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Can We Really Afford to Pay Home Aides More as Boomers Retire?

David Callahan

Earlier today I praised the Obama administration's move to extend labor protections, including overtime and the minimum wage, to some two million home aides. Now for the reality check: This step will surely increase the cost of caring for the aged and disabled at a time when millions of Baby Boomers are starting to retire, straining entitlement programs. What's more, hikes to the minimum wage—such as one recently enacted by California—will further boost home care costs.

Coincidentally, the Obama administration's move on care workers was announced the same day that the Congressional Budget Office released a new budget outlook that predicted that "Federal spending for the major health care programs and Social Security would increase to a total of 14 percent of GDP by 2038, twice the 7 percent average of the past 40 years."

Meanwhile, the CBO predicts that interest on the debt will roughly double by 2038, to about 8 percent of GDP. A little quick math shows that the CBO predicts that programs for seniors and interest on the debt will, together, equal 22 percent of GDP a quarter century from now

As it happens, federal spending today equals, well, about 22 percent of GDP. So what the CBO is telling us is that, if we keep the size of the federal government constant as a share of the GDP, all federal spending in 25 years will have to go to entitlement programs for old people and interest on the debt. 

Now, of course, the CBO has often been wrong and any number of shifts could brighten this picture: We could have faster growth, reduce healthcare costs far more sharply, or—my favorite—just increase taxes and the overall size of government to accommodate the Boomers' retirement. Or some combination of the three. Solving this problem is not exactly rocket science, at least in theory. 

Unfortunately, though, one could also imagine shifts that would further darken the fiscal picture: a major global conflict, pandemic, or string of extreme weather events that brings major unforeseen costs; a failure to control healthcare costs; or slower than expected growth.

All this raises the obvious question of whether we really can afford to do the right thing for home aides if that means piling additional costs on the already soaring burden our society faces as the Boomers retire. 

The answer is an unequivocal yes, particularly if we find ways to cut the middlemen out of the home care business. 

Right now, while home care aides get paid terribly, the firms that hire and manage those aides are doing extremely well. The owners and executives of these firms are making millions of dollars in some cases by billing, say, $16 an hour and then turning around and paying aides $10 an hour, with no benefits. 

Cut out the middlemen—and the gross inequality within this system—and, yes, home aides can get a raise without breaking the bank as Boomers retire. Such a virtuous tradeoff, by the way, can also be applied to other areas where federal contracting practices shovel fortunes to those at the top while paying poverty wages to front-line workers. Demos published a report on this problem earlier this year and we have another one coming out soon that specifically shows that constraining compensation at the top of the contracting system would enable higher pay for low-wage workers. 

Providing affordable home care to the aged is a great place for creative public sectors solutions, in partnership with nonprofits. For instance, we could dramatically expand the Senior Corps, which is a part of the Corporation for National and Community Service and which has a program that matches up healthy seniors as companions for those who need care. This step would seize on the fact that even as millions of seniors become too frail to care for themselves, millions more will find themselves with spare time and energy. 

There are other ideas out there for handling the care crisis in an affordable way. Here, again, we need to look beyond the free market to solve all our problems.