By Lori Eberly
The home care industry is facing a turning point. Between the sweeping changes brought by the recently passed “big, beautiful bill” and the enforcement of the 80/20 rule for Medicaid-funded services, agency owners are staring down one clear reality: relying solely on government payors is not sustainable.
The Big Beautiful Bill: Cuts and Complications
The BBB made headlines for being one of the most wide-reaching pieces of legislation in decades. For home care, the story is clear:
- Historic Medicaid cuts: More than a trillion dollars in reductions will flow down to states, putting enormous pressure on reimbursement rates and program access.
- Eligibility tightening: New requirements like work/community engagement mandates and frequent eligibility reviews will shrink the pool of covered clients.
- Cost-Sharing and Complexity: Beneficiaries may face higher out-of-pocket costs, which could cause delays in care or dropped services.
For agencies, this means fewer Medicaid clients, more administrative hurdles and slower or reduced reimbursement.
The 80/20 Rule: Less Room to Maneuver
Alongside BBB changes, agencies must also comply with the 80/20 rule for Medicaid home- and community-based services:
- At least 80% of Medicaid payments must go directly to frontline caregiver compensation.
- Only 20% can be used for overhead, compliance, administration, training and margin.
At first glance, this may sound like a positive worker-support measure. But here’s the reality:
- The industry standard gross margin is ~35%-40%.
That means agencies typically need to retain about 35%-45% of revenue to cover overhead and still run profitably. - 20% simply isn’t enough. By the time you cover liability insurance, taxes, back-office wages, marketing, compliance, technology, and overhead, there’s little to nothing left.
- Scaling is punished. The larger you get, the more infrastructure you need (staffing coordinators, compliance officers, HR, recruiters, IT). With only 20% of Medicaid dollars allowed for this, growing with Medicaid dollars alone is financially unsustainable.
In short: the math doesn’t work.
The Case for Diversification
With both BBB and the 80/20 rule reshaping the landscape, one thing is certain: agencies that depend exclusively on Medicaid will struggle. Here’s why diversification is now mission-critical:
- Stability Through Private Pay
Private-pay clients offer flexibility, faster payment cycles and less red tape. A healthy payer mix protects you when government programs are cut or delayed. - Build Relationships with Long-Term Care Insurance Carriers
LTC insurance is an underutilized but growing payer source for home care. Building billing expertise here can differentiate your agency. - Future-Proof Against Policy Shifts
Government reimbursement models are unpredictable. By diversifying now, you protect your agency from being at the mercy of every legislative or regulatory swing.
Final Thoughts
The combination of the big beautiful bill’s Medicaid cuts and the 80/20 caregiver pay rule is a wake-up call for the industry. The agencies that will thrive in this new era are those that diversify payer sources beyond Medicaid. Medicaid will remain important, but it can’t be the only pillar of your business. Agencies that broaden their base today will be stronger, more resilient, and better able to serve clients tomorrow.
Lori Eberly is a college professor and program director of health sciences at Appalachian State University. She is also the founder of Senior Care Strategy, a consulting and coaching firm dedicated to helping home care agency owners and senior living leaders grow their businesses with purpose, efficiency and heart. With nearly two decades of experience as a multi-unit home care franchise owner, she blends academic insight with real-world expertise to shape the future of health care leadership and senior care.
