How California’s New Health Care Minimum Wage Law Will Impact Behavioral Health Operators

Behavioral health providers in California will have to grapple with a new health care minimum wage signed into law three months ago.

However, there are several looming questions, not the least of which is when exactly the law will make its impact felt. Additionally, it paves a fresh path for addressing the systemic problems in behavioral health that other state lawmakers with similar views might choose to follow.

But for now, the health care minimum wage faces the potential for delay. The state government’s budgetary crunch threatens to dislodge the law’s current implementation plan.


California Gov. Gavin Newsom’s latest budget calls for a so-called “trigger” to be added to the law. The trigger would make the law effective only if certain conditions are met. In this case, Newsom’s budget calls for the law’s effectiveness to be “subject to General Fund revenue availability.”

If the state legislature approves the trigger, it could postpone the rate increases. The call for a trigger comes as California’s state budget faces a $58 billion shortfall. The new law is expected to increase spending at health care facilities operated by the state as well as spending for Medi-Cal, the state’s Medicaid program. 

Newsome signed the health care minimum wage law into effect in October. It requires health care providers to eventually raise all minimum wages to at least $25 per hour for all staff. The law lays out different schedules for increasing wages for different provider types. The first is slated for June 1, 2024.


This new legislation could be a test drive for raising the health care minimum wage in other states. Neighboring states or states that are similar by way of political bent or other factors tend to adopt each other’s initiatives. California is the largest state in the country and tends to lean liberal

In short, the new law would raise the cost burden on behavioral health care providers by elevating the lowest floor of compensation in the industry. Invariably, the impact will fall on organizations’ bottom lines.

However, there is something of a silver lining to the new.

“I would love to see … a greater societal awareness that persons who work in health care are compensated well and fairly and have that lead more people into entry-level health care roles,” Ted Guastello, CEO of AMFM Healthcare, told BHB. “Then, they may find professions with great purpose and meaning. That would be a wonderful outcome.”

San Juan Capistrano, California-based AMFM Healthcare provides outpatient and residential mental health care in California, Washington, and Virginia.

Already, the economy in California was driving up wages at behavioral health organizations, Guastello said, adding that AMFM Healthcare increased its minimum wage to $19 to keep up with the high demand for frontline workers generally and behavioral health professionals specifically.

He notes the importance of entry-level roles in behavioral health, specifically in the mental health space. While there is a current and projected shortage of several behavioral health specialists, providers often struggle to retain frontline workers. Many are turning to a wide range of initiatives to reverse that trend, including raises.

“You can make a tremendous impact at the entry level,” Guastello said. “In a mental health setting, they are your most important team members because, oftentimes, they have huge patient impact.”

If this holds, there may be lower turnover and more interest in behavioral health. If so, this might help mitigate the impact of the health care minimum wage increase on behavioral health organization’s balance sheets.

A previous UC Berkeley Labor Center analysis found that the median increases in payroll costs and share of earnings increased by lower turnover by 6% and 12%, respectively, potentially leading to something beyond an offset in the increased cost. It also estimates that health care operator’s median operating costs would increase by 3%.

Balancing cost and expenses

The law still applies on its previous timeline unless the Newsom budget request leads to the legislature creating a trigger. A delay is not guaranteed, making elevated wages a likely reality for California-based providers for the time being.

Even then, the impact of implementation might not apply evenly across behavioral health. Some behavioral health providers, such as the San Diego-based integrated neurodivergent health care provider Cortica is one example. Briana Elvaiah, chief financial and human resources officer for Cortica, told BHB that the company’s minimum wage wasn’t far off from the standard set by the new health care minimum wage.

Still, this forces tough conversations about balancing the company’s finances. And those conversations must include and, eventually, extend to payer partners.

The impact of the law may not fall evenly on employees by type. For example, Cortica historically had some of its behavioral interventions paid differently for patient-facing and non-patient-facing time, sometimes known as the direct-indirect split. The company is in the process of assessing that practice in light of the new health care minimum wage law. That work is also impacted by questions about how payers will address the potential increased wage for those workers.

“It will force us to have conversations and learn about how our payers are thinking about this,” Elvaiah said. “I know they’re very focused on having access to high-quality care for the members. Making sure that we’re able to do it in a sustainable way in a market that is very competitive for labor, I think, is definitely a part of the conversation.”

Cortica’s integrated care delivery model — which brings together behavioral health, neurology, gastroenterology and developmental pediatrics — further complicates that conversation. Multiple parts of the law apply to Cortica. Elvaiah said the company is still learning how to manage that.

Elvaiah and Guastello expressed confidence that payers will help bridge the gap between existing contract rates and the new health care minimum wage law. Unlike inflation, the new law has a clearly understood and easily defined impact on all providers.

“I do anticipate that quality payers will be working collaboratively with providers to help soften or share the impact of this legislation,” Guastello specified.

Increased costs, decreased growth?

California already has a reputation for high living costs and a penchant for elevated minimum wages compared to other states. Its $16 per hour minimum wage is among the top 5 highest rates. California was ostensibly the first state to articulate a minimum wage specifically for the health care sector.

So, anticipating those factors at the outset of launching a business allows behavioral health providers to overcome those factors, Lightfully Behavioral Health Chief Growth Officer Andie Hollowell told BHB.

Founded in 2021, the Thousand Oaks, California-based outpatient and residential mental health provider set its minimum wage above what is now the health care minimum wage. The direct impact on Lightfully Behavioral Health will likely be minimal, Hollowell said.

“I think we put our money where our mouth is by trying to find ways to get folks very fairly compensated while also trying to be mindful of the stress of the job,” Hollowell said.

Lightfully’s client care technicians work three 12-hour shifts, while clinicians work four days a week. This strategy is meant to give staff more time in their off hours to resolve home matters and disconnect from work.

The company also maintains expansion plans. In 2022, it announced it would open 30 facilities by the end of 2023. It also recently unveiled a new college-student-focused telehealth service called Lightfully U.

The same might not be said for incumbent organizations. Health plans don’t often provide clear avenues for significant and rapid payment increases, as Hollowell pointed out, forcing providers to find ways to bridge gaps between costs and income.

“Oftentimes, we get locked into insurance contracts where there’s not a lot of wiggle room,” Hollowell said.

What does the law say? 

The law gets very granular about which employees are covered by the legislation. It exhaustively details the facility and provider types that are covered by the law. This includes the following behavioral health facilities, according to a BHB review of the law:

— Behavioral health centers

— Licensed acute psychiatric hospitals

— Psychology clinics

— Psychiatric health facilities

— Mental health rehabilitation centers

— Home care provided by licensed acute psychiatric hospitals

— Senior care facilities affiliated with licensed acute psychiatric hospitals

— County mental health facilities

The implementation timeline varies depending on the employee headcount and the payor mix of the provider. All new minimum wages must be established by June 1 in subsequent years, according to health care law firm Nixon Peabody. 

Large health care entities with more than 10,000 employees and county-run entities with local populations of over 5 million are to have minimum wages of $23 by 2024, $24 by 2025 and $25 by 2026.

Rural facilities and hospitals with high Medicare and Medicaid patient bases or operated by smaller California counties must set wages no less than $18 per hour with 3.5% annual increases and reach $25 per hour by 2033.

Private free clinics, community clinics, urgent care clinics, rural health clinics, and skilled nursing facilities must pay $21 in 2024, while a “catch-all” rate increase schedule for facilities not otherwise described in the law calls for minimum wage rates of $21 by 2024, $23 by 2026 and $25 by 2028.

The law makes some exceptions for sales staff, delivery and waste collection and medical transport.

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