Have Staffing Agencies Geared Up for the Affordable Care Act? | DCR Workforce Blog

Have Staffing Agencies Geared Up for the Affordable Care Act?

ACARoll-out of the Affordable Care Act (ACA) has moved to the next stage. In 2014, the individual mandate in which all individuals were required to sign up for health insurance took effect. As the calendar changes and we enter 2015, employers must begin implementing the tenets of the Affordable Care Act. Staffing agencies, employing workers to place on assignment with their clients for short periods of time, are also required to provide health insurance for those workers. In fact, the ACA requires that all staffing companies, employing 100 or more employees, offer affordable and ACA qualified insurance to 70% of its eligible employees or pay significant fines and penalties. What specifically are the responsibilities of a staffing agency in determining whether they must offer coverage?

Eligibility for Employer Sponsored Coverage:

Any temporary or contract worker of a “large” staffing agency, who has been on assignment through their staffing agency for at least 1,560 hours during 2014 will become eligible for coverage as of January 1st, 2015.

Going forward, the ACA requires all staffing agencies (and other employers) to categorize all new hires as one of the following:

  • Fulltime (projected to work 1,560 hours in the coming 12 months),
  • Part-time (working less than 1,560 hours), or
  • Variable Hour—a special category set aside for employees whose status as either full or part-time can’t be determined at the point of hire or placement on as assignment.

Do not erroneously assume that all hires made by staffing agencies would be Variable Hour employees. The IRS has enacted stringent rules staffing companies must follow in order to justify that status. When an employee is classified as “Variable Hour”, the employer can elect to have the individual on the payroll for a defined “measurement period” (typically 12 months) before the healthcare benefit must be offered. This is a significant cost savings for most staffing companies and their clients, and the IRS has indicated its intent to monitor potential abuses.

Employer may determine the status of an employee as a full-time employee during a future period (referred to as the stability period), based upon the hours of service of the employee in a prior period (referred to as the measurement period). The measurement period lasts 3 to 12 months.

  • If an employee worked an average of 30 hours per week during the measurement period, the employer would treat the employee as full-time during the subsequent stability period, the duration of which would be at least the greatest of six consecutive calendar months or the length of the measurement period.
  • If an employee did not work an average of 30 hours per week during the standard measurement period, the employer would treat the employee as not full-time during the subsequent stability period, which may be no longer than the associated measurement period.
  • Under the look-back measurement method for new variable hour or part-time or seasonal workers, the employer can wait until the beginning of the subsequent initial stability period to offer coverage to such employees who worked an average of 30 hours a week during the initial measurement period.

As per the ACA, employers must gear up for the following:

By January 2015: All staffing companies employing 100 or more employees must offer affordable an ACA-qualified insurance to 70% of its eligible employees or pay significant fines and penalties.

By January 2016: Companies with 50+ FTEs must offer affordable healthcare to 95% of their full time employees.

Who is impacted by the ACA?

26 states across America have refused to shoulder the burden of operating the health coverage exchanges and have sued the government for exceeding its authority in enacting the massive and unaffordable expansion of Medicaid and coercing people to buy health coverage. Companies and individuals who are located in the other states will be impacted by the mandates of the ACA as below:

  • Companies pay non tax deductible fines of $2,000 to $3,000 per full time employee if coverage is not offered; or if the coverage is not adequate or if is too expensive.
  • Companies that employ workers who earn less than $8.00 per hour can place those employees on Medicaid and not face penalties.

How much Coverage is to be offered?

  • Employer healthcare must cover at least 60% of Healthcare costs.
  • 10 essential benefits must be offered by these healthcare plans. These are outpatient care, emergency services, hospitalization, maternity and new born care, mental health and addiction treatments, prescription drugs, rehabilitative services and devices, laboratory services, preventive services, and pediatric services.
  • Employee cannot be made to pay more than 9.5% of household income for coverage.
  • Employees are to sign up for affordable insurance within 90 days of starting work.
  • To be fully compliant, each employer plan must meet both the “minimum value” and the “minimum essential coverage” definitions of the ACA. These plans are also referred to as referred to as Major Medical coverage.
  • A plan that meets only the “minimum essential coverage” definition—which is a considerably less costly plan that is fully compliant with the ACA’s individual mandate – provides temporary and contract employees with a low cost way of meeting their individual mandate, while minimizing the risk of offering plans that either don’t meet ACA requirements or are unaffordable. Many staffing agencies will offer both options.

Medicaid Coverage

  • Medicaid has been expanded, allowing childless adults to gain coverage in 26 states if they earn at least 138% of the Federal Poverty Level (FPL).
  • In 2014, 138% of the FPL was $16,105 or $8.05 per hour. Minnesota and DC allow Medicaid for individuals earning $23,924 ($11.96 / hr) and $25,091 ($12.55 / hr) respectively.
  • Employers are not penalized under the ACA for employees who enrol in Medicaid.

The question to ask now is – how well are you prepared?

Each client requirement for a temporary resource should state the anticipated start date, end date and number of hours to be worked each week. With that information, the staffing agency should be able to anticipate which category the individual would fall into. Given the 90 day period before the worker must enrol, agencies can eliminate the “day workers” and short-term workers. Agencies must stay on top of the number of hours worked, particularly when a worker is placed more than once during the year by an agency. In particular, careful records must be kept to track hours of workers placed on numerous assignments by the same agency over the course of the year.

There are two categories of costs associated with the ACA that employers everywhere are facing:

  1. The increased costs of ACA-related administration. This will be considerable—starting with changes in point of hire administration, monthly reporting, annual reporting to both employee and the IRS, etc.
  2. The increase in direct costs associated with either providing the required insurance coverage or paying the penalties associated with not offering.

Direct costs of ACA will vary dramatically by staffing agency, depending on several factors:

  • The number of long term employees will they have in their workforce as a ratio of their total workforce. This is often driven by the types of resources provided. High-end technical and professional resources tend to be assigned to longer engagements.
  • The percent of those employees eligible for insurance who take the insurance once offered.
  • The eligible employees rate of pay so as to calculate the employer’s contribution to ensure affordability.
  • The costs of insurance they are being offered.

Initial research estimates that most staffing agencies will experience an average increase in direct costs of 5 -8% for permanent employees, and a 3-5% increase in direct costs for temporary employees.

Research conducted on behalf of the American Staffing Association (ASA) reveals that 91% of the staffing firms polled are planning to pass their ACA costs back to their clients in the form of across the board increases in bill rates. Thirty-eight percent are planning 3-5% increases, but another nine percent are thinking more in terms of 16% or more. Additionally, nineteen percent are still not yet sure how much they will increase bill rates. At the same time, clients have begun to incorporate language into requests for proposals that specify that the staffing agencies will assume these incremental costs. Time will tell whether the estimated cost increases are accurate, and who will ultimately fund healthcare insurance for contingent workers. We’ll keep you updated over the course of the next year.


Disclaimer:
The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.