The staffing industry consists of a highly mobile workforce with a high turnover rate.
Most staffing agencies only have a small number of employees who perform services for
the agency itself, rather than being staffed at other employers. As a result, many staffing
companies do not offer health benefits to their employees, and those that do often
require employees to first satisfy a lengthy waiting period before becoming eligible for
benefits. Further, staffing agencies will often offer coverage through “mini-med plans,”
which only cover benefits up to a certain dollar threshold (most mini-med plans usually
cut off benefits at $10,000 or less).
Starting in 2014, all companies with 50 or more full-time equivalent employees in their
controlled group must either offer affordable coverage to all full-time employees or pay a
penalty. Further, no company offering a group health plan may impose a waiting period
in excess of 90 days. Finally, group health plans will be prohibited from imposing annual
dollar limits in 2014.
Requirement to Offer Coverage or Pay a Penalty
Beginning in 2014, large employers (those employing 50 or more full-time equivalent
employees) will be subject to a penalty if:
(a) the employer doesn’t offer coverage
(b) the coverage offered by the employer is unaffordable to the employee.
Failure to Offer Coverage. A large employer that fails to offer coverage to all full-time
employees must pay an excise tax of $2,000 per full-time employee.
Failure to Offer Affordable Coverage. A large employer that offers “unaffordable”
coverage will be subject to an excise tax of $3,000 per employee who receives a tax
credit through the state-based health insurance exchanges. While this is a larger dollar
amount than the tax for failure to offer coverage, this tax is only multiplied by the number
of employees who receive a tax credit, rather than by all full-time employees. Coverage
is “unaffordable” if the employer’s contribution amounts to less than 60% of the actuarial
value of the coverage or if the employee’s premium for the coverage exceeds 9.5% of
the employee’s W-2 income.
Calculating the 50 Full-Time Equivalent Threshold. The penalty applies to any employer
with an average of at least 50 full-time equivalent employees during the preceding
calendar year, unless the workforce exceeded 50 full-time employees for 120 days or
less. Employers should add the number of full-time employees with the number of fulltime
equivalents to determine whether they exceed the threshold. A full-time employee
is an employee who works, on average, at least 30 hours per week. The number of fulltime
equivalents are determined by dividing the aggregate number of hours of service of
employees who are not full-time by 120.
Please note that in many instances workers will be considered to be employees of
the staffing company rather than employees of the outside employer. This means a
staffing agency that would otherwise be considered a “small employer” for purposes
of the penalty may be pushed over the 50-employee penalty threshold due to the large
number of outside “employees” staffed at other employers.
90-Day Limit on Waiting Period
Previously, federal regulations imposed no limits on the length of group health plan
waiting periods. Starting in 2014, however, no group health plan may impose a waiting
period for health benefit coverage in excess of 90 days (regardless of company size).
No Annual Dollar Limits on Health Benefits
Starting in 2011, the Affordable Care Act required group health plans to either phase out
or eliminate annual dollar limits on health benefits. Between 2011 and 2014, however,
certain mini-med plans could apply for a waiver from this requirement. Starting in 2014,
all such annual limits must be removed.
Staffing Strategies for Dealing with ACA Changes
Drop Coverage. Many employers are considering simply not offering coverage and
instead paying the penalty. The rationale here is that the cost of paying the penalty
is still substantially less than the cost of providing coverage. The government may
increase the penalty if this trend catches on though.
Restructure Workforce. Employers are also considering limiting group health plan
eligibility to full-time employees, and capping employee hours at a level that would
prevent them from attaining full-time status. While part-time employees may still be
aggregated to determine if an employer exceeds the 50 employee threshold, parttime
employees are not required to be offered coverage (and no penalty applies if
they are not offered coverage).
Consider Lower-Cost Benefit Offerings. Studies indicate that high-deductible health
plans (i.e., those plans where employees pay all medical costs until they reach
a certain deductible threshold) can significantly reduce employer medical costs.
Further, the employer-funded portion of most high-deductible health plans is around
65% of the actuarial value of the coverage. As a result, assuming the plan sponsor
sets the employee-only premium at an affordable level, offering a high-deductible
health plan should allow employers to avoid any tax penalty.
Restructure Annual Dollar Limits. While the Affordable Care Act prohibits annual
dollar limits on visits, it does not prohibit visit limits or dollar-per-visit limits (although
the two cannot be combined for any given benefit). Employers may consider
restructuring annual dollar limits into either visit limits or per-visit dollar limits to offset
any upside health cost liabilities.
Supreme Court Update & Key Applications for Staffing Firms
Large Employer Status. The requirement to offer coverage and the requirement for the
coverage to meet certain minimum guidelines both apply only to large employers –
small employers are exempt from these provisions. However, the law does not
distinguish between temporary employees and permanent employees. Therefore, many
staffing firms will be considered to be large employers under the law. Most employees of
all size firms will still be required to be covered under some qualified health insurance or
pay a penalty – this is the Individual Mandate that is the heart of the ACA.
Limited Benefit Medical Plans. There are two types of limited benefit medical plans: “minimed”
plans – those that mimic major medical plans but with annual and lifetime limits and
hospital indemnity plans which pay cash to the insured. Under the law, mini-med plans
will no longer be allowed to exist. Hospital indemnity plans will still be permitted but it is
important to note that they will NOT meet the requirements of the ACA.
Excise Taxes/Penalties. The $2,000 per employee excise tax levied against large
employers that do not offer health coverage to its employees, and the $3,000 excise tax
levied against employers for not offering affordable coverage are both non-deductible
taxes. Thus, the economic impact of these taxes must be grossed up to understand
their P&L implications. Also, these taxes will be calculated monthly based on each
month’s work force counts for the employer. Unfortunately, it is impossible to do any
predictive modeling for budgetary or financial planning purposes regarding which, if
either option is less than providing coverage. However, Assurance can help you project
some health plan costs on an hourly basis for your workforce.
Supreme Court Ruling. In June, the U.S. Supreme Court issued its decision regarding
the various legal challenges to the ACA. The Court upheld the Individual Mandate as
constitutional and only found it necessary to modify the rules regarding the extension of
Medicaid benefits, which is mainly a state-based issue and not applicable to employers.
Regardless of this outcome, health care continues to be a significant political issue for
the November 2012 elections. To keep abreast of legal developments regarding this
important topic, please visit http://www.assuranceagency.com or click the “University” link at
the bottom of the page for information on scheduled webinars and other Assurance
Originally posted by John Rutledge on www.assuranceagency.com