As Wages Go Up, State Health Care Spending will Decrease
Millions of California workers will see wage increases in the coming years as a result of recently-enacted state and local minimum wage policies.
An estimated 3.3 million California workers will benefit from a 2013 law that increased the statewide minimum wage to $9.00 on July 1, 2014, with a second increase to $10.00 scheduled for January 1, 2016. More than one million workers will see their incomes increase as a result of local policies in Los Angeles, San Diego, San Jose, San Francisco, Oakland, Richmond, Berkeley, Emeryville, Sunnyvale, and Mountain View that are raising wages above the statewide minimum.
These minimum wage policies will reduce poverty, reduce employee turnover, and improve the health of affected workers and their families. Less often discussed is that these wage increases will also reduce state health care spending.
The statewide minimum wage increase is projected to save California taxpayers a total of $542 million in Medi-Cal-related costs between 2015 and 2017, according to a 2014 study by UC Berkeley economists Sylvia Allegretto and Michael Reich, and Rachel West of the Center for American Progress. The Medi-Cal budget gains will be even greater if California enacts a proposal (Senate Bill 3, Leno) to raise the statewide minimum wage further to $13.00 per hour by July 2017.
Local minimum wage policies will further reduce state Medi-Cal spending—particularly in cities like Los Angeles and San Francisco that are on paths to $15 per hour—but the savings from those policies have not yet been quantified.
State Medi-Cal savings will occur as a result of minimum wage increases for two reasons:
- Some workers who are currently eligible for Medi-Cal, paid for by the state and federal government, will become newly eligible for subsidized private coverage through Covered California, which is funded by enrollees and the federal government without any state contribution, under the Affordable Care Act (ACA).
- Parents in some households affected by the wage increases will remain eligible for Medi-Cal but will shift from a pre-ACA eligibility category in which the state and federal government equally split the health care costs to a “newly eligible” category under the ACA that is almost entirely federally-funded.
What does this mean for workers who lose Medi-Cal eligibility and move into Covered California? Under the ACA, they will receive premium subsidies which vary based on income; more than three-quarters of current enrollees (77%) pay less than $150 per month. Deductibles, co-payments and other cost sharing are also reduced for lower income enrollees. Generally, a worker’s wage increase will allow them to cover their additional health care costs and still come out well ahead financially, as I described in a previous blog post.
While much of the discussion surrounding the state and local minimum wage increases is about improving the lives of affected workers and their families, as it should be, the positive effects on the state budget should not be overlooked. As the California Legislature embarks on a Special Session to examine the long-term financing of Medi-Cal program, policymakers should consider the impact these wage increases will have in reducing the state health care budget.