Elder Care Facilities Brace for $15 Minimum Wage Impact

Published August 16, 2016

Increasing the minimum wage to $15 an hour could yield the unintended consequence of raising the cost of long-term elderly care, industry leaders warn.

Washington, DC Mayor Muriel Bowser signed legislation on June 27 to raise the city’s minimum hourly wage from $11.50 to $15 by 2020, starting in July.

Four days earlier, New Jersey lawmakers approved a bill gradually increasing the state minimum hourly wage to $15 by 2021. New Jersey will become the third state to enact a $15 minimum-wage law, behind California and New York, if Gov. Chris Christie (R) signs the bill or declines to veto it within 45 days of transmittal.

Activists working with the Fight for $15 organization protested the lack of a $15 minimum hourly wage in cities in Illinois, Pennsylvania, Wisconsin, and other states on April 14.

Higher Prices, Fewer Providers

Legislation that would increase Wisconsin’s minimum hourly wage, currently $7.25, to $15 by 2021 failed in April, as did a separate proposal to raise the minimum hourly wage to $10.10 by 2018.

A higher minimum wage could have a disproportionate impact on nursing home facilities and other providers of care for the elderly, says Brent Meyers, administrator at the Monticello Care Center, a 50-bed skilled nursing home in Monticello, Wisconsin.

“If Wisconsin increases the minimum wage rate to $15 an hour, that will strongly affect the long-term care business,” Meyers said. 

Of the 70 people Meyers employs at two facilities, “approximately 65 percent make less than $15 an hour,” he said. “Almost all positions in my nursing home and assisted-living facility are below $15 an hour. Most licensed staff make at or more the $15 an hour.”

A $15 minimum hourly wage would result in price hikes for private-pay patients and residents and a restricted supply of providers for the clientele, including Medicare and Medicaid recipients, Meyers says.

“We cannot pass the costs to Medicare or Medicaid patients, only to private-pay residents,” Meyers said. “Most long-term care facilities have a low percentage of private-pay residents. If there is no increase in Medicare and Medicaid reimbursements to offset this increase, facilities could decrease staff hours and positions—or even worse, limit their admissions.”

California Cities Outraise State

In contrast to Wisconsin, California is home to cities in which councilmembers have raised the minimum wage higher and faster than the state’s $15 minimum-wage law requires.

Gov. Jerry Brown (D) signed a bill in April increasing California’s minimum hourly wage to $15 by 2022 for businesses with 26 or more employees and by 2023 for smaller businesses.

San Francisco is raising its minimum hourly wage to $15 by 2018. In Emeryville, a San Francisco suburb, business owners with more than 56 employees are already required to pay minimum-wage earners $14.82 an hour, on pace to pay $16 hourly by 2019, in compliance with a city ordinance.

Richard Lieberman, executive director at Emeryville’s Bayside Park, a private-pay retirement and assisted-living community, says higher minimum-wage requirements have caused facility administrators to scour their budgets for potential savings.

“It’s had a lot of effect,” Lieberman said. “We have to take a closer look at how we spend our money. Because of the labor cost increase, we have to look hard for places to save, asking where we have to cut and where we have to raise rents.”

Driving Up Other Wages

Increasing the minimum wage also produces what Lieberman termed “wage compression,” commonly referred to as a “ripple effect,” which increases payroll costs for employees who make well above minimum wage.

“When you raise the minimum, people who are earning slightly over minimum wage—people who have been here awhile and have had gradual pay increases—need raises, too,” Lieberman said. “An employee who has worked here seven to 10 years does not want to be making the same as an entry-level employee.”

In addition, the nature of elderly care makes layoffs almost impossible, Lieberman says.

“We have to keep staffed caregivers,” Lieberman said. “We don’t have the luxury of running lean. We might be allowed to reduce custodial staff, but if they’re not going to get through their tasks, we need them as well.”

Ben Johnson ([email protected]) writes from Stockport, Ohio.

Internet Info:

Matthew Glans, “$15 Minimum Wage Will Hurt New Jersey Workers and Businesses,” Research & Commentary, The Heartland Institute, May 31, 2016: https://heartland.org/publications-resources/publications/research–commentary-15-minimum-wage-will-hurt-new-jersey-workers-and-businesses

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