PPACA tilts some school district equations toward contractors
The Patient Protection and Affordable Care Act is ushering in lots of changes — and for some school districts, those include moving what are now part-time positions off the districts' payrolls and onto the books of private contractors.
"The concept of the outsourcing is really to avoid a pretty large PPACA penalty," says Tim Shrom, chairman of the Pennsylvania Association of School Business Officials Health Care Task Force. He also is business manager of Solanco School District and board member of the Lancaster County Business Group on Health.
Contracting out services isn't a new concept for school districts, but Shrom says PPACA is altering conditions in a way that he expects to result in more contracted workers than in the past. In recent months, numerous districts in Central Pennsylvania have reported considering or actually moving away from employing workers in various positions. Many of them cited the PPACA requirements as a factor, and some noted that the worker salaries would stay the same or increase.
School districts are large employers, with large contingents of part-time workers. Come 2014, the general definition of a full-time-equivalent worker will drop to 30 hours a week, and large employers will be required to provide health insurance that meets certain standards to all FTE employees or pay penalties.
Cutting hours below the FTE threshold is one way to skirt the issue, and Shrom says that is among the actions districts are considering. But cutting is not a good answer in all circumstances, as Penn Manor School District's special education paraprofessional conundrum illustrates.
The district has 25 to 30 part-time aides who work with special-needs students, mostly one on one, according to Penn Manor business manager Chris Johnston.
"If you start doing a half day with this person and then a half day with that person, those students don't react well," Johnston says, explaining why restricting hours would be a problem. But offering the aides health benefits would also be problematic, because the district self-insures and would be at risk for up to $200,000 per person before its reinsurance kicks in. The district has never offered anyone health care below 35 hours, he says.
The solution Penn Manor chose for its paraprofessionals was Substitute Teacher Service Inc., a business that has been working with an increasing number of Lancaster County districts in recent years. STS will also be handling Penn Manor's substitute teacher needs.
Using STS will cost more than Penn Manor's current arrangements do — but adding health care coverage and its significant unknowns to the mix now tips the scales in its favor. Johnston also notes that STS is a known entity with a proven track record.
The administrative challenges of correctly handling the 30-hour issue and the financial risks of getting it wrong for even one person also are issues districts have to consider.
"We know what they do," he says. "We've talked to other districts locally."
"Part of it's a tradeoff," Shrom says of the concept of switching from employees to contracted workers. His district has been working with STS for years. "I might be paying someone here $12, they might be paying $18 an hour, but I've got all of my soft costs."
The workers will also have tradeoffs. For example, Johnston and Penn Manor Superintendent Michael G. Leichliter say, the former Penn Manor aides will exit the Public School Employees' Retirement System but not lose anything they have already accrued there. On one hand, they're out of the pension system, but on the other, they'll no longer see that deduction from their net pay. They also will be eligible for unemployment, which they weren't with the district, and Leichliter quoted STS as saying that if Penn Manor's aides want to work for STS, they have a job with the company.
Health insurance is another differential where shifting away from employment may give districts more breathing room. Public-sector health benefits tend to be generous compared to private-sector plans, Shrom said, and, generally speaking, districts are locked into offering only that one expensive plan regardless of the employee's position. A staffing company may be able to offer leaner coverage.
How the switch actually shakes out for both parties depends on the individual situations, Shrom says, including pay levels, the threshold at which a district currently begins offering benefits, retirement accounts and the individual's age and family.
"In some cases, the private sector firm is going to be offering a minimum health care plan, which some people don't have" now, Shrom says, adding that some of the employees may have coverage through their spouses. Some people might not be happy about being out of the pension program, but then again they might be gaining access to a 401(k) program.
"In general, special education paraprofessionals aren't people looking to spend a career there," Leichliter says. "They like working with kids. They generally find the hours conducive for a part-time job."
Leichliter adds that some of the affected employees have been with the district for a long time and already qualify for retirement; he says knowing that made the decision to switch easier.
"It didn't seem like a bad deal. Under the circumstances, it seemed like a good thing," Johnston says. "One thing I didn't realize, though, is how much these people thought of themselves as Penn Manor employees. Even though they're going to be doing the same thing, just the fact that they're not going to be wearing Penn Manor ID badges, that was something that bothered them."
On the contractor side, staffing agencies may not have ironclad plans yet. Swatara Township-based Abel Personnel Inc. and its A+ Teachers division is still examining its options, according to President Deborah Abel. Abel does not presently provide health benefits, she says, and the mini-med limited coverage plans that staffing agencies have traditionally offered employees will not meet the new requirements of health care reform.
"We're expecting that in July we'll have a lot more information about what options are going to be available to us as an employer," Abel says, noting that she has heard from firms specializing in health insurance programs for the staffing industry that they're waiting to see how things look at the end of June. For employees who qualify as full-time under the new rules, companies like hers will have to decide whether to offer adequate and affordable health care or pay the penalty for failing to do so.
Abel also notes that, for some positions, such as substitute teachers, many of the people her company employs don't currently meet the 30-hour threshold. In that role, people often sign up with several placement services or districts themselves and may just take the first job that becomes available each day, thereby splitting their total work hours among various employers.
Even among employees who log at least 30 hours a week for Abel, cost will likely be a problem for any offering that is not fully subsidized.
"I did a survey of employees and I asked how many had insurance, how many didn't, and if they were offered insurance, what could they afford," Abel says. "Sadly, the type of things that people said were, 'I could afford $10 a month,' 'I could afford $20 a month.'"
STS isn't the only contract service gaining business from the new landscape districts are now facing. South Middleton School District, for example, is turning over its cafeteria staffing to Aramark, a Philadelphia-based professional services firm that has a quarter-million employees serving clients in 22 countries.
According to district records, the affected workers' hours will remain the same as when they were employed by SMSD, and they will receive a 2.1 percent pay increase.
Recent PASBO educational sessions about the impact of PPACA have drawn a couple of hundred participants, Shrom says, and a free Web forum is scheduled for June 25.
Each district is different, and many decisions are still being made, but overall Shrom expects the 30-hour issue to change the employee/contractor mix. Beyond that, he says, districts need to make sure they're educated and prepared for the new rules and start planning for the excise tax on generous "Cadillac" health plans that will take effect in 2018.
"Due to collective bargaining and multiyear contracts, districts need to be aware of any potential liability under the excise tax should they trigger, and how they would pay, or avoid paying, that tax," Shrom says. "It takes time and planning to turn long-standing programs locked in with plan documents and collective bargaining agreements and then further align those needed changes with ever-morphing federal regulatory issue on the ACA itself."
Low, complicated threshold
Generally speaking, the Patient Protection and Affordable Care Act redefines full-time-equivalent employment as 30 hours a week, starting in 2014.
Specifically speaking, the calculation can be complicated, particularly when involving variable hour and seasonal employees. The rules include assessment during a standard measuring period and then application of that determined status during a stability period, and there are also administrative period and safe harbor method calculation options.
Many employers are reporting that the lowered FTE threshold, in combination with the requirement that businesses with 50 or more FTEs offer qualifying health insurance to FTEs or pay penalties, is proving significant for them.
The Forty Hours is Full Time Act of 2013, recently introduced in the U.S. Senate, seeks to mitigate the health care reform effect on employers by revising the definition of FTE to 40 hours. The measure has the enthusiastic support of The International Franchise Association and, if passed, would constitute a large change to the basic framework of the PPACA.
About Abel Personnel and A+ Teachers
Abel Personnel Inc. in Swatara Township started its A+ Teachers division in 2008 after about a year of planning and development.
"Clearances, criminal background, fingerprinting, TB tests, continuing education," Nancy Gundy says, rapidly listing some of the things Abel must make sure are in order before approving a potential substitute. Recruiting is also a big part of the job.
The education services director of A+ Teachers, Gundy notes that in addition to substitute teachers, A+ also works with districts in Dauphin, Lebanon and Cumberland counties on their needs for other personnel such as nurses, paraeducators, teacher's aides and administrators — and permanent teacher placements.
Deborah Abel, president of the A+ parent company, says the ever-increasing burdens on school districts underscore the value of the services staffing companies offer.
"Hiring is challenging and time-intensive," she says. "It's very time-consuming to get quality people to work for you."
A testimonial from Annville-Cleona School District Superintendent Steven E. Houser that A+ uses in its promotion material notes another advantage staffing companies can offer.
"Retired teachers from our district and surrounding districts were able to apply and substitute for us, since their employment through A+ was outside of the PSERS system," Houser wrote. "This increased the quality of our candidates and the breadth of certified substitutes."