ACA compliance triggers outsourcing scrutiny

Everyone’s talking – and fretting – about the massive compliance commitment associated with the Affordable Care Act, which is leaving a major mark on HR and benefits outsourcing.

There’s little doubt about how significant the reporting and communication requirements are under the ACA. They include determining benefits eligibility and affordability, as well as who’s full-time for ACA purposes versus the Fair Labor Standards Act, reporting to the federal government, figuring out how to document benefit elections, confirming that minimum essential coverage has been provided and so on, according to Gerard Leonard, president, national account services, benefits at ADP.

Karyn Rhodes, VP of the HR consulting division of Cornerstone Group, believes that the ACA is “so overwhelming for employers that they almost have no option except to turn to benefit advisers for help to guide them through this overly complex process.”

Given the ACA’s complexity, technology is powering outsourcing partnerships – the value of which will be most evident in building the infrastructure necessary for ACA reporting and compliance, notes Elliot Clark, chairman and CEO of SharedXpertise Media, LLC. He says this trend is occurring irrespective of whether the services are being supplied by SAP, Oracle or Workday, or shared with technology from an Aon Hewitt, Mercer, or third-party administrator.

“So whether you’re a small company using a [professional employer organization] or a large company using an outsourcing partner, I think that the requirements, even with the two-year lag time to get ready, are going to be ideally met if you go to a service provider who’s building a shared infrastructure,” he explains. “There’s a lot to do with this law.”

Attention is also being turned to the 40% excise tax on Cadillac-style coverage that will take effect in 2018, without alienating the workforce or appearing overly paternalistic, Leonard says. Other challenges include communicating the value of health care plans to multi-generation workforces through a combination of email, mobile apps and paper-based materials.

Accompanying ACA compliance is a trend toward health care consumerism, which includes greater interest in the defined contribution approach. About 83% of ADP’s large employer clients recently revealed that have moved to a high deductible health plan with a health savings account or a health reimbursement account component or are consider doing so. In addition, 75% of those survey respondents say they’re starting to focus more on employee health and wellness.

Leonard recalls helping an employer take advantage of an HSA with a limited-purpose flexible spending arrangement and dependent care account in conjunction with commuter benefits and some of the incentives that were rolled out, as well as gauge their effect on take-home pay.

“There was a $7,000 difference between the taxes that one of their consultants would pay versus what another one would pay that doesn’t take advantage of the plan that they have available to them,” he says. “It really opened their eyes to how they could start thinking about the money they spend on benefits [and how it] really needs to be used as a strategic lever to attract and retain the talent.”

Integration with FMLA and DOMA

Compliance efforts also have intensified for the Family and Medical Leave Act and the Defense of Marriage Act, as well as their integration with the ACA, according to Leonard. “There’s a piece of FMLA that will always be applied to ACA because employers have to count unpaid leave toward the hours,” he says.

Indeed, FMLA is still very much a core part of how the workforce is managed. Leonard says an inability to control absences hampers any analytics on who’s likely to be absent and when. The collateral damage is then seen in attempts made to fill production-line gaps and pay overtime. And with changing workforce demographics, he has noticed much more “focus on a generation that has to look after kids and elder care.”

ADP recently helped a decentralized organization that paid a high price for failing to closely monitor its FMLA compliance. There was a realization that some employees had unusually long leaves of absence and the company needed to stop firing for absence-related issues, which had sparked huge lawsuits.

Layering ACA due diligence as an additional line item on top of compliance with FMLA, the Occupational Safety and Health Act, the Equal Employment Opportunity Commission, ERISA and other employment laws obviously will add to the cost of benefits outsourcing arrangements. Some employers may opt for an internal solution to save money, “but they’re going to have to add size and scope to the HR department, and that’s hard to come by nowadays,” Clark cautions. “Companies are trying to make as much of their infrastructure a variable cost structure as they can.”

Assistance trickling down market

Another key trend in HR and benefits outsourcing is how these services continue to trickle down market. Expanded compliance responsibilities have prompted many small-business owners to outsource some, or all, of their HR department functions, says Rhodes, adding that an estimated 50% of large firms now follow this model. She says many smaller firms spend up to 40% on nonrevenue generating activities, from hiring and compensation decisions to benefits and training options.

“I see a lot of companies that either can’t or don’t have a full-time HR person hire us on sort of a retainer basis like an attorney and call in or email questions,” Rhodes reports. The average size of such a client ranges from 10 to 100 employees, with a host of on-site services including recruiting, compensation, employee handbooks, management training, employer relations and terminations.

Partnerships are obviously vital at a time when strategic vision is needed to help employers navigate their way through the alphabet soup of employee benefits law and regulation. Fred Hunt, past president of the Society of Professional Benefit Administrators, notes that “thousands of new laws, regulations, interpretations and court cases have made it nearly impossible for a plan sponsor to do it alone.”

But there are caveats along the road to mining expertise. For example, he says hiring lawyers, CPAs or medical specialists may not provide enough of a big-picture perspective to adequately assess every aspect of HR and benefits management. This is also very relevant for insurance companies, which Hunt says “have the handicap that their compliance people are trained in insurance law, which is very different from employee benefits law.”

One driving force behind HR and benefits outsourcing is the depth of knowledge about a particular area. TPAs have a broad understanding of health benefits developments and compliance because of their “close brainstorming relationship with the reg writers and enforcers,” explains Hunt, whose former association represents TPAs.

Where this is especially helpful is that the ACA has been “a three-year tsunami of new concepts and rules to digest,” he notes. “Even old pros have tended to be so focused on the evolution and commotion of ACA that they sometimes forget that all the old rules, such as COBRA, still are in effect.”

Rise of protean practitioners

Rhodes has noticed a growing number of companies adopting the so-called protean model, which gives them access to senior-level expertise they otherwise wouldn’t be able to afford in house. The objectives are to eliminate layers and spin off external services along the road to becoming a more nimble operation.

“They just focus on their core,” she says. “They bring in a CFO on the go. They bring in a marketing specialist. They bring in HR and safety. We do the job that we need to do, making sure they’re in compliance and operating in the right manner, and then pop out.”

Leonard sees voluntary benefits becoming more prevalent in outsourcing contracts, with employers seeking assistance with analytics to determine which employees could benefit most from these plans and understand the shape of this benefits investment over the next several years.

Clark sees the post-health care reform marketplace as offering robust opportunities for service providers, many of whom have long been trying to educate clients about their options. “The reporting requirements are extensive,” he says, referencing the ACA.

Another area he believes is ripe for development involves data analytics that mine HR and benefits information for predictive-trend studies. “I have not seen many of the service providers really digging into the data and looking at how people are using their cafeteria plans and some of the other aspects that could tell us more about our workforce,” according to Clark.

Bruce Shutan is a Los Angeles freelance writer.