Unintended Consequences of Minimum Wage Hikes

Credit: prescottenews

by James C. Sherlock

Sen. Louise Lucas, D-Portsmouth, and Del. Lashrecse Aird, D-Petersburg, contributed an op-ed titled Home health workers at risk without legislative action this morning in the Virginian-Pilot. They will be surprised to read that I agree with every word.

And that I would go farther.

Unintended consequences in the government economy

Lucas and Aird have authored a compelling, well-written narrative of the problems faced by home health workers and their employers under two Virginia programs that have not been reconciled:

  • the rise of the Virginia minimum wage from $7.25 an hour to $9.50 an hour, a 31% increase; and
  • the lack of a corresponding raise of the Medicaid reimbursement rate for home care workers.

As the legislators point out:

“Unless the 2021 General Assembly acts over the next several weeks, many Medicaid recipients could lose access to home care services provided by … tens of thousands of … home care workers.”

“Significantly raising the minimum wage without significantly increasing the Medicaid reimbursement rate creates another type of inequity, putting dollar-for-dollar pressure on home care agencies who provide care to Medicaid patients and good-paying jobs to care givers.”

“Without fully funding Medicaid rates for personal care services, it becomes financially unsustainable (bold mine) for home care agencies to provide services to Medicaid recipients.”

“We are encouraging our colleagues in the General Assembly to step up and fully fund Medicaid reimbursement rates for home care workers. Do it for the recipients and the caregivers.”

That cannot be allowed to happen. If the federal minimum wage is raised to $15 as is proposed, Medicaid reimbursement will have to be raised again.

But Medicaid is part of the government economy.

Additional Concerns
I have two concerns unaddressed in Sen. Lucas’ and Del. Aird’s excellent piece.

The first is the effects of minimum wage increases on the market economy and the second is the quality of Virginia’s home health industry itself.

Unintended consequences in the market economy

Senator Lucas and Del. Aird did a public service by raising the issue in the context of the government-funded economy. But there is one thing that jumps out at every reader.

What about all of the other businesses that exist in the market economy that employ minimum wage workers and upon whom a rise in the minimum wage puts “dollar-for-dollar pressure” on their ability to operate?

Those that are in a position to raise prices without loss of business will be fine.

Food producers, for example, will all have to raise prices and Americans will have to pay them. We will have to increase both government funding and philanthropy for food security programs to ensure that no American goes hungry as a result, but we can do that.

However, to the degree that America’s huge food export industry grows less competitive, it and its employees will suffer.  Same with any other industry that exports.

Obvious candidates for a potential inability to raise prices domestically to match labor cost increases are the enormous hospitality and restaurant industries.

No one has a line on his or her survival budget to go out for dinner or go on vacation to Virginia Beach. They want to, and it relaxes them, but they won’t do it instead of paying the electric bill.

So there will be losers, including millions of workers who stand to lose their jobs nationwide when a $15 minimum wage increases the costs of their labor beyond its economic value.

Those who advocate for minimum wage increases will need to consider and honestly and publicly expose the costs, not only in dollars but also in jobs, as well as the benefits of such actions.

That doesn’t mean that raising minimum wage can’t be a public policy, just that such actions have complex outcomes. The downsides of those actions for workers and businesses are often not vetted by their proponents in elected office, much less publicized in the shrinking and supportive press.

Sen. Lucas and Del. Aird are doing cleanup after exactly such a mistake.

Home health care quality inspections in Virginia

The op-ed addressed the availability but not the quality of home health care in Virginia.

Remember this response from the VDH FOIA officer that I published last year:

“The Virginia Department of Health (VDH) Office of Licensure and Certification (OLC) is responsible for licensing and inspecting health care facilities in the Commonwealth of Virginia.”

“OLC’s overall situation with respect to funding and staffing has not improved since April 2017. Neither the current authorized staffing nor the current actual staffing allow OLC to meet its statutory and regulatory mandates. “

“The specific shortfalls affecting OLC are the lack of sufficient medical facilities inspectors (MFIs) to conduct state licensure inspections. “

“Even if OLC had every MFI vacancy filled, it would still not be enough to meet the statutorily prescribed 2-year interval between routine state licensure inspections.”

“OLC has calculated the number of licensed facilities that have exceeded the 2-year inspection interval:

  • Inpatient hospitals (IHs): 97.1%
    Outpatient surgical hospitals (OSHs): 86.4%
  • Hospice and hospice facilities: 74.1%
  • Home care organizations (HCOs): 88.2%
  • Nursing homes (NHs): 47.9%”

“OLC has calculated it would need at least 10 additional MFIs for IHs and OSHs, 13 additional MFIs for hospice and HCOs, and 3 additional MFIs for NHs in order to fully meet its statutory and regulatory mandates….”

So the Virginia Department of Health is short 13 positions for inspectors to carry out its responsibilities of ensuring home care organizations are managed, staffed, trained and operated in ways that ensure the safety of their patients.

Sen. Lucas is Chair of the Senate Education and Health Committee and a member of the Senate Finance and Appropriations Committee. Del. Aird is on both the House Health, Welfare and Institutions Committee and House Appropriations Committee.

They are perhaps the best positioned legislators in Virginia to fix the inspector shortfalls.

Authorize the additional OLC positions – all of them. It takes only an increase in the fees for those inspected, not a raid on the general fund, to fix the funding stream for OLC.

Appropriators can and should do both this year.