In-Home Supportive Services

The In-Home Supportive Services (IHSS) program provides various services to eligible aged, blind, and disabled persons who are unable to remain safely in their own homes without such assistance. An individual is eligible for IHSS if he or she lives in his or her own home—or is capable of safely doing so if IHSS is provided—and meets specific criteria related to eligibility for the Supplemental Security Income/State Supplementary Program (SSI/SSP). In August 2004, the U.S. Department of Health and Human Services approved a Medicaid Section 1115 demonstration waiver that made virtually all IHSS recipients eligible for federal financial participation. Prior to the waiver, about 25 percent of the caseload were not eligible for federal funding and were served in the state-only "residual" program.

The budget proposes just over $1 billion from the General Fund for support of the IHSS program in 2005-06, a decrease of $160 million (14 percent) compared to estimated expenditures in the current year. Most of the decrease is attributable to the proposed reductions in state participation in provider wages and increased savings from full implementation of the quality assurance reforms enacted in 2004-05, partially offset by a caseload increase.

Reducing State Participation in Provider Wages

The budget proposes to limit state participation in provider wages to the minimum wage ($6.75 currently), rather than the $10.10 per hour currently authorized. This proposal results in General Fund savings of $195 million in 2005-06, increasing to $260 million in 2006-07. We review and comment on the Governor's proposal.

Program Funding. The federal, state, and local governments share in the cost of the IHSS program. The federal government pays for 50 percent of program costs that are eligible for reimbursement through Medicaid. Under the recently approved Medicaid demonstration waiver, virtually all cases receive federal funding. (Prior to the waiver about 25 percent of cases were not federally eligible and such cases were served in the state-only residual program.) The state pays 65 percent and the counties pay 35 percent of the nonfederal share of program costs. The sharing ratio for nonfederally funded administrative costs is 70 percent state and 30 percent county.

Background on State Participation in Wage Increases. Prior to 2000-01, the state participated in wages only up to the minimum wage. Accordingly, the federal government paid 50 percent of the hourly wage, with the nonfederal costs being shared by the state (65 percent) and local governments (35 percent). Chapter 108, Statutes of 2000 (AB 2876, Aroner), authorized the state to pay 65 percent of the nonfederal cost of a series of wage increases for IHSS providers working in counties that have established "public authorities." The public authorities, on behalf of counties, negotiate wage increases with the representatives of IHSS providers. The wage increases began with $1.75 per hour in 2000-01, potentially to be followed by additional increases of $1 per year, up to a maximum wage of $11.50 per hour. Chapter 108 also authorizes state participation in health benefits worth up to 60 cents per hour worked.

State participation in wage increases after 2000-01 is contingent upon meeting a revenue "trigger" whereby General Fund revenues and transfers grow by at least 5 percent since the last time wages were increased. Pursuant to this revenue trigger, the state currently participates in wages of $9.50 per hour plus 60 cents for health benefits, for a total of $10.10 per hour. Based on our revenue estimate, additional state participation in wages would be triggered in 2005-06, raising the total state participation in wages to $11.10 per hour.

Governor's Proposal. The budget has two separate proposals to reduce state participation in provider wages. First, effective July 1, 2005, the Governor proposes to roll back state participation in wages to the levels provided during 2003-04. This proposal impacts 12 counties that raised wages since June 30, 2004. If adopted, this would result in savings of $43 million. Second, effective October 2005, the budget proposes to reduce state participation in provider wages to the minimum wage in all counties. This proposal results in savings of $152 million in 2005-06, increasing to $217 million in 2006-07, based on a full-year impact.

The Governor's proposal does not reduce the wages paid to IHSS providers; rather, it limits state participation to the minimum wage. Counties that elect to pay wages above the minimum wage would share such wage costs with the federal government (50 percent county and 50 percent federal). The state would continue to pay its 65 percent share of the nonfederal costs of wages up to the minimum wage. Below we discuss factors affecting the counties' ability to pay provider wages assuming the Governor's proposed reduction in state support.

County Waiver Savings. In August 2004, the federal government approved a Section 1115 Medicaid demonstration waiver that made virtually all IHSS recipients eligible for federal funding. This waiver resulted in state savings of $211 million in 2004-05 and $231 million in 2005-06. According to the Department of Finance, counties will realize savings of $112 million in 2004-05 and $93 million in 2005-06. The state and county savings come from federal participation in cases that were formerly supported with 100 percent state and county dollars. We note, however, that to date counties have received no savings because the federal government has not yet approved the state's financial claiming system pursuant to the federal waiver. Once this system is approved (probably before the end of 2004-05), counties should begin to receive the savings noted above. Finally, we note that the total annual county savings would not be sufficient for all counties to maintain wages at their current levels without using county funds.

Current Wages. Among California's 58 counties, 38 currently pay provider wages above the minimum wage (the remaining 20 counties pay the minimum wage). Of these 38 counties, 11 counties have increased wages since the end of 2003-04. Accordingly, these 11 counties would face reduction in state support on July 1, 2005 as a result of the Governor's proposal to reduce the state's share to the levels provided during 2003-04. On October 1, 2005, a total of 38 counties face reductions when state support would be limited to the minimum wage. Figure 1 (see next page) lists all counties currently paying providers more than the minimum wage. About 90 percent of providers are currently paid above the minimum wage.

County Flexibility. Many counties formed public authorities for the purpose of establishing an employer of record to negotiate collective bargaining agreements with providers and their unions. According to a survey conducted by the California Association of Public Authorities (CAPA) during January 2005, 22 counties have language in their current union agreements which give them some financial protection from potential reductions in state or federal support for the IHSS program. In some counties, the protection is absolute, meaning that county financial exposure is capped and any reduction in outside support results in automatic wage reductions. In other cases, the protection is more limited, such as requiring the union to discuss changes with the county. The CAPA survey indicates that six counties have no protection from reductions in state or federal financial support. No information was available from ten other counties currently paying above the minimum wage. Figure 1 identifies those counties with some type of identified financial protection.

As described above, some counties have bargaining agreements with no "out clause" in the event the state changes its level of participation in wages. For the time period that some counties may be unable to reduce wages (because of their agreements), the potential exists for a reimbursable mandate claim against the state, although this is not a settled legal issue.

County Action Likely to Vary. County decisions about whether to reduce wages in response to the Governor's proposed reduction will depend on many factors. These factors include (1) the nature of a county's bargaining agreement with their union, (2) county fiscal health, and (3) the relative priority of IHSS in comparison to other county programs. Some counties already provide wages and benefits in excess of current state support. Given the range of circumstances, we would expect some counties to reduce wages pursuant to their agreements, while others may elect to maintain higher wages despite the reduction in state support.

Impacts on Recipients and Providers. If counties reduce wages for providers, it will impact recipients and providers in several different ways. Compared to the currently authorized level of $10.10 per hour, paying at the minimum wage of $6.75 represents a reduction of 33 percent in wages. However, the average reduction for the 38 counties would be 24 percent because most of these counties are paying less than $10.10 per hour. Below, we assess the potential impacts on recipients with relative and nonrelative providers.

• Relative Providers. According to a DSS report from October 2000, about 43 percent of IHSS providers are immediate family members. Reducing wages will reduce the income of the provider, and assuming the provider lives with the recipient, the household income for the recipient as well. Given the familial relationship, it is quite possible that many of these providers would continue to serve their family members despite the reduction in wages.
• Nonrelative Providers. For cases in which the provider is not a relative, a reduction in wages could reduce the supply of labor in terms of available providers, depending on the local labor markets. It is possible that some recipients may be unable to find providers and/or that their providers will be less skilled.

Conclusion. The Governor's proposal to reduce wages to the minimum wage results in substantial budgetary savings of $195 million in 2005-06, growing to $260 million in 2006-07. If counties respond to this reduction in state support by reducing wages to the minimum wage, it would represent a 33 percent reduction in wages for providers who are receiving the $10.10 per hour currently authorized. The potential reduction in wages would reduce the household income for all providers and any recipients for which the provider is a relative living with the recipient. For some recipients, the reduction in wages could make it more difficult to find and retain providers. In deciding whether to adopt this proposal, the Legislature should weigh the budgetary savings against the potential for negative impacts on recipients and providers if counties elect to reduce wages.