When the Affordable Care Act (ACA) goes into effect on Jan. 1, 2014, it will create broad changes to the US healthcare system that will have a dramatic impact on employers and citizens. The four largest components are:
- All large employers are required to offer healthcare coverage to full-time employees, or pay a tax.
- Employer healthcare plans must meet certain minimum coverage standards.
- Affordability standards will be defined for employer-offered coverage.
- Individuals must have healthcare coverage, or pay a tax.
How will these changes affect staffing firms and contingent workforce programs? While some administrative rulings and regulations are not complete as of this writing, we can predict the impact on several key aspects of the staffing industry.
The ACA will result in cost increases for staffing firms, due to the requirement of providing healthcare coverage to previously uncovered employees or paying the taxes associated with not providing affordable coverage. This tax is $2,000 per full-time employee per year, with two notable exceptions. Employers will not be required to pay a tax for employees with benefits that meet ACA cost and coverage standards – typically higher-level professional contractors. Also, coverage is not required for employees working less than 30 hours per week (or less than 130 hours per month). Employers must evaluate all employees to determine whether they fall into this category.
Because the cost of many health plans exceeds $2,000 per employee per year, it remains to be seen whether employers will drop the coverage they currently offer and pay the tax. Companies that do so risk losing valuable resources to other firms who offer coverage – along with losing tax benefits that come with offering employee coverage.
The employees’ cost of plans offered also must be considered. Under the ACA, health plans cannot be considered “too costly” for employees. To be deemed “affordable,” each employee’s premium must be less than 9.5 percent of an employee’s “household income” (later clarified to be the income as stated on the employee’s W-2), which requires employers to adjust plan benefit levels and employer contributions to meet this requirement.
We anticipate four major developments as a result of the ACA:
- Companies will transition lower-skilled workers to shifts of less than 30 hours per week.
- Staffing firms will increase markups or bill rates to offset the costs of providing healthcare coverage and the associated administrative expenses.
- Health plans will adjust their costs to fall closer to the ACA minimums.
- The overall cost of healthcare coverage will rise over time, as companies make process changes to comply with ACA requirements.
As a result of these changes, staffing buyers could modify their standard 40-hour work week to address cost increases. When the definition of minimum essential coverage is determined, this will help establish the exact baseline for these positions. If a staffing buyer uses contingent workers more than 30 hours a week, the requirement for healthcare coverage (or the non-coverage tax) will come into effect, resulting in an approximate 5 percent cost increase. The definition of full-time vs. part-time workers will add to the complexity of the coverage requirements, as this classification will determine when and whether coverage takes effect.
In summary, the ACA will result in increased costs and additional complexity for contingent workforce programs. As the details of the act are firmed up, the regulations and responsibilities of staffing providers will come more clearly into focus, but organizations can start preparing now by reviewing their employees and planning for cost increases.