Medicaid Limits and Pay for Caregivers

Home health aide and her client

Despite high demand for caregivers, home health aides (HHAs) are still underpaid. Adjusted for inflation, their pay has only risen by about $0.20 over the past decade. That seems to violate the most basic law of economics, supply and demand: as the demand for workers increases, the wages they receive should increase too.

But things start to make more sense when you understand the connection between Medicaid and wages for caregivers. Medicaid reimbursement rates for long-term care set a hard cap on how much home care agencies can afford to pay their caregivers. 

If we want to start paying HHAs a better wage (and we should for many reasons), we have to start by funding Medicaid.

Pay and Benefits in Caregiving

According to analysis from PHI, a nonprofits that researches caregiver, the median hourly wage for home health aides is $11.52 an hour. Often, HHAs work irregular hours on shifting schedules. As a result, the median yearly income is about $16,200 per year.

That median wage though is a bit of an oversimplification. Men earn more, especially white men, while women of color earn the least. White male caregivers can earn up to $12.38 an hour. Women of color, the majority of HHAs, earn about $11.13 an hour on average. That is far too low for such a complex, often demanding job.

Poor compensation for HHAs extends beyond just pay. Most HHAs do not receive any medical benefits, retirement benefits, or paid time off. As a result, they often have to put off their own medical care, even as they take care of other people. 

PASSi has taken these challenges seriously, and so we try to provide the highest possible wage for our caregivers. Recently, we raised the wages of all our HHAs by $0.25, bringing the total pay to $12.85 an hour. That is well above the median wage listed above, especially for women of color, who make up most of the HHAs at PASSi.

Likewise, we provide an additional $0.50 an hour for all HHAs that get certified through our free HHA training classes. Combined with regular pay raises, this benefit helps some of our longest-tenured HHAs earn more than $15 an hour now.

Unlike many other agencies, PASSi also offers medical benefits, retirement benefits, and paid time off for caregivers. 

Despite this recent raise, we would like to pay our HHAs even more. Other home care agencies should want to do the same, especially those who pay their caregivers much less.

Why Can’t Companies Just Pay Their HHAs More?

Unfortunately, because of where most agencies get their revenue, it is not as simple as telling home care agencies to pay their caregivers more.

Most spending on long-term home care comes from Medicaid. Of the $235 billion spent on home care in 2017, 57 percent came from Medicaid. Up to 80% of the revenue for home care agencies offering non-medical care can come from Medicaid. That proportion can be even higher for non-profits like PASSi. 

Medicaid is really the only viable way for consumers to pay for care right now. Long-term home care is expensive and most seniors do not have long-term insurance. People will often pay out-of-pocket until they deplete their savings enough to qualify for Medicaid. To qualify for home care under Medicare, people need to be in post-acute care after hospitalization, or in longer-term skilled care. Even then, it’s restricted to 28 hours a week.

So agencies, whether they are non-profits or for-profit companies, get the majority of their funding from Medicaid payments. The value of these payments is set by individual states. Agencies cannot increase these payments in response to a greater demand for services, or to cover higher wages. 

Most states have not increased Medicaid reimbursements for home-based services fast enough to support more wage increases. Even though there are too few HHAs right now, and higher wages are the best way to attract more people, only around half of states pledged to raise Medicaid reimbursement rates in 2019 and 2020. 

Part of the problem is that Medicaid is not a universal benefit like Medicare. Its funding does not come from automatic payroll contributions. Instead, Medicaid has to compete with other budget items like education and infrastructure, and states have prioritized these other items instead.

The Squeeze on Care Agencies

Home care agencies, especially nonprofits like PASSi, operate on very thin margins. Beyond paying HHAs, agencies use Medicaid reimbursements to cover personal protective equipment for caregivers, medical supplies to care for patients, taxes, training, administrative costs, overhead, and other expenses. If reimbursements stay at the level they are now, home care agencies cannot afford to increase wages by much and still operate.

For instance, the Home Care Association of New York (HCA) testified before the Joint Legislative Budget Committee for the state that about 70% of the approximately 300 home health agencies that are part of the HCA had negative operating margins in 2016. Altogether, they suffered $107 million in operating loses that year.

Overall then, increasing wages requires policy-level adjustments to Medicaid. For HHAs to earn more money, first we need to invest more in our social safety net.

The Social Benefits of Paying Higher Wages

The good news is that investing in higher wages should be a net positive for everyone, not just caregivers.

A study from the CUNY Graduate Center calculated it would cost around $4 billion per year to increase wages for HHAs in New York City. But, between the economic benefits, fewer seniors in institutions, and fewer HHAs relying on welfare, the overall economic gain would be $7.6 billion.

Higher wages could also help with one of the biggest problems facing home health care: turnover. Care agencies are losing more and more people to other industries that can pay more. And at the current wage, they cannot attract enough prospective caregivers to replace them. 

The proportion of seniors in America, especially the oldest old, is rising rapidly. By 2050, the number of people over age 85 is set to triple to 19 million. Over a fifth of seniors over 85 need help with daily living tasks. Each of these seniors will probably need a caregiver if they want to stay in their homes.

Agencies and private clients are struggling to find enough caregivers to meet this need. The consulting company Mercer predicts a nationwide workforce gap of 446,300 HHAs by 2025. Increasing wages can help meet this shortage by decreasing turnover and attracting more potential caregivers.

Lower turnover leads to greater productivity and a better quality of care as well. It reduces the costs of recruiting and training new HHAs, and reduces stress for the workers picking up the slack after someone leaves. New HHAs are not familiar with a client’s preferences or needs. Clients get better care from an experienced HHA with whom they have already built a relationship.

A Gridlocked System

PASSi has worked hard to provide our HHAs with a reasonable wage, but across the industry, caregivers are still underpaid. It does not help that most HHAs are women of color, a group whose labor has been seriously undervalued in American history. 

But before blaming the agencies, it’s important to recognize that Medicaid and caregiver wages move together: as Medicaid reimbursements go up, so can wages. To fix these low wages, we need to reinvest in Medicaid first. 

Ideally, we’ll do that before the care gap becomes an even greater crisis.

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Penn Asian Senior Services