SI Review: March 2013


The Good, the Bad and the Uncertain

Healthcare reform rules firming up

By Craig Johnson

As 2014 draws closer, staffing firms are gearing up to get ready for healthcare reform. With proposed rules under discussion, a major priority for staffing executives is preparing their firms for the big changes that lie ahead. How the Affordable Care Act will affect staffing firms is growing clearer as regulators work to draft the rules.

Proposed rules issued Dec. 28, 2012, provide some of the latest insight into how the federal government intends to enforce the employer penalty portion of the law. Those penalties — and the related administrative burden — will weigh heavily on the industry when they take effect next year.

Staffing firms must study their workforces and decide whether to offer healthcare benefits to temporary workers or face possible penalties of up to $2,000 annually per full-time worker (see Sidebar 3 below). Even firms that do offer insurance may find they still owe money.

A proposed look-back period (see Sidebar 1 below) means penalties won’t be as bad as feared when the law was first passed in 2010. However, staffing firms will still face an added administrative burden under the law, and penalties won’t go away. It’s also likely the law will continue to evolve even after the penalties go into effect. On the bright side — and there is one — the law brings possible opportunities. Could the Affordable Care Act help drive businesses to use staffing firms? The ambiguity and the questions remain. Consequences notwithstanding, staffing firms must still prepare for the massive change; 2014 is coming, ready or not.

“The benefits of the law to society, history will judge,” says Edward A. Lenz, senior counsel at the American Staffing Association. “I do know it’s a major burden for employers in our industry. Any costs involved are essentially new costs.”

Staffing Industry Review interviewed several industry experts regarding the impact of Affordable Care Act on staffing. We bring you both the good and bad consequences.

Negative Impact

Administrative burden. The administrative burden of complying with the healthcare reform law is a big concern, says Shawn Poole, executive vice president and CFO of EmployBridge, an Atlanta-based staffing provider. In addition, the regulations are still in proposed form and could change.

EmployBridge is spending a lot of time with various advisors and vendors to develop a plan, he says. But the cost for compliance is certainly going to be higher than what firms face today.

For example, Poole has been in dialog with insurance brokers, and says the large, national insurance providers are looking into insurance products. However, one concern is that plans could qualify as minimum essential coverage in one state and may not qualify in another state.

“Administratively, there is more work on the compliance side,” says Rob Wilson, president of Employco USA Inc., a Westmont, Ill.-based provider of staffing and professional employer organization services. For firms currently not offering insurance, their costs are going to go up, Wilson says.

Penalties. The Affordable Care Act’s biggest negative for staffing firms are the employer penalties, says George Reardon, special counsel at employment law firm Littler Mendelson. The 12-month look-back period in the proposed regulations could substantially limit the “play or pay” penalties, but there will likely be extra penalty or insurance costs even with the look-back period.

Look-back technicalities. A key issue under the look-back period is whether an employee is considered a variable-hour employee or not.

The staffing industry requested that all temporary employees be presumed to be variable-hour employees that would qualify for an initial look-back period of up to 12 months. However, the government did not do that. “It’s a negative in that they didn’t give a clear rule,” Reardon says.

Dan Foley, president of Randstad US Professionals, also says the issue is a concern.

“For example, highly skilled temporary IT workers who are hired for longer-term assignments may no longer be defined as variable under the new laws, even though they are not hired for full-time positions,” Foley says. “This has potentially huge implications for staffing firms, our clients and candidates alike.”

Cost to cover. If firms do offer insurance, they will also have to pay for that. Robert Half International Inc., a professional staffing provider, indicated in a conference call in late January that it plans to use a 12-month look-back period and offer healthcare coverage to eligible employees, which would likely mean single-digit percentage increase in overall pay rates.

Common-law question. Another possible negative is the proposed common-law approach to identifying who is the employer of a worker. Reardon says this approach could mean client companies may be deemed the employers of the contingent workers for the purposes of the ACA.

Nondiscrimination. Many staffing firms offer one level of healthcare benefits to internal workers and another level to temporary employees. But healthcare reform may put a crimp in such two-tier plans.

Rules on such nondiscrimination are not yet out at the time of writing, says Alden Bianchi of the law firm of Mintz Levin in Boston. But how those rules are drawn up may have a large impact on staffing firms. The key is in how the federal government will test company healthcare plans for nondiscrimination. Will its test be based on the number of workers offered to participate in the program? Or will it be based on the number of workers who actually enroll in a program?

Basing a test on enrollment may prove disruptive for staffing firms as they may have difficulty getting temporary workers to sign up for plans, Bianchi says.

Companies with self-funded insurance plans have already faced the rules, which are designed to prevent firms from offering a higher level of coverage to higher paid workers and less coverage to lower paid workers. However, Bianchi says the enforcement has been less than rigorous.

Part-time limit? One concern is that employers will limit workers to part time hours to avoid penalties. “We know there’s a lot of talk of limiting people to 29 hours,” Reardon says. “That’s a fix, but it’s certainly not a fix that anyone wants.”

The Ambiguity

Insurance. If staffing firms are weighing the possibility of providing insurance for full-time temporary employees, questions remain over what type of insurance will be offered.

“It’s not clear today to what extent health plans will be available for many if not most temporary employees because of the underwriting constraint,” Lenz says. Coverage in the past has typically been limited to more highly skilled workers in longer-term arrangements. It’s unknown whether coverage will be available for commercial workers, or how interested the workers would be in insurance.

Rules aren’t done. The proposed rules for employer penalties are coming up for a public hearing on April 23. In addition, the final rules on discrimination are not in place.

“It seems to be that because the regulations and the guidance and discussions are coming out so late, along with being piecemeal, the compliance risk on this worries me,” Poole says. “The longer they delay in giving us more definitive rules, it just compresses the time we have to design our game plan.”

The good effects

Look-back. The look-back period of up to 12 months is not perfect, but it will cut back on penalties.

“We think the look-back rule will provide substantial relief but it will have administrative challenges,” says ASA’s Lenz.

The look-back period is reasonable, says Carl T. Camden, president and CEO of Kelly Services Inc. “It’s not as elegant or as clean as it could have been, but by no means is it targeted to be punitive to our industry.”

Driving business. Companies facing the extra administrative burden under healthcare reform may decide to use staffing firms rather than go it alone. Some also say companies may turn to staffing firms to remain under the threshold of 50 full-time equivalent employees, after which they become eligible for penalties.

Staffing firms may have an opportunity to help customers avoid or minimize penalties through outsourcing of some positions, Reardon says. This could include helping buyers reduce the number of employees and, therefore, the impact of penalties faced by buyers. This would also include helping some buyers remain small companies under the Affordable Care Act.

“A lot of the candidates for that are probably not traditional staffing users, so it’s a new market,” Reardon says. However, staffing firms will have to be careful. The government has expressed concerns over companies trying to use staffing firms to sidestep the Affordable Care Act.

“We will be under the microscope for allowing abuses to be taken,” Camden says.

However, Camden doesn’t see a huge wave of companies coming to staffing firms in an effort to

remain under the 50-employee threshold. Companies won’t save money on individual employees because the extra costs under the healthcare reform law will remain.

Supply side. Camden says he sees more benefit on the supply side as more people may opt to become free-agent workers. Nontraditional workers in the U.S. have typically experienced difficulty obtaining health insurance under the current system, he says. Healthcare reform would make it easier for such workers to get coverage.

“The U.S. lags lots of industrialized countries in workforce that works as temporary employees,” Camden says. “To the extent this law makes it possible for more people to work as free agents … It will provide a generic growth for industry.”

Healthcare staffing boost. One area some firms are looking at increased demand for staffing is in healthcare staffing.

Randstad’s Foley says estimates are that approximately 30 million more people will have health insurance under reform.

“To meet their healthcare needs, there will be an increased demand for healthcare workers, especially with an aging population and the growth of chronic diseases in the U.S. such as obesity and diabetes,” Randstad’s Foley says. “Staffing companies will play a huge role in providing supplemental staff for a greater number of patients in need of care.”

Small buyers and PEOs. The law does not dissuade small firms from using PEOs. Such companies will still be able to get tax breaks for providing health insurance for their workers even as they use PEOs.

Companies with 25 or fewer employees — and which have an average annual salary of under $50,000 — can get those breaks, says Employco’s Wilson.

How to prepare

Experts say now is the time to prepare for 2014. Those steps include:

Tracking Hours. Staffing firms already keep track of hours worked, but they will have to use the data for new purposes, Lenz says. Come Jan. 1, 2014, they will have to determine who has worked full-time.

Going forward, tracking will become more difficult because firms will have to weigh their own look-back period as well as the anniversary dates for individual employees, he says.

Customer agreements. Staffing firms considering passing costs on to customers need to get agreements in place with their customers and weigh how to fairly allocate the penalties, Reardon says.

Insurance market. Firms should shop the insurance markets and see what’s even possible. “You can only offer it if some insurance company is willing to write it — which is not a given; and the terms under which they will write it will matter a great deal,” Reardon says.

Going Forward

The Affordable Care Act represents a real challenge to the staffing industry, but it will still move forward.

Poole says the strategy at EmployBridge is to play offense with the Affordable Care Act by being proactive in offering plans to our employees.

“We believe this is an opportunity where if we can develop plans that satisfy the minimum essential coverage requirement and meet affordability standards, it is an opportunity to differentiate ourselves from our competition,” he says.

Despite the uncertainties, it appears the rules are beginning to take shape, Camden says. And the government will likely continue to update the rules over the long term.

In addition, there’s a chance that there may be delays in implementation. And while there may be some uncertainty at the federal level and with what insurance will be available, much of the uncertainty appears at the state level and how they will handle exchanges under the law.

Camden says he also hasn’t seen clarity yet from the staffing industry on how to approach the extra costs under healthcare reform. If it treats the costs as a tax — such as unemployment or Social Security — it could come up with a flat percentage or markup rather than approaching the costs from a variety of different angles.

“This is a tax increase,” Camden says. “If the industry treats it like a tax increase, there’s simplicity.”


Safe Harbor

A proposed look-back period could significantly decrease the penalties firms might owe under the Affordable Care Act. Here is a brief, high-level view of what it is:

  • The look-back period is a safe harbor that allows an employer to use a “look-back” measurement period of between three months and 12 months to determine whether an employee is full-time or part-time.
  • If a worker is full-time during the look-back measurement period, that worker would continue to be considered a fulltime employee for a subsequent stabilization period even if a worker’s hours fall to part-time. The stabilization period would be the same length as the look-back but not less than six months.
  • Many temporary workers do not work full-time for 12 months, so the look-back could cut back on the number of full-time workers.
  • For the first step in look-back, employers would decide whether newly hired workers are full-time employees or variable-hour employees. A worker is variable hour if the employer cannot reasonably determine at the start of hire whether the employee will work an average of at least 30 hours a week or will work full-time hours for only a limited time.
  • A variable-hour worker would have an initial look-back period that begins on the date he or she is hired.
  • For ongoing employees, companies would set a common look-back period, such as from January through December (for a 12-month look-back period).
  • New, variable-hour employees would transition to ongoing employees after their initial look-back period.

“The plus side is that we do have this look-back rule, although like everything else under the law, it has lots of bells and whistles,” says Edward A. Lenz, senior counsel at the American Staffing Association.

“The trickier part of the test is how you apply to look-back,” he says. Whether an employee is variable hour depends on whether the employer cannot reasonably determine if the worker will work full-time during the measurement period.

Lenz says guidance from the federal government suggests the typical worker from a temporary staffing firm will be a new, variable-hour employee.

“What’s a little unclear is how a staffing firm should treat an employee when they know an employee will work for some substantial period of time on a full-time basis,” Lenz says. That period of time could be as short as four or five months. And employers can’t treat someone as a variable-hour employee just because that person is not expected to work the full 12-month measurement period. Staffing firms should not assume that temporary workers will automatically be a variable-hour employee. The government indicated it believes the majority of temporary workers will be variable-hour employees, but some, such as top-level IT workers, may not be.


Better for the Workers

Carl T. Camden, president and CEO of Kelly Services Inc., says the Affordable Care Act doesn’t go far enough when it comes to distancing the U.S. from the system of employer-based healthcare.

The old system made it difficult for nontraditional workers to get healthcare coverage. However, the Affordable Care Act does include important steps to make it more doable.

Camden is a founding member of one of the coalitions that helped drive healthcare reform.

“I am a strong believer that healthcare insurance is a basic right, and this country has tried to make that so with everything from Medicaid for those who are low paid or unemployed to Medicare for older workers,” he says.

The rules are beginning to take shape with some clarity, he says. While a large number of people that make up a minority of the industry’s hours might not qualify for coverage under healthcare reform, workers from whom the industry generates most of its hours will.

“If we are advocates for our workers, then this is a better thing for our workers than not,” Camden says.


Penalty Corner

Penalties start Jan. 1, 2014, and here is a brief, high-level view of some of what they include:

  • Firms with 50 or more full-time equivalent workers may face a penalty if they do not provide healthcare insurance. If insurance is provided but is deemed unaffordable, or doesn’t meet minimum standards, they may also face a penalty. Whether a company reaches the 50-employee threshold would be determined based on the number of employees it had the previous year.
  • For companies that do not provide insurance — or that offer coverage to less than 95 percent of their full-time workforce — the penalty is $2,000 per year multiplied by all full-time employees (not full-time equivalents) minus the first 30 employees. This penalty would be triggered if at least one full-time employee receives a tax credit to buy health insurance.
  • A full-time employee is someone who works at least 30 hours week.
  • If an employer does offer insurance, it may still face a penalty. If the insurance is not affordable or does not provide minimum value, the penalty of up to $3,000 per year for each full-time employee who receives a tax credit to buy health insurance. Employees receiving Medicaid would be excluded when the penalty is calculated. This penalty would also be capped, so firms would not pay more in penalties than if they offered no insurance.
  • Employers would have a 90-day administrative period to enroll a new, full-time worker before they face a penalty on that worker. 


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