SI Review: April 2012

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Research Report: The Dreaded Mandate

The Dreaded Mandate

Healthcare reform’s effects on the staffing industry remain unclear

Few words make staffing executives’ blood boil more quickly than “healthcare reform.” Although the Patient Protection and Affordable Care Act sought to make health insurance available to 30 million more individuals, it creates quite the imposition on staffing. Employers with more than 50 employees who fail to offer health insurance to their fulltime staff (30 hours/week or more) are subject to a $2,000 penalty, effective Jan. 1, 2014. (See “A Hard Pill to Swallow,” in our July 2011 issue for more information on how the penalties are problematic for staffing firms.)

Obviously, legislators did not have staffing firms in mind when they crafted this mandate. The nature of the temp industry does not lend itself to categorizing employees, which for staffing firms includes temps, as full-time or part-time on a continuous basis while adjusting costs accordingly. So, what are staffing firms doing to address healthcare reform?

Partial Repeal?

We asked staffing firms how they were planning to address healthcare reform — individuals from 428 staffing companies provided an answer, and 77 percent indicated they had not thought about or addressed the problems, are waiting for regulations to be issued before making definite plans, or are making no changes while expecting legislative repeals.

But a full repeal is not likely, asserts George Reardon, special counsel at law firm Littler Mendelson. “If I had to bet, I would bet that the individual mandate would be declared unconstitutional and possibly also some key provisions of the law that depend on it, but not the whole law.”

So how would a partial repeal affect staffing firms?

“If the individual mandate and a few of the provisions are the only things to go, that just leaves the penalty structure. In fact, because the individual mandate provisions were designed to make it less expensive for the government to provide or facilitate coverage, with the individual mandate gone it’s probably going to cost the government more to implement the rest. That means they need the penalty money more than ever,” Reardon says.

Passing it on

So it does not appear likely that the penalties will magically vanish. The next-best solution for staffing firms would obviously be to get buyers to pay the increased cost. In our 2011 Staffing Firm Survey we also asked what percent of the increased cost associated with healthcare reform can staffing firms expect to successfully pass on to the buyer. Only one-third of staffing firms were able to specify their expectations beyond “none,” “all,” or “about half.” However, almost two and a half times as many respondents selected “100 percent” as did “0 percent.” How realistic are these expectations?

“[Passing on cost] is not an easy thing to do,” explains Reardon. The nature of the calculation and the staffing business itself makes it that much more difficult for staffing firms. “You don’t know at least until the following month (or quarter, or year depending on pending regulations) who the full-time employees were, because you measure over a period of time. If you’re planning to bill a client for that, it causes problems. One is that it’s a second billing process, which is a pain. It’s even worse when you have a VMS and you have to interface with them as well as other subcontractors.”

It appears that passing on the increased cost to buyers will be difficult, at best, for staffing fi rms. But there may be a glimmer of hope: upcoming regulations are proposing a “relaxation” period, allowing firms to establish fulltime status not on a monthly basis, but on a three-month, or even 12-month basis.

Regardless of how the specific regulations eventually pan out, healthcare reform will still present a challenge for staffing firms. So, as you run frantically around trying to guess future legislations or cook up schemes to pass on costs, just know that you’re not alone.

Dan Begley-Groth is a research analyst with Staffing Industry Analysts. He can be reached at dbegleygroth@staffingindustry.com.

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