CMS Signals Potential Reversal of Medicaid's 80/20 Rule: What Home Care Providers Should Know

The Centers for Medicare & Medicaid Services (CMS) is expected to release a proposed rule that would revise or potentially eliminate the Medicaid "80/20" requirement.

While the proposal has not yet been published, it is currently under review by the Office of Management and Budget (OMB), signaling that CMS is actively reconsidering one of the most contentious elements of the 2024 Medicaid Access Rule.

For home care agencies, this could represent an important shift in federal policy and provide greater operational flexibility at a time when providers continue to navigate staffing shortages, reimbursement challenges, and increasing administrative demands.

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What Is the Medicaid 80/20 Requirement?

The Medicaid 80/20 provision was finalized as part of CMS' Medicaid Access Rule in 2024. The rule requires that at least 80% of Medicaid payments for personal care, homemaker, and home health aide services be spent on direct care worker compensation, including wages and certain employee benefits.

The intent behind the rule was to ensure more Medicaid funding reaches frontline caregivers to strengthen recruitment and retention. While many providers support investing in caregivers, the industry's concern has never been about the goal. It has been about the implementation.

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Why Providers Opposed the Rule

From the beginning, home care providers across the country expressed concern that a federally mandated spending ratio fails to account for the realities of operating a home care business.

Agency leaders noted that Medicaid reimbursement rates vary dramatically from state to state, and many already struggle to cover essential operating expenses such as:

• Clinical oversight and supervision
• Compliance and regulatory reporting
• Scheduling and care coordination
• Electronic Visit Verification (EVV) systems
• Billing and revenue cycle management
• Recruiting and onboarding
• Technology and cybersecurity
• Insurance and administrative support

Many providers argue that forcing a fixed percentage of reimbursement toward compensation could unintentionally weaken agencies' ability to invest in the infrastructure necessary to deliver quality care and remain financially sustainable.
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What CMS Is Expected to Change

Although the proposed rule has not yet been released, CMS is expected to either modify or eliminate the 80/20 requirement as part of a broader effort to review Medicaid and CHIP regulations finalized in 2024.

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The proposal is also expected to address several additional areas, including:

Medicaid managed care oversight

Provider enrollment requirements

Overpayment and disallowance policies

State authority to deny or terminate providers engaged in fraud or other improper activities

Administrative simplification initiatives designed to reduce regulatory burden

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According to CMS, these proposed changes are intended to lower administrative costs for both states and providers while strengthening program integrity through improved oversight of fraud, waste, and abuse.
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What This Means for Home Care Agencies

While it is too early to know exactly what the final rule will contain, CMS' willingness to revisit the 80/20 mandate reflects growing recognition of the operational challenges facing Medicaid-funded home care providers.

If the requirement is rescinded or significantly revised, agencies could gain greater flexibility in how they allocate Medicaid reimbursement dollars. That flexibility may allow organizations to continue investing in caregiver wages while also supporting the administrative, technology, compliance, and operational functions necessary to deliver high-quality care.
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How Paradigm Can Help

Regulatory change is constant in Medicaid, and even proposed rules can raise important questions about compliance, reimbursement, and financial planning.

Paradigm works with home care agencies nationwide to help simplify Medicaid billing, strengthen revenue cycle performance, and navigate evolving federal and state requirements. As CMS releases additional guidance on the future of the 80/20 provision and other Medicaid reforms, our team will continue monitoring developments and sharing practical insights that help providers stay informed and prepared.

In an industry where the rules can change overnight, staying informed isn't just helpful, it's essential.

Source: “[Updated] CMS soon to drop rule that may involve rescission of 80/20 provision” by Liza Berger, July 8, 2026, McKnights Home Care.