Wages stagnate as Medicaid home health spending increases

One of the fastest growing jobs in the United States is that of home care worker. The population is aging, and most people who need support with daily activities such as bathing, eating, and taking medications prefer to live at home rather than in a nursing home. Through state programs, Medicaid pays for the majority of long-term care.

In research supported by an LDI pilot grant, LDI Senior Fellows Pilar Gonalons-Pons, Alison Hoffman, and Norma Coe, along with former LDI Associate Fellows Amanda Kreider and Kate Miller , as state Medicaid spending on home services increased, home care worker wages remained in the $11 to $12 hourly range.

Ms. Gonalons-Pons discussed the results, their implications, and ways to improve the work of home care workers.

Why did you study the relationship between home service spending and worker wages?

I study caregiving penalties, the idea that providing care can result in financial loss. Those who provide direct care pay less than jobs with comparable qualifications, such as those in the food industry, and often lack benefits such as health insurance. Many home care workers are women of color with children who are the primary breadwinners for their families. It's an important and rewarding job, but 49% of workers rely on public benefits like food stamps. Poor work quality can impact workforce stability and patient care.

We examined the association between Medicaid spending on home- and community-based services and workforce size, hourly wages, and hours worked. We used data from 2008 to 2019 on Medicaid spending by 36 states and American Community Survey data on employment and income. Adjustments were made to account for factors such as state minimum wage laws and demand for home care.

How has spending on home care affected the workforce and wages?

This result is somewhat surprising. Average state spending on home care services doubled from 2008 to 2019, from $773 million to $1.5 billion, while worker wages remained stagnant at $11 to $12 an hour.

We expected one of two outcomes. If workers' wages increase because of increased Medicaid spending, or if home care agencies hire more workers but do not increase wages, this would affect workforce size but not wages. plug. The results didn't fit neatly into either of those results.

The state's average number of workers and hours worked increased, but only slightly. Using spending surveys and industry data on the cost of new workers, and adjusting for changes in demand, behind-the-scenes calculations estimate that every $1 million increase in spending adds 5 to 7 new jobs. However, I added only one. Although spending patterns and investments in the workforce require further investigation, we found no evidence that increased Medicaid spending increased labor or wages.

What caused the increase in spending?

If workers provide more services for the same pay, that money could potentially be used to increase care without raising wages. In fact, we find that increased spending is associated with a small increase in the probability of working more than 41 hours per week. Administrative operations may also be affected. Each state has many Medicaid-funded home and community-based care programs, and their policies are fragmented and complex. Simplifying the Medicaid structure of these programs could reduce spending by making services easier to receive and manage.

What else do your results suggest for improving the home care workforce?

Home care jobs must become more attractive to reduce turnover, which is a key factor in access and quality of care. Since the COVID-19 pandemic, we've seen a huge turnover from long-term care jobs, especially from nursing homes, and low wage growth and inflation are hitting the workforce hard across the board.

This led to some positive actions. The Biden administration's rules would require 80% of each state's Medicaid home services payments to go to workers' compensation, rather than administration or benefits. Some states have similar “pass-through” policies, requiring home care agencies to use a portion of Medicaid funds to pay for payroll costs and wages. As of 2022, 22 states and the District of Columbia have enacted pass-through laws that have the potential to improve wages and quality of care. But pass-through policies alone aren't enough if Medicaid reimbursement rates are too low to begin with. Raising the minimum wage also allows workers to earn more without affecting employment.

The study, “Increasing Spending on Home- and Community-Based Services: Are Home Care Workers Benefiting?” was published in Health Services Research on October 18, 2024. Authors include Katherine E.M. Miller, Norma B. Coe, Amanda R. Kreider, Alison Hoffman, Katherine Lord, and Pilar Gonalons Pons.

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