New labor rule hurting, not helping some home health workers

Lenny Verkhoglaz cut the hours of about a dozen people his home healthcare agency employs. He also raised rates for clients using live-in caregivers by about 25%. Some of those clients have left in response.

“It was a complete shock to a lot of our clients,” said Verkhoglaz, cofounder and CEO of Executive Care, based in Hackensack, N.J. “We wrote them several letters explaining that this was coming down, but when it finally hit, no one was happy.”

Indeed, industry leaders say a new rule meant to help workers who had long fallen under certain exemptions to federal labor laws is doing just what they warned it would: hurting home health agencies and their clients— and even the workers it was supposed to help. Many home healthcare agencies say they are cutting hours and rescheduling employees to avoid paying overtime and reimbursement for travel time as mandated under the new rule.

But employee advocates say the regulations, which apply only to workers employed by third parties like agencies, will help in the long run, and they are working to smooth the transition.

Home healthcare agencies started paying their employees higher wages after U.S. Chief Justice John Roberts refused to delay the rule last fall. The Supreme Court has not yet decided whether to review a federal appeals court ruling against the industry’s lawsuit challenging the regulations.

In November, shortly after the rule went into effect, Home Care Pulse conducted a survey of 444 home-care providers. The company does research for the home-care industry.

Nearly 68% of the respondents said they had cut caregiver hours to avoid overtime. More than 55% said they had rescheduled cases to avoid paying overtime. And more than half said had they raised fees to cover the additional costs.

Home-care providers take issue mainly with the new obligation to pay overtime and compensate employees for the time they spend traveling between clients. Most providers were already paying at least minimum wage. And the rule is affecting providers in some states more than others, because more than a dozen already require overtime pay for in-home care workers.

Advocates for home health workers are pushing states to boost their Medicaid funding to cover the additional costs rather than take measures such as cutting hours.

Some states, including California and New York, have already bumped up their funds, and others may do so in the coming months as they move through their budget processes, said Abby Marquand, director of policy research for the Paraprofessional Healthcare Institute.

But several states are still fighting the new obligations. Twelve states have filed a brief with the Supreme Court urging it to hear the case concerning the new rule, saying it imposes an unfunded liability on states.

Marquand said the potential damage to providers serving private-pay clients has been overblown. Some of them, she said, have 30% to 40% profit margins. “The idea that there is no wiggle room in the business model to accommodate this rule—it just seems questionable,” she said.

But J.C. Weber, director of customer experience at Home Care Pulse, said the company’s research shows those profit margins to be closer to 15% to 20%. “The biggest thing is, it will cut into their profit as a company, which then kind of affects their ability to put money back into the company,” he said.

Companies that provide live-in care, however, may be suffering the most. More than 18% of respondents to the Home Care Pulse survey said they had eliminated live-in services because of the rule.

“We’re seeing those businesses shutting down or moving to a model where they’re employee-recruitment services rather than employing people,” said William Dombi, a vice president for law at the National Association for Home Care and Hospice.

Phil Bongiorno, executive director of the Home Care Association of America, said some of its member companies are small businesses with slim margins that can’t handle paying live-in workers minimum wage and overtime.

“Our concern is, what will clients do if they can’t afford to use our services?” Bongiorno said.

Verkhoglaz said he believes the clients he has lost are “going underground”—that is, hiring people who are unauthorized immigrants or untrained.

Companies like his are having a hard time covering the new costs without raising rates, he said, because other expenses are rising, too. “Everything is going up,” Verkhoglaz said, “so for a company to absorb additional overtime or payroll costs is tremendous.”

“It was a complete shock to a lot of our clients. We wrote them several letters explaining that this was coming down, but when it finally hit, no one was happy.”

—Lenny Verkhoglaz Co-founder and CEO Executive Care