California’s $25 Health Care Hourly Wage Relies on Federal Boost, State Worker Exemption

SACRAMENTO, Calif. — California’s nation-leading $25 minimum wage for health workers will rely on a significant boost in federal funding and exempt thousands of state employees under an agreement that is expected to be approved in the coming days.

The minimum wage hike for more than 400,000 health workers, which will be phased in over several years, was to start June 1, but will now begin no earlier than Oct. 15 and no later than Jan. 1 under a budget deal announced June 22. The legislature is expected to approve the changes and Gov. Gavin Newsom to sign them into law before the new fiscal year begins July 1.

The delay is just one of several health-related measures in the nearly $300 billion state spending plan. The budget includes about $800 million in cuts to public health and health care workforce programs, but they are less severe than what Newsom initially proposed. It includes an 8% reduction in public health spending and preserves in-home support for Medi-Cal recipients regardless of their legal status. It counts on nearly $1.8 billion in additional revenue from the Managed Care Organization tax.

Newsom, a Democrat, had wanted an annual trigger that would have delayed the health worker wage bumps in tight budget years like this one, when the state faced a nearly $47 billion deficit.

Instead, Democratic leaders who control the legislature agreed to a one-time trigger that will start the increases in October if state revenues come in 3% higher than expected, or no later than in January after the state increases what is known as the Hospital Quality Assurance Fee, which allows hospitals to tax themselves to draw in federal money for Medi-Cal, the state’s Medicaid program.

Budget officials expect the fee increase to cover about 30% of the minimum wage increases. The fee currently provides about $8.4 billion to California hospitals each year and officials project that the unspecified increase will bring in billions of dollars more.

The fee increase requires federal approval, but budget officials said they believe even such a large increase is allowed under federal guidelines. The Newsom administration plans to hash out the details with hospitals over the next several months.

The managed care plans will still have to compensate for the remaining increased minimum wage costs with higher Medi-Cal managed care rates, budget officials said.

However, the administration said hospitals expect the wage bumps “will not result in significant additional costs.” That differs from what the California Hospital Association said in successfully contesting a $25 minimum wage in one Southern California city. The association said it was reviewing the plan.

The California Association of Health Plans did not comment. The California Kidney Care Alliance said many dialysis providers already increased wages ahead of the new requirements.

The law originally excluded employees at the Department of State Hospitals, and state budget officials said the new bill extends that to exclude an estimated 21,000 employees at all health care facilities operated by the state, with the exception of the University of California system. Proponents have said the wage increases would have included employees at the departments of Corrections and Rehabilitation, Developmental Services, and Veterans Affairs.

“Of course, workers are disappointed that not every low-wage worker in health care will receive raises this summer as the law initially scheduled,” said Dave Regan, president of Service Employees International Union-United Healthcare Workers West, which pushed for the increases over the state’s $16 minimum wage. But he praised Democratic leaders for recognizing that “despite a historic budget deficit, California’s patient care and health care workforce crisis must be addressed.”

The University of California-Berkeley Labor Center projected that more than 469,000 health workers would get wage increases, with the biggest benefits going to women and workers of color. The law covers lower-income employees including certified nursing assistants, patient aides, food service workers, janitors, groundskeepers, and security staff. California separately increased the minimum wage for fast-food workers to $20 an hour.

The health worker law originally was set to raise the hourly minimum at large health facilities and dialysis clinics to $23 this year, $24 in 2025, and $25 in 2026. It would have increased hourly wages at community clinics to at least $21 in 2024, $22 in 2026, and $25 in 2027. Other health facilities were to go to at least $21 an hour in 2024, $23 in 2026, and $25 by 2028.

The initial increases will be pushed back several months based on the one-time trigger.

Because the increases will start partway through the fiscal year, Newsom’s administration now projects the first-year cost to be $1.4 billion, down from its earlier full-year estimate of $4 billion.

This article was produced by KFF Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation. 

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