In the 2026 Appropriations Act, Session Law 2026-41 Section 9E.14, the North Carolina General Assembly appropriated $21.3 million in recurring state funds, beginning in State Fiscal Year (SFY) 2027 to raise NC Medicaid Innovations waiver services rates so that providers can increase the hourly wages of the direct care workers (DCWs) who meet the legislative DCW definition (9E.14(b)):
“Innovations direct care worker under this section includes all workers required for compliance with, or delivery of, the relevant Innovations waiver service definitions and the delivery of a unit of Innovations services. Individuals in the definition of direct care worker to be applied shall include only caregivers who are contracted for the provision of services in a legally appropriate manner”
Though S.L. 2026-41 does not specify the amount or percentage of the rate increase that must be passed through to DCW wages, the funding appropriated for SFY 2027 provides additional support, as did the previous legislation (S.L. 2023-134), to raise DCW worker hourly wages.
This bulletin documents the calculations used to determine the total increase to provider rates, along with the key steps NC Medicaid used to identify the included services, the methodology used to calculate the impact by procedure code and direct attention to the reporting requirements of the Innovations DCW wage bill.
Background
As a part of a similar exercise, originally performed in March of 2022, and again in 2023 under S.L. 2023-134, NC Medicaid performed an analysis to identify the State's Innovations 1915(c) waiver services which meet the definition of direct care worker and calculate equitable rate increases at the procedure code level to fully allocate the available funds. This analysis is documented in the following provider bulletins on the NC Medicaid website: SPECIAL BULLETIN COVID-19 #239, and the NC Medicaid Innovations Waiver Provider Rate Increase bulletin.
Rate Development
NC Medicaid implemented the incremental Innovations Waiver DCW Rate Increases effective Oct. 1, 2026, retroactive to July 1, 2026. Below are the key steps NC Medicaid, with direction from its actuarial vendor, used to identify the included services and the methodology used to calculate the impact, by procedure code, of the Innovations and direct care worker wage increase from S.L. 2026-41.
Table 1 in the appendix of this bulletin summarizes the rate changes for each impacted service. The included services, methodology, and assumptions used to support these calculations are consistent with prior analyses and were developed with input from NC Medicaid policy and program managers, including 1915(c) waiver experts, the North Carolina Department of Health and Human Services (NCDHHS)’ actuarial vendor, along with others within NCDHHS familiar with the service delivery modes of the impacted services.
Through discussion, and based on the legislative definition of DCW, NC Medicaid narrowed the set of Innovations 1915(c) waiver services by excluding the following service types from the analysis:
- Individual goods and services
- Home-delivered meals
- Assistive technology
- Home and vehicle modifications
- Community navigator and community transition
- Natural support education
- Specialized and financial consultative services
- Crisis services and consultation
These services were excluded based on several criteria, such as occupation types who earn higher than average wages, services not typically provided by a DCW, or services classified as a good for which hourly wages are not relevant.
The following list of Innovations Waiver services included in the analysis:
- Community Networking
- Residential Supports
- Supported Employment
- Respite Care
- Community Living and Supports
- Day Supports
- Supported Living
Estimated DCW Rate Increases
The calculations below summarize the development of a uniform per-unit increase reflecting the allocation methodology outlined below for an equitable distribution of available funding. The allocation method uses the appropriated funding amount, grossed up to account for Federal Financial Participation, based on the applicable Federal Medical Assistance Percentage (FMAP).
This total funding amount is then divided by historical utilization of services on a 15-minute, per DCW basis to calculate a uniform rate add-on that can be applied across all included services. This method is not influenced by current rate levels and instead leads to the same per-unit change across all included services after consideration for the group and unit of service adjustments outlined previously. While the rate add-on will be uniform, the percentage increase will vary based on the existing service rate.
| Metric | Quantity |
|---|---|
| SFY 2027 Appropriated State Funds | $21,300,000 |
| SFY 2027 Total funds, considering Federal Financial Participation | $59,400,000 |
| SFY 2027 Funding available for rate increases, after consideration for indirect cost adjustments¹ | $57,200,000 |
| SFY 2027 Projected 15-min units for included Innovations 1915(c) services | 189,600,000 |
| 15-minute Unit Cost Increase of Dividing Available Funds by Units | $0.30 |
¹ Indirect cost adjustments include underwriting gain and premium tax included in capitation rates.
Direct Care Worker Innovation Rate Increases by Procedure Code
For Direct Care Worker Innovation Rate Increases by procedure code, see the DCW Rate Increases Code Table, also published on the Direct Care Worker Wage Increase Initiatives - SFY 2027 webpage.
Direct Care Worker Wage Increase Reporting
To receive the rate increase, Innovations waiver services providers must submit the DCW Wage Increase Attestation and Acknowledgment Form to their respective LME/MCOs. This form documents each provider’s commitment to use the rate increases according to legislative requirements, and “to the benefit of its Innovations Waiver DCWs, including in the form of an increase in hourly wage, benefits, or associated payroll costs.”
S.L. 2026-41 requires providers, LME/MCOs, and NC Medicaid to report on the provider usage of the DCW rate increases. Providers must keep documentation on their use of the rate increase (e.g., payroll journal) and make that documentation available to the LME/MCO and/or NC Medicaid to satisfy reporting requirements. The LME/MCOs shall work directly with their respective eligible Innovations Waiver providers to collect and aggregate this data and submit a report to NC Medicaid by the revised Dec. 1, 2027 date.
[1] Please note that the reporting deadlines originally designated by S.L. 2026-41 have been revised by NC Medicaid. These revised dates for the overall reporting requirements, data periods, and submission cadences are based on the previous DCW wage increase reporting structure under S.L. 2023-134 and S.L. 2024-1. NC Medicaid’s intention is to reduce administrative burden while ensuring data integrity.
The LME/MCO will notify NC Medicaid if a provider does not submit a Year-End Aggregate Report documenting valid usage of the funds for a given year. As directed in the legislation, if determined necessary, LME/MCOs shall recoup funds that had been given to the provider but were not used in a manner consistent with the legislated requirements.
Additional Information
NC Medicaid strongly encourages LME/MCOs and Innovations Waiver providers to visit the Direct Care Worker Wage Increase Initiatives - SFY 2027 webpage and the DCW Wage Increase Initiative FAQs - SFY 2027 for more information.