Health Care Spending Projections and Policy Changes: Recognizing the Limits of Existing Forecasts

Abstract

Many projections for health care spending growth do not incorporate the impact of changing labor market regulations. In this paper, I show that changing one such regulation – raising the federal minimum wage – would significantly increase the cost of several important types of care. I do this using data on the cost of long-term care from thousands of providers from 2012-2018. Using these data, I show that costs, which include home health aides and nursing home care, are highly correlated with changes in state level minimum wages. This relationship is statistically robust. Forecasts that ignore the risk of a federal minimum wage increase will understate this element of expected medical spending growth.