Minimum Wage Increase Could Trigger Costly Medicaid Shortfall | Off Message

Minimum Wage Increase Could Trigger Costly Medicaid Shortfall


Rep. Tom Stevens (D-Waterbury) - FILE: JEB WALLACE-BRODEUR
  • File: Jeb Wallace-Brodeur
  • Rep. Tom Stevens (D-Waterbury)
A bill to raise Vermont’s minimum wage to $15 an hour hit a setback Tuesday when a legislative economist informed members of a House committee that an amendment to the measure could cost the state about $28 million over the next five years.

The bulk of those costs are part of an effort to prevent “wage compression,” which happens when the lowest-paid employees at an organization receive a raise but employees making slightly more do not.

Analysts say wage compression can put businesses in a pinch as middle-level staff who aren’t subject to the minimum wage increase demand raises of their own or seek other jobs.

The legislation, S.23, doesn’t require private-sector employers to take measures to avoid wage compression, but a proposed amendment would require home health agencies and other Medicaid-funded employers to do so.

Under the amendment, those employers would have to bring all workers up to the minimum wage by 2024 and they would be required to increase other workers’ wages by the same percentage each year. The minimum wage would rise by 4.5 percent, to $11.50, in 2020; to $12.25 in 2021; $13.10 in 2022; and $14.05 in 2023.

“It proposes to keep the wage spread between these folks,” said Rep. Tom Stevens (D-Waterbury), “which is an expensive proposition.”

The Senate passed a $15 minimum wage bill in February without the wage compression mandate.

Stevens, the chair of the House General, Housing and Military Affairs Committee, said he didn’t realize exactly how expensive the amendment would be until he saw an analysis from Joyce Manchester, an economist with the legislature’s Joint Fiscal Office.

Manchester presented her findings to Stevens' committee Tuesday.

“The bottom line is that, according to our rough estimates, the amendment creates a general fund shortfall of $1.6 million and creates pressure on the Medicaid budget gap,” Manchester said of the first-year numbers.

Over the next five years, Manchester said, the proposal would cost the state and federal government a total of $86 million. The analysis found that the change would benefit the state to the tune of $12 million but would still leave it with a $28 million shortfall during that five-year period.

Stevens said he doesn’t know how the legislature would fill that gap, but he’s not counting on the federal government to increase its contribution to accommodate the new minimum wage.

“It is an age-old problem that the Medicaid and Medicare money has not kept up with the rate of needs,” Steven said Tuesday.

Stevens said a lack of federal funding has left home health agencies, which get the bulk of their revenue from Medicaid, working on shoestring budgets.

“According to the advocates, this would be devastating because if you take all the money and put it into wages for people who deserve to be paid … there’s no money left over out of that fee to pay for the rest of it,” Stevens said, referring to non-medical business costs like equipment and mileage.

With the legislature proposing to force those wage increases, and no mechanism to force the federal government to increase rates for Medicaid, Stevens said he’s concerned about what the legislation would do to organizations providing home health care and other key services.

“They’re coming back and saying in a very real way, ‘There’s no money if it doesn’t come from either the [state] taxpayer or the federal government,’” Stevens said.

Manchester’s analysis gave lawmakers a clear picture of the problem. Now it’s up to them to figure out what to do about it. Stevens had previously expressed support for a $15 minimum wage but did not say Tuesday whether he'd support the amendment.

“This was definitely a serious piece of testimony that we have to consider,” Stevens said. “It’s an impact that we were vaguely aware of, but certainly not the size of it.”

Sen. Michael Sirotkin (D-Chittenden), the lead sponsor of the bill, said Tuesday afternoon that he had not yet reviewed the analysis and did not want to comment until he had a chance to do so.

See Manchester's analysis below:

Correction, April 26, 2019: A previous version of this story contained a percentage error concerning the minimum wage increase.

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