Larry David, on his TV show Curb Your Enthusiasm, has a gift for finding humor in awkward situations. One running gag is about Larry having dinner with a friend who always seems to go to the restroom just before the bill arrives at the table.
Larry is not sure if he should just pay it or wait for his friend. This scene reminds me of how things have been in the staffing industry over the last year or more regarding the question of who should be responsible for paying the ACA tab.
Lately I have noticed a heightened sense of urgency to discuss this topic. Our staffing company has responded to a series of inquiries and surveys from our customers who manage programs about how our company plans to deal with ACA.
Full disclosure here: our company, in Sync Staffing, does more than 90 percent of our business with vendor-neutral MSPs that release orders via a VMS tool. We believe that MSPs using a VMS offer the best solution to manage contingent workforces for end client buyers in midsize to large companies.
In the MSP/VMS staffing model there are three parties involved:
- staffing suppliers,
- a program management company, and
- a client (end buyer of staffing services).
In this arrangement, our MSP customers who manage programs do a great job in achieving compliance and cost savings for the buyer. The program team achieves cost savings by creating efficiencies and lower pricing. The impact on suppliers is that they generally work at gross margins that are significantly lower than in traditional staffing arrangements where the staffing companies directly interact with the buyers.
Suppliers working at lower margins to support MSPs cannot absorb the ACA cost without an increase in pricing or a mechanism to recoup the ACA cost as a pass through expense. MSPs also don’t have high enough margins to absorb the cost, so picking up the tab for this government mandated statutory cost increase needs to be the responsibility of the end client buyer.
Staffing suppliers should be prepared to be totally transparent to program management customers and the buyer about their margins and the cost they are incurring to comply (or not comply) with ACA. This transparency is critical to establish credibility around a supplier’s assertion that they cannot absorb the cost and still make enough profit to run a sustainable business. If suppliers to a MSP are not willing to be transparent with their financials and if they plan to absorb some or all of the ACA cost, then perhaps the program pricing is not achieving optimal cost savings in the first place.
If we agree that it is the buyer who should ultimately be responsible for picking up the tab, then we need to determine the best way to do it. Is it through a mark-up increase, a bill rate increase, or some type of pass through expense?
The markup or bill rate increase method requires a lot of up front assumptions since suppliers don’t have a track record to estimate how many and which contingent workers will choose to participate in their plan. Suppliers are making best guess responses to the following questions:
- What percentage of our contingent employees will sign up for our plan?
- Will it be more high wage or low wage employees?
- If our customers want a single mark-up, then what will the average bill rate be of those who sign up?
- If we have a high percentage of low wage workers will we risk not meeting ACA rules for affordability?
This method relies on input that is uncertain, hence the output is less likely to reflect the true cost. The result is more risk that the buyer will be over or under charged.
We suggest that the simplest, fairest and most efficient method is to treat the ACA cost as an expense that is billed at no mark-up. In this scenario, suppliers will be absorbing the additional costs to administer their ACA compliant plan and will be able to recoup the actual hard cost increase.
Suppliers that plan to offer an ACA-compliant plan should know by now how much their annual contribution will be for each contingent employee who enrolls in it. Perhaps MSPs should be asking their staffing suppliers for this figure. The weekly or hourly cost can then be calculated and shared with the buyer so they know what to expect.
We already have a precedent on how to handle this. Our customers who manage programs with contingent workers in San Francisco allow the suppliers to pass through the cost at no markup as an expense item in the VMS tool. This allows suppliers to cover the costs incurred to comply with city’s Health Care Ordinance without risk of over or under charging.
I’m interested in what you think about who should pick up the tab and how it should be handled, so please comment below.