California analysts and health care experts are warning that a new law mandating $25 per hour minimum wages in the industry will cost more than $4 billion per year in state and federal expenditures while raising prices for patients and having additional economic impacts totaling billions of dollars annually.
“Increasing the pay for ... health care workers will cause an additional financial burden on organizations already facing financial challenges,” Genaro Grajeda, CEO of HealthPact—a California-based company offering professional services to health care providers, told The Epoch Times.
Signed by Gov. Gavin Newsom on the last day to pass legislation this year, Senate Bill 525, authored by Sen. María Elena Durazo (D-Los Angeles), raises the minimum wage for such employees, including janitors and gift shop workers, from about $15 to $25 by June 1, 2025 for employers with more than 10,000 employees. Others with government ties have until 2033 to make the change.
Some see the increases unnecessary, as wages for such workers have grown over the last three years due to high demand and lack of available skilled workers in the state.
“The health care industry has had a drastic shift in employment as a result of the pandemic causing a labor shortage in various non-clinical areas,” Mr. Grajeda said. “Many organizations have already increased the salary for entry-level positions in order to meet the demand and organizational need.”
Others said the new law will change the industry, both in terms of workers and patients, as budgets will become strained.
“SB 525’s added costs will force health providers to cut hours, positions and services,” a number of health care groups wrote in opposition in legislative analyses earlier this year. “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.”
Some health care workers already making more than $25 per hour are also opposed, saying the new law lessens the value of their salaries and threatens their earning potential.
The California Nurses Association argued the law will hurt registered nurses’ negotiating strengths by potentially prompting employers to put downward pressure on wages during bargaining.
Other critics suggested the change will cause health care companies to downsize staff, when possible.
“SB 525 will leave hospitals no choice but to ... cut positions and services in order to comply with the bill,” the California Hospital Association wrote in legislative analyses. “With fewer positions and potentially fewer providers, healthcare professionals will have fewer opportunities, be at heightened risk of job loss, and have less flexibility in the positions that are available.”
The median wage for registered nurses in the Golden State is approximately $60 per hour, according to the U.S. Bureau of Labor Statistics.
State officials, including legislative analysts and the Department of Finance, opposed the measure—citing costs.
“Finance is opposed to this bill because it creates significant General Fund impacts and cost pressures,” the finance department wrote in an analysis earlier this year. “This bill will also create significant economic impacts in the healthcare industry, which may increase costs for consumers and the state.”
More than $2 billion for the increases would be covered by the state’s general fund and another $2 billion from federal Medi-Care funding, according to the finance department.
The department also noted the likelihood that claims of wage theft will increase—as some employees could misinterpret the new law’s rules—potentially worsening existing backlogs of legal claims at the state’s labor department.
The California Department of Human Resources estimates nearly a billion dollars annually in increased personnel costs, as the new wage mandates will impact multiple departments and job classifications—noting that costs will continue to rise as labor markets react to the new wages.
Further adding to the costs are adjustments anticipated for higher wages paid to contractors and other employees that are not calculated in the billion-dollar estimate, according to finance department analysts.
The Department of Health Care Services estimated another billion dollars in annual cost to the state, with additional billions anticipated in Medi-Cal liabilities. For the latter, experts said that as health care provider costs go up, prices for services will increase and will ultimately be passed on to patients and the state’s Medi-Cal program.
Officials with the state’s department of public health reported they are expecting significant pressure on existing contracts, as higher wages will impact budgets and necessitate reworking agreements to match fiscal realities—by reducing the number of services provided.
The bill’s author argued that the new law is necessary to assist the many employees working behind the scenes in the industry and because of the recent labor shortages.
“Healthcare workers are essential at every point in our healthcare system, from sanitizing operating rooms to making sure patients in the hospital have healthy food to heal and feel better,” Ms. Durazo wrote in legislative analyses. “Unfortunately, many have left the profession after facing the trauma and dangerous working conditions throughout the pandemic and struggling with low pay.”
A lack of workers is negatively affecting patients and employees, and higher pay will help alleviate such problems, she said.
“The impacts of the staffing crisis are being felt by healthcare workers and those they care for,” Ms. Durazo wrote. “If we want health equity, then we must pay health care workers a wage that allows them to live in the communities they serve.”
While a long list of organizations opposed the measure, an equally long list of supporters, including cities and local governments across the state, argued in favor of it.
“SB 525 will bolster efforts to fill the huge shortage of healthcare workers our state is facing by ensuring that health care workers are fairly compensated,” supporters wrote to lawmakers. “By setting a $25 [per] hour minimum wage, we can attract the workers we need to ensure we do not see a decline in quality of care for communities across California.”
