SI Review: October 2011


Getting Ready

Healthcare reform brings opportunities for the staffing industry

Complex policy issues are nothing new to our industry. Immigration, unemployment, job creation and other issues have spawned regulations demanding our time and attention over the decades. With each policy shift, staffing firms face a choice: prove ourselves as consultative partners, or become comfortable with commoditization. The current healthcare reform act raises those stakes. It is more complex and far-reaching than any policy most of us have seen in our careers — and it comes with a fast-approaching deadline.

Healthcare in the United States is slated to change fundamentally on Jan. 1, 2014, when the major provisions of the Patient Protection and Affordable Care Act (PPACA) go into effect. While PPACA will affect all U.S. employers, our industry is going to feel the impact more than most. On one hand, the act will create long-overdue opportunity for non-traditional workers to access affordable healthcare. On the other, the unique characteristics of that free agent workforce — intermittent assignments and highly variable work schedules — will make the act’s implementation a particular challenge for staffing firms of all sizes. How we choose to respond to this challenge will shape our industry for years to come.

It’s a big responsibility, and one that extends to large and small staffing firms alike. Employers across the U.S. will soon be scrambling (if they aren’t already) to understand how PPACA will affect their business. Employees who have been considering nontraditional work will join our free agents in sifting through the regulations to find how much freedom reform truly affords. And both customers and candidates will be turning to their staffing providers for answers and guidance. If you’re not ready to help them, they’ll find someone else that is.

So how can we prepare today, and what should we put into our plans for the future? The list is daunting but doable. We need to understand the current state of affairs, embrace our role as advocates within the process, prepare our own companies for change, and understand the implications and opportunities for our customers and candidates alike.

Understanding the Current State

A brief article can’t do justice to the regulatory complexities of PPACA, and many of its details are still moving targets. But at the time of this writing (August 2011), there are some fundamental tenets that all staffing firms need to understand:

  • An individual mandate will require everyone in the U.S. to have health insurance coverage, either through Medicare, Medicaid, an employer or a state-run exchange.
  • Health insurance exchanges will be established at the state level to create a marketplace for accessible, affordable health plans. The exchanges will initially target uninsured Americans and small employers (fewer than 100 employees). After 2017, states can expand the exchanges to include larger employers.
  • Employers will decide whether to offer coverage to their full-time employees or send them to the exchanges under a “play-or-pay” system. Employers with more than 50 full-time employees will be assessed a tax penalty if at least one employee gets a subsidy.
  • Qualification criteria for health insurance subsidies will be based on household income and whether/what level of coverage an employee is offered.
  • A “full-time” employee is a worker who averages at least 30 hours per week in a month.

It’s obviously a complex topic loaded with implications for staffing firms and free agents. Fortunately, government regulators are responding to our industry’s request to have a voice in the process as it evolves.

Having a Voice

As with other complex policy issues, putting our heads in the sand is not an option. Politicians and regulators must understand the needs and nature of the non-traditional workforce. As the only organized voice for disorganized labor, it’s up to us to educate them. Progress is slow and tenuous, but I’m pleased with how our industry groups have mobilized on this issue. Like other firms, Kelly remains engaged through the American Staffing Association; the Business Roundtable; and a newly formed coalition, Employers for Flexibility in Health Care, which includes other sectors that rely heavily on a flexible workforce (e.g., hospitality and retailing).

The Treasury Department and IRS have asked for formal feedback from these groups on how best to implement PPACA — including adjusting the definition of “full-time” to acknowledge the realities of the non-traditional workforce. The ASA and the coalition submitted one set of comments to federal regulators in June, and I expect we’ll submit another round of comments again before the end of the year.

I’m not naïve enough to think all (or even most) of our recommendations will be incorporated. But the request for comments is encouraging. It recognizes that many important sectors of the economy use large numbers of part-time, temporary and free-agent workers. Such acknowledgment does not come naturally to policy makers, so our voice in the process is evidence of hard-won progress.

What is clear now is that reform, while providing employers with flexibility, also places a premium on a staffing firm’s ability to analyze the characteristics of its own workforce.

Preparing for Change

Readying ourselves for healthcare reform will require a strong dose of our own medicine. As workforce solutions providers, we should be accustomed to asking our clients probing questions about their employee base: How many temporary employees work on their behalf each day? How many 1099s? How many suppliers do they use, and do they have visibility into the staffing levels under their managed programs? Now, we need to turn that lens on our own free agent populations to assess the potential impact of healthcare reform on our firms and start planning accordingly.

Under PPACA, as written, many staffing firms will likely pay penalties even if they choose to offer qualifying coverage. A thorough examination of internal workforce analytics is essential to making that first fundamental decision: Do I want to be an employer that offers benefits, or one that does not? It isn’t a simple question to answer, and the consequences can be significant either way. At Kelly, we are in the midst of this analysis. And it’s not too soon.

Considering the work required to implement either decision path, it becomes clear that if firms haven’t started figuring out how to move forward, they’re already falling behind.

Even as we analyze our own workforces, we’ll need to start focusing on the impact to our key clients. Healthcare reform is already top of mind for many business leaders, and our industry will need to be ready to prove our value as implementation grows ever closer.

Bringing Value to Our Clients

Healthcare reform, coupled with continued economic recovery, is likely to cause employers to re-evaluate the optimal mix of their total workforce. Any time that occurs, it presents great opportunity for our industry. Some have suggested that higher penalties imposed on staffing firms will narrow the cost advantage of using temporary employees, and thus weakening demand for our services. I think that concern is misplaced.

The underlying concept driving our clients to use free agents should be a desire to gain flexibility and access to talent, not a need to arbitrage benefits costs. Our industry’s merit should rest in the value that well-designed flexible workforce models provide in any economy, including the post-reform economy. If we are only providing cost savings, then we are inviting demand for our services to falter — regardless of how policy reform plays out.

Healthcare reform is not a topic well-suited to cold-calling. But if we don’t have strategic relationships with our clients, it will be a very difficult conversation to start — and one they’re probably already having with someone else. On the other hand, if we are living up to our potential as trusted advisors, then the conversation becomes a natural part of an ongoing dialog on workforce planning. It becomes one more variable — albeit a crucial one — that is factored into discussions about what percentage of their post-PPACA workers should be full-time versus temp versus 1099; how shifting work outside the U.S. might affect their overall labor costs; how payrolling certain segments of their workforce could provide advantages. From that vantage point, the unique complexities of healthcare reform boil down to a common theme in our industry: Firms that understand their clients’ holistic workforce needs and have earned their trust as strategic advisors will set themselves apart from the competition.

As the war for talent continues, that need extends to becoming employers of choice among free agents. I’m encouraged that PPACA will accelerate the growth of non-traditional workers and remove longstanding barriers to employment options.

Expanding the Flexible Workforce

The United States remains the only advanced nation in which individuals lack access to affordable group health coverage outside the employment setting. As a result, health insurance-related “job lock” afflicts millions, which is bad for entrepreneurship, worse for economic dynamism and frustrating for an industry that relies on a free-agent workforce. Simply put, non-traditional workers are treated badly by the current model.

On this front, one of the most encouraging elements of healthcare reform is the creation of the state insurance exchanges. When fully implemented, they will provide access to competitive insurance markets to all workers, regardless of their workstyle. Kelly’s own research demonstrates that the lack of equal access to health insurance is a key factor inhibiting free agency. Any policy choice that enhances the availability and mobility of talent is a good thing for the staffing industry and the economy as a whole.

Like many provisions of PPACA, regulations surrounding the exchanges have the ability to make or break their potential. A draft implementation plan is expected from the federal government later this year, and we can be sure it will be incredibly complex. How the agencies are structured and implemented will have a major impact on individual states, employers, insurers and providers. In an industry with large numbers of employees and systemically high turnover, staffing companies will have a distinct interest in the success of these exchanges.

Looking Ahead

Given the scope and complexity of healthcare reform, plenty of questions remain. In particular, the definition of full-time employment; details surrounding a waiting period and auto-enrollment; and the method for calculating penalties will have significant impact on our industry, our clients, and our free-agent workforce. The good news is that ASA and coalition members have claimed a seat at the table and are well-aligned on these points. Let’s resolve as an industry to continue the good work and active participation in these issues that will do so much to shape our future. 2014 will be here before we know it. Let’s be ready.

Carl T. Camden is president and chief executive officer of Kelly Services Inc.


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