October 2013 | Commentary | Viewpoint

How Will the Affordable Care Act Impact Shippers?

Tags: 3PL, Legislation, Public Policy, and Regulations, Labor Management

Joel Anderson is President and CEO, International Warehouse Logistics Association, 847-813-4699

Companies large and small are assessing the impact the Patient Protection and Affordable Care Act (PPACA) will have on employee benefits. The mandates of the act start Jan. 1, 2014, and employers are examining a variety of responses.

Shippers must not only face the question of how this legislation relates to their own operations and employees, but how the act's impact on their supply chain partners will, in turn, affect them. Third-party logistics (3PL) public and contract service providers face an extra challenge because of the contingent nature of their workforce, and the seasonal characteristics of their businesses.

The 3PL sector includes many large employers with more than 50 employees working at least 30 hours per week. Under the PPACA, these employers must offer a healthcare package that is affordable, limits an employee's cost sharing, and provides essential benefits. While penalization has been put on hold for one year, the rest of the law has significant impact on contract logistics providers—and, ultimately, on shippers, who will be affected by 3PLs' increased financial responsibilities.

Because of the 3PL sector's large seasonal workforce, PPACA has a disproportionate operational and economic impact on this sector. A flexible workforce of seasonal, temporary, and part-time workers skews the numbers to mandate higher benefit costs for increased coverage because of the "look back" analysis.

Some expected that companies operating warehouse facilities could bundle headcount from all warehouse operations and apply one participation level. But the IRS ruled that each facility must be viewed as a single entity, which makes the application of benefits more complex, and may require different premiums from one location to another.

Assessing the Options

Many 3PLs offer affordable healthcare plans to all associates. Currently, it is the employee's choice whether to participate in the plan. Beginning in 2014, however, employees will be required to participate in a company healthcare plan, purchase a plan from a state-run exchange (if applicable), or pay a penalty.

The PPACA presents logistics companies with many questions, which will require significant analysis to answer. These questions include:

  • Should companies offer healthcare coverage or possibly pay a penalty when this provision is implemented?
  • Can companies insure temporary employees differently than full-time employees?
  • Will employees covered elsewhere be excluded from companies' full-time headcount?
  • Should the company limit all temporary work to fewer than 30 hours per week to avoid additional coverage requirements?

Most logistics companies must take these issues into account and reach out to their shipper clients to review current contracts that were based on a known benefit cost per employee. The increase in costs may range from .75 percent to as much as 10 percent by the time inflation is added to the equation, according to the American Staffing Association. That represents a significant increase for a logistics operation to absorb and still remain profitable.

Logistics companies must work with human resource departments, contract labor providers, and insurance administrators over the next months, and include their opinions in all operational discussions.