Why the pay or play decision leaves staffing firms with tricky choices

In the time since I last wrote about the “pay or play” decision (Staffing Industry Review, July/August 2014), the world of Affordable Care Act compliance has changed a lot. Many staffing firms settled on compliance strategies, only to see those strategies overtaken by events and developments.

The pay or play decision isn’t over. In the next two years, there may be legislative initiatives from Congress, regulations from the next presidential administration, and a new presidential policy on health insurance. Insurance companies offering coverage through ACA exchanges will raise rates to pay excessive claims. And staffing firms will gain experience dealing with this extremely complicated law. Here is what has already happened, followed by choices that staffing firms now face.

Insurance Products for Assigned Employees

Last summer, there were few, if any, comprehensive (“minimum value,” in ACA terms) health insurance plans available to assigned employee groups. ACA had banned “mini-med” plans; employee groups with ultra-high turnover were considered uninsurable; and the cost of comprehensive plans was expected to be prohibitive.

In late 2014, the insurance industry offered staffing firms clever health plans that, by eliminating catastrophic risks like hospitalization, satisfied the government’s online “minimum value” calculator and reduced the cost to about a third of traditional comprehensive plans. Staffing firms could make participating assigned employees pay most or all of the premiums without breaking ACA’s affordability rules, thus avoiding virtually all new insurance costs and ACA penalties. By late October 2014, more than 40% of US staffing firms planned to use these “MVP” plans, and many began enrolling employees.

In November 2014, the government reneged, declaring that, despite the government’s online approvals, MVP plans will not qualify as minimum value in the future because they omit key features of traditional health coverage. However, MVP plans would be deemed to satisfy “minimum value” standards for plan years starting before March 1, 2015, if firms had committed to them in writing or had started enrollments in them by Nov. 4, 2014.

King v. Burwell

The King v. Burwell case might have removed the subsidies and employer penalties from more than 30 states, and it might have eroded the overall viability of the ACA. But the US Supreme Court endorsed the IRS position imposing nationwide subsidies and penalties. Further, it made that decision as its own ruling rather than as a judicial deferral to the position of the IRS. That means no future president or the IRS can reverse or modify the court’s interpretation of this portion of the law.

Customer Demands

The Affordable Care Act is difficult and costly, but customers are now making it an even greater problem for staffing firms.

Casual language in IRS employer mandate regulations suggests the IRS may reclassify assigned employees as the common law employees of the customers instead of their staffing firms. Benefit and legal counselors are advising staffing customers to demand that staffing suppliers offer affordable, minimum value coverage to every worker assigned to them, bill more for insured employees than for non-insured employees, tell customers which employees are insured, and indemnify customers for all ACA penalties.

Some of these demands have a reasonable basis, but the way some customers are turning them into contractual obligations of staffing firms is excessive, legally risky, and disadvantageous to the staffing firms. Giving in to these demands unnecessarily pushes staffing firms far beyond ACA compliance and raises other issues, like customer discrimination against insured employees and catastrophic indemnity exposures. ACA contract amendments should be negotiated very carefully by knowledgeable people. And, of course, customer demands profoundly affect staffing firms’ “pay or play” decisions.

Subsidy Administration

According to media reports, ACA exchanges — eager to approve subsidies and bolster enrollments — paid at least $2.8 billion of ACA subsidies without verification of the recipients’ eligibility or the correct subsidy amounts. And according to the inspector general of the US Department of Health and Human Services, there is no system for such verification.

ACA’s employer penalties are linked to its subsidies. As with unemployment insurance claims, employers have the burden to disprove the validity of ACA subsidies that trigger penalties. You can be doing everything right and still get a big ACA penalty bill that you must spend money, effort, and time to try to reverse.

Current Choices

What is right for your firm depends on your size, assignment length patterns, turnover patterns, employee income levels, insurance or self-insurance resources, and customer demands. Your first step is to determine whether you are a “large employer” subject to the employer mandate and, if you are, whether you have enough fulltime employees to incur actual penalties. [To request a complimentary set of tools I developed to help calculate large employer status, please contact me at www.reardonstafflaw.com.]

If you are a large employer, the risk-free option is to offer affordable, “minimum value” coverage to all fulltime employees. If you can get it, this expensive coverage may require a substantial employer premium contribution to avoid “B” penalties, may be hard to obtain and renew without even higher subsidies to encourage participation, will involve inordinate COBRA obligations, may inspire litigation by employees, may involve self-insurance risk and tax obligations, and will require very elaborate administrative procedures. Health premiums are rising faster than wages, so future percentage increases in your employer contributions may be higher than the overall premium increases for the coverage. If scrupulously administered, however, this option relieves you of all ACA “pay or play” penalties.

The second option is offering a “skinny” MEC (minimum essential coverage) plan. These plans cover principally low-risk prevention and wellness services and omit catastrophic health expenses. Amazingly, they satisfy the ACA employer mandate for avoiding the heavy “A” penalty. Their costs can be fully charged to the electing employees. Before the introduction of MVP plans, most staffing firms planned to offer skinny MEC plans, taking the risk that each full-time employee could reject the plan, obtain a government subsidy, and generate a nondeductible $3,120 per year penalty on the staffing firm. The generous subsidy-granting practices of the exchanges could make this option very expensive in terms of “B” penalties, and the government could ruin the whole strategy by reneging on its approval of skinny plans as MEC, in the way that it reneged on the “minimum value” of MVP plans.

The third option is a modified no-plan strategy. For now, you can still offer comprehensive coverage to your inside staff while not offering any coverage to assigned employees. If you are a large employer (more than 99 full-timers in 2015 or more than 49 in later years), you will be subject to the “A” penalty, but there are combinations of size, assignment length, and employee incomes that either eliminate or drastically reduce the potential “A” penalty. Life in a no-plan environment is much simpler than managing coverage for a transient workforce. It also leaves you legally free to proactively manage the tenure of your assigned employees, since ERISA is hostile to hour limits only when those limits affect access to benefits.

One question that you must answer before choosing your strategy is, “Who is driving my business — me or my customers?” Giving in to the customer demands described in this article can be very expensive. If ACA is repealed or if customers eventually abandon their fear of trumped-up ACA issues and return to their aggressive pricing priorities, expensive insurance plans and contractual obligations could handicap staffing firms in the marketplace.


The opinions expressed in this article do not necessarily reflect the views of the publisher.