Organizations that still consider benefits management to be a back-office function in the wake of the U.S. Affordable Care Act are mistaken, said executives at Roseland, N.J.-based Automatic Data Processing. While companies across the nation are assessing and adjusting their workforce management
"In many respects, the ACA [Affordable Care Act] is like a Y2K for people management," said Christopher Ryan, vice president of ADP's strategic advisory services. "There are many companies that historically would not have spent a lot of time investing in human capital infrastructure, [and] all of a sudden they need automation, the ability to report back to the federal government, [and] the ability to standardize and support electronic communications."
ADP advisors explained that while there are several ways employers can address workforce management post-ACA -- restricting part-time employees to 30 hours a week or extending benefits to all workers and ramping up retention efforts, among other examples -- ultimately each organization will have to choose the right path for its industry and situation. However, in the execution phase, a powerful argument emerges for an integrated human capital management system approach.
Real data for assessing present and future benefits enrollment
For some organizations, particularly those in industries that rely heavily on part-time labor, such as food and beverage or retail and grocery, the predominant cost arising from the ACA is simply that of extending health care coverage to the influx of workers who will become eligible in 2014. But even if employers extend benefits, will workers enroll or will they opt instead to seek coverage through a government-funded health insurance exchange, thereby subjecting the organization to a penalty?
This was one of the driving questions behind the ADP Research Institute's study, Planning for Healthcare Reform: How Income Impacts Employee Health Benefits Participation. Released on Monday, the report uses ADP's client payroll and benefits data and is the second in a series on benefits management. David Marini, vice president and managing director of ADP's strategic advisory services, said one goal of the report is to provide benchmarks employers can use when determining their benefits management strategies.
The study showed that 400% of the Federal Poverty Level (FPL), or an income of approximately $45,000 for a single individual, is the "magic number" in regards to benefits participation today. In general, current benefits-eligible workers earning more than this amount participate in employer-provided health care plans at a flat rate of approximately 81%. However, workers earning under $45,000 demonstrate an "increasing price sensitivity" -- as income drops, so does benefits enrollment. "For employers who decide to extend health coverage to more of their low-income and/or part-time associates, low participation rates are likely to remain a major issue," the report stated.
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Ryan said this point does not come as a surprise to many HR managers. "Typically the reaction from HR folks has been that they nod vigorously and say, 'I told you so,'" he said. "Their concern is we're going to offer benefits and a lot of these people are not going to want to take [them] because many of them don't today."
The report also examined the tipping point at which an employee is financially "better off" seeking coverage through a health insurance exchange. While the coverage offered by an exchange is generally lower quality than employer-provided plans, the report stated, "up to 200% of FPL [an income of approximately $23,000], single employees might pay less for coverage through a public exchange for self-only coverage -- in part because of the subsidy provided."
Considering that statistic, the report noted that employers could construct a very low-cost insurance plan that meets minimally acceptable standards of coverage -- similar to what an exchange would offer -- to encourage employees to enroll in employer-provided programs. Conversely, an organization might determine that the more cost-effective option is to encourage employees to seek coverage through an exchange and pay the associated penalties.
Integrated systems essential for ACA benefits management
While many businesses are avidly taking stock of the compliance aspect of health care reform, Marini said it's also critical to assess the related technology. "You think that large companies are completely on top of this, but a lot are not talking about it in the context that they need to," he said. "It's important to figure out, 'How do I take these compliance issues and make sure I'm executing?'"
Ryan pointed out that health care reform affects more than an organization's benefits management system. "When you talk about monitoring 30 hours a week, that's typically a front-line supervisor's job using systems for scheduling," he said. "The payroll system is the place of record, however, for record keeping and reporting to the IRS. The benefits system is what you use for enrollment and education and other processes.
"In order to do health care reform, literally all of those systems now have to talk together," he added.
With that in mind, Marini said an integrated human capital management (HCM) platform approach is more feasible than trying to link up disparate systems from an array of vendors. "Payroll, time and labor, and benefits -- to me it's one purchase today," he said. "The fact that you would have those from three different providers and have to integrate them to stay on top of this could be very costly."
But while the cost of health care reform is a key consideration, Ryan stressed that organizations shouldn't approach the issue solely from that perspective.
"The real question you have to ask is, 'To what extent can I provide a better combination of pay and benefits to employees at [the] least cost to myself?' The employers that optimize that actually have a competitive advantage in the marketplace," he said. "I think some companies are going to take advantage of health care reform in that they're going to have a better workforce. If [employers] view it strictly from a cost standpoint, they're potentially putting themselves at risk in the long run."
Emma Snider is the associate site editor for SearchFinancialApplications.com. Follow her on Twitter: @emmajs24.