Payroll Costs Rising from the Labor Shortage

Services are increasingly getting more expensive to provide thanks in part to ongoing labor woes, according to the latest Cost of Care Survey from insurer Genworth Financial.

The national median cost of home care pay shot up 6.17% to $21.50 per hour, or $4,099 per month, from 2016 to 2017—the most pronounced increase among other care settings, according to the survey. The cost of home care services, including household tasks such as cooking and cleaning, reached a median of $21 per hour, or $3,994 per month, a 4.75% increase from last year.

Over five years, the median cost growth rate was 2.50% for home health aide services and 3.08% for homemaker services.

This year’s cost increase was particularly notable, according to Gordon Saunders, senior brand marketing manager for Genworth’s U.S. Life Insurance division. Overall, the annual median cost of long-term care services climbed an average of 4.5% from 2016 to 2017, marking the second-highest year-over-year increase for nursing homes and home care since the study began in 2004.

“We have become accustomed to seeing steady increases in the cost of long-term care services, but this year, we saw a marked acceleration in the cost of home care over previous years,” Saunders told Home Health Care News. “This is based on external factors in the marketplace related to supply and demand: increasing demand for long term care services as our population ages versus shortage of workers and rising labor costs.”

By comparison, the national median cost for a one-bedroom unit in a private-pay assisted living community reached $3,750 per month, or $45,000 a year, according to the survey. That’s an increase of 3.36% from 2016 to 2017.

National median rates for semi-private room nursing home care increased 4.44% and hit $7,148 per month, and private room nursing home care reached $8,121 per month, a 5.50% increase.

Labor Woes Crank Up Costs

Though the labor shortage  isn’t the only factor driving up the cost of care, it has impacted all care settings, according to Saunders.

“[U.S. Dept. of Labor] changes have resulted in minimum wage and overtime protections to more domestic service workers who enable individuals with disabilities and the elderly to continue to live independently in their homes,” Saunders said. “Also contributing to the increase in labor costs is the Affordable Care Act (ACA), which requires employers of a certain size to offer some type of health insurance, or pay a penalty.”

For nursing homes, higher labor expenses and tightening Medicare rules have resulted in shorter hospital stays and sicker patients being sent to rehab nursing homes for shorter stays, driving up costs, Genworth noted in the survey.

Room and board for assisted living communities has gone up to accommodate residents who are sick, but not sick enough to require nursing home care, according to the survey. Luxurious amenities commonly found in private pay communities also increased costs of care.

What Agencies Can Do About It

This eBook explains the reasons driving the labor shortage, and how a two-pronged approach can minimize the disruption and extra costs being caused by the labor shortage for agencies.

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Target to Raise Minimum Wage to $15/hr

Target announced last month that it is raising the minimum hourly wage for its workers to $11 starting next month and then increasing it to $15 by the end of 2020, putting more pressure on other employers to follow.

The company said the move will help it better recruit and retain top-quality staff and provide a better shopping experience for its customers.

Target quietly raised entry-level hourly wages to $10 last year, from $9 from the previous year, following initiatives by Walmart and others to hike wages in a fiercely competitive marketplace. But Target’s hike to $15 per hour far exceeds not only the federal minimum of $7.25 per hour but the hourly base pay at Walmart, the nation’s largest private employer, and plenty of its other retail peers whose minimum hourly pay now hovers around $10.

The current labor shortage is here to stay unfortunately. Organizations will need to learn to live with a labor shortage for the foreseeable future as best they can.

Ending DACA Could Make Labor Shortage Worse

Surveys of DACA beneficiaries reveal that roughly one-fifth of them work in the health care and educational sector, suggesting a potential loss of tens of thousands of workers from in-demand job categories like DSP’s, home aides, and nursing assistants.

Projections by the government and advocacy groups show that the economy will need to add hundreds of thousands of workers in these fields over the next five to 10 years to keep up with escalating demand, caused primarily by a rapidly aging population.

“It’s going to have a real impact on consumers,” Paul Osterman, a professor at the Sloan School at MIT and author of a new book on long-term care workers, said of the DACA move.

Mr. Sheik is the chief executive and founder of CareLinx, which matches home care workers with patients and their families. The company relies heavily on authorized immigrant labor, making the looming demise of the program a decidedly unwelcome development. The move, Mr. Sheik said, would compound an already “disastrous situation in terms of shortages of supply.” He added, “This is a big issue we’re focusing on.”

According to census data Mr. Osterman analyzed, more than one-quarter of home health aides in 2015 were immigrants. The proportion in certain states is far higher, reaching nearly one-half in California and nearly two-thirds in New York.

As a basic matter of economics, removing tens of thousands of workers from occupations that already suffer from a serious labor shortage — the Labor Department predicts the country will need more than 1.25 million home health aides by 2024, up from about 900,000 in 2014 — generally has one unambiguous effect: driving up costs.

The economic problem is twofold. First, state governments, through Medicaid, often pays the salaries of DSP’s, meaning that escalating wages could blow a hole in state budgets (assuming the State increased funding!). If the states refuse or are unable to increase funding, then the labor shortage will get worse as for-profit organizations such as fast-food and Amazon warehouses raise wages.

Second, an acute shortage of DSP’s could force many older and disabled Americans out of their homes and into care facilities, where costs are roughly two-to-three times the cost of home care for a full year. The government typically picks up that tab as well.

For clients who rely on immigrant workers, “if that person is gone, can’t get renewed, it’s not a cute thing,” Professor Osterman said. “A home health aide is what lets you stay at home.”