When a Medicaid Clarification Could Disrupt the Lives of Kentucky's Most Vulnerable Individuals

August 07, 2026

When a Medicaid Clarification Could Disrupt the Lives of Kentucky's Most Vulnerable Individuals

Note from the Author: AI was used to assist with spelling, grammar, and phrasing. Because this article addresses a sensitive and complex topic, precise wording matters, and care was taken to ensure that specific terms and statements were expressed as accurately and clearly as possible. AI was also used to help locate source material and relevant website links, all of which I personally reviewed to verify their accuracy and reliability. Additional information about the various waiver programs was obtained from individuals who work directly in those fields. Questions asked within this article have been submitted by myself, my source, and questions suggested by AI.

On August 13, 2026, I was made aware of and sent a copy of a letter that had been distributed to a group of individuals in Kentucky. I have verified that the letter is authentic. It was issued by the Kentucky Cabinet for Health and Family Services, Department for Medicaid Services, and the Department for Behavioral Health, Developmental and Intellectual Disabilities. ( Yes, I know that is an obnoxiously long title.)

The letter was provided by a source who has asked to remain anonymous. That source is concerned about the well-being of individuals with intellectual and developmental disabilities who receive Medicaid waiver services.

The letter (attached at the end) is dated August 12, 2026.

After reading the letter carefully and comparing it with Kentucky’s Medicaid regulations and federal Medicaid requirements, I want to be VERY precise about what it actually says because the potential consequences are serious enough without exaggeration. We all know there are people on every side of an issue who will twist or overstate things, and I do NOT believe in doing that.

The letter does NOT explicitly order every individual living with an unrelated caregiver or Family Home Provider (FHP) to move into their own residence.

What it DOES say is that two specific Medicaid services, Support for Community Living (SCL) Personal Assistance and Michelle P. Waiver (MPW) Community Living Supports (CLS), can ONLY be provided when an individual lives in their own residence or in their family’s residence.

Kentucky’s SCL regulation states Personal Assistance is available ONLY to an individual who lives in their own residence or their family’s residence.
(907 KAR 12:010, Supports for Community Living Waiver)

The MPW regulation contains a similar restriction. CLS are provided to facilitate independence and community integration for an individual residing in their own home or their family’s home. The MPW itself exists so individuals who meet the level of care (LOC) for an Intermediate Care Facility for Individuals with Intellectual Disabilities (ICF/IID) can receive services in the community rather than an institution.
(907 KAR 1:835, Michelle P. Waiver Services and Reimbursement)

According to the Aug 12th letter, a residence owned or controlled by an unrelated caregiver who is being paid to provide Medicaid-funded Home and Community-Based Services (HCBS) is considered a provider-owned or provider-controlled setting.

Because of that classification, Kentucky says the residence does NOT qualify as the participant’s (client’s) “own residence” for purposes of receiving SCL Personal Assistance of MPW Community Living Supports.

Federal Home and Community-Based Services rules do NOT categorically prohibit provider-owned or provider-controlled residential settings.

The Center for Medicare & Medicaid Services (CMS) has an entire framework governing these settings. Provider-controlled settings ARE subject to additional requirements intended to protect an individual’s privacy, autonomy, choice, accesses to the community, and rights within the residence. CMS also requires HCBS programs to use individualized and person-centered planning.

The issue is NOT that federal Medicaid rules make it inherently improper for someone to live in a residence controlled by a provider.
The issue IS which Medicaid service can legally be billed in that particular setting.

What Kentucky Is Actually Requiring

The most important portion of the letter is the section titled “Provider Action Needed”.

By October 31, 2026, case managers are instructed to identify every individual who is receiving SCL Personal Assistance of MPW Community Living Supports who is NOT living in their own residence or their family’s residence.

They must then:

review each individual’s needs
make necessary changes to the individual’s person-centered service plan
ensure that appropriate services are authorized based upon the individual’s current living arrangement and assessed needs
ensure that only individuals living in their own residence or a family members residence remain authorized for SCL Personal Assistance of MP Community Living Supports

The last bullet point is extremely important!!!

The letter does NOT say:
”You must move these individuals into their own residences.”

It DOES say that these particular services CANNOT continue to be authorized in a provider-owned or provider-controlled residence. This means an affected individual’s services or residential classification may have to change. And that raises an entirely different set of serious questions.

Family Home Providers Have Not Been Eliminated

Kentucky’s current SCL regulations still recognized FHP’s and other residential supports as legitimate parts of the SCL system. The regulations describe residential supports intended to assist individuals with acquiring or maintaining community-living skills, increasing independence, and living in the most integrated setting appropriate to their needs. The SCL regulatory structure continues to recognize FHP services and other forms of residential support. So the question is not simply whether Kentucky is abolishing FHP’s. Based on the letter and regulations I have reviewed, it is not.

The much more important question is:

What happens to individuals who are currently receiving Personal Assistance or Community Living Supports in a caregiver-owned residence when those particular services can no longer be authorized there?

Can they remain exactly where they are and transition to the appropriate residential service?
Will that service be approved?
Will there be enough funding?
Will their current caregiver be able to continue providing their care or will the client have to adjust to a new caregiver?
Will the reimbursement be adequate?
Or will some individuals ultimately be told that they need a different living arrangement?

The letter itself does not give us those answers.

These Individuals Cannot Simply Be Declared Independent

Some individuals receiving these services have profound intellectual or developmental disabilities. They may require assistance with bathing, using the toilet, dressing themselves, taking medication, meal preparation, transportation, money management, communication, and basic personal safety.

Some cannot safely prepare their own meals
Some cannot drive or independently arrange transportation
Some cannot reliably take medication without supervision
Some cannot understand money well enough to protect themselves financially
Some may not be capable of recognizing an emergency or knowing when they need help

These are not minor inconveniences. They are disabilities affecting the fundamental activities of daily living. The programs themselves recognize this reality. The MPW exists specifically for individuals who meet an institutional LOC standard but can receive services in a community setting instead. The purpose of these programs is to build independence where independence is realistically possible. That does not mean every individual will eventually become capable of living alone.

For one individual, progress might mean learning to tie their shoes
For another, it might mean learning to use a microwave safely
For another, it might mean identifying different denominations of money
For another, it might mean becoming more involved in dressing or bathing themselves while still requiring substantial assistance

While we may think of these as basic, everyday tasks, for individuals with intellectual and developmental disabilities, they can be significant and meaningful accomplishments. But they do not necessarily mean that the individual can safely live alone. Person-centered planning should mean building services around the actual individual. It should not mean forcing the individual to fit a predetermined definition of independence.
CMS specifically requires 1915(c) waiver services to follow an individualized and person-centered plan of care.

Where the Real Concern Begins

The August 12th letter creates a distinction between the service being provided and the place where the individual lives. If someone currently receives Personal Assistance while living in the home of an unrelated paid caregiver, that service may no longer be authorized in that setting after the case review.

One possible solution may be transitioning that individual into a residential support service that is legally appropriate for a provider-controlled setting. Kentucky’s regulatory system clearly recognizes residential services and FHP settings. But that leads to questions the Kentucky Government needs to answer publicly.

Will every affected individual qualify for the residential service they actually need?
Will enough residential-support capacity exist?
Will reimbursement rates allow providers to continue caring for these individuals?
Will existing caregivers be able to transition from one service model to another without the individual losing continuity of care?
What happens if an individual cannot obtain authorization for the residential service necessary to remain where they currently live?
And what happens during the transition?

Those questions matter because the relationship between an individual with significant developmental disabilities and their caregiver is often far more complicated than simply “provider and client.”

For many individuals, that caregiver’s house is home. It may be where they have lived for years. It may be where they know the layout, understand the routine, recognize the people around them, and feel safe. It may be where they celebrated birthdays and holidays, where they learned new skills, and it may be where they developed relationships with neighbors and become part of the local community. Disrupting that environment can have consequences that cannot be measured simply by changing a billing code.

What This Letter Does Not Tell Us

Perhaps one of the most concerning parts of the August 12 letter is not what it says. It is what it does NOT say.

The letter gives case managers until October 31, 2026, to identify affected individuals and make changes to service plans where necessary. But the letter does NOT tell providers, families, caregivers, or the public:

How many individuals are currently affected by this clarification?
How many are living in residences owned or controlled by unrelated caregivers?
How many are living in residences owned or controlled by unrelated caregivers?
How long have those individuals lived in those homes?
How many will be transitioned to another residential support service?
Whether sufficient residential-support capacity currently exists for everyone who needs it.
Whether existing caregivers will be able to continue caring for the same individuals under another authorized service model.
Whether anyone will actually have to relocate.
Whether Kentucky has conducted an analysis of the potential risk of institutionalization.
Whether Kentucky has studied the availability of affordable and accessible housing for anyone who may need to establish their own residence.
Whether there will be meaningful appeal rights when an individual, guardian, caregiver, or person-centered team believes a proposed change could place the individual at risk.
Whether Kentucky has conducted a fiscal analysis comparing the cost of maintaining appropriate community placements with the cost of institutional care.
And what safeguards will prevent anyone from experiencing a gap in essential services during this process.

Those are not unreasonable questions. They are exactly the kinds of questions that should be answered before a policy affects the living arrangements and continuity of care for individuals who may NOT be able to advocate for themselves. The letter provides a compliance deadline. It does NOT provide the public with an impact assessment.

Kentucky should provide this.

Affordable Housing Is Not Simply Waiting for Them

If an affected individual cannot transition into an appropriate residential support service and is instead expected to establish their own residence to continue receiving Personal Assistance or Community Living Supports, another major problem appears immediately.

Where are they supposed to live?

Affordable housing is already a serious problem in Kentucky. Kentucky Housing Corporation currently says that lack of available housing is Kentucky’s number one housing problem. Even more importantly, Kentucky Housing Corporation’s Housing Choice Voucher (Section 8) waiting list is closed and applications are not currently available. So saying that someone can simply “get Section 8” is not an answer.

Kentucky does operate a Mainstream Voucher Program intended specifically for households containing a non-elderly individual with a disability. But that program is not simply open to anyone who needs a residence. Kentucky Housing Corporation says Mainstream vouchers are referral-based and that it does not accept applications directly from the public. Eligible referral groups include individuals transitioning from institutional settings, individuals at serious risk of institutionalization, and certain individuals experiencing or at risk of being unhoused. Kentucky Housing Corporation also explicitly acknowledges that finding suitable and accessible housing for people with disabilities is often difficult in the private market.

That makes “get an apartment” much easier to say on paper than to accomplish in reality. Even an individual who receives a voucher still has to locate an available unit. The unity has to meet the individual’s needs. A landlord has to accept the arrangement. There may be inspections and paperwork. Utilities have to be established. (Note: low-incoming housing could have utilities provided as part of the rent.) Furniture and household necessities have to be obtained. Transportation has to be arranged. Medication still has to be managed. Food still has to be purchased and prepared. The individual still has to be safe when the caregiver leaves (if they do not receive 24/7 caregiver services).

The letter does mention the possibility of having roommates. If that is the case then why can the caregivers they are currently living with not be considered roommates? What type of person/who would be considered a roommate? Does that roommate have to take on the responsibilities of care for the individual?

For someone who cannot independently manage money, transportation, paperwork, medication, personal hygiene, or basic household activities, those are not minor details. They can be insurmountable barriers without substantial assistance. And if the housing simply does not exist, no amount of person-centered planning can manifest it.

An Apartment Does Not Create Independence

Even if housing could be found, obtaining an apartment is not the same thing as being capable of independently managing one. If an individual relies primarily upon Supplemental Security Income (SSI), rent may consume a substantial portion (if not all) of their income. Then there is the cost of everything mentioned above. Even if the financial problem could somehow be solved, there is still the issue of human safety if they do not have 24/7 caregiver services.

Who ensures the individual eats when the caregiver is not there?
Who manages medication?
Who recognizes when the individual is sick?
Who responds if they fall?
Who notices if they leave the residence and become lost?
Who protects them from financial exploitation?
Who recognizes abuse?
Who responds at two in the morning?
Who notices that something is wrong when the individual may not have the ability to explain it themselves?

An apartment doesn’t create independence. Sometimes it simply relocates dependence.

Community-Based Care Was Created for a Reason

HCBS exist largely so individuals who require long-term supports can receive them in homes and communities rather than being unnecessarily placed in institutions.

Congress created the 1915(c) HCBS waiver authority to allow states to provide community-based alternatives to institutional care. CMS says eligible individuals must demonstrate a level of care that would otherwise meet the state’s requirements for institutional services. CMS also requires states operating these waivers to protect the health and welfare of participants, maintain adequate provider standards, follow individualized person-centered plans, and demonstrate that waiver services do not cost more than institutional care (cost-neutrality).

And Kentucky’s MPW program reflects that philosophy.

In fact, the MPW regulation expressly states that the waiver enables individuals who qualify for ICF/IID care to reside in and receive services in a community setting rather than in an institutional setting. That purpose should remain at the center of whatever Kentucky does next.

There Is Also a Civil Rights Issue

This is not only a Medicaid reimbursement issue. It is also connected to disability civil rights.

In Olmstead v. L.C ., the US Supreme Court held that unnecessary segregation of people with disabilities can violate the Americans with Disabilities Act (ADA). The decision established what is commonly called the ADA’s integration mandate. The U.S. Department of Justice explains that the ADA requires public entities to provide community-based services when those services are appropriate, the affected individual does not oppose community-based treatment, and the services can be reasonably accommodated.

The DOJ has also repeatedly enforced the integration mandate to protect people with disabilities who are not receiving services in the most integrated setting appropriate to their needs. This does not mean that every institutional placement is illegal. Some individuals may genuinely require highly intensive residential care. Nor does it mean the August 12 letter itself violates the ADA. But it raises a legitimate civil rights question:

Could implementation of this policy leave some individuals at the greater risk of unnecessary institutionalization when appropriate community-based services could otherwise safely meet their needs?

That is a question Kentucky should be considering now rather than after an individual’s community placement fails. If someone can safely remain with a FHP under an appropriate residential service, there should be a clear pathway for that to happen. If changing an individual’s service authorization leaves them without adequate community support and ultimately places them at serious risk of institutionalization, that deserves careful scrutiny under the same integration principles that have shaped disability police for decades.

Financial Reality

There is another reason preserving successful community placements matters.

Money

CMS requires states operating 1915(c) waivers to demonstrate that providing waiver services will NOT cost more than providing services in an institution. That cost-neutrality requirement exists for a reason. Community-based services are NOT merely a humanitarian alternative to institutionalization. They are also designed to provide necessary care in a financially sustainable way.

Kentuckys institutional costs demonstrate how expensive higher-acuity institutional care can become.

For example, Kentucky’s Oakwood ICF/IID facility has a fiscal year 2026 interim (PDF File) Medicaid per-diem rate of $1,454.97 per resident per day.

Annualized:
1,454.97 x 365 days = approximately $531,064 per resident per year.

Oakwood serves individuals with particularly significant needs, so that figure should not be presented as the cost of every institutional placement in Kentucky. It does however demonstrate how high institutional care costs can become.

At that rate:
10 residents would cost approximately $5.31 million per year
100 residents would cost approximately $53.1 million per year
500 residents would cost approximately $265.5 million per year
1,000 residents would cost approximately $531 million per year

Note: These figures are not predictions

The August 12 letter does NOT say that 1,000 individuals are going into institutions, nor does it say that anyone will necessarily be institutionalized. But they do illustrate the financial stakes if community placements fail.

If an individual requires substantial support regardless of where they live, eliminating or changing one from of Medicaid support does not eliminate that person’s disability. It does NOT eliminate their need for care. It moves the cost somewhere else. If that “somewhere else” becomes a substantially more intensive residential or institutional environment, the cost can increase dramatically. This is precisely why federal Medicaid law requires states to compare the cost of HCBS waivers with institutional care. CMS says a state must demonstrate that waiver services will not cost more than providing those services institutionally. So if implementation of this clarification destabilizes successful community placements, Kentucky should answer another important question:

What will it actually save?

Because if even a portion of affected individuals ultimately require significantly more expensive residential or institutional care, what looks cheaper on one Medicaid billing line may become considerable more expensive somewhere else in the system.

Community Integration Has a History

The US spent much of the twentieth century moving individuals with intellectual and developmental disabilities away from enormous state institutions and toward community-based care.

President John F. Kennedy played an important role in that movement. His interest was deeply personal because his sister Rosemary Kennedy underwent a lobotomy at age 23 that left her profoundly disabled. Kennedy created the President’s Panel on Mental Retardation in 1961. (I am using their words from the time period to be historically accurate. I personally do not like the r slur.) The panel developed more than 100 recommendations concerning intellectual disability.

In 1963, Kennedy called for a different approach to mental illness and intellectual disability, emphasizing community services rather than reliance upon large custodial institutions. That same year, he signed the Community Mental Health Act. Of course, deinstitutionalization itself was far from perfect. too often, people were removed from institutions without governments creating the community infrastructure necessary to support them. That history is important here because simply closing an institution, removing a residential program, or changing a services does NOT automatically create a better life.

Community living only works when the community services necessary to sustain that person actually exist.

A poorly supported apartment is not automatically more humane than a properly supported FHP residence simply because one is labeled “independent.” The individual’s actual needs have to remain the determining factor.

Disability Policy Has a Dark History

There is also a much darker historical reason that policies affecting vulnerable disabled individuals deserve careful public scrutiny. History repeatedly demonstrates the danger of reducing disabled human beings to questions of cost, burden, productivity, or administrative convenience.

Nazi Germany represents the most horrific example. Under Aktion T4 and related programs, Nazi authorities systematically murdered individuals with intellectual, psychiatric, neurological, and physical disabilities. Nazi ideology portrayed disabled individuals as economic and genetic burdens whose lives were less than those of other people. The US Holocaust Memorial Museum estimates that approximately 250,000 disabled individuals were ultimately killed though Nazi “euthanasia” programs and related policies.

I WANT TO MAKE IT EXTREMELY CLEAR ABOUT WHAT I AM SAYING HERE

A Medicaid service clarification is NOT remotely similar to Aktion T4!!!
Those two things are NOT equivalent and pretending they are would trivialize the systematic murder of disabled people under Nazi Germany.

Having said that, the historical warning is relevant and about something deeper.

We should always become concerned when the humanity of disabled individuals begins disappearing behind discussions of efficiency, expense, productivity, or administrative convenience. There is nothing wrong with governments considering cost. BUT cost CANNOT become the only measure of whether a human being receives the care necessary to live safely and with dignity.

The question must always remain;
What does this individual actually need?

The Deadline Is Not Very Far Away

The letter states that case managers are expected to complete this review process by October 31, 2026. That means providers, caregivers, families, guardians, case managers, and the individuals themselves have only a limited amount of time to determine whether their current living arrangements and service authorizations comply with the clarification.

For some individuals, this may amount to little more than a correction of how services are authorized.

I sincerely hope that is the case for everyone affected.

For others, however, it could potentially affect the structure of their care and of their living arrangement. This is why Kentucky NEEDS to provide clear answers.

How many individuals are affected?
How many currently live in caregiver-owned or caregiver-controlled residences while receiving Personal Assistance of Community Living Supports?
How many can transition into Residential Support services without moving?
Will existing caregivers be allowed and funded to continue providing care through another authorized service?
Are enough residential-support slots available?
Will sufficient funding accompany those slots?
What happens to someone whose current service arrangement no longer qualifies but who cannot safely live alone?
What happens if appropriate housing simply is not available?
What protections are being implemented to ensure no individual experiences a gap in care?
Has Kentucky evaluated the potential impact under the ADA’s integration mandate?
Has Kentucky calculated the cost if unsuccessful community placements result in individuals requiring more expensive institutional care?

And perhaps most importantly:

Will anyone be forced to leave a safe and stable home because Medicaid will no longer authorize the service currently being used there?

The August 12 letter does NOT answer these question and as of the time of posting this article Kentucky has not provided any clarification or answers.

Kentucky needs to answer the questions in this article and others BEFORE this is implemented.

Because, these individuals are NOT billing codes, they ARE human beings. Many of them cannot advocate for themselves. Many cannot understand the bureaucratic changes taking place around them. Many may not even understand why the place they have called home for years could suddenly be subject to a government review and taken away from them. These people rely upon families, guardians, caregivers, case managers, advocates, and the rest of us to make sure policies supposedly designed to help them do not ultimately leave them less safe then they were before.

Independence should be encouraged whenever it is possible. Community integration should be protected. Institutionalization should remain a last resort when the appropriate community care can safely meet an individual’s needs. But independence cannot simply be declared into existence by changing where Medicaid will pay for a service. An apartment is not independence if someone CANNOT safely live there. A change in billing code is not person-centered care if the individual loses the person who has cared for them for years. A policy CANNOT be called successful merely because it satisfies a regulatory requirement if the human being affected by the policy ends up less safe, less stable, or ultimately institutionalized.