California Deficit Casts Shadow Over Health-Care Worker Pay Law

A major labor union says California budget officials are overstating the likely cost of a new law raising the minimum wage for more than 400,000 health-care workers across the state.

Gov. Gavin Newsom (D) has pledged to work with legislative leaders to change the measure (S.B. 525) as the state faces a $68 billion budget deficit, casting uncertainty over plans to phase in higher minimum pay in hospitals, nursing homes and other medical facilities.

But the president of the SEIU-United Healthcare Workers West, which backed the law, argues the actual cost will be lower than the $2 billion in additional general fund spending for next fiscal year that Newsom’s administration has projected.

“With billions in profits, the healthcare industry has the financial resources to raise wages for their lowest-paid workers,” SEIU-United Healthcare Workers West President Dave Regan said in a statement.

The governor’s push to change the law reveals a central point of tension in California’s capitol, where labor unions scored several major victories over the last year, though their allies in the legislature’s Democratic supermajorities now face a mounting budgetary crisis.

When lawmakers reconvene in Sacramento on Jan. 3, they are likely to hunt for potential savings—including from the very labor unions that have so effectively flexed their muscle in recent years.

June Increase Set

The law, enacted in October, will raise the minimum wage for workers at larger health care systems and dialysis centers to $23 an hour starting in June 2024, a rate that will increase annually and reach $25 an hour in 2026.

There will also be smaller increases in the minimum wage at other medical facilities, with the new rates varying by sector.

The law will cover virtually all employees in these facilities, from technicians to janitors and food service workers, with many seeing the biggest jump next year. An initial estimate suggested around 450,000 workers would see raises under the measure.

State officials say the wage hike will lead the government to pay more for care under California’s Medicaid program, Medi-Cal, as those facilities serve patients enrolled in the insurance system.

On the same day earlier this month that it projected a $68 billion budget deficit, the Legislative Analyst’s Office described the higher minimum wage for health-care workers as a “key uncertainty” in the Medi-Cal program’s fiscal outlook.

“The measure likely will increase Medi-Cal spending, though the exact timing and magnitude of the impact is uncertain,” the office noted in a Dec. 7 report.

The state Department of Finance has projected the law will cost California’s general fund about $2 billion in the next fiscal year, but the Legislative Analyst’s Office said the administration hadn’t released additional details about its estimate.

Laurel Lucia, health-care program director at the University of California Berkeley Labor Center, argues the cost is likely to be far smaller.

The higher minimum wages will cost the state’s general fund about $300 million in the first year, she said—and that’s if the state adjusts Medicaid reimbursement rates for providers to fully cover the higher wages.

“The exact amount could depend on how exactly the state chooses to adjust rates,” she said.

Moreover, supporters of the law note that many major medical systems in the state—including Kaiser Permanente and Stanford Healthcare—have already set a minimum wage of $25 an hour or are planning to do so.

But that’s not the case everywhere.

Diane Hansen, president and CEO at Palomar Health in San Diego County, said the law is expected to cost the public hospital district about $15 million in the first year and send a ripple through the system’s pay structure. The district will need to raise wages for other workers earning above the minimum wage, with a cost of $60-80 million by the time the law is fully implemented, she said.

“They’ve wiped out my bottom line,” Hansen said.

While Hansen argued the district wants to pay more, she contends the law doesn’t provide time to renegotiate rates with payors, such as insurers.

“There needs to be some cleanup legislation that makes this a process that is easier to achieve without having the dire consequences that I expect,” she said.

Newsom Reluctant

Whatever the final number, Newsom has suggested he was reluctant to sign the measure as California’s budget outlook darkened over the year, with tax revenue coming in lower than expected after filing delays resulting from natural disasters.

Newsom recently told The Los Angeles Times he had raised concerns about approving the law and is now working behind the scenes with lawmakers on how to move forward with the legislation, but didn’t offer specifics.

“Our office will be meeting with the Legislature and stakeholders on a sustainable path toward implementing S.B. 525. We’ll have more to share in the coming weeks,” Erin Mellon, the governor’s communications director, said in a statement.

Key lawmakers have since been mum on whether they intend to walk back the minimum wage law.

Staff for bill author state Sen. Elena Durazo (D) and for Assembly Speaker Robert Rivas (D), who has been widely credited with helping shepherd the law to passage, didn’t respond to multiple requests for comment.

Trade associations that initially opposed the law but won concessions—including a deal for the SEIU to call off costly ballot measures—have also been quiet on whether they will support revisiting the legislation in 2024.