$25 healthcare minimum wage to cost California $4 billion in first year

(The Center Square) – A new California law raising the minimum wage for healthcare workers to $25 per hour will cost the state $4 billion as the state faces an escalating budget crisis amid falling tax receipts. With the state facing a deficit of $14 billion for the next year — or worse, if revenue projections continue to fall short — critics say this measure not harms healthcare system users, but puts the state in financial peril.

“Increasing the minimum wage to $23 per hour starting in 2024 and reaching $25 in 2026 for health care workers in medical facilities with 10,000 or more employees is fiscally irresponsible, particularly at a time when the state is facing a severe budget deficit,” said Sally Pipes, president and Thomas W. Smith Fellow in healthcare policy at the Pacific Research Center.

With a major shortage of doctors across the state, increasing spending on other categories that puts pressure on budgets for physicians could result in even worse service overall as positions are cut to accommodate higher costs of labor.

“Many on Medi-Cal are already having a hard time finding doctors to treat them because of low reimbursement rates these doctors receive from the government,” continued Pipes. “If those on Medi-Cal can find a doctor, they are facing very long waits for care. This measure will definitely further harm those patients.”

The law increases the minimum wage for employees at employers with more than 10,000 full time or equivalent employees, or facilities in counties with more than 5 million residents from $15.50 per hour today to $23 in June 2024, $24 in June 2025, and $25 in June 2026, with extended timelines until the $25 minimum wage for other types of facilities and employers. After a facility type reaches the $25 per hour minimum wage, the Director of Finance for California must calculate a new adjusted minimum wage each year that increases by the lesser of 3.5% or the non-seasonally adjusted consumer price index. The new minimum wage applies to any employee in the health sector, including “food service staff” and “gift shop staff.”

At the time of its passage, the California legislature concluded the fiscal impact for the bill was “unknown,” with a coalition of advocates led by SEIU California claiming “Care work has historically been undervalued by society. A recent report on the California nursing home workforce characteristics found that 1 out of every 2 Skilled Nursing Facility workers earns less than $20 per hour. These workers are also primarily women (81%) and workers of color (77%), with almost half of them identified as Hispanic.”

Meanwhile, the coalition opposing the bill, which included many hospitals, local Chambers of Commerce, and elders wrote, “In the aftermath of the COVID-19 pandemic, health care providers in California are in dire financial straits. One major hospital has already closed, others are on the brink, and more than half are losing money every day to care for patients. SB 525’s added costs will force health providers to cut hours, positions and services. With fewer positions and potentially fewer providers, health care professionals will have fewer opportunities, be at heightened risk of job loss, and have less flexibility in the positions that are available.”