Federal Money for Home Care Could Hurt the Middle Class
As part of its infrastructure proposal to Congress, the Biden administration has proposed to spend an extra $400 billion over the next ten years on home care benefits for the disabled and elderly through the Medicaid program. This is an extraordinary amount of money, relative to the $2 trillion infrastructure package, to the $235 billion spent nationally each year on long-term services and supports (LTSS), and to the $134 billion paid annually by Medicaid for LTSS. What is the intended purpose of these funds? Who would benefit? Who would be harmed? Are there any hidden agendas? There have been many discussions over the years to create a federal long-term services and supports social insurance program like Medicare. Is this the beginning of such a plan?
While the presidential fact sheet is quite sparse on details, it states that through Medicaid, the proposal would provide extra federal resources to pay for additional home and community-based services (HCBS) such as personal care and home health. Medicaid, a combined federal and state-designed and funded health care and LTSS program, now covers individuals in state-defined health and functional and financial need. It also covers stays in nursing homes as an entitlement, regardless of budgets. While advocates claim that state budgets limit Medicaid spending on home care, the reality is that the growing majority of Medicaid spending on LTSS is already devoted to home care. The administration’s fact sheet also states that the new funds would raise the wages and benefits of workers in this specific sector through state mechanisms providing an enhanced ability to organize and collectively bargain. Changes in Medicaid eligibility rules are not proposed.
The advantage of the proposal for the 3.5 million direct care workers has been quantified in a study sponsored by Leading Age, a trade group, and cited by the administration. This study simulates an increase from the current level of wages of direct care workers, averaging nationally $13.36 an hour in 2019, to state-specific “living wages” for single individuals with no children, as calculated by an MIT professor. The current living wage in California, for example, is $18.66 an hour. According to the simulation, raising salaries to a living wage in 2022 will give 75.3% of direct care workers higher wages, averaging a 15.5% increase. Moreover, according to the economic assumptions of the study, these pay raises would induce more employment in the sector and extra hours, equivalent to 332,000 more workers, or an addition of nearly a tenth of the current direct care workforce. This represents a significant increase in HCBS. Both the increase in home care services and the increase in the wages of direct care workers are the administration’s stated goals. The total increase in the wage bill is estimated to come to $9.4 billion in 2022, or approximately $100 billion over ten years — a lot of money but much less than what the administration proposes to spend in total.
There are winners and losers: Among the winners of the proposal, many friends and relatives of Medicaid home care recipients. Through “consumer directed” personal care assistance programs, many states allow participants to use Medicaid to pay friends and relatives, commonly adult children but sometimes spouses, to provide needed assistance.
Direct losers include the majority of frail elderly and disabled persons needing home care services but not financially eligible for Medicaid. They would pay at least 15.5 percent more out of pocket. Such a large wage increase for so many workers would likely spread to other sectors as other more skilled workers like health care and nursing assistants would demand higher wages. This would increase overall LTSS and health care costs. It would be reasonable also to expect a significant increase in the expenses of parents with young children, who hire directly or indirectly child-care workers. These workers are paid typically less than direct care workers, and their wages would be subject to competitive increases in the job market.
The fact that this unusual and astonishing proposal favors a particular segment of workers, and is significantly over-financed for its stated purposes, does lead to the question of whether there is a larger agenda here. Attempts to expand the federal role in LTSS have been tried in the past. The Affordable Care Act did establish the poorly designed CLASS plan as a voluntary somewhat subsidized federal long-term care insurance but it never got off the ground. The massive cost of true social insurance, with its taxes and ever expanding benefits, has been the main barrier to successful enactment. Despite these failures, there is still a strong political desire and a determined constituency for significant expansions of the federal role in LTSS financing and design. However, promiscuous spending on programs of questionable need with harmful side effects is not the way to proceed in LTSS or elsewhere.
Mark J. Warshawsky is a Resident Scholar at the American Enterprise Institute. He served as Vice-Chairman of the 2013 Long-term Care Commission.
