Accessing Your Healthcare
Understanding the Affordable Care Act
In an effort to better understand the impact that the Affordable Care Act (ACA) will have on staffing companies and their clients, Pontoon surveyed a sample population of 549 suppliers about many of the law’s key components, including supplier compliance and how much it’s going to cost. Of the 549 surveyed, we received responses from 302 staffing companies that provide professional staffing services and/or general staffing services. We did not see significant differences in their methodologies to offering healthcare coverage to workers in either category.
The time is now.
The basics of the new healthcare law
With the Affordable Care Act (ACA) in effect now, a few staffing companies and their clients are still trying to wrap their arms around what it means.The bad news - uncertainties remain around what to expect. Mostly, these uncertainties are associated with the costs based on actual enrollment numbers. Staffing companies have done what they can to prepare.
The majority of suppliers have been engaging with external experts on the matter, including attorneys, insurance brokers and industry groups like the American Staffing Association, in addition to talking with their clients and Managed Service Providers (MSP). Most suppliers have a good or better understanding of the ACA and their level of readiness. Only a negligible percentage (1%) claim to struggle with both understanding the regulations and developing their strategy.
Overall, that’s good news for clients who are concerned that their staffing suppliers are not as prepared as they would like them to be.
The ACA has been revisited and revised countless times during its gestation. The final regulations were passed in February 2014 and provide some, but not complete clarity around the specific requirements. Even those decisions that have been made are subject to caveats and “if / then” statements.
The final regulations applied several examples that recognize temporary staffing companies as the common law employer for contingent workers, supporting longstanding precedent under the Employee Retirement Income Security Act (ERISA) and other statutes. That means that staffing companies, not their clients, should be accountable for ACA compliance for contingent workers.
In January 2015 the employer mandate took effect, requiring large employers to either offer healthcare benefits to their employees or pay a penalty. The first area of trickiness is that the definition of a large employer is going to change from 2015 to 2016. This year, only employers with 100 or more full-time employees (FTEs) are required to comply with the employer mandate, while in 2016 employers with 50 or more employees will qualify as large employers and will be subject to the mandate.
30 hours - the average time worked by a full-time employee per week, or 1,500 hours per year.
Pretty simple, right? Not really...
The Affordable Care Act, and all its implications on your business, can be difficult to understand. Determining how to best balance the needs of your business and your customers with your responsibility — and now obligation — to your employees is no easy task. Yet, consulting with professionals that can guide you through all of your staffing decisions can help make the process a bit easier.
To FTE or not FTE?
In the contingent workforce world, it’s difficult to say when a worker is full time. Certain roles may be more likely to be temporary or part time in nature while others tend to be longer term and full time. As such, the final regulations allow for some flexibility for these variable-hour employees.
Using a look back period, employers who have variable-hour employees can choose a measurement period of up to 12 months to review the actual hours worked of a worker they deem to be a variable-hour employee to determine whether or not the employee qualifies as a full-time employee and should be offered benefits.
Along the same lines, employers are not required to offer benefits for their seasonal employees. Not to be confused with variable-hour employees or part-time employees, seasonal employees may work on a seasonal basis, but only during certain times of the year. Examples include retail stores that increase their workforce during peak shopping seasons and companies that supplement their workforce with additional finance and accounting workers during tax season.
As long as the particular position is not greater than six months in duration and typically one that exists during a peak season, these workers do not need to be offered benefits as they are not deemed FTEs under the ACA. Still, a number of staffing companies are planning a conservative approach by offering benefits to variable-hour and seasonal workers. Those doing so may be offering a nice perk to attract workers, but they shouldn’t expect buyers to help pay for those benefits as they are not required by the ACA.
Pay (or play and sometimes pay) or play?
Commonly referred to as “pay or play” are the two fundamental options for the employer mandate. However, there are really three.
Employers can either:
- “Pay” the penalties associated with offering no healthcare benefits
- Offer benefits that don’t meet all criteria of the employer mandate and risk paying penalties when employees seek coverage through the government or
- “Play” along and offer benefits that meet minimum value and are affordable to the employee.
If an employer decides not to offer any benefits to at least 95% of their employees (70% in 2015 only), they would be required to pay a $2,000 penalty per year to the IRS for every employee, regardless of whether they seek coverage elsewhere or not.
There are a few formulas which complicate this option, but for the most part, it would be cost prohibitive and an option few employers want to pursue. In fact, no respondent that was required to comply with the ACA was considering this option at the time of the survey.
Some employers will offer healthcare coverage that meets the minimum essential coverage requirements. Although these plans may provide coverage for certain healthcare claims, they will not provide full minimum value coverage. Additionally, the plans may not be subsidized by the employer, thereby not meeting the affordability requirements.
Employers that select this option will not be subject to the broad “A” penalties for every employee, but will be subject to “B” penalties in the amount of $3,000 for every employee that obtains subsidized coverage through a government exchange, or the “marketplace.”
For employers that elect to go with either penalty option, it is important for them to know that the penalties associated with these options are posttax, so the actual financial impact is far greater than the penalties themselves.
Of course, the last option is to offer employees healthcare coverage that meets both the minimum value and affordability requirements. While this type of coverage may be more costly, there are some direct and indirect advantages to offering it.
First, employers avoid paying any penalties at all. Since the coverage meets both requirements of the employer mandate, there are no penalties associated with the option. That’s a lot easier than trying to determine who declined benefits and received subsidized coverage through an exchange.
Second, the more robust and affordable plans make the company an appealing place to work, thereby attracting more qualified workers. This idea has always been something that some staffing companies have used as differentiators. Under the ACA, staffing companies may see more competition in their quest for top talent as more of them will be electing to offer comprehensive benefits.
Going for Bronze
There are five levels of coverage which can be offered, but in order to avoid both “A” and “B” penalties, employers are required to offer a package that covers at least 60% of healthcare costs:
- Basic plans cover catastrophic healthcare and cover less than 60% of healthcare costs. These plans do not meet the minimum value requirements.
- Bronze plans cover 60% of healthcare costs on average.
- Silver plans cover 70% of healthcare costs on average
- Gold plans cover 80% of healthcare costs on average.
- Platinum plans cover 90% of healthcare costs on average.
The Affordable Care Act by the numbers.
60: percent of the total health care cost that must be covered by the employer
50: minimum number of full-time employees, or full-time equivalents, a business must have to fall under the Affordable Care Act mandate (2016)
Our study found that most staffing companies are already offering benefits which meet the minimum value requirements of the ACA.
In fact, 84% of the professional staffing companies and 81% of the general staffing companies already offer bronze or better plans. While there are still a number of staffing companies who are unsure of which plan they will offer, 91% of professional staffing companies and 87% of general staffing companies responded that they plan on offering bronze or better plans in 2015.
Even if they currently do offer bronze or better plans to their employees, the benefits may not be affordable and exceed 9.5% of the employee’s earnings. As a result, the employer is required to subsidize the difference under the ACA so their costs may increase regardless of the type of plan they currently offer. However, the ACA states that affordability is only a requirement for those workers earning between 139-400% of the federal poverty level. This figure translates to earnings of minimum wage to $29.92 per hour, although there are some differences from state to state, based on whether they create their own exchanges or join the Federal Exchange.
Even with the employer mandate requiring affordability for only those workers earning between minimum wage and $29.92 per hour, 87% of professional staffing companies surveyed plan on making their plans affordable for all of their employees, regardless of their earnings / rate of pay.
Don't React - Pre-act!
It’s January 2015 and an overwhelming number of staffing plan to offer Bronze or better plan as a result of the employer mandate. Certainly, that may impact the cost of administration and premiums for these plans, but the exact impact is still uncertain since many staffing companies are waiting for costs based on actual enrollment numbers.
Additionally, if staffing companies are only required to make them affordable for those earning between $9.00 and $29.92 per hour, buyers of contingent workers have some careful consideration to do. The affordability requirements will probably require most employers to contribute to the premiums for those earning between $9.00 and $29.92 per hour, but many staffing companies are planning on contributing towards all employees, regardless of their wage.
Why don't you just tell me how much it's going to cost?
By now you’d think there is a formula to determine exactly what it’s going to cost buyers of contingent workers with the changes introduced by the ACA. Unfortunately, there isn’t. With the uncertain costs of actual enrollment numbers, it’s hard to put a dollar figure on the ACA, although some have tried.
According to our study, 62% of staffing companies think the ACA is going to have an effect on their operating costs. While 24% are still unsure, the 14% that do not think it will have an impact typically cite the fact that the benefits they currently offer are in compliance. That’s good news considering only a few months ago, many buyers didn’t realize that their suppliers could already be in or close to compliance, even before the employer mandate takes effect.
Of the 62% that expect an increase in operating costs, the exact amount is scattered between a few cents to over $4.00 per hour based on our 2014 survey. With the most common response being an increase in cost between $1.00 and $2.00 per hour for both professional and general staffing, staffing companies now need to figure out how they are going to recoup these costs. With an understanding of premium costs, we have seen many drop below the $1.00 per hour mark.
As you might expect, many staffing companies are going to look to their clients to help absorb some of the costs associated with the Affordable Care Act. The most frequent responses to questions related to challenges were those that mentioned financial impact and conversations with clients about how they could help recoup costs. It’s no surprise, staffing companies will look to their clients to help absorb 32% of the costs, absorb 31% themselves and pass 37% of the costs on to employees (contributions or wages).
Here’s what we know.
Knowing what we know now, which is more than we knew three months ago, but not as much as we’ll know in the next three months, we can discuss options with both buyers and staffing companies.
Buyers or MSPs should amend their Staffing Supplier Agreements (SSA) to clearly name the staffing company as the common law employer and require the staffing company to comply with the ACA. Although indemnification language typically exists in the SSA, specifically calling out ACA compliance and indemnification can add an extra
level of protection.
It might be a good idea to require staffing companies to offer at least minimum essential coverage options for their contingent associates to protect buyers from trickle down “A” penalties if suppliers do not offer anything. A more conservative approach would require suppliers to offer plans that meet both minimum value and affordability requirements. However, that option could limit the number of suppliers willing to participate in their program. As a result of this requirement, smaller niche staffing companies may suffer because they don’t have the buying power of the larger firms or the ability to spread their healthcare risk across a large employee base. As such, they would potentially offer coverage at a high cost, or would need to pursue business elsewhere, thereby cutting off access to an important source of niche talent.
If suppliers haven’t already provided the information, they need to start providing more details around the type of coverage they plan on offering and any expected impact to cost. If they aren’t volunteering it, buyers or MSPs need to ask the question. If rate increases are expected, they should be reflective of the true cost of coverage and administration. Note, suppliers should make best efforts to be competitive as whatever rates they are passing along to clients could be considered during a rationalization effort.
Months ago, we did not recommend a broad brush approach to rate increases. There were far too many variables to just apply a whole number or percentage increase into a bill rate. Also, at the time the estimates being presented were as high as several dollars per hour, and it didn’t make sense to apply that increase to all workers, regardless of whether they obtained their coverage or not.
As the months have passed, rate increase estimates are far below a dollar per hour for general staffing, and even lower for professional staffing. The lower they get, the more it might make sense to consider a blanket rate increase to ensure supplier compliance, and remove the administrative nightmare that could result in tracking at the individual level.
By taking a blanket approach that adds a small fee to every worker, staffing companies would be able to spread the cost to their entire population, rather than only applying it to those employees who have obtained coverage through their plan. While this approach would affect the rates of all workers, it would not be as significant as only applying an increase to those workers who have enrolled.
The additional fee for all workers could help buyers of contingent labor under a special accommodation, which allows the client to treat the staffing company’s offer of coverage as its own. The client may pay a higher fee for enrolled workers due to the ACA but avoids co-employment risks. Tracking when an employee enrolls, drops, or changes their coverage will prove to be extremely difficult for staffing companies and their clients could be exposed to ERISA rules if hiring decisions are made based on whether or not someone is taking employer benefits. ERISA rules do not permit benefit enrollment as a consideration for employment. Of course, clients do not want to pay more than they have to so after a year, enrollment numbers need to be validated by suppliers to determine whether or not their rate increases were warranted.
Whichever way you slice it, the ACA will have an additional administrative burden on all parties.
A vendor management system (VMS) can capture the data points necessary to provide accurate reporting that protects clients from additional penalties if their staffing supplier isn’t offering coverage. While clients should be protected from being designated as a common law employer, there is always an exposure to risk when using contingent workers, especially in the case of independent contractors.
The disclosure of pay rate information - which has long been a debated issue with staffing companies being protective of their pay rates and buyers looking to limit gouging, should be a requirement to help identify which workers are required to be offered healthcare that meets both minimum value and affordability requirements.
Additionally, the VMS should be able to track the classification of the worker, in the case of the ACA, whether the worker is considered a full-time, variable hour, or seasonal employee. This classification can help to drive compliance by making sure suppliers are taking the time to properly classify their workers.
Some companies are taking a very conservative approach to compliance by requiring all staffing partners to offer healthcare coverage to all of their workers, regardless of their classification and the size of the supplier. Instead of requiring all suppliers to offer benefits, regardless of their size, companies should make sure their supplier agreements contain clear language that requires their suppliers to comply with the law.
It's time to play...
While there are still unanswered questions, it’s January 2015 and we have closed in on the start of the employer mandate. We do expect further clarification. However, until we know the costs based on actual enrollment, much of what we know today is still purely speculation.
In 2014, Pontoon took a consultative approach having conversations with both clients and staffing suppliers to best understand the score. As expected, they all tuned in listening intently but ready for the encore.
What about the clients? They want to know what they should do, what they should pay and when they should pay it. What’s at stake for the staffing companies? They fear being left to absorb the costs alone, especially where clients and MSPs are managing markups and impacting profitability.
We’ve done our best to look objectively at both sides. We’ve provided program data and thought leadership helping all of our stakeholders better understand and respond to the ACA. It’s in our DNA to determine the best plan of action that protects clients from undue risks of non-compliance and rate increases, while also keeping our staffing suppliers as close to whole without increasing costs.
There’s a rhythm of understanding here and we plan to keep playing.