Proposed state-directed payment caps would lower Medicaid funding for personal-care and support services used in assisted living for dementia. State-directed payments are extra amounts states require Medicaid managed-care plans to pay providers above base rates. CMS proposed the caps on May 20, 2026 at 100 percent of Medicare rates in expansion states and 110 percent in non-expansion states, according to the CMS proposal notice. The near-term effect falls on hospitals and nursing facilities, while assisted-living effects would come later through home- and community-based services.
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Table of Contents
- What the proposed caps would do
- Why assisted living feels the change through HCBS
- Why dementia care depends on those rates
- What families and providers can check now
What the proposed caps would do
The proposal sets a Medicare-based ceiling for add-on payments in Medicaid managed care. CMS estimated the change would save $775 billion total and $510 billion federal over 10 years by aligning Medicaid payments with Medicare. The first caps cover inpatient hospital, outpatient hospital, nursing-facility, and academic-center practitioner payments.
Nursing-facility payments grew from under 4 percent to 8 percent of state-directed spending in 2021-2024. CMS proposes extending the same Medicare-based limits to almost all other add-on payments, including physicians, behavioral health, and home- and community-based services, starting January 1, 2029, according to the National Academy for State Health Policy summary. That later phase is the part that reaches assisted living.
Why assisted living feels the change through HCBS
Medicaid generally does not pay for assisted-living room and board. It does pay for care services inside assisted living in many states. Thirty-four states cover personal-care services in assisted living, most often through 1915(c) waivers or state-plan benefits, according to the KFF coverage analysis.
Those waivers and benefits pay for help with bathing, dressing, meals, medication support, and supervision. For many of those supports, there is no matching Medicare rate. Payments would then be capped at 100 percent of the Medicaid state-plan rate, which would effectively end add-on increases. Providers that used the add-ons to support staffing, training, or expanded dementia services would return to base rates.
Why dementia care depends on those rates
Dementia care needs steady staffing and close supervision. Personal-care hours, behavioral support, and caregiver coordination carry much of that load in assisted living. About 7.4 million older Americans have Alzheimer's, 2026 care costs are projected at $409 billion, and Medicaid pays over 22 times more per person with dementia than without, according to the Alzheimer's Association 2026 Facts and Figures.
That cost gap reflects longer care hours and greater need for supervised daily support. Lower add-on payments would therefore affect dementia households first. Fewer funded support hours can mean tighter admission limits, leaner staffing, or slower expansion of memory-care capacity.
What families and providers can check now
Effects will vary by state because waivers, rates, and expansion status differ. The proposal had comments due July 21, 2026, and the HCBS limits would start later than the hospital and nursing-facility limits.
Ask these state-specific questions before making a move or a budget plan: Track state waiver announcements, waitlist notices, and provider admission policies over the next year. Families comparing communities should ask how the monthly fee separates room and board from covered care services.
- Does your state Medicaid program cover personal care in assisted living, and through which waiver or state-plan benefit.
- Are waiver slots capped, is there a waitlist, and how long is the wait for dementia-related support.
- Is your state an expansion or non-expansion state for the 100 percent or 110 percent ceiling.
- Has your provider relied on add-on payments for staffing or memory-care services.
