The Business of Home Care

Joe Raedle/Getty Images A home health aide helping a Florida woman with her daily routine.

Nancy Folbre is professor emerita of economics at the University of Massachusetts, Amherst.

In an industry serving consumers who are often vulnerable, dependent and not always able to pay for what they need, a broad commitment to the delivery of affordable high-quality care services would be lovely.

That’s why it’s such a shame that several business associations, as well as Congressional Republicans, strongly opposed rule changes recently announced by the Labor Department that extend basic federal protections of minimum wage and overtime regulation to home-care workers.

Their opposition was - and is - based on assertions that the new rules would significantly raise the cost of home care for consumers and reduce work opportunities and income for workers. Neither of these fears is plausible.

But there is an economic rationale behind the opposition. The rule changes may strengthen other trends encouraging consumers to hire home-care workers directly (with help from either state agencies or private companies that screen, train or certify potential employees) rather than paying businesses that charge a high and continuing price for those services.

The economic stakes are high, because the demand for home-care services is growing. The Bureau of Labor Statistics puts personal care and home-health aides at the top of its list of the 30 occupations projected to grow most rapidly between 2010 and 2020.

But these jobs sit at the bottom of the list in terms of median earnings, at less than $21,000 per year in 2010. Like other low-wage workers, such as those at fast-food franchises, many home-care workers live in poverty: 28 percent of personal care aides and 20 percent of home health aides in 2010.

Those attracted to the field because they feel a calling to care for others have a hard time paying their bills. About half are able to support their families only by recourse to public assistance. Low pay, long hours and disrespect make it difficult to attract and retain high-quality care givers.

The new rules, scheduled to take effect in January 2015, will improve working conditions by bringing them under federal regulation. But their impact on earnings is likely to be small. Most home-care workers already earn more than the federal minimum wage and work significantly less than 40 hours a week (the point at which overtime rules kick in). Indeed, many have a hard time finding the hours of employment they need.

Fifteen states have already adopted wage and hour protections for these workers, with no evidence of adverse effects. Yet resistance to federal regulation has proved vehement. Last year, surveys released by the Private Duty Home Care Association and the International Franchise Association purported to show negative consequences for clients/patients and workers. Neither survey was based on a representative sample, and both were criticized in devastating detail by Dorie Seavey, director of policy research at PHI, an organization that has long advocated for home-care workers.

Formal approval of the rule change has led to renewed prophecies of doom. The National Federation of Independent Businesses announced, “Those who rely on these services can expect less personal care coupled with significantly rising prices.” Representatives John Kline, Republican of Minnesota, and Tim Walberg, Republican of Michigan, warned that the new rules would drive some individuals into “institutional living” (that is, nursing homes).

Why such pushback if the effects on wages are likely to be small? Because the new rules may directly and indirectly reduce the profitability of home-care agencies by making it more attractive for consumers to bypass their services.

Individual consumers and their families, unlike agencies, can enjoy exemption from the new rules if they hire a caregiver who is primarily providing “companionship,” defined as “fellowship and protection” with no more than 20 percent of the time devoted to other household duties such as meal preparation.

In other words, if you would like to hire someone to watch over a frail, sick or otherwise needy family member and provide company, no restrictions apply. You just can’t ask that person to engage in anything other than incidental domestic work (which has been covered under the Fair Labor Standards Act since 1974).

No one knows what percentage of home-care workers are primarily “companions.” Many take responsibility for a variety of complex tasks, including supervising patient medication and monitoring health indicators. Many do whatever their clients (and clients’ family members) ask them to do to help out. Indeed, the increasingly demanding process of home care helps explain the rule change. The original reason for exempting all home-care workers in 1974 was the presumption that they were providing companionship alone.

Still, the new rule could encourage consumers to compare the per-hour wages that home-care workers receive with the per-hour price that agencies charge, which is about twice as high, according to calculations by PHI.

As Paul Hogan, head of Home Instead, a large national home-care franchise, put it, “There’s a fine line between what seniors are willing to pay for our services before they opt for other alternatives.” Mr. Hogan fears that private hiring might be more subject to fraud or abuse, which could be true in the absence of supportive services that help families find qualified, certified caregivers.

But his statement betrays one reason that for-profit companies may favor a low-wage, low-regulation, “low road” labor market for their employees: it creates more demand for the screening and management services that agencies charge for.