New Economic Analysis Finds SB 525 Would Increase Health Care Costs by $8 Billion Annually

DATE: May 4, 2023

CONTACT: Kathy Fairbanks, (916) 813-1010

Massive, Unfunded Health Care Pay Measure Would Lead to Service Cutbacks and Closures; Jeopardize Patient Access to Care

Sacramento – A new economic analysis released today found that Senate Bill 525, the health care worker pay measure, would increase costs for public and private health care providers by $8 billion annually. The amount will increase every year, growing to more than $11.3 billion by 2030. The report found that SB 525 would increase costs to state and local governments by $4.8 billion each year. The report was compiled by California’s former Director of the Department of Finance and the former Chief Economist for the California State Legislative Analyst’s Office.

“Health care providers go to great lengths to support and reward workers, but SB 525 is a massive $8 billion increase in health care costs we simply cannot afford,” said Cathy Martin, Chief Executive Officer, Association of California Healthcare Districts. “Cost increases of this magnitude on an already fragile health care system will lead to cuts and closure of services, health care worker job losses, and massive cost increases for consumers and state and local governments.”

The key findings in the analysis:

  • Total public and private health care expenses will increase by $8 billion annually, increasing to $11.3 billion annually by 2030. 
    • $4.9 billion related to wage increases for workers currently making between $15.50 (the statewide minimum wage) and $25 per hour.
    • $920 million related to increased employer payments for benefits such as social security contributions, retirement, and overtime differentials.
    • $300 million due to provisions raising the “manager exemption” from California’s overtime requirements from $31 per hour to $50 per hour.
    • $380 million for the increase in minimum wages paid to on-site contractors, such as those providing building and grounds maintenance, security services, and temporary employment services.
    • $1.5 billion due to employers offsetting wage compression by raising pay rates for employees earning up to double the new $25 per hour minimum wage.
  • Costs to state and local governments will be $4.8 billion annually. All levels of government would be directly affected by the minimum wage increase. First, as employers of workers in state and county hospitals and correctional facilities. Second, as major purchasers of health care services – through county health care programs, the state’s Medi-Cal program, and as purchasers of health insurance for their active and retired employees. The following are anticipated costs for state and local governments:
    • Total State Government Costs: $4.01 billion
      • Medi-Cal: $3.6 billion
      • State Employee Health Insurance: $112.9 million
      • Dept of Corrections: $53.4 million
      • Department of State Hospitals: $19.7 million
      • State Retiree Health Insurance: $78.5 million
      • CSU Retiree Health Insurance: $11.8 million
      • UC Employee Health Benefits: $74.6 million
      • UC Retiree Health Benefits: $10.3 million
    • Total Local Government Costs: $770.9 million
      • County Health Program Costs: $406 million
      • County, City, Special District (including School District) Employee Health Insurance Costs: $364.9 million
  • All health care providers will see significant cost increases. Of the $8 billion, the report identifies the following annual cost increases by provider type:
    • Hospitals: $2.3 billion
    • Skilled nursing facilities: $1.27 billion
    • Home health, outpatient clinics, physicians’ offices and other providers: $4.3 billion

A broad coalition of community clinics, hospitals, doctors, minority business advocates, seniors and consumers is opposed to SB 525. A full list of SB 525 opponents can be found here.

Senate Bill 525 is currently in the Senate Appropriations Committee.

About the Authors of the Report:

Mike Genest founded Capitol Matrix Consulting in 2010 after concluding a 32-year career in state government, which culminated as Director of the California Department of Finance (DOF) under Governor Arnold Schwarzenegger. Prior to his four-year stint as the Governor’s chief fiscal policy advisor, Mr. Genest held top analytical and leadership positions in both the executive and legislative branches of government.

Brad Williams joined Capitol Matrix Consulting (CMC) in 2011, after serving in various positions in California state government for 33 years. Mr. Williams worked for over a decade as the chief economist for the Legislative Analyst’s Office, where he was considered one of the state’s top experts on the tax system, the California economy, and government revenues. He was recognized by the Wall Street Journal as the most accurate forecaster of the California economy in the 1990s, and has authored numerous studies related to taxation and the economic impacts of policy proposals.