Self-direction and FMS in Medicaid, explained

More than 1.5 million people directed their own home and community-based services in 2023, mostly through Medicaid programs, 87% more than a decade earlier. That estimate is cited in the June 2025 report to Congress from the Medicaid and CHIP Payment and Access Commission (MACPAC), which devoted a chapter to how the model works and where it strains.

Two terms sit at the center of it. Self-direction means the person receiving services, or a representative they choose, decides who provides support, and sometimes how the money is spent. Financial management services, or FMS, are the back office that turns those decisions into legal paychecks. This brief explains both, as of September 2026.

What self-direction is

In the traditional, agency-directed model, a provider agency hires, schedules and supervises the worker. In self-direction, those decisions move to the person. CMS describes self-direction as a model in which people have decision-making authority over certain services and take direct responsibility for managing them, with a system of supports available.

Self-direction does not create new services or new money. The person still goes through person-centered planning, and the resulting plan, often called the individual support plan or person-centered service plan, still sets what is authorized. Self-direction changes who decides how that authorization is used.

States can offer one or both of two kinds of authority:

Federal rules for self-direction under the various Medicaid authorities share common elements: a person-centered planning process, a service plan, information and assistance, FMS, a quality assurance system and an assessment of needs that sets the hours or budget.

Who does what

• The person makes the decisions the program allows and is the main judge of whether services are working.
• A representative, usually a family member or close friend, can help or act for the person, for example by approving timesheets or addressing a worker's performance. MACPAC notes a representative cannot be paid or serve as the person's worker.
• The worker delivers the services in the plan. MACPAC lists direct support professionals, personal care aides, home health aides and nursing assistants among the kinds of workers hired this way. Most people self-directing hire family, friends or acquaintances.
• A case manager or supports coordinator shares information about self-direction, helps with enrollment and the plan, and checks in regularly.
• A support broker, also called a consultant, coach or independent facilitator depending on the state, is generally chosen by the person, takes direction from them and helps with day-to-day questions such as hiring, timesheets and payment problems. CMS says a supports broker must be available to people who want one.
• The FMS handles the money, as described below.
• The state, or a managed care plan acting for it, assesses need, approves budgets and runs quality assurance. Medicaid fraud control units can investigate self-directed services like any others.

What FMS does

In most Medicaid programs, people who self-direct cannot receive cash directly. The FMS stands between Medicaid, the person and the worker. It receives funds from the state and pays workers for services in the plan. Federal rules and CMS guidance describe tasks including:

• collecting and processing timesheets
• running payroll and withholding and paying federal, state and local taxes
• handling workers' compensation and other insurance, and any benefits
• paying invoices for approved goods and services
• keeping a separate account for each person and tracking what is spent
• reporting on spending to the person and the state

In programs with budget authority, the FMS must check that a purchase or pay rate is approved in the plan before paying it. It must also warn the person and others, such as a support broker or case manager, when money is being spent too fast or too slowly. That is one of the main federal safeguards against running out of budget before year's end, or leaving authorized support unused.

The FMS is not the worker's supervisor. It does not decide who works a shift or write the plan. The person or representative directs the work. When a paycheck is wrong, the FMS is the right call; when a shift is missed, it usually is not.

Three ways to set up the employer role

States choose an FMS model, and may use more than one. The model determines who is legally the employer.

The fiscal/employer agent model puts the most responsibility and risk on the person, MACPAC says. State officials told the commission that people and their fiscal agents can be jointly liable for employer taxes. Agency with choice grew in one state because people wanted control without every employer duty. Pay for self-directed workers can also be set at the state level through union bargaining. In Washington, for example, the state and SEIU 775 are negotiating the rate for about 80,000 consumer-directed caregivers.

Paying family members

Paying relatives is one of self-direction's biggest draws and most debated features. Under most federal authorities, states may let family members be paid workers, including legally responsible individuals such as spouses or parents of minor children. The exception, MACPAC notes, is state plan personal care under section 1905(a)(24), unless the state also operates a 1915(j) program. When a legally responsible person is paid, the care must go beyond what a spouse or parent would ordinarily provide, which CMS calls "extraordinary care."

States set their own limits. All of the states MACPAC studied allowed paid family caregivers in at least one program, but one excluded live-in caregiving and another barred legally responsible relatives. Officials also raised concerns about oversight, conflicts of interest and hours worked. Those rules can change in state budgets, as Maryland families found in 2026.

Where self-direction comes from

• 1950s: a federal veterans' Aid and Attendance program lets veterans with service-related disabilities hire attendants with a cash benefit.
• Early 1990s: states begin offering consumer direction of Medicaid state plan personal care.
• 1994 to 2001: Robert Wood Johnson Foundation grants fund self-determination projects for adults with I/DD in New Hampshire and 18 other states.
• 1995 onward: the foundation and federal officials plan the Cash and Counseling demonstration, in which Medicaid participants in Arkansas, Florida and New Jersey could take a cash allowance with counseling instead of agency services.
• 2005: the Deficit Reduction Act creates section 1915(i) state plan HCBS and 1915(j) self-directed personal assistance services.
• 2010: the Affordable Care Act creates 1915(k) Community First Choice.

The federal authorities, in brief

Why this matters for providers and DSPs

• The employer model sets the pay stub. Two workers doing the same job in different states, or in different models in one state, can have different employers, wage rules and benefits. Knowing whether you work under a fiscal/employer agent, an agency with choice or a public authority tells you who handles pay, taxes and complaints.
• Agencies can be co-employers. In agency with choice, a provider agency is the legal employer while the person directs daily work. Supervisors in those programs share authority in a way traditional agency roles do not.
• Wage decisions do not always travel together. Rate changes aimed at agencies may not reach self-directed wages, and the reverse. Maryland's June 2026 freeze named both provider rates and self-directed wages explicitly.
• Self-direction competes for the same workers. Many people hire relatives or friends, and some states let people set pay within limits. MACPAC notes experts worry that letting people set wages can create gaps between self-directed and agency pay.
• The supports are federal requirements, not favors. Information and assistance and FMS must be available to people who self-direct. Staff who help families can point them to their case manager or support broker rather than trying to fix payroll themselves.

For a union campaign among self-directed workers, see New York's CDPAP caregivers seek a union vote.