CWS 3.0: July 11, 2012

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Healthcare Reform Ruling Paves Way for Employer Penalties

The U.S. Supreme Court upheld the Patient Protection and Affordable Care Act in an opinion announced on June 28. Now staffing buyers, staffing vendors and others must assess how the law will impact contingent labor — especially the employer penalties.

George Reardon, special counsel at employment law firm Littler Mendelson, said the law will cause the cost of contingent labor to rise as employer penalties take effect in 2014. Reardon warns against counting on a repeal of the law. Republicans would have to win both houses in the election (including a 60-vote, filibuster-proof Senate) as well as the presidency, he said.

However, the National Federation of Business said it plans to continue to fight against healthcare reform. The federation, as well as 26 states, were parties to the lawsuit.

“Under PPACA, small-business owners are going to face an onslaught of taxes and mandates, resulting in job loss and closed businesses,” Dan Danner, president and CEO of the National Federation of Independent Business, said in a statement made after the Supreme Court's opinion was announced. “We will continue to fight for the repeal of PPACA in the halls of Congress; only with PPACA’s full repeal will Congress have the ability to go back to the drawing board to craft real reform that makes reducing costs a number one priority.”

The Supreme Court’s opinion did not include the employer mandate portion of the law. The complex opinion concerned the individual mandate, which requires individuals to buy health insurance starting in 2014 or face penalties. The court’s opinion also covered a portion of the law that allowed the federal government to pull all Medicaid funding for states that don’t expand Medicaid coverage to include those making up to 133 percent of the federal poverty line.

In short, the court upheld the individual mandate on the grounds that it could be thought of as raising taxes for those who don’t buy healthcare insurance.

Removal of the mandate might have invalidated the entire healthcare reform law.

In addition, the Supreme Court ruled against allowing the federal government to withdraw all Medicaid funding from states that don’t allow expanded Medicaid coverage.

Penalties
The decision paves the way for employer penalties to take effect in 2014.

The law requires that employers with at least 50 full-time equivalent employees provide a certain level of healthcare coverage or pay a penalty. The annual penalty is $2,000 multiplied by the number of all full-time workers (minus 30) if any employee receives a federal subsidy to purchase healthcare insurance, according to the April 2010 issue of the Legs & Regs Advisor.

If an employer offers coverage that is deemed “unaffordable” because the employee has to pay more than 9.5 percent of his or her income, or the employer contributes less than 60 percent of the actuarial value of the plan, the employer must pay $3,000 per year for each full-time employee getting a federal subsidy up to a cap of $2,000 multiplied by the number of full-time employees.

Calculating the number of FTEs is bound to be problematic for providers of contingent labor due to the nature of the business. One idea that could cut down penalty costs for contingent labor is a “look-back period.” This would allow an employer to count how many full-time employees it has — for the purposes of calculating its penalty — for a period of up to 12 months instead of on a monthly basis.

However, as proposed, the look-back period could also run for as little as three months. Under a 12-month look-back period, an employee would have to work full time for 12 months before being considered a full-time worker when calculating penalties. Such a period could reduce penalty costs for staffing firms in industrial or other segments where health insurance isn’t typically offered. 

The American Staffing Association and others are backing the look-back period.

Ed Lenz, senior vice president, legal and public affairs, at the American Staffing Association, said the Department of Treasury is still interested in a look-back period. However, there’s still no formal definition of a look-back period or timing when rules for such a period could be finalized, Lenz said. It is likely there will be a look-back period of at least three months, he said.

On the other hand, Reardon cautioned that the idea of a look-back period is opposed by the Service Employees International Union and other backers of the current administration.

For more on penalties, click here.

In the wake of the Supreme Court’s ruling, Reardon also noted:

  • That staffing firms should analyze the patterns of their contingent workforce.
  • Although qualifying insurance for temporary workers is theoretically an option, it may be cost-prohibitive.
  • Staffing firms might consider ways to mitigate penalties through workforce reallocation and management strategies such as franchising, branchising, job-sharing and term limits.

Members of the Contingent Workforce Strategies Council can download excerpts from a presentation by Reardon on healthcare reform’s impact on staffing by clicking here.

However, some in the staffing industry say the new law could increase demand for some kinds of labor — such as healthcare workers.

AMN Healthcare Services Inc. in its 10-K filing earlier this year with the U.S. Securities and Exchange Commission said the law could increase demand for its services.

“It is widely anticipated the Patient Protection and Affordable Care Act of 2010 (in its current form), will result in a substantial increase in the number of newly insured Americans that will require access to care, increasing the need for physicians, nurses and other allied health professionals in various healthcare settings in and outside of the traditional acute-care hospital, which could increase demand for our services,” according to the 10-K.

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