California’s Minimum Wage Hike Leads to Massive Layoffs for Health Care Workers

In October 2023, California Governor Gavin Newsom signed a law aiming to raise the minimum wage in the health care industry to $25 by 2028. The objective was to enhance the living conditions of approximately 500,000 health care workers, particularly those who faced financial challenges during the COVID-19 pandemic. Nevertheless, the law has led to a surge in layoffs and closures within the health care sector as employers grapple with heightened labor costs.

Impact on Health Care Employers

This law encompasses a broad spectrum of health care workers, including medical technicians, nursing assistants, custodians, and support staff. It also covers state health workers employed in University of California hospitals and state-run health care facilities. Commencing from June 2024, health care employers are mandated to incrementally increase their minimum wage to $25 per hour. The specific timeline and wage adjustments vary depending on the employer type and workforce size.

This legislation has placed a substantial financial burden on health care employers, particularly those operating on thin margins or relying on public funding. The California Association of Health Facilities, representing nursing homes and other long-term care facilities, estimates a 30% rise in labor costs by 2026, amounting to $1.6 billion annually. The California Hospital Association, representing over 400 hospitals and health systems, anticipates an $8 billion yearly cost by 2028. Importantly, the law lacks provisions for additional funding or reimbursement to assist health care employers in offsetting the wage increase.

Consequences for Health Care Workers and Patients

Unintended and adverse effects on health care workers and patients have ensued, with some employers resorting to layoffs, reduced hours, or closures to manage the wage increase. According to the California Employment Development Department, over 10,000 health care workers lost their jobs in the first month following the law’s implementation. Affected workers include:

  • Over 2,000 employees at Kaiser Permanente, the state’s largest health care provider, facing layoffs or voluntary buyouts.
  • More than 1,000 workers at Sutter Health, another major provider, notified of impending layoffs or furloughs.
  • Over 500 employees at Adventist Health, a faith-based system, terminated or subject to reduced hours.
  • More than 300 workers at DaVita, a kidney dialysis provider, either let go or transferred to other locations.

These layoffs have impacted both the livelihoods of health care workers and the quality and availability of health care services for patients. Effects include reduced access to care, especially for low-income and rural communities, longer wait times, lower patient satisfaction, and increased risks of errors and infections due to understaffing and overwork.

Future of the Law and Health Care Industry

Criticism and opposition to the law have arisen from lawmakers, business groups, and health care advocates who call for its repeal or amendment. They argue that the law is unsustainable and detrimental to the health care industry and the economy, failing to address the root causes of low wages among health care workers. Concerns include inadequate funding, reimbursement, and regulation. Critics also highlight the law’s lack of consideration for the state’s budget conditions, which could worsen due to ongoing pandemic and recession effects.

Conversely, the law has found support from lawmakers, labor unions, and health care activists who defend its benefits and necessity. They view it as a historic and overdue investment in the health care workforce, essential and heroic during the pandemic. Supporters argue that the law will improve the health and well-being of health care workers, attract and retain more talent in the industry, which faces a shortage of qualified staff.

The fate of the law remains uncertain as Governor Newsom proposes delaying wage increases until the state budget improves. He seeks clarification from the Legislature on whether state health workers are exempt. Collaborating with legislators and the law’s proponents, he aims to present changes in the form of a new bill later this month.

The future of the health care industry hinges on how employers, workers, and patients adapt to the changing economic and social environment. Employing over 1.8 million people and serving more than 40 million residents, the health care industry faces challenges and opportunities such as an aging population, increased demand for services, technological innovation, and policy reform. The law is a significant factor shaping the industry’s development and performance in the years ahead.

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