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May 13, 2019

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MSPs Help Staffing Suppliers with ACA Costs


The new year brings new questions about the ACA

As 2014 draws to a close, companies of all sizes and shapes across the nation continue to grapple with the complexities of the Affordable Care Act’s (ACA) myriad requirements. The coming year will undoubtedly find staffing companies facing new responsibilities that will extend to their contingent workforces. Many of the issues involving the “minimum value” and “minimum essential benefits” have been addressed by the majority of staffing firms in the industry, according to survey data compiled by Staffing Industry Analysts (SIA), yet 2015 will present mandates beyond those basic obligations. Suppliers will encounter new compliance issues involving the administration of COBRA coverage, FMLA leaves and more.

Consider this: many staffing agencies don’t terminate workers between assignments, a practice rooted in mitigating complications that arise when workers are terminated frequently and then rehired later for short periods of time. The associated burdens of time, paperwork and administrative costs can become exorbitant. So now, would it make better sense to simply place those workers on leaves of absence? And if so, how would this practice work under the new provisions of the ACA?

Regardless, there persists one burning question for a large number of small to mid-sized staffing providers, which has yet to be comprehensively addressed: what can these companies do to offset the new costs imposed on their operations by the ACA, and can anyone help shoulder the burden?

Relief for some

The ACA story really shouldn’t be one underscored by a sense of doom and gloom. There are positive changes the recent healthcare reform presents to this new generation of talent and the businesses they support. Fundamentally, the Affordable Care Act works. It’s not perfect, yet after nine months evidence shows that it does provide health coverage to the poor and the working-class in a reasonably efficient manner. And it’s doing so, by and large, through taxing and/or reducing payments to the financially well-to-do.

The U.S. Department of Health and Human Services (HHS) reports that people who qualify for tax credits are paying an average of $82 per month for their policies, which comes to roughly a fourth of what they would be paying without subsidies. Over two-thirds of those who qualify for subsidies are paying less than $100 per month. Fewer than 20 percent are paying more than $150.

As Forbes noted: “To put this into perspective, 96 percent of the businesses in the U.S. have fewer than 50 employees, which illustrates the improbability of the detrimental effects that some claim the Act will have on business. (And if you have fewer than 25 employees and choose to provide insurance anyway, the Act provides a tax credit to offset the cost.)” With tax incentives, subsidies and other options, not every aspect of the ACA threatens business owners with negative impacts.

No relief or others

Of course, there remain penalties for companies that fail to provide affordable coverage under the law’s definition of affordability. When determining affordability, the ACA considers whether the employer pays a significant portion of its employees’ coverage. If any employee must contribute more than 9.5 percent of his or her income for an employer-sponsored plan, the coverage is deemed unaffordable. A company in violation of this stipulation would be required to pay a penalty for not providing affordable coverage to eligible workers.

Concerns about ACA implementation, particularly around costs, are still prominent and understandable. Under the law, staffing providers with over 100 employees will be required to offer health insurance or pay penalties. For staffing firms that have not provided health insurance in the past, their costs will rise as high as 9.5 percent. In actual dollars, that can reach $300 for each employee who elects participation in the health plan. For suppliers whose businesses are focused on supporting MSP programs, where margins are low and tight, the increased ACA costs can put their financial solvency at risk.   

The ACA state of affairs in the staffing industry right now

The following information was obtained from SIA’s “2014 Staffing Industry Company Survey: Staffing firm expectations and plans in response to the Affordable Care Act,” available to registered members.

  • Based on respondent data from 2013 through 2014, the majority of staffing firms have solidified their ACA implementation plans.
    • 55 percent of firms report that they plan to extend full major coverage to their temporary workers.
    • 22 percent will offer comprehensive coverage that mirrors the benefits full-time employees receive.
    • 33 percent will offer major benefits coverage of a less expensive nature.
  • Medium and large firms are substantially more likely to offer major coverage than smaller firms.
  • For those self-insuring, the median expected cost per participating employee is $300 per month. For those using a carrier, the expected median cost climbs to $400 per month per employee.
  • Because many companies have expressed interest in increasing their usage of temporary labor to help offset their own ACA obligations, the consensus among staffing suppliers in SIA’s study was that bill rates and revenues would rise, yet overall profits would decrease slightly.
  • The companies that chose the option of self-insuring expressed greater optimism about curbing the costs of their benefits programs.
  • The majority of all staffing firms polled, 72 percent, reported that they plan to pass along the increased costs to customers via higher bill rates or a combination of higher bill rates and reduced pay rates to their temps.

So who’s required to pay?

According to ADP, the staffing company must charge clients a “cost differential” to compensate for the increased financial burdens imposed by the ACA and to recoup lost revenues. The other alternative, ADP asserts, is for clients to treat contingent talent as their own workers for ACA purposes.

The cost differential being cited is predicated on a safe harbor provision within the ACA’s employer regulations, which enables staffing suppliers to offer coverage on behalf of clients in situations where the staffing firm is not considered the common law employer. Unfortunately, as the American Staffing Association’s (ASA) senior counsel Ed Lenz points out, staffing firms are generally regarded as common law employers:

  • They pay the workers’ wages and benefits.
  • They withhold and pay employment taxes.
  • They recruit, screen and hire their talent.
  • They establish employment policies governing the workers’ conduct at client sites.
  • They have the right to control the workers’ conduct, even when that talent is operating onsite a client facility.
  • They have the right to terminate or reassign talent.

Lenz, and by extension the ASA, disagrees that clients or buyers of contingent labor will be required to include temporary employees as their own for ACA purposes if the safe harbor language is not included.

“Inclusion of the safe harbor may be useful as a contingency provision in cases where the staffing firm’s employer status is unclear or ambiguous,” Lenz wrote. “But failure to include the safe harbor language has no legal or practical consequence unless the client is actually held on audit to be the common law employer and the staffing firm has failed to offer ACA-compliant coverage or pay required penalties.”

What are the options?

There are legitimate concerns among the supplier community, particularly small suppliers that have not had historical data to provide to insurance companies for underwriting benefits. When working in MSP/VMS programs, where bill rates and margins are lower than when contracting directly with clients, the ACA could have detrimental financial impacts on staffing suppliers. Some clients understand and acknowledge this impact, and are willing to share costs. Clients may also help absorb costs when staffing suppliers working with MSP/VMS programs must maintain already razor-thin margins. However, that doesn’t mean all will. The good news is that MSPs have been sympathetic to the needs of their suppliers, who are instrumental in the ongoing success of their programs, and are aggressively seeking ways to help.

Some progressives MSPs are stepping up to help shoulder these burdens by sponsoring unique benefits options for participating suppliers, leveraging insurance partners and third-party administrators to assist with plan selection, enrollment, coverage, record keeping and auditing.

Andrew Erlichman, director of solutions design for The Bartech Group, said: “As for ACA, the upcoming months will really start to tell the story of how it will all pan out.  As you know in the MSP space, flexibility and creativity are a key to the success of the program. I suspect we will see several billing options depending on the program configuration, number of suppliers, etc. I have seen early models that account for the cost directly in the overall markup/bill rate, with additional costs being absorbed by a combination of the client and the supplier.”

David Savarise, senior vice president of About Talent U.S., noted that several options exist for helping suppliers pay their increased ACA costs. From what he has witnessed, there are three prevalent options:

  1. “Bill the client each month for the actual cost of the program for each active worker that has elected the benefit.”
  2. “Add a small increase to the bill rate for ALL employees, regardless if they elect the benefit or not. That way, the burden is spread across the entire population and the client impact per workers is less.”
  3. “Increase the bill rate by ~$1.00 for workers that elect the benefit to recoup the cost over each month.”

“We have heard that several clients are not willing to pay anything for ACA,” Savarise explained, “so the problem with option two is that it is unlikely that the burden can be spread across all workers; therefore, the cost burden for the rest of the worker population becomes greater as more clients deny any increase.”

He also cautioned against perceived discrimination with the third option. If two workers are performing the job and one costs $1.00 more per hour than the other, hiring managers may choose to replace the more expensive talent, even though that tactic would run afoul of existing labor law.

In his recent post on SIA’s The Staffing Stream, inSync Staffing’s Don Dewar suggested that “suppliers send monthly invoices (or enter it in the VMS application as a pass through cost) that reflect the actual premium amount.”

“Personally, I like the idea of billing the client each month for the actual cost, but I see a lot of potential fights over that cost when a worker doesn’t complete a full month of service and the fee has already been charged or paid,” Savarise said.

Erlichman noted the issues of multiple invoicing in a centralized MSP program: “Consolidation is a great benefit and quite a cost savings. I’m certain the VMS’ are accounting for the changes and will reconfigure accordingly.”

Research has shown that companies can pay in excess of $100 to process a single invoice, and MSPs such as Bartech and About Talent realize that these added costs might not benefit suppliers.

When all is said and done, MSPs understand that there is no single right approach for helping suppliers with ACA costs, just as there is no universal solution design for contingent workforce programs across a base of unique clients. The advice we have received is that every program must be evaluated independently, with all cost considerations taken into account.

“We have not landed on a single approach for our clients,” Savarise said. “We are working with each one independently and building models that best fit their needs. In all cases, we are mandating full transparency to the cost and only allowing the actual cost to be passed (like a statutory cost with no markup) to the client.”

Everyone has a stake

Most staffing firms, other MSPs have told us, plan to spread their expenses for expanding ACA insurance or applicable penalty costs across every hour worked rather than by individual customers or talent. Customers who contract for long-term legal, accounting and healthcare professionals, however, may be charged only when the talent placed elect coverage.

Staffing suppliers anticipate a broad range of cost increases, based on their assumptions about temporary employee participation rates and other variables. MSPs should assist suppliers by facilitating discussions with clients to help them recognize that many unknown factors still exist in relation to ACA costs. On the upside, a great deal of MSPs have indicated that clients have not pushed back much on the anticipated cost increases. Yet they all agree that proactive communications with clients about ACA-related increases are critical to gaining acceptance and support. Without transparently explaining the elements that make up bill rates, clients may be resistant.

It’s not uncommon for clients lacking experience with MSP programs to see a bill rate of $35 per hour for a pay rate of $20 per hour and think they are being gouged by suppliers. The reality is that most of the costs are statutory. Consider the state of Washington, where directly mandated statutory costs represent anywhere from 65 percent to 85 percent of a staffing supplier’s bill rate.

Clarifying all costs to clients and MSPs, and working together to form a mutually beneficial solution, will ensure that clients keep receiving top talent with the best staffing partners. And for more information to help drive the discussion about bill rates, refer to our past article “Understanding Supplier Rate Structures.”

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