OBJECTIVES: Historically, US states have dedicated most of their Medicaid long-term services and supports (LTSS) expenditures to nursing homes. Since the 1990’s, a key aspect of the US policy for disabled elders has been to shift state Medicaid expenditures away from institutional nursing home care and towards home- and community-based services (HCBS). In 2010, the Affordable Care Act (ACA) enhanced that effort with the Balancing Incentive Program (BIP), providing Federal-matching contributions to selected states that increased their HCBS Medicaid expenditures. In spite of the ACA emphasis on encouraging greater HCBS, less is known about the impact of increased HCBS investment on elderly Medicaid beneficiaries’ care pathways. In this paper, we explore the impact of state Medicaid HCBS investment on the elderly beneficiaries’ risks of nursing home admission using four waves of the Health and Retirement Study (2006-2013). METHODS: We use a simulated instrument of Medicaid eligibility that depends only on the state's eligibility rules. We draw a random sample of 5,000 observations from our sample at wave 10 (2010-2011), and calculate the fraction of elders who would be eligible for Medicaid HCBS in each state. We then instrument the actual eligibility variable with that simulated instrument. RESULTS: We find that Medicaid eligibility significantly increases higher risk of nursing home admission (1% level). On average, an increase in the Medicaid generosity for HCBS reduces the effect of Medicaid eligibility on the use of nursing homes. For a $1 increase in Medicaid per-capita spending towards HCBS, the average reduction in the predicted conditional probability of nursing home admission is 0.002 percentage points. CONCLUSIONS:  Our results support the idea that investing in HCBS can lead to long-term cost savings, which is useful in the perspective of framing a Federal-level strategy to develop a high performing system of LTSS for elderly people.