The Impact of Healthcare Reform on Staffing Companies- Patient Protection and Affordable Care Act
In March of 2010, Congress passed the Healthcare Reform Act, referred to by many as “Obamacare”. A number of provisions of this bill have been changed or repealed since its inception. Complete regulations remain to be finalized. The Supreme Court ruling on the Individual Mandate as a tax not a penalty in June 2012 moved Obamacare forward as the law of the land. The individual mandate is the requirement that all people in the US are required to buy health Insurance or be penalized (now taxed). Updated regulations were released in January 2012. We expect non- discrimination rules to be released by June 2013.
And with President Obama re-elected, PPACA will go into effect in full force in 2014 barring a legislative coup by Republicans. Most experts agree that the core concepts of this bill are here to stay and healthcare reform will go into effect in January 2014.
Billions of dollars have been spent by the Obama administration to solidify PPACA’s (Patient Protection and Affordable Care Act) position in the American healthcare landscape since this bill was signed in 2010.
State exchanges are being constructed now in almost all states with Federal Government assistance to offer insurance to any person who is in need of coverage. Employer groups larger than 50 Full time employees will be subject to pay or play excise tax penalties. Employers under 50 will not be subject to pay or play fines, but will be eligible to obtain insurance from state exchanges. States which do not establish exchanges will be run by the Federal government’s exchange program. New Jersey, Pennsylvania, Virginia, and North Carolina have not decided yet to employ an exchange, but New York, Connecticut, Maryland, The District of Columbia, have started the process.
The eligibility regulations were released on August 31, 2012. The eligibility for temporary workers ended up not being as onerous as expected from the original bill in March 2010. Much of this credit can be given to the American Staffing Association Legal Team headed by Ed Lenz, and their partners in lobbying in Washington DC, the National Retail federation and the National Chamber of Commerce etc.
This does not mean, companies can relax and ignore the legislation. It is now even more imperative to engage a knowledgeable Consultant to look at your situation and guide you through the morass. The eligibility is complicated and must be skillfully applied to each Staffing Companies situation. Just paying the fines because someone told you this is the best route could be costly to a Staffing company’s bottom line and customer base.
Currently, most staffing companies offer health insurance only to their full-time office employees, not temporary and contract workers. In 2014, staffing companies will be required to offer minimum essential coverage (details to be determined by final regulations) to all employees including eligible full-time temps and contract workers. In 2014, PPACA goes into full force and companies with over 100 employees will be required to comply. Most staffing companies have more than 100 employees working during a calendar year. These 100+ employee staffing companies will not be eligible to obtain healthcare insurance from newly formed state exchanges. A Healthcare plan and administration system will need to be implemented by all staffing companies wishing to be in compliance with the regulations put forth by PPACA . Staffing Companies must have their healthcare plan in place by 1/1/14, or they will be obliged to pay the excise tax penalty.
Many of the staffing companies we have met with about PPACA have prematurely determined that not offering coverage to temps and paying a $2,000 fine per w-2 is the way they are going to move forward. Usually, this conclusion comes from not obtaining a full understanding of the law and how it affects the specific structure of Staffing companies. This is not an indictment of individuals who have tried to understand this complex law. In fact, I give the employer’s credit for trying to understand it. Unfortunately, PPACA is so complex and the nature of staffing company’s structure makes this very difficult for even the most sophisticated customer. We have spoken to over 200 staffing companies, and found only 2 staffing company owners who understand this law in its entirety.
Depending upon the situation, employers can actually offer coverage, and save some money versus just paying fines. With larger staffing companies who have many short time temps who decide to pay the fine, this option can be very costly.
In the case of temporary or contract staffing firms, neither the fine nor the contribution to the premium currently is calculated in the rates being charged to their clients, and the margins on existing rates will not support this increased cost. Although no employer contribution is required, significant penalties will exist for companies and individuals who do not contribute. Bottom Line: Someone is going to have to pay for the healthcare coverage that will be offered to temporary employees. Whether it is your staffing company, your customers or the individual will be up to you and your consultants.
This is where the understanding of PPACA becomes critical for the success or failure of a Staffing Company. Simply, Staffing companies need to understand what their liability is for PPACA. The exact number cannot be calculated until final regulations come out from the government by December 2012. But a reasonable estimate can be obtained by understanding who is eligible currently under the proposed laws, and who is not.
The new “Safe Harbor Guidance” law states the definition of a full time employee is one who works 1560 hours per year will become eligible for coverage. The waiting period for benefits and the classification of each employee will determine how much of a financial impact it has on each individual staffing company. The new “Safe Harbor Guidance” defines four different types of employees. Determining how each employee fits into each category will determine your liability. A full detailed discussion with a qualified consultant on this issue will help each Staffing company determine their financial liability for PPACA. A separate paper with this guidance can be obtained by contacting Tekcare. When studying your current payroll, you can determine with the correct “Safe Harbor Guidance” information how to determine your financial liability for 2014.
And new anti-abuse rules release in early January 2014 are directed at Staffing companies in particular. Stopping an employee at 1500 hours during the year will invite an audit from the DOL. Although the proposed regulations do not currently address this situation, it is highly probable HHS would consider it improper for a staffing firm to terminate an employee (or a client to terminate an assignment) if the primary purpose is to deprive the employee of the opportunity to enroll in a healthcare plan.
There are a number of other factors that need to be taken into consideration when calculating the cost to your firm and your clients. For example, anyone basically paid under $10/hour will be eligible for Medicaid and not considered eligible under your firm. In other words, they are excluded from your liability. This is a large relief for Industrial Staffing firms. Employees with annual incomes between $15,029- $43, 560 (139-400%) of the poverty level are eligible to receive a premium tax subsidy from the government. This employee will need to register with an exchange and provide 2 years tax returns. The premium subsidy and employee receives is scaled to their income, and the employee will need to pay a portion of the premium themselves.
Offering coverage to these eligible employees will be the solution for many staffing companies vs. paying the $2,000 per person fine. The trick is to UNDERSTAND THE LAW AND TO LEARNHOW TO USE IT TO YOUR ADVANTAGE. This is where hiring the right advisors comes into play.
Some staffing firms are in denial or just have their heads in the sand but 2014 is not so far away. Your company needs to send a clear message to your clients. We’re on it. Staffing companies cannot promise that clients will not see an increase in rates come Jan 1, 2014 to pay for healthcare, But you need to be proactive when dealing with these issues now! Staffing companies must work on real solutions to minimize the impact of healthcare reform. Staffing companies need to partner with health benefits consultants who understand the complexity of a staffing company, and a bank or factoring company who understands how health care reform will affect your cash flow and finances. This will allow you to compare the estimated cost of coverage with tax cost (remember excise taxes are after profit taxes, and will need to be grossed up), taking a number of factors into consideration, including:
- Scope of benefits offered to all employees, temporary and full time
- What Employer contribution fits your type staffing company
- Your Expected employee participation rate, and how to keep the maximum number of employees from going to the exchange. This will limit the $3,000 excise tax surprise at the end of each year for employees signing up at the exchange.
- How to exclude employees from coverage – those who can be excluded
- Tax deductibility of premium vs. the non-deductibility of excise tax
- Your companies competitive market position, recruitment and retention
As the details of healthcare reform are resolved, we’ll begin to see a clearer picture of how the bill will look in its final form. The issue for staffing companies is when will they pull their heads out of the sand and deal with this. Those who deal with it proactively will be the winners in this game. Those who continue to ignore it do so at their own peril.