as we do is expensive and that fragmentation makes our current system too inefficient," HHS Director Robert M. Kerr wrote in his letter to CMS requesting the waiver.

"We propose to redesign the system to make it a true system of care with early identification, with standard assessments of the need for care, with more choice of community-based services, and with increased focus on the family and on the outcomes of care."

Dave Almeida, executive director of the South Carolina chapter of the National Alliance on Mental Illness, said the waiver seems well-intentioned, but that the devil is in the details.

"The mental health system for children is fragmented and anything that works to streamline the system we view favorably," he said. "We just want to be sure at the end of the day that children are getting the services they need."

Stensland couldn't say how much the state would save, only that home and community care would be less expensive.

South Carolina applied for another Medicaid waiver in June to save money. Gov. Mark Sanford said the $4.5 billion program -- $1.16 billion of it in state money -- could consume a third of the state budget by 2015.

But the budget reconciliation bill passed by Congress this month enabled a number of those changes without waiting for waiver approval, including health savings accounts and higher co-payments for Medicaid beneficiaries.

If approved, the plan would be implemented beginning in October, according to HHS.