A federal Medicaid rule could change how payments for certain home- and community-based services are divided between direct care worker compensation and other operating expenses.

The big picture: The Centers for Medicare & Medicaid Services finalized the “80/20 rule” in 2024. Beginning July 9, 2030, states generally must ensure that providers spend at least 80% of applicable Medicaid payments on compensation for direct care workers.

Why it matters

The rule is intended to strengthen caregiver recruitment and retention by directing more Medicaid funding toward frontline workers.

Providers, however, have raised concerns that the remaining 20% may not adequately cover expenses such as administration, compliance, insurance, technology, scheduling and other costs necessary to operate a care setting.

What the rule covers

The 80% requirement applies to Medicaid payments for certain:

• Personal care services

• Homemaker services

• Home health aide services

The requirement applies to qualifying services delivered through specified Medicaid home- and community-based services authorities, including fee-for-service and managed care payment arrangements.

Important: The rule does not automatically apply to every Medicaid payment received by every residential provider. Its effect on an individual provider depends on how services are authorized, classified and paid within the state’s Medicaid program.

What counts as worker compensation

Qualifying compensation may include:

• Wages and salaries

• Overtime and paid leave

• Health, dental, life and disability benefits

• Retirement contributions

• Tuition reimbursement

• Employer payroll taxes

• Workers’ compensation and unemployment insurance

• Qualifying clinical supervision connected to direct care

CMS also identified several “excluded costs” that are removed before calculating the percentage:

• Required worker training

• Direct care worker travel expenses

• Personal protective equipment

These excluded expenses do not count toward the 80%, but they are also removed from the Medicaid payment amount used in the calculation.

Are there exceptions?

States may establish:

• A separate, lower requirement for providers that meet a state-defined definition of a small provider

• Hardship exemptions for providers facing extraordinary circumstances

Any such flexibility must be based on reasonable, objective criteria developed through a transparent state process. Indian Health Service and qualifying Tribal health programs are also exempt.

Certain self-directed services are excluded when the person receiving services sets the worker’s payment rate.

The timeline

• July 9, 2027: States begin reporting on their readiness to collect payment and compensation data.

• July 9, 2028: States begin annual reporting on the percentage of applicable Medicaid payments spent on direct care worker compensation.

• July 9, 2030: The 80% minimum performance requirement is scheduled to begin.

Although states report to CMS, providers may be required to supply detailed financial and compensation information to support that reporting.

What this means for Washington providers

Washington’s Department of Social and Health Services is preparing for the federal HCBS Access Rule requirements.

For adult family homes, an important question remains: Which portions of Washington’s Medicaid residential payments, if any, will be treated as payments for the specific personal care, homemaker or home health aide services covered by the 80% requirement?

Residential payments may combine multiple services into a bundled rate. Providers should not assume that the federal percentage applies to every dollar of an adult family home Medicaid payment until Washington publishes more detailed implementation guidance.

A federal change may be coming

There is additional uncertainty.

CMS has listed a new proposed rule—Strengthening the Integrity of Medicaid and CHIP Managed Care, Financing, and Access to Care—that could revise or rescind provisions adopted in the 2024 Medicaid rules.

As of August 19, 2026, that proposal has not been published as a final rule. The existing 80/20 requirement therefore remains in place unless CMS formally changes it.

What providers can do now

Providers do not need to meet the 80% threshold today. However, they can begin preparing by:

• Separating applicable Medicaid revenue by service and funding source

• Tracking wages, benefits, payroll taxes and qualifying supervision costs

• Separately recording training, travel and personal protective equipment expenses

• Reviewing how shared or bundled expenses are allocated

• Watching for implementation guidance from CMS and Washington DSHS

• Participating in future public comment and stakeholder processes

The bottom line: The 80/20 rule could significantly affect how some Medicaid-funded HCBS providers budget and document their expenses. Its specific application to Washington adult family homes—and whether the federal requirement will remain unchanged—is still developing.

Learn more

• CMS Ensuring Access to Medicaid Services final rule

• CMS implementation timeline and presentation

• Washington DSHS HCBS Access Rules

• Federal regulatory agenda for the proposed CMS rule

• Original National Law Review analysis

This article provides general information and should not be considered legal, accounting or compliance advice.