How Do Medicaid Policies for Home- and Community-Based Services Impact the Jobs and Wages of the Formal Care Workforce?

Over the past few decades, long-term care delivery has shifted from institutions to home-and-community-based services (HCBS). Medicaid plays a major role in determining how and where care is provided; and states have increasingly sought federal waivers to allow more Medicaid spending on HCBS. This paper focuses on how such waivers might have incidentally affected the labor market outcomes for formal caregivers, specifically nurses and health aides, by moving service delivery from institutions to the community. To test for such impacts, the analysis uses newly collected data on Medicaid waiver services and labor force data from the American Community Survey.

This paper explores the impacts of Medicaid coverage of various HCBS, which can each be covered at one of three levels – general coverage; coverage with “self-direction,” which lets recipients pick their providers; and coverage that allows family members to be paid providers. In terms of labor outcomes, it considers employment, hours worked, and earnings for both nurses and aides. Out of all of these different combinations, only a small fraction suggest a causal effect between a specific service policy and the labor outcomes. Such limited impacts are not surprising given that such effects were not the intent of Medicaid waivers. In addition, Medicaid generally reimburses at below-market prices, leading to less scope for changes in employment or wages.

That said, from the limited instances where effects do appear, some patterns emerge. In particular, most effects from the waivers were negative – primarily reducing earnings for aides or increasing unemployment for nurses through policies that allow care recipients to choose their providers and pay family members to provide care. Both these dimensions – that the effects that do show up seem driven by self-direction and family provision of services; and that aides respond on the earnings margin while nurses respond more on employment – should guide future research into the mechanisms by which self-direction and family-care policies might unintentionally affect labor force outcomes for formal caregivers.