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Costs and Benefits of a Wage Increase for Michigan's Home Help Workers

The Michigan Quality Home Care Campaign (MQHCC) is a coalition of senior citizen advocacy groups, home care providers, community groups, and religious leaders that represents the interests of state home care workers. In 2006, the MQHCC commissioned Anderson Economic Group to analyze the costs and benefits of the State of Michigan increasing the wages of Home Help workers. In that 2006 report we hypothesized that a wage increase for Home Help workers would lead to cost savings for the State of Michigan as higher wages would improve the quality of Home Help care and increase the usage of this program over more expensive state-funded nursing facility care. This update to our 2006 report analyzes whether the cost savings to the State we projected three years ago actually happened. 

The State of Michigan provides long-term care (LTC) for low-income individuals through Medicaid, a program funded jointly by federal and state governments. In FY 2008, Michigan spent a majority (80%) of its LTC budget paying for care delivered in nursing facilities. The remaining LTC expenditures funded home- and community-based programs, including Home Help.  Home Help provides eligible persons in-home assistance with Activities of Daily Living (ADL), such as such as eating and grooming, and Instrumental Activities of Daily Living (IADL), such as taking medication and meal preparation. To be eligible for the program, individuals must be financially eligible for Medicaid and need help with one or more ADLs or IADLs. In FY 2008, an average of 52,623 individuals each month received care through the Home Help program. Government expenditures for Home Help were $251 million in FY 2008—12.5% of all Medicaid long-term care expenditures in Michigan.

We found that the cost savings we originally projected in our 2006 report likely under-estimate the actual savings to the State of Michigan due to the increases in Home Help usage since FY 2005. Specifically we found:

  1. Participation in the Home Help program increased faster than we originally projected.
    The average monthly number of Home Help beneficiaries increased 16.5% from 45,166 to 52,623 between fiscal years 2005 and 2008. This meant an average annual increase in the number of beneficiaries of 5.2%, compared to the 4% we projected in 2006.
  2. Home Help is less expensive than nursing facility care.
    The State of Michigan spent $47,096 per year less on average providing home based care for Home Help clients than it did caring for Medicaid LTC clients in nursing facilities. While the average annual cost per beneficiary of the Home Help program increased slightly at $240, the average cost per beneficiary of nursing facility care increased significantly during the three period with the state paying $4,954 more in FY 2008 than in did in FY 2005.
  3. Administrative costs for Home Help have fallen every year since FY 2005.
    Administrative and case management costs per Home Help beneficiary fell from $439 in 2005 to $355 in 2008, falling in each intervening year. In FY 2008, administrative costs made up 7.4% of total program expenditures.
  4. The State of Michigan is saving more than we originally projected.
    Home Help is paid for jointly by federal and state governments. In FY 2008, the federal government paid 58.1% of Home Help expenditures. After updating our fiscal impact model with actual numbers of beneficiaries in each program and the cost per beneficiary, the overall government savings is likely $34.3 million in FY 2008, with $8.2 million in savings for the State of Michigan. This is higher than the original projections of $32.6 million federal and state savings and $7.6 million for Michigan’s General Fund. 

While we cannot say that the wage increase by itself caused the increased usage of Home Help and the subsequent savings to the state government, a significant increase in Home Help usage has followed the wage increase. Administrative costs are down for the program and more people are using this program. These results are consistent with the reasons for expecting cost savings that we stated in our 2006 report: higher wages leading to lower turnover (lowering administrative costs) and increased usage of Home Help over more expensive nursing facility care. This clearly benefits taxpayers as the State is able to save money by increasing the usage of Home Help over Medicaid-funded nursing facility care.

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