As they contemplate a major increase in Medicaid spending on home care for the elderly and disabled, state legislators are relying on information that’s outdated, incomplete or inaccurate – and neglecting to think through the predictable consequences.

A proposal known as the Fair Pay for Home Care Act would require that home health and personal care aides be paid at least 50 percent more than the minimum wage for their region – lifting them to a floor of $22.50 an hour in the New York City area and $19.80 upstate.

Although it would cost billions, the measure has broad support in the Legislature, and both houses are pushing to include it in this year’s budget, which is due at the end of this week.

As discussed in a previous post, the debate seems disconnected from key facts about home care in New York.

The program is already extraordinarily large, with levels of spending and employment that are head-and-shoulders above those of every other state, especially in New York City. The state’s expenditures on Medicaid home care more than tripled over the past decade while the state’s over-65 population grew by 30%.

In spite of this flood of funding, supporters of the wage hike portray home care as an industry in crisis, in need of billions more per year to address an “extreme shortage” of workers.

The advocates’ case rests on several claims that don’t square with the available facts:

Claim No. 1: New York faces the biggest shortage of home care workers in the U.S. 

This claim is based on analysis by Mercer, an employment consulting firm, which predicted that New York’s home care workforce would fall 83,000 short of the number needed by 2025.

The firm did not disclose all of its methodology, but its estimate of future job growth was based on projections from the U.S. Bureau of Labor Statistics. At the time, BLS estimated nationwide employment of home health and personal care aides would increase by 1.2 million between 2016 and 2026, or an average of 121,000 per year. 

Mercer warned that hiring would fall well short of that goal. However, through the first four years of that period, actual employment in those fields grew by 226,000 annually, or 89 percent faster than projected – suggesting that Mercer’s national forecast was mistaken.

New York’s hiring was even more robust. Based on BLS surveys, its employment of home health and personal aides jumped 42 percent from 2016 to 2020, compared to a national increase of 20 percent.

A similar concern was raised by a 2021 report from the CUNY School of Labor and Urban studies, which cited state Labor Department employment projections from 2018 to 2028. The CUNY report warned that employers “need to recruit an average of 26,510 new aides each year simply to keep up with the growing demand for care.” 

In fact, since 2016, the net increase in New York’s home care workforce has averaged 35,000 per year.

Claim No. 2: Because of low wages, home health is struggling to compete for workers with fast food and retail.

Overall, home health is outcompeting other low-wage jobs. According to BLS data, the number of home health personal care aides jumped by 96 percent over the past decade, compared to a 15 percent increase in fast food and counter workers and an 18 percent decline in retail salespersons.

As of 2020, the number of home health and personal care aides statewide, at 469,000, was more than the other two categories combined.

Claim No. 3: When fully implemented, the wage boost for home health workers would cost the state $2.5 billion per year.

The original CUNY report focused on two hypothetical wage hikes for home care workers, including a scenario that would have lifted their pay to $22 an hour. The report put the cost of that option at $4 billion a year.

In an updated analysis of the actual Fair Pay for Home Care plan, CUNY revised its cost estimate to $5 billion a year – roughly half of which would be covered by federal aid. That would leave $2.5 billion to be paid out of state funds – which is the figure the Assembly earmarked for the proposal in its financial plan.

However, CUNY’s original analysis was based on the costs for 223,530 workers – when the report itself, citing federal data, elsewhere said there were a total of 440,000 home health and personal care aides in New York.

The reason for this disparity is not clear, but it raises the question of whether CUNY’s cost estimate is too low by almost half.

State lawmakers have a history of underestimating the impact of wage hikes on Medicaid costs. When the Legislature voted to increase the statewide minimum wage in 2016 – from $9 to as high as $15 – officials initially estimated that the cost to Medicaid in 2020 would be $411 million. The actual cost in 2020 was almost $1.5 billion.

Claim No. 4: Hiking home health wages will be a net positive for state finances.

Despite its price tag, the CUNY analysts contend that the wage hike will produce a “net economic gain” to the state of $6.3 billion a year.

This is based in part on concrete savings, such as home health aides giving up their Medicaid coverage and paying more in taxes. But by far the largest factor in this calculation is the nebulous concept of “economic spillover,” based on an assumption that every dollar in new wages will generate $1.40 in economic activity.

Missing from this balance sheet are the many other ripple effects likely to result from this intervention, some more predictable than others.

A large, mandatory wage hike for such a big swath of workers would inevitably put pressure on competing employers to lift their pay, too – likely pushing some out of business and forcing others to raise prices for consumers.

Of particular concern would be the impact on other parts of the health-care industry, including hospitals and nursing homes – which are already facing a staff crunch so severe that Governor Hochul has called up the National Guard to help temporarily fill vacancies.

If the home care wage hike passes, it’s inevitable that unions representing other groups of health workers will demand the same deal for their members – and expect billions more in Medicaid spending to cover the costs.

There are also unintended but foreseeable consequences for parts of the home care industry that do not do business with Medicaid.

Hospice providers, for example, employ home health and personal care aides to deliver palliative care for the terminally ill – but rely primarily on Medicare rather than Medicaid for their income. If the wage measure passes as currently written, hospice providers would be required to pay significantly higher salaries with no additional source of revenue to cover the cost. 

Home health care workers do vital work for vulnerable people, so it’s understandable that legislators would generally favor boosting their pay.

However, the proposal on the table is enormously expensive and consequential – and would be difficult if not impossible to reverse once the law is passed.

Before going down this road, the state’s leaders should make sure they’re looking at the full picture and not cherry-picked or misleading statistics.

 

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

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