How will the movement around the country to increase the minimum wage to $15.00 per hour affect the home care industry? What do you need to be paying attention to as a home care leader and business owner?
We’ve seen a number of reports from around the country about efforts to increase the minimum wage. The first place this shift actually happened was in Seattle, WA where a new ordinance raises the minimum wage to $15.00 by January 1, 2017.
Now there’s a movement called “Fight for $15”. A week after a speech by White House hopeful Hillary Clinton, home care workers boasted another win on Tuesday when Los Angeles County supervisors voted to raise the wage of about 140,000 home health care workers paid through a state program partially funded by the county. Over the next year and a half, their pay will go from $9.65 an hour to $11.18 — a bump in the right direction toward the $15 hourly wage home care workers nationwide have been fighting for.
Caregivers in the home care industry were given a boost of support by Hillary Clinton, whose endorsement has put the Fight For 15 movement back into the mainstream media.
“Home care workers and adjunct professors, all of you should not have to march in the streets to get a living wage, but thank you for marching in the streets to get that living wage,” she said in a phone conference with more than 1,200 workers and organizers gathered in Detroit on Sunday. “We need you out there.”
The Fight For 15 movement has gathered momentum among home care workers, whose campaigns have fast-food workers and other industry employees seeking $15 hourly wages and union rights.
What will be the impact of $15 per hour wages for Caregivers?
As a student of the economics and statistics of in-home care for the elderly, I have identified a number of ways that these wage increases will affect the home care industry. Let’s look at the three biggest outcomes:
Right now, the typical elderly person receiving in-home care on a private pay basis is paying $21.00 per hour for a personal caregiver. This rate varies from $18.50 in the southeast region to $23.00 in the northeast and on the west coast. The median hourly pay rate for caregivers ranges from $10.00 to $10.49, with median pay in the Southeast being $9.00 and the Pacific region being $11.00. These pay rates and billing rates give the typical home care company a gross margin of 39%. By controlling operating expenses, home care companies are able to earn a net income from operations of 25.4%. (source: 2015 Private Duty Benchmarking Study from Home Care Pulse)
Should caregiver wages increase to $15, along with the need to provide health care coverage under the ACA and the potential for overtime under the DOL Rule that is now in the courts, agencies may well have to raise rates for private pay clients to near $30.00 per hour. This will price many elderly folks out of the ability to pay for in-home care and will reduce the number of clients and hours of service for home care companies.
2. State Medicaid beneficiaries lose in-home care
These numbers look dramatically different for companies providing care for beneficiaries of state Medicaid programs. While caregiver wages are about the same as for private pay, the hourly rates paid by the states for attendant care and personal care are generally lower than private pay rates. What does that mean?
While legislators, regulators, and politicians across the country talk about raising wages for low income workers, there is absolutely no conversation about raising reimbursement rates for Medicaid Waiver in-home care. That means that more and more companies will walk away from providing services to waiver clients, and refocus on growing their private pay business. Since many states are moving to Managed Medicaid programs, we will see large insurance companies with contracts to provide in-home care for their elderly beneficiaries, but no home care providers who are willing to provide the care.
3. Home Care Companies go out of business
In 1997 when the Balanced Budget Act went into affect, CMS did not have a new prospective payment system ready to implement. They put in place an Interim Payment System which dramatically reduced the reimbursement rates for home health agencies. In the next three years, over 30% of Medicare Certified Home Health Agencies went out of business. If pay rates go up for caregivers, Medicaid rates stay the same or go down, and it becomes difficult to increase private billing rates, many home care companies will fold under the economic pressure. We are already seeing a high attrition rate of new companies in many markets. New companies pop up, stay around for a year or so, and then disappear. This is an easy business to get into as the barriers of entry are low. It’s not an easy business to stay in and we see many new start ups failing.
Watch the Trends
As a leader and business owner in home care, you have a responsibility to grow your business and get ready for the future. Getting ready for the future means paying attention to the forces and trends affecting the future of our industry. The Affordable Care Act, the Federal Companionship Exemption, caregiver shortages, and wage rates are all changes that are taking place around you. You need to stay on top of these trends, or patterns of change.