Medicaid 80/20 Rule: How to Calculate Your Compensation Ratio
Step-by-step math for the Medicaid HCBS 80/20 rule at 42 CFR 441.302(k): what counts as compensation, what is excluded, a worked example, and what to do if you are below 80%.
By Caregiver Scheduling Team ·
Under the Medicaid Access Rule, at least 80% of Medicaid payments for homemaker, home health aide and personal care services must go to direct care worker compensation, measured per provider (42 CFR 441.302(k)). States must comply 6 years after July 9, 2024, which is July 9, 2030. To calculate your ratio, divide what you spend on direct care worker compensation for those services by the Medicaid payments you received for the same services, after taking out training, travel and PPE costs.
What does the 80/20 rule require?
That each provider spend 80% of what Medicaid pays it for the three covered services on the people who deliver them. The rule was finalized as CMS-2442-F, “Ensuring Access to Medicaid Services,” published in the Federal Register on May 10, 2024 (89 FR 40542). It applies to services delivered under 1915(c) waivers and the other HCBS authorities, and to managed care plans that cover those services.
The obligation sits on the state, which passes it down through provider agreements, rate letters and cost reports. Know your number before the state asks.
What counts as compensation, and what is excluded?
Compensation is what reaches the worker. The regulation defines it in three parts and names only three excluded costs.
| Counts as compensation | Excluded from the calculation |
|---|---|
| Wages, salary, overtime and other remuneration under the FLSA | Costs of required training for direct care workers |
| Benefits: health and dental coverage, insurance, paid leave, retirement, tuition reimbursement | Travel costs for direct care workers, such as mileage |
| Employer share of payroll taxes for direct care workers | Personal protective equipment |
Only workers who provide the covered services count. Office staff, schedulers and supervisors generally do not. Paid travel time is wages and counts; the mileage check is a travel cost and is excluded from both sides.
How do you calculate your ratio?
Ratio = (direct care wages + employer payroll taxes + benefits) ÷ (Medicaid payments for the covered services − training, travel and PPE costs)
| Line (12 months, covered Medicaid HCBS only) | Amount |
|---|---|
| Medicaid payments: personal care plus homemaker | $1,200,000 |
| Less excluded costs: training $12,000, mileage $30,000, PPE $8,000 | −$50,000 |
| Adjusted payments (denominator) | $1,150,000 |
| Caregiver wages for those services, including paid travel time and overtime | $760,000 |
| Employer payroll taxes on those wages | $65,000 |
| Caregiver benefits | $48,000 |
| Compensation (numerator) | $873,000 |
| Ratio | 75.9% |
| Needed for 80% | $920,000 |
| Gap | $47,000 |
Run the math per service line. Private-pay revenue and the wages behind it stay out. See private pay vs. Medicaid agencies.
What if you are under 80%?
Fix your allocation before you touch wages. Many agencies that look short have compensation posted to the wrong accounts.
- Find hidden compensation. Paid travel time, no-show pay, on-call pay and paid training hours are wages, but are often posted to other accounts.
- Separate service lines. Only homemaker, home health aide and personal care count toward the 80%. Keep habilitation, respite and other services apart.
- Check the denominator. Make sure every training, travel and PPE dollar is taken out of payments before you divide.
- Model the rate. If the state rate cannot support 80% plus your overhead, raise it with your state association now. See caregiver payroll burden for what sits between wage and total cost.
- Ask about exemptions. States may set a lower percentage for small providers and a hardship exemption for extraordinary circumstances, each through a public process. Watch your state’s rulemaking.
When do the deadlines hit?
Reporting comes two years before the threshold.
| Date | What happens | Source |
|---|---|---|
| July 9, 2027 | States report on their readiness to collect compensation data | 42 CFR 441.311(e) |
| July 9, 2028 | States begin annual reporting of the percentage paid to direct care workers, by service | 42 CFR 441.311(e) and (f) |
| July 9, 2030 | 80% minimum applies to each provider | 42 CFR 441.302(k)(8) |
The rule has drawn opposition from provider groups and may be revisited. As of October 2026 the 80% requirement and the 2030 date remain in the Code of Federal Regulations. Check the Federal Register before you plan around any change. See the compliance calendar tool.
How should you set up your books now?
Track three things by service line starting this year: Medicaid payments, direct care worker compensation, and the three excluded cost categories. Give caregiver wages, employer payroll taxes and benefits their own accounts. Keep mileage, training and PPE in separate lines. If a caregiver splits time between Medicaid and private-pay clients, allocate wages by verified hours. See Medicaid billing in 15-minute units.
How Caregiver Scheduling handles this
Every visit is GPS-verified and tied to a client, so you have a record of which hours went to which client. Timesheets built from those visits, with travel time and overtime separated before export to QuickBooks, are coming soon and will make the compensation side of the ratio easier to build. $199/month for up to 10 caregivers or $299/month for up to 50, free for 30 days.
FAQ
When does the 80/20 rule take effect? The provider-level 80% requirement applies from July 9, 2030. State reporting starts July 9, 2028.
Does it apply to private-pay clients? No. Only Medicaid payments for homemaker, home health aide and personal care services.
Is the ratio measured per agency or per state? Per provider. The state reports on all its providers, but each one must meet the 80%.
Does mileage count toward the 80%? No. Travel costs are excluded from both the compensation and the payments side. Paid travel time is wages and counts.
Based on 42 CFR 441.302(k) as of October 2026. This article is general information, not legal advice. Check your state’s implementation.