With a number of significant Obamacare provisions taking effect this year, including the first phase of the employer mandate, as well as a policy that bases physician pay on the quality, not quantity, of the care provided, staffing companies are anticipating a 3-5% increase in direct costs. How is that getting passed on to customers?
Most are doing an across-the-board increase in bill rate, while others are marking up by adding a line on each invoice for ACA costs, similar to sales tax.
"The first method means a staffing company has likely done some sort of metric evaluation and made an estimation as to how many are going to accept their insurance, and then what the cost per employee will be," explains Susan Wurst, Vice President, Account Management, TempWorks. "Beginning in 2014, some staffing companies were going to their clients and saying, 'Okay, this is our estimated cost, we need to pass this on to you. Your bill rate will be going up 25 cents per hour starting in such and such month.'"
An American Staffing Association study by Towers Watson shows that 91% of the staffing firms polled are passing their ACA costs (penalties or insurance costs) back to their clients in the form of these across-the-board increases in bill rates.
If instead, a staffing company wants to include an ACA surcharge on all of their invoices, there are also several different ways to do that, as Wurst explains.
"One way is percentage of gross billing. So they may say to a customer, 'We are now adding 2% on to your bill.' TempWorks customers can tell us 'make it 2% for everyone,' or they can make it customer specific. It becomes kind of like a sales tax. You see a sales tax added at the bottom of an invoice, and you will see an ACA surcharge handled the same way."
Wurst says there is another methodology, and that is to do a dollar amount per employee on the invoice.
"Every employee has a surcharge of x amount. This is very similar to the restaurants we read about who told their customers, 'Based on increases in the minimum wage, we are adding x amount to your bill to cover our added costs.' If you think about it, every staffing company in the country is sitting there thinking we have to charge for this somehow."
A Sales Issue
Of course, there is another side to this, the view that belongs to your customers. And they are paying attention to these increased bill rates and surcharges and these are becoming their own competitive differentiators.
"Staffing Company A is charging me 2% for the ACA, and Staffing Company B is charging 4%." So it’s becoming a sales issue, which is why Wurst says TempWorks has invested so much in their effort to become staffing software ACA subject matter experts.
"We can automate calculations of measurement periods, stability periods and the administrative period as well as individual insurance company’s enrollment deadlines. The end result? A solution that will track each employee once they are on the 'ACA radar' and warn our customers when it is time to re-evaluate an employee’s full time status."
Wurst says their next biggest accomplishment was incorporating the break-in-service rules into TempWorks' reporting.
"The 13-week break-in-service rule and the assignment-length break-in-service rule for staffing companies in particular, is one of the few concessions made that will save money on insurance premiums and the cost of administering larger volumes of insurance enrollment and subsequent COBRA," she said. "We now also have visual metrics of ACA statistics (such as percentage of eligible employees who have been offered insurance), employee and employer insurance premiums by month, and counts of employees (including what phase of the ACA process they were in). Add in a simple feature for charging back to the staffing companies’ clients a percentage of billing (while allowing for exceptions at the customer-, order-, and employee-level) along with trending metrics of which employees are approaching full time status based on their historical hours - and we think we have a great staffing-centric software solution."
The increased costs of ACA-related administration are considerable. Those include changes in point-of-hire administration, monthly reporting, annual reporting to both employee and the IRS, and so on.
There are also direct costs associated with either providing the required insurance coverage or paying the penalties associated with not offering the coverage.
The American Staffing Association says the exact direct cost increases will vary by staffing company, depending on several factors:
– How many long term employees will they have in their workforce as a ratio of their total workforce?
– What percent of those employees eligible for insurance will 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.
The ASA study by Towers Watson found nearly 20% of the staffing companies polled last year said they still weren't sure just how much to increase bill rates.
"Nobody really knows the true cost of the Affordable Care Act, or even if the legislation will survive in its present form with a new Republican majority in Washington," said Wurst in closing. "We do know with certainty however, that as staffing companies get more information, get better at ACA administration, and get more cutthroat on the sales side, the ability to offer more options to the customer will be very beneficial."