What is a wage pass-through in Medicaid?

A wage pass-through is a requirement that providers spend some or all of a Medicaid rate increase on higher compensation for direct care workers such as DSPs. A federal ASPE analysis described it as extra Medicaid reimbursement provided for the express purpose of raising direct-care worker pay. States usually require proof, and can recoup money if providers don't comply.

How is a pass-through different from a wage floor?

A pass-through tells providers how much of a rate increase must go to worker pay. A wage floor sets a minimum hourly wage for covered workers regardless of the rate increase. Some states use both. The federal 80% rule is a third approach: a minimum share of total payments for certain services that must go to direct care worker compensation.

How do states enforce wage pass-throughs?

States typically require providers to report or attest to wage changes, often with payroll data, by a deadline. New Jersey, for example, required a Mandatory Funding Pass-Through report in fall 2026. States reviewed by the National Governors Association in 2022, including Indiana, Utah and Texas, could recoup funds from providers that didn't comply.

Do wage pass-throughs work?

Evidence is limited. A 2002 federal ASPE analysis found data did not show pass-throughs improved recruitment or retention. In 2023, MACPAC staff said the requirements are hard to monitor and enforce and can compress pay between workers and supervisors. In March 2026, MACPAC recommended requiring states to report HCBS worker wages.

What is a wage pass-through? How Medicaid raises reach DSPs

A wage pass-through is a rule requiring providers to spend some or all of a Medicaid rate increase on higher pay for direct care workers such as DSPs, often backed by payroll reporting and recoupment.

A wage pass-through is a rule that requires providers to spend some or all of a Medicaid rate increase on higher pay for direct care workers, such as DSPs, rather than on other costs. A federal analysis for HHS's Office of the Assistant Secretary for Planning and Evaluation (ASPE) defined it as "an additional allocation of funds provided through Medicaid reimbursement for the express purpose of increasing compensation for direct-care workers."

States use pass-throughs to make sure money appropriated for worker raises actually reaches paychecks. They are common in I/DD home and community-based services, where most provider revenue comes from Medicaid rates.

How a wage pass-through works

The ASPE analysis identified two main designs:

A set amount: The state adds a fixed amount to the rate, per hour or per day, and requires providers to pass it to workers. In a 1999 survey, 10 of 16 states with pass-throughs used a set dollar figure, ranging from 50 cents to $2.14 an hour.
A percentage: Providers must spend a set share of a rate increase on higher compensation. The other six states in that survey used this approach.

Most programs share the same working parts:

Funding: The legislature or Medicaid agency funds a rate increase for specific services.
Who counts: The state defines the workers covered, for example DSPs and DSP supervisors.
Deadline: Providers must raise wages by a date, sometimes retroactively.
Proof: Providers report or attest to wage changes, often with payroll data.
Enforcement: States can recoup money from providers that don't comply.

Examples

New Jersey (2026): New Jersey's Division of Developmental Disabilities raised fee-for-service rates for services including day habilitation, individual supports, community-based supports, respite and supported employment. The increase funds a raise of about 46 cents an hour for DSPs and DSP supervisors, effective Jan. 1, 2026. Providers had to pass it through to base wages by March 1, 2026, retroactive to Jan. 1, and file a Mandatory Funding Pass-Through report in fall 2026.

Other states: A 2022 National Governors Association review found at least 19 states with active wage strategies that included reporting and enforcement. Its examples included:

Indiana: a 14% rate increase with 95% required to go to workers, and recoupment possible.
Utah: a 100% pass-through to direct support workers, with repayment if providers didn't comply.
Texas: an attendant rate enhancement tied to a 90% spending requirement.
Tennessee: DSP wage expectations backed by recoupment.

In a KFF survey of state Medicaid programs published in January 2026, states listed a minimum percentage pass-through of wages among their strategies to address workforce shortages.

Pass-through vs. wage floor vs. the federal 80% rule

Three tools often get confused: a pass-through, a wage floor and the federal 80% rule for home and community-based services.

What it requires. Wage pass-through: Spend all or part of a specific rate increase on worker pay. Wage floor: Pay covered workers at least a set hourly wage. Federal 80% HCBS rule: Spend at least 80% of payments for certain services on direct care worker compensation.
Set by. Wage pass-through: State law, budget language or Medicaid agency. Wage floor: State law, budget language or Medicaid agency. Federal 80% HCBS rule: CMS, at 42 CFR 441.302(k).
Services covered. Wage pass-through: Whatever the state names. Wage floor: Whatever the state names. Federal 80% HCBS rule: Homemaker, home health aide and personal care services under 1915(c) waivers.
Status. Wage pass-through: In use in many states. Wage floor: In use in some states. Federal 80% HCBS rule: Applies starting July 9, 2030. As of September 2026, a CMS proposed rule under White House review could revise or rescind it.

The federal rule counts wages, benefits and the employer's share of payroll taxes as compensation. It excludes training costs, travel costs and protective equipment. States may set a different percentage for small providers and may grant hardship exemptions (42 CFR 441.302(k)). Habilitation, one of the main DSP services, is not among the covered services.

Note: A KFF brief from January 2026 describes the 80% rule as also covering habilitation. The regulation text lists only homemaker, home health aide and personal care services, so this page follows the regulation.

What the evidence says

Pass-throughs are popular but hard to run well:

Mixed results: The 2002 ASPE analysis found that 21 states had enacted pass-throughs, but available data did not show they improved recruitment or retention. It also warned that tracking total spending can miss whether individual wages rose, because spending changes with staffing levels.
Enforcement and compression: In November 2023, staff of MACPAC, the congressional advisory commission on Medicaid, told the commission that pass-through requirements are hard to monitor and enforce. They also said the requirements can compress pay between workers and their supervisors.
Wage data: In March 2026, MACPAC recommended that Congress require states to report the hourly wages paid to HCBS workers, to help set rates.

How it varies by state

Pass-throughs differ on nearly every design choice. States decide which workers count (DSPs only, or supervisors too), whether benefits and payroll taxes count, whether the raise must go to base wages or can be a bonus, how it is documented, and what happens if a provider falls short. Some states pair a pass-through with a wage floor. Check the state's rate notice, bulletin or budget language for the exact terms. See our coverage of North Carolina's direct support pay funding and Florida's direct-care wage floor.

Why it matters for providers and DSPs

For DSPs: A pass-through means a rate increase is supposed to show up in your paycheck. The state's notice will say by how much and by when.
For providers: Pass-throughs carry payroll documentation and reporting duties, and money can be recouped if you can't prove compliance. Budget for the employer taxes and benefits that follow a raise, because some rules don't count them.
For supervisors: If only front-line wages rise, the gap between DSPs and supervisors shrinks. That compression is a retention risk MACPAC flagged.
For advocates: Pass-throughs raise wages only as much as the underlying rate study and budget allow. A pass-through on a small rate increase produces a small raise.