Increasing the Minimum Wage Will Result in Unfunded Mandates for Senior Care Providers

Senior care providers support increasing the wages of the caregivers they employ. In concept, increasing the minimum wage can help with this goal. In reality, because providers receive the vast majority of their operating funds from government programs, such as Medicaid, increasing the state minimum wage without a corresponding rate increase to senior care providers could have disastrous impacts to our senior care system. Consider the following: Minnesota already underfunds the current cost of care in nursing homes. The Medicaid rates provided by the state are more than $27 per resident day less than the cost of care for an average home. The majority of nursing home revenues come from government funds. The state Medicaid program covers more than 55% of resident days and the federal Medicare program covers more than 10%. Minnesota law prevents nursing homes from covering increasing costs by increasing private-pay rates. The rate equalization statute requires homes to charge private pay residents no more than the Medicaid rate, even though the Medicaid rate is far short of covering the cost of care. Providers are already struggling to recruit and retain caregivers. Retention of nursing and direct care staff has been declining since 2009, and care centers now have almost 1,700 vacant nursing and direct care positions.

Unfortunately, none of the minimum wage bills that have been introduced this year include a provision to adjust Medicaid rates to cover cost increases, which must be done to avoid placing already financially-stressed providers into an unworkable situation. We have used the information collected by the Long Term Care Imeprative on employee wages to estimate the following statewide impact of moving to the $10.55 minimum wage called for in HF92: Over 13% of nursing home employees will be required to be paid a wage increase

The annual cost to nursing homes would be over $30 million. There is no mechanisim in current law that would help nursing homes cover this added cost. 27% of the employees of assisted living and other senior housing establishments will be required to receive a wage increase

This data only takes into account the direct impact of increasing the minimum wage. It does not attempt to account for the general increase in wages that will be necessary to attract and retain employees in a competitive labor market. It stands to reason that if the minimum wage goes up, all wages in senior care settings will have to also increase due to labor market dynamics. Because care centers already have to address the effects of a four-year rate freeze, there will be few options available to them to accommodate an increase in the minimum wage. Providers will likely turn to staff layoffs, reductions in hours and benefits or downsizing. All at a time when our population is rapidly aging.

Current Funding Proposals Do Not Address These Impacts

The Governors budget proposal (HF1233/SF1034) calls for an average 2% increase for nursing homes each of the next two years, and virtually no increase to elderly waiver rates in the same time period. This proposal is inadequate to cover the direct costs of a minimum wage increase for many providers, which will cause them to fall further behind as they struggle with the costs of health insurance, food and other necessities of care. The LTC Imperative has introduced legislation (HF886/SF792) to provide 5% rate increases each for the next two years for both nursing homes and EW providers. While the passage of those increases would help providers address needs that have accumulated in recent years, those increases could well be used up by any significant minimum wage increase, leaving nothing to address other needs.

Rural Nursing Homes Most Affected

The impact of increasing the minimum wage will fall disproportionately on rural providers, many of whom are least able to absorb these costs. The figures below are a good example of the direct impacts of a minimum wage increase on rural providers, this one being the 75 bed nursing home in the southern Minnesota city of Rushford:

Minimum wage increase to $10.55 would require a wage increase for more than half of their 140 employees, at a cost of more than $70,000 annually The direct cost of a $10.55 minimum wage would add 3% to their current compensation budget Minimum wage of $9 per hour would impose direct costs of over $10,000 annually, plus require additional wage adjustments to maintain competitiveness

When the impact of wage creep is considered, costs for rural homes are huge and not funded even if Imperatives proposal were to be enacted.

Options to Address Costs

If a minimum wage increase passes this year, older adult services providers need both a rate increase to compensate for previous cuts and freezes, as well as an additional rate adjustment mechanism to cover the costs imposed by a higher minimum wage. The following are a couple of options for addressing that issue: One option is legislation allowing Medicaid rate increases based on the reported cost of complying with any minimum wage increase. Under this option, it would be important to include a mechanism to address the indirect costs of wage increases necessary to adjust to the new labor market, because those costs would likely be more significant than the cost of lifting all employees to a new minimum. The rebasing statute passed several years ago and suspended since 2008, is far and away the best mechanism to address any increased costs due to a minimum wage increase, as well as the cost of other mandates such as the Affordable Care Act, while also eliminating the large gap between cost of care and rates that already exists. It also has the advantage of addressing any costs related to indexing of the minimum wage, which is a component of the current legislative proposals.