Navigating the 80/20 Medicaid Rule: What Home Care Agencies Need to Know

The Centers for Medicare & Medicaid Services (CMS) recently finalized the 80/20 Medicaid Rule, a groundbreaking policy that could significantly impact home care agencies across the country. If you’re a home care business owner and this is the first time you’re hearing about it, don’t worry—you’re not alone. Many agency owners are still catching up on how this rule works and what it means for their operations.

Let’s break it down and explore how this rule could affect your agency, whether you’re a seasoned operator or just starting out.


What Is the 80/20 Medicaid Rule?

The 80/20 Medicaid Rule requires that 80% of Medicaid payments for home and community-based services (HCBS) must go directly toward compensating direct support workers (DSWs). This includes wages, benefits, and payroll taxes. The remaining 20% can cover administrative overhead like office rent, utilities, and non-caregiver staff salaries.

The intent behind this policy is to address the caregiver shortage by ensuring fair compensation, reducing turnover, and improving the quality of care. However, while this rule is great for caregivers, it can create financial strain for agencies with high operational costs.

Direct Support Worker Compensation: A Breakdown Using $25/hour

Let’s take a typical Medicaid reimbursement rate of $25/hour as an example to see how the 80/20 rule works in practice:

  1. Direct Support Worker Allocation (80%):

    • $25 × 80% = $20/hour

    • This $20 is dedicated to covering:

      • Wages: $15/hour.

      • Employer Benefits: $3.50/hour (e.g., health insurance, PTO).

      • Payroll Taxes: $1.50/hour.

  2. Overhead Allocation (20%):

    • $25 × 20% = $5/hour

    • This $5 must cover:

      • Office expenses (e.g., rent, utilities).

      • Administrative staff salaries.

      • Technology and compliance costs.

If your agency operates with slim margins or relies heavily on Medicaid payments, you can see how quickly this breakdown could present challenges.

Why High Overhead Is a Problem

Agencies with significant operational costs—such as those renting large office spaces or employing a sizable administrative team—may struggle to meet the 80/20 compliance requirements. Let’s explore how this impacts larger agencies versus smaller agencies:

Larger Agencies

  • Challenges:

    • Higher overhead from multiple office locations, marketing, and non-caregiver staff salaries.

    • Difficulty reallocating resources to meet the 80% caregiver compensation requirement.

  • Risks:

    • Non-compliance could lead to reduced Medicaid funding.

    • Potential downsizing of staff or service areas to cut costs.

Smaller Agencies

  • Advantages:

    • Lower overhead, especially for agencies operating from home offices or co-working spaces.

    • Greater flexibility to allocate funds directly to caregiver wages and benefits.

  • Opportunities:

    • Smaller agencies may thrive by keeping operations lean and focusing on caregiver retention.

The key takeaway? Agencies with a leaner structure are better positioned to adapt to this rule, while larger agencies may need to reevaluate their spending strategies.

How to Adapt and Thrive Under the 80/20 Rule

The 80/20 Medicaid Rule doesn’t have to spell disaster. Here are actionable strategies to help your agency navigate this change:

  1. Audit Your Finances:

    • Review your Medicaid reimbursement rates and ensure compliance with the 80% caregiver allocation.

    • Identify areas where you can cut costs without sacrificing care quality.

  2. Embrace Lean Operations:

    • Consider reducing office space or switching to remote administrative teams.

    • Automate payroll, scheduling, and billing to save on labor costs.

  3. Prioritize Retention:

    • Offer competitive wages, benefits, and training opportunities to reduce caregiver turnover.

    • Happy caregivers mean better client care and lower recruitment costs.

  4. Diversify Revenue Streams:

    • Focus on private-pay clients or partner with long-term care insurance providers.

    • Offer premium services like respite care, dementia care, or 24-hour support.

  5. Leverage Mentorship:

    • Work with experienced mentors to navigate policy changes and implement best practices.

Ending on a High Note: CEO Mode Activated

The 80/20 Medicaid Rule may feel like a curveball, but as CEOs, it’s our job to face challenges head-on and turn them into opportunities. Knowledge is power, and now that you’re informed, you have the tools to adapt and thrive.

This is where mentorship comes in. Having a mentor who’s been in the trenches can make all the difference. They’ll help you navigate new rules like this, avoid costly mistakes, and find creative solutions to grow your agency. With the right guidance, you can go beyond surviving and start thriving.

If you’re ready to take control and build a resilient, profitable agency, join my mentorship program. Let’s put on our CEO hats and tackle this together!

Call to Action

Ready to take action? Download your FREE checklist, "How to Adapt and Thrive Under the 80/20 Medicaid Rule," and get the tools you need to secure your home care agency’s success. Click here to download now.



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