Healthcare Reform and Temporary Staffing Agencies
Posted on November 06, 2013 in Medicare & Healthcare
The Patient Protection and Affordable Care Act of 2010 calls for the collective responsibility of federal and state governments, insurance providers, employers and individuals to make health insurance affordable. Rules in the Act that apply to employers are a continuum of the existing private employer-based insurance system. Known as the employer shared responsibility rule, large companies with 50 or more full-time employees must provide a health insurance plan. Most temporary staffing agencies fit into this description.
Depending on demographics and workforce characteristics, complying with shared responsibility rules is difficult for some industries. Although they hire employees for temporary assignments, parts of the law apply to the staffing industry. Generally, industries with stable full-time workforces and robust medical benefits will not experience difficulty complying with the new law.
It is the industries on the other end of the spectrum, such as the staffing industry, that might have problems interpreting the law. Variable work hours and contingent workers is less than idea for compliance with a law based off an existing model. Nevertheless, temporary staffing agencies have to meet certain obligations.
Historical practices within the staffing industry relate to high turnover rates, limited tenure on assignments and low pay rates for affordable health care coverage presents daunting challenges. These challenges, however, vary depending on the employment area of focus for a staffing agency. IT and professional staffing agencies that routinely offer health insurance to contract workers on long-term assignments should face fewer challenges with compliance.
Mid to large staffing agencies that offer a suite of client services – including temp-to-perm, direct-hire and payroll – in addition to temporary personnel placement may also have an easier adjustment to new requirements. Agencies limited to basic temporary and contract services in core business practices may need specific guidance to make sure they are upholding their share of the responsibility for affordable health care.
Special Challenges for the Staffing Industry
In general, the staffing industry faces special challenges related to the employer shared responsibility rules that are different from other industries.
Employer Shared Responsibility Rules
As mentioned previously, compliance burdens of the ACA differs from industry to industry. These differences are magnified within different industry sectors and company within each industry. The layers of differences are more apparent with staffing agencies that do not fit the standard profile under the law.
Most agencies have employees that fit in one of two categories. Employees at headquarters and field offices who are responsible for recruiting and hiring temporary employees are in the first category. They are responsible for the daily operations of business.
The second category is temporary employees who are assigned to perform duties at client worksites. Their positions are usually lower wage jobs with fluctuating assignment durations and high turnover rates.
Providing Healthcare Benefits
The lack of interest for health insurance coverage shown over the years from temporary employees caused many staffing agencies not to provide across-the-board benefits. In many cases, agencies most likely followed a two-tier system. Whereas internal staff at headquarters and field offices have major medical benefits, temporary employees either have no insurance or limited benefits.
Under the employer shared responsibility rule, staffing agencies should offer modestly generous health insurance plans. However, this expectation is antithetical to traditional staffing industry practices with the two-tier model. This leaves many agencies with the employer penalty unless other viable health insurance options become available. The penalty will be the total number of employees, less 30, from both categories – full-time and temporary – multiplied by $2,000.
Rules for Group Health Plan Nondiscrimination
Even for staffing agencies that find ways to make health insurance widely available to all employees, there are still issues surrounding group health plan nondiscrimination. These rules have been in place since 1978 for self-funded plans. However, few fully understand the implications of the rules. Fewer still have attempted to reinforce group health plan nondiscrimination rules appropriately.
For the first time, the ACA directs regulators to prescribe group health plan rules to fully insured plans. Currently, enforcement of the rule has been delayed until regulators complete full implementation of the regulations. By some estimates, this delay could continue through 2016 and prompt the IRS and Treasury Department to review whether these rules were applied to self-funded plans.
One plus for staffing agencies is the exclusions attached to nondiscrimination rules that could make it easier to comply. High-turnover employers could be excluded from the testing calculus in complying with the rule. If the rules governing group health plan nondiscrimination under ACA is applied to fully insured plans, staffing agencies should be able to manage any disruption to current practices.
In these situations, staffing agencies can satisfy their health insurance coverage obligation and avoid penalties with current plans. This is conceivably possible even with group plans that do not provide minimum value.
Generally, penalties under a coverage option apply when the employer offers minimum essential coverage through an employer-sponsored plan. Agencies are unaware of the misleading term “minimum essential coverage.” While some might interpret this as referring to the health plans content, it actually applies to the source of coverage. This may include Medicare and Medicaid or coverage under an employer-sponsored plan that meets eligibility standards.
By interpretation, an eligible employer-sponsored plan refers to a group health plan that includes medical care beyond excepted benefits under HIPAA. These are defined as stand-alone hospital and fixed indemnity plans, and vision and dental plans.
Compliance with Enrollment Requirements
There are also compliance issues with enrolling employees specific to the staffing industry from a business model perspective. Using contingent workers in the age of ACA places additional burdens on the staffing industry that are unparalleled to other industries. Being fully aware of these provisions within healthcare reform may help agencies make appropriate adjustments.
Take, for example, complying with new enrollment and waiting period requirements. Rapid turnover in some categories will make this nearly impossible for some temporary staffing agencies. Currently, agencies can impose waiting periods before temporary employees are eligible to participate in the company health plan.
Waiting periods give employers time to make adjustments to the administrative burden and expense of employees who work for the company for a short period of time. This is the basic nature of staffing agencies that might only employ a worker for one week or two months. Beginning in 2014, employers cannot wait beyond a 90-day waiting period. Staffing agencies might solicit longer worker contracts to help them deal with these challenges.
Automatic enrollment is another major change that could greatly impact the staffing industry. Beginning in 2014, large employers are expected to comply with the automatic enrollment provision although specific requirements are currently unclear. It is expected to amend the Fair Labor Standards Act and limit the provision to employers with 200 or more full-time employees that offer health benefits. Each employer is expected to automatically enroll full-time employees into an employer health plan.
Opt-out provisions available to some employers or employees remain unclear. Once the Department of Labor issues regulations regarding this provision, employers will be required to comply.
One of the key issues regarding automatic enrollment is how the law will define full-time employee for this provision. Of course, the definition could change the dynamics for whether staffing agencies must comply with temporary workers. This could also determine how clients choose to use services from staffing agencies.
If the provision defines full-time as employees who work 30 hours each week, some employers may limit employee hours. Employers may turn to staffing agencies to fill workforce gaps and avoid reaching the 30-hour threshold.
Play or Pay Penalties
Prior to the final passage of healthcare reform, some within the staffing community were concerned about the proposed pay or play penalties. They lobbied Congress to pro-rate penalties for part-time employees if the rule included this category of workers. Once the legislation was finalized, part-time employees were excluded. In many ways, this is better for the staffing industry as a whole than proration of penalties.
Taking advantage of this rule and the 30-hour threshold rule requires cooperation between the staffing industry and employers that hire contingent workers. This includes arrangements when workers provide services to multiple staffing agency clients.
Healthcare reform might have less of an impact on staffing agencies when clients are aware of the challenges. Most are looking for the least expensive ways of complying with the law. However, staying in compliance with these complex rules may require alliances with staffing agencies.
Gradual implementation of ACA will introduce new compliance rules and more reporting obligations. As more employers look for flexible ways to limit their obligations, they may turn to staffing agencies to fill the employment gap.
While more business from clients may increase the bottom line, staffing agencies will face greater pressures to comply as the rules shift employer responsibilities. Where employers had to absorb the costs of providing health insurance, staffing agencies will need to pick up the slack based on current legislation.
The business model for the staffing industry is subject to changes that could prove more burdensome and difficult to overcome. Continuous monitoring of healthcare reform implementation is necessary for agencies to maximize their opportunities while ensuring compliance with regulations.