The 80/20 Rule: What Home Care Agencies Must Know About CMS's HCBS Payment Requirements

The Rule That Changes Everything

In April 2024, CMS finalized the Ensuring Access to Medicaid Services Rule—and buried within it is a provision that will reshape how every HCBS agency operates.

The requirement: At least 80% of Medicaid payments for homemaker, home health aide, and personal care services must go directly to care worker compensation.

That's not a suggestion. It's federal law.

What the 80/20 Rule Requires

According to Polsinelli's analysis, the rule applies to three specific service categories:

• Homemaker services
• Home health aide services
• Personal care services

For every dollar your agency receives from Medicaid for these services, 80 cents must go to the workers providing direct care.

What Counts as "Compensation"

The 80% must cover:

• Wages and salaries paid to direct care workers
• Benefits (health insurance, retirement, paid leave)
• Payroll taxes (employer portion of FICA, unemployment)

What's Excluded from the Calculation

CMS amended the final rule to exclude certain costs from the denominator:

• Training costs
• Travel reimbursement
• Personal protective equipment (PPE)

This means you subtract these costs from your Medicaid payment before calculating whether you meet the 80% threshold.

What the Remaining 20% Must Cover

Here's the challenge: The remaining 20% must fund everything else:

• Administrative salaries
• Office rent and utilities
• Software and technology
• Insurance and compliance
• Marketing and recruitment
• Legal and accounting fees
• Supplies and equipment

For many agencies, this math doesn't work with current rate structures.

Compliance Timeline

The good news: You have time to prepare. CMS extended the compliance window from four years to six years.

Milestone	Deadline
States publish FFS rate schedules	July 2026
States establish advisory committees	2024 (ongoing)
States report on data collection readiness	3 years from rule (2027)
States report actual compensation percentages	4 years from rule (2028)
Full provider compliance required	2030

What This Means for 2026

While full compliance isn't required until 2030, 2026 brings critical milestones:

1. Rate transparency: States must publish all Medicaid FFS rates publicly
2. Data infrastructure: States building systems to track compensation percentages
3. Advisory committees: Consumer and provider input shaping implementation

Agencies should use this time to:

• Audit current compensation ratios
• Adjust business models proactively
• Advocate for adequate rates at the state level

How Compliance Is Measured

Provider-Level Calculation

Unlike the proposed rule (which measured compliance at the state level), the final rule measures compliance at the individual provider level.

This is significant: Your agency must meet the 80% threshold on its own—you can't rely on state averages.

The Calculation Formula

(Direct Care Worker Compensation)
÷
(Medicaid Payment - Training - Travel - PPE)
= Must be ≥ 80%

Example:

• Medicaid payment received: $100,000
• Training costs: $3,000
• Travel reimbursement: $2,000
• PPE: $1,000
• Adjusted payment: $94,000
• Required worker compensation: $94,000 × 80% = $75,200

Exemptions and Hardship Provisions

CMS built in flexibility for certain situations:

Small Provider Exemption

States can establish different standards for smaller HCBS providers based on:

• Revenue thresholds
• Number of workers employed
• Geographic location

Contact your state Medicaid agency to understand if exemptions apply to you.

Hardship Exemptions

States may grant exemptions based on objective and transparent criteria such as:

• Rural providers with higher operational costs
• Agencies serving specialized populations
• Providers facing temporary financial difficulties

Tribal Program Exemption

The Indian Health Service and Tribal health programs are fully exempt from the 80/20 requirement.

Why CMS Did This

The rule aims to address the direct care workforce crisis by ensuring Medicaid dollars actually reach workers.

According to the Administration for Community Living:

"This historic regulation strengthens home and community-based services by ensuring that the people who provide direct care receive fair compensation."

The theory: Better pay → better retention → better access to care.

Industry Concerns

Not everyone agrees this approach will work. According to LeadingAge's analysis:

• Many providers see the rule as "untenable" with current Medicaid rates
• The 20% may not cover essential business operations
• Some states may challenge federal authority to mandate spending ratios
• Smaller agencies may face disproportionate burdens

The fundamental problem: If Medicaid rates don't increase, forcing 80% to workers means agencies can't operate sustainably on the remaining 20%.

What Washington Agencies Should Know

State Implementation

Washington will develop its own implementation approach within CMS guidelines. Watch for:

• DSHS guidance on compliance measurement
• State-specific exemption criteria
• Rate adjustments to accommodate the new requirement

Current Rate Landscape

With Washington's $2.3 billion budget deficit, rate increases aren't guaranteed. Agencies should:

• Participate in advisory committees when solicited
• Document the impact of current rates on operations
• Advocate through industry associations

Compliance Strategy

Start planning now:

1. Audit current ratios: What percentage of Medicaid payments currently goes to workers?
2. Identify gaps: How far are you from 80%?
3. Model scenarios: What operational changes would be needed?
4. Explore exemptions: Do you qualify for small provider or hardship exemptions?
5. Build reserves: Prepare for the transition period

How Technology Can Help

Meeting the 80/20 threshold requires operational efficiency. Technology investments that reduce administrative burden can help shift dollars to direct care:

Automated Scheduling

AI-powered scheduling reduces administrative time spent on:

• Matching caregivers to clients
• Managing shift changes
• Optimizing routes and travel time

Electronic Visit Verification

Proper EVV implementation reduces:

• Claims denials and resubmission costs
• Audit preparation time
• Compliance staff burden

Streamlined Documentation

AI-powered session notes can:

• Reduce documentation time for caregivers
• Lower administrative review burden
• Improve billing accuracy

Integrated Billing

Systems that connect scheduling, EVV, and billing reduce:

• Manual data entry
• Reconciliation time
• Revenue cycle costs

Preparing for 2030

Year-by-Year Action Plan

2026:

• Conduct baseline audit of compensation ratios
• Identify operational inefficiencies
• Engage with state advisory committees

2027:

• Implement efficiency improvements
• Begin tracking metrics CMS will require
• Adjust staffing models if needed

2028:

• Review state-reported data on industry compliance
• Refine approach based on early guidance
• Assess need for hardship exemption application

2029:

• Final operational adjustments
• Documentation preparation
• Staff communication about any changes

2030:

• Full compliance required
• Ongoing monitoring and reporting

The Bottom Line

The 80/20 rule is coming. Whether it ultimately helps or hurts the HCBS industry depends on:

1. State rate adjustments: Will Medicaid rates increase to make 80% viable?
2. Exemption availability: How flexible will states be with smaller providers?
3. Operational efficiency: Can agencies reduce non-compensation costs enough?

Agencies that start planning now will be better positioned—whether that means optimizing operations, advocating for rates, or preparing exemption applications.

The deadline is 2030, but the preparation starts today.

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Need help understanding how this affects your Washington agency? Contact us to discuss compliance strategies.