July 27, 2006

Analysis: Home Care Wage Increase Will Save State $276 Million in Medicaid Costs

Legislature's action will divert seniors, disabled, from more costly nursing homes 

A respected East Lansing-based economic consulting firm estimates that Michigan will save at least $276 million in Medicaid costs over the next six years thanks to the Legislature’s move yesterday to boost wages for home care workers across the state.

In its report released today, the Anderson Economic Group projects that the pay increases will reduce turnover among home care workers, allowing more seniors and people with disabilities on Medicaid to stay in their own homes and avoid more costly nursing home care.

Lawmakers on Wednesday passed the Department of Community Health budget, which included raises for all Michigan home care workers in the Medicaid-based Home Help program – their first pay increases in over a decade. The budget now goes to Gov. Jennifer Granholm for her approval.

The budget sets a minimum $7.00 an hour floor and raised those already above that level to 0.50 cents more an hour. Currently, the statewide average wage for home care workers is $6.07 per hour.

Among the Anderson Economic Group’s findings:

• Medicaid long-term care costs in Michigan will be reduced by $25 million in the next fiscal year (FY 06-07) due to the wage increases, which will help stabilize the current 35-percent turnover rate among caregivers.

• As more people choose home care over nursing facilities, the cost savings will grow to $32 million in the second fiscal year (FY 07-08), ballooning to $70 million in savings by 2012.

• By 2012, total Medicaid long-term care savings for the state will be $276 million.

• Less turnover among home care workers will result in lower administrative costs, lowering the amount of time state caseworkers spend processing new caregivers into the system.

Anderson Economic Group is headed by Patrick Anderson – a former chief of staff for the Michigan Department of State during former Gov. John Engler’s administration. He also served as deputy director of the state’s Department of Management and Budget. His firm – widely respected amongst lawmakers – has done analysis in the past for the Mackinac Center for Public Policy and the Economic Enterprise Foundation.

Download a summary of the report (PDF) here.

The full report is available at the Anderson Economic Group's website.