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Navigating the Impact of the 80-20 provision on Home-Based Care

Balancing Improved Wages for Caregivers with the Risks of Provider Consolidation and Reduced Care Access


July 11, 2024 – The Centers for Medicare and Medicaid Services (CMS) has released the Ensuring Access to Medicaid Services Final Rule. Despite criticism, the “80-20” provision has gone through as proposed. This rule mandates that providers allocate at least 80% of their Medicaid reimbursements directly to caregiver wages. The aim is straightforward: to improve the compensation and livelihood of caregivers who are foundational to the healthcare system.

However, while the rule is clear in its intention, its impact might not be what CMS intends. In this blog, we will discuss the 80-20 provision and its implications for all parties involved. As advocates we are happy to see a push to increase caregiver wages and expand access to home- and community-based services (HCBS), but the 80-20 provision might have unintended consequences that reduce consumer choice. To learn more about our advocate’s perspective, check out our full write up at the end of the blog to hear more of our thoughts!

How the 80-20 Provision is Designed to Improve Access to and Quality of Care

The Ensuring Access to Medicaid Services Final Rule (the Access rule) was announced in April 2024. According to the CMS press release, “advances access to care and quality of care, and will improve health outcomes for Medicaid beneficiaries across fee-for-service (FFS) and managed care delivery systems, including home- and community-based services (HCBS) provided through those delivery systems.” 

While there are many good things in the Ensuring Access to Medicaid Services Final Rule, the 80-20 provision is the one that has gotten the most attention. The provision is meant to address significant challenges within the home- and community-based services (HCBS) sector and requires that at least 80% of Medicaid payments to HCBS providers go towards compensating direct care workers providing homemaker, home health, and personal care services. Included in the 80% are wages, benefits, education like tuition reimbursement, workers’ compensation and unemployment insurance, and taxes.

One of the motivations for this rule is the ongoing labor shortages faced by the HCBS sector, like we’ve discussed in past blogs. By directing a higher proportion of Medicaid funds go directly to worker wages, the rule is designed to boost wages and make caregiving roles more attractive. Ultimately, the goal is to help retain existing workers and attract new ones. This is crucial as the demand for these services continues to grow, and the lack of workers continues to be a barrier to accessing necessary care.

In addition, CMS hopes the stabilization of the workforce will improve care for consumers. The idea is that better compensation will lead to more skilled or committed individuals joining the workforce, which can lead to a higher quality of care. It can also improve the quality of care by limiting turnover amongst caregivers. With higher wages, caregivers are more likely to stay in a job and continue providing consistent care to their clients. Consistency amongst caregivers is good for consumers because it not only allows them to bond with their caregivers to reduce the likelihood of loneliness, but it can also reduce the risk of accidents and allows for earlier detection of changes in health. However, unless the rates being paid to providers are increased, the 80% paid to caregivers, after taxes, might not make that big of a difference. 

Overall, the 80-20 provision represents CMS’s strategy to improve the quality and accessibility of HCBS, and in theory, it does so by strengthening the workforce.

The 80-20 Provision and Provider Pushback

The 80-20 provision, despite its best intentions, has not been welcomed by providers. In fact, during the public comment period, there was extensive pushback from providers. While its full impact will not be felt until 2030, there are some groups who are advocating for an accelerated timeline. Concerns have been raised that the fixed allocation of funds towards caregiver wages could hinder sustainability. They also argue that this one-size-fits-all approach is being forced on providers, whose operations and clientele vary greatly from state to state.

There is also fear among smaller providers that might not have the volume to survive. Many smaller HCBS providers operate with thin margins and rely on flexibility in fund allocation to manage overhead costs that include administrative expenses, training, and equipment. The mandate to allocate 80% of Medicaid reimbursements directly to wages limits this flexibility, which can make it difficult for these providers to cover other essential costs. This has led to worries that the rule could inadvertently force some smaller providers to shut down. It also limits providers’ ability to differentiate their services, introduce technology, spend on incentives for high performers, and other innovative initiatives​​​.

The issue with smaller providers shutting down is that it could have unintended consequences in the home care and home health industry. Fewer providers would limit access to care for Medicaid beneficiaries, which goes against what CMS is aiming to do. This is particularly true in underserved or rural areas without larger chains. In these areas, smaller providers often play a critical role and without them, individuals needing services will be unable to get the care they need. In some instances, even large providers could exit the market, which makes for an even more unstable environment. 

It is certainly possible in this scenario that it will lead to the consolidation of smaller providers. While this may solve one problem—access to care—it might create another in that it can reduce consumer choice. Fewer providers in the market can lead to less competition and creates the risk of monopolistic practices, where a few large providers could dominate the market and reduce consumer choice​​.

Overall, while the 80-20 provision aims to improve compensation for direct care workers, the resulting operational challenges for providers could have unintended consequences. While providers do have six years to reach the 80-20 allocation, assuming legal challenges do not overturn the provision, they still need to start taking steps now. Providers must begin to assess their budget and operational strategies to ensure they can comply with this rule. This initiative underscores a commitment to improving the welfare of both caregivers and recipients, but CMS needs to ensure that it is generating the intended results. 

Advocates Perspective

As we look at the implications of the 80-20 provision there is a mix of optimism and caution. As advocates for caregivers and consumers, we are glad to see initiatives that lead to higher caregiver wages because we see it as a critical step toward valuing the essential services they provide, while also improving the quality of care for those relying on HCBS. However, we do have concerns about the broader impacts of the rule on access to care. The potential for smaller providers to struggle with the financial aspect of the 80-20 provision could lead to closures, which could actually reduce access to care. Additionally, the consolidation that might occur because of the provision could also limit consumer choice, leaving individuals with fewer options. There are also very significant administrative burdens that this places on states, each of which is at a different level of readiness. As we move forward, it is crucial that the effects of this rule are carefully monitored to ensure that there are not unintended consequences like reduced access to care. Overall, the goal must always be to balance fair wages for caregivers with accessible, and quality care options for all who need them. 

It is also important to note that while the 80-20 provision got the most attention in the Final Rules, there are other provisions throughout that will positively impact consumers and providers. Stay tuned, as we touch base in our next blog about the positive aspects of the final Medicaid Access Rule and Medicaid Managed Care Rules.


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About the Author

Fady Sahhar brings over 30 years of senior management experience working with major multinational companies including Sara Lee, Mobil Oil, Tenneco Packaging, Pactiv, Progressive Insurance, Transitions Optical, PPG Industries and Essilor (France).

His corporate responsibilities included new product development, strategic planning, marketing management, and global sales. He has developed a number of global communications networks, launched products in over 45 countries, and managed a number of branded patented products.

About the Co-Author

Mandy Sahhar provides experience in digital marketing, event management, and business development. Her background has allowed her to get in on the ground floor of marketing efforts including website design, content marketing, and trade show planning. Through her modern approach, she focuses on bringing businesses into the new digital age of marketing through unique approaches and focused content creation. With a passion for communications, she can bring a fresh perspective to an ever-changing industry. Mandy has an MBA with a marketing concentration from Canisius College.