Healthcare reform will bring penalties, uncertainties and opportunities
By Craig Johnson
There are those who liken it to a tsunami. And there is no doubt that the year 2014 will bring a sea change for the staffing industry. In that year, employers are to face federal penalties if they don't offer healthcare insurance.
What does this really mean for the staï¬ƒng landscape? That is unclear. The staï¬ƒng market has been recovering since the recession, but now that the Supreme Court has OK'd the healthcare reform law, 2014 could drastically alter the industry's landscape.
The penalties are spelled out in the healthcare reform law - oï¬ƒcially known as the "Patient Protection and Aï¬€ordable Care Act." But exact rules for implementing the law are still being written, leaving uncertainty for staï¬ƒng ï¬rms and others.
A proposed "look-back" period could reduce costs for staï¬ƒng ï¬rms by limiting the number of employees on whom penalties will be assessed.
The American Staï¬ƒng Association backs such a period, but the federal government has not released any ï¬nal rule as of this writing.
"It's really sort of a ï¬rst for our industry because it's rare for staï¬ƒng companies to provide healthcare insurance for people working on a temporary basis," says John Uprichard, president and CEO of Find Great People, a Greenville, S.C.-based staï¬ƒng ï¬rm.
It's diï¬ƒcult to get an insurance carrier to underwrite a staï¬ƒng company, Uprichard says. There will also be an administrative cost for complying with healthcare reform rules. And will staï¬ƒng buyers simply use less temporary staï¬€ if it becomes more expensive under healthcare reform?
The look-back period also marks a big uncertainty, he says. A 12-month look-back period would be beneï¬cial but a three-month rule would be far less helpful.
Some in the staï¬ƒng world are looking to 2014 with great dread, some may be thinking of work-arounds for the new law and some even see opportunity.
But one thing is constant: uncertainty.
Ed Lenz, senior vice president, legal and public aï¬€airs, at the American Staï¬ƒng Association, says staï¬ƒng ï¬rms should take a look at their workforces and try to estimate how many full-time workers they have.
"We believe that staï¬ƒng ï¬rms should be taking a look at trying to estimate what their costs will be," Lenz says.
"Depending on what your workforce looks like you might well be better oï¬€ oï¬€ering coverage, assuming you can ï¬nd coverage," Lenz says. "The key question is what kind of health plans will be available."
The ASA is reasonably conï¬dent that there will be a signiï¬cant look-back period (at least 90 days) and a decision on such a period could come by the time this article is published. Of course, the rules could be fairly complicated once they are released.
"I think it's dangerous to predict before we see the rules; as always, the devil will be in the details," Lenz says.
Massachusetts: Similar Rule
Healthcare reform remains a big question mark, but companies in Massachusetts have had a taste of a similar rule since the state approved its own healthcare reform law in 2006.
News reports show some ï¬rms are unhappy with reform in the state. And a report in the Christian Science Monitor found that companies with part-time or seasonal workers had the most diï¬ƒculty with the law.
"They have no idea what a nightmare this was," says Karen DeMichele, president and CEO of Savvy Staï¬ƒng Solutions in Worcester, Mass., a provider of industrial staï¬ƒng.
Staï¬ƒng buyers were reluctant to accept higher rates and the extra cost of reform meant a slimmer gross margin, DeMichele says.
The ï¬rm oï¬€ered health insurance to temporary workers when the Massachusetts law went into eï¬€ect in 2006, she says. But it attracted few takers with only three workers out of a workforce of between 3,500 and 4,500 signing on for it.
"We dotted all of our I's and crossed all of our T's to be compliant," she says. The company sent out mass mailings to employees and worked to make sure they understood what was oï¬€ered. Still, the company was audited and found not in compliance. Requirements under Massachusetts healthcare reform changed over time, although DeMichele says her ï¬rm has now opted to pay a ï¬ne.
"The healthcare reform team has become more savvy through the mistakes that they've made," she says. "Has it gotten better, no, we are paying a ï¬ne. … I look at it as I'm being taxed."
Under Massachusetts law, employers with 11 or more employees must contribute to health insurance coverage or pay a "fair share" contribution of up to $295 annually per employee, according to a report by The Henry J. Kaiser Family Foundation. Employers must also provide a "cafeteria plan" that permits employees to buy coverage with pre-tax dollars or employers can face a surcharge.
The Kaiser Family Foundation did ï¬nd that Massachusetts continued in 2010 to have the lowest rate of uninsured residents at 6.3 percent compared to the national average of 18.4 percent. However, healthcare costs continue to rise, and per capita healthcare spending is 15 percent higher than the national average. Massachusetts also has the highest individual market premiums in the country.
The Beacon Hill Institute, a Boston-based think tank, reported Massachusetts healthcare reform slowed the growth of disposable income per capita by $376 and reduced investment in Massachusetts by up to $29.3 million.
Still, the staï¬ƒng industry continued in Massachusetts despite the law, and one person says it even helped.
Massachusetts healthcare reform has actually been a boon to business, says Richard Purtell, president of American Resources Staï¬ƒng, whose company is based in Bedford, N.H., but has operations in Massachusetts.
American Resources got started early getting ready for Massachusetts' healthcare reform. The company paid the assessment and handled all the paperwork, Purtell says. It added 16 cents per hour as a line item to bills, which helped spell out what the cost was and put customers at ease amid the confusion.
"I think we should embrace this and I think we should embrace the fact of getting more beneï¬ts to our staï¬ƒng people," he says.
Purtell sees healthcare reform in Massachusetts as a marketing boom for staï¬ƒng ï¬rms because staï¬ƒng users don't want the headache of dealing with the law.
"Using this model, we've become more consultative in nature," he says. "We become a valuable tool for a headache they don't want to have on their plate."
The large global staï¬ƒng ï¬rms make a signiï¬cant amount of money in Europe, which is more regulated than the U.S., he notes. In addition, healthcare reform can bring health beneï¬ts and help shrug oï¬€ an image that using staï¬ƒng ï¬rms may just be a way for companies to avoid providing beneï¬ts.
Purtell acknowledges that he may be one of the few pointing to a boon from healthcare reform, but he says ï¬rms that get creative and understand the law can succeed.
"The ones that thrive are the ones that understand it and are going to deal with it," he says.
Healthcare reform didn't appear to hold down staï¬ƒng employment in Massachusetts.
Employment growth in Massachusetts' "employment services" industry - which includes temporary staï¬ƒng - grew faster than the national average in 2006 and 2007.
Industry employment rose by 4.1 percent during 2007 in Massachusetts as the national average fell 3.7 percent for that year.
For staï¬ƒng ï¬rms, federal healthcare reform's employer penalties represent a huge impact.
Firms can face penalties if they don't provide healthcare coverage to all their full-time workers. And even if a ï¬rm does oï¬€er coverage, the insurance must meet minimum standards in order to avoid a second type of penalty.
Companies with fewer than 50 full-time equivalent employees will be exempt from employer penalties. However, few staï¬ƒng ï¬rms will likely fall into that category - most staï¬ƒng ï¬rms will likely be classiï¬ed as large ï¬rms under this calculation.
Large ï¬rms - those with more than 50 full-time equivalent workers - that don't oï¬€er healthcare insurance will have to pay a penalty of $2,000 for each full-time employee per year. The penalty will only be triggered if at least one employee receives a federal subsidy to purchase healthcare insurance.
The $2,000 per employee penalty will be assessed on all full-time employees regardless of whether they receive a subsidy to buy coverage. Staï¬ƒng ï¬rms won't have to pay for the ï¬rst 30 employees under this penalty.
As a note, only full-time employees
will be used to calculate penalties - not full-time equivalents, as was the case when determining whether a ï¬rm was large. There will likely be fewer full-time employees than full-time equivalents.
Full-time workers are deï¬ned as those working 30 or more hours per month.
If a staï¬ƒng ï¬rm does oï¬€er health insurance to workers, it may still owe penalties if:
- the health insurance plan does not cover at least 60 percent of healthcare expenses for a typical population, according to the Kaiser Family Foundation; or
- the employee must pay more than 9.5 percent of his or her income for the company plan.
In this case, a ï¬rm will owe $3,000 per year for each full-time employee who receives a credit to buy health insurance through a state exchange. This is diï¬€erent from the ï¬rst penalty in that employers will pay only based on the number of full-time employees who receive a credit - not on all their fulltime employees.
The $3,000 annual penalty is also capped. Employers cannot pay more than their total number of full-time employees multiplied by $2,000.
In addition, healthcare reform will prohibit discrimination in healthcare plans in favor of highly paid employees.
Look-back and Medicaid
The healthcare reform law, as it stands now, deï¬nes full-time as working 30 hours a week for a month. The American Staï¬ƒng Association has been lobbying for a more workable deï¬nition and the federal government, recognizing that one month is an unworkable standard, is weighing a possible look-back rule that would require an employee to work for a period from three months to as much as a year before being considered full-time for the purposes of determining the employer's obligation to either oï¬€er health coverage or pay penalties.
A 12-month look-back period would mean staï¬ƒng ï¬rms would only be penalized based on employees who worked full time (average of 130 hours per month) for 12 consecutive months.
On the other hand, a look-back period would require a "stability" period immediately following it. Any worker found to be full-time during the look-back period would remain a fulltime employee for at least the next six months regardless of whether he or she continues to work full-time hours.
The look-back period is still under discussion as of this writing.
Another large variable is Medicaid. Workers on Medicaid would also not be counted when it comes to calculating penalties.
Healthcare reform would expand Medicaid to cover more people, but not all states may opt to expand Medicaid coverage. And the Supreme Court's ruling prohibits the federal government from withdrawing funding for states that opt out.
A staï¬ƒng ï¬rm could avoid penalties by providing healthcare insurance. However, some say oï¬€ering traditional major-medical coverage might be diï¬ƒcult.
"High turnover, lower wage temporary employees are historically a very bad underwriting risk for insurance companies," says Aaron Lesher, executive vice president of Essential STAFFCare, a provider of limited benefit health plans. "Plus, they're impossible for many insurance companies to administer due to the constant starting and stopping of job assignments."
Insurers prefer to underwrite a stable workforce so they can better anticipate what health risks are in that group, and how to price the plan properly. Temporary workforces have high turnover and the demographics are constantly changing, Lesher says. High turnover also means the insurer has greater risk of large-dollar claims.
In addition, insurers typically require 75 percent of eligible employees to participate in a healthcare plan, and they require employers to pay at least 50 percent of the employee premium, Lesher says. However, a staï¬ƒng ï¬rm may have to pay a much greater share of the premium to encourage enough workers to meet the 75 percent requirement.
Self-insurance is another model for staï¬ƒng ï¬rms, but the same factors that make it a bad risk for health insurers would also make it a bad risk for the staï¬ƒng ï¬rm, he says. Although, self-insurance might work in some instances where there is a large population of manageable risk, such as an information technology staï¬ƒng company with a young, male population that has high earnings.
Lesher says limited-beneï¬t health plans, also known as "mini meds," that his organization provides will remain available even after mandated changes of healthcare reform. Such plans still have advantages, although they wouldn't qualify as coverage to avoid penalties, he says. For example, the lowest cost health insurance plan available through state exchanges could have a deductible of $6,000, and a limited beneï¬t plan could help workers bridge that gap.
"We recently commissioned a claims study and found that 84 percent of temporary employees don't have health claims higher than $5,000 per year," Lesher says. "So a high deductible plan won't oï¬€er much 'usable' beneï¬t to those people."
Staï¬ƒng ï¬rms can use limited beneï¬t plans as a sales strategy when dealing with clients, he says.
As a note, one type of mini-med plan that used coinsurance and deductibles was already phased out under healthcare reform, Lesher says.
Healthcare Staffing Concerns
Healthcare reform could increase usage of healthcare services, but there remain concerns among some healthcare staï¬ƒng ï¬rms.
Shane Jackson, executive vice president of Jackson Healthcare and president of LocumTenens.com, says healthcare reform could drive more business for healthcare staï¬ƒng. However, the megatrends - an aging population that needs more care and little increase in the supply of clinicians - remain the driving factors of business.
And there are potential downsides. One is that smaller hospitals in rural areas may not be able to survive the added regulatory burdens of healthcare reform and may merge with larger hospitals or simply disappear, Jackson says. Smaller facilities can represent a majority of business for healthcare staï¬ƒng ï¬rms.
He also pointed to concerns from doctors about healthcare reform. A survey by Jackson Healthcare found that physicians gave healthcare reform a grade of "D." The survey included 2,694 doctors.
As for penalties, most healthcare staï¬ƒng ï¬rms already provide insurance for nurses and allied healthcare professionals, Jackson says. Healthcare staï¬ƒng ï¬rms don't provider coverage to doctors, who are independent contractors.
The Law Is Still Here
Even though there is tremendous uncertainty and concern about the law, it doesn't appear the law will go away.
"The bill has already passed; it's law," says Find Great People's Uprichard. "The train has already left the station."
Staï¬ƒng ï¬rms should stress the importance of the 12-month look-back rule to their federal representatives he says. Uprichard spoke last year before the U.S. House of Representative's Committee on Oversight and Government Reform on the impact of healthcare reform on the staï¬ƒng industry.
The staï¬ƒng industry also needs to speak to its customers as 2014 gets closer, Uprichard says.
"Start having some customer conversations because if there are not changes, if there is no look-back rule, it is a pretty signiï¬cant cost that you will have to pass on to your customers," he says. "The good news it's not going to be just one staï¬ƒng company; we will all be in the same boat."Craig Johnson is managing editor, staffing publications, at Staffing Industry Analysts. He can be reached at firstname.lastname@example.org.