The U.S. Supreme Court will hear oral arguments on the constitutionality of the Affordable Care Act later this month. It plans to issue a ruling by June. Ralph Brislin, CPP examines how it could impact contract security companies. (ONLINE EXCLUSIVE)
(Updated June 28, 2012) - The U.S. Supreme Court has upheld most of the Affordable Care Act, including the “individual mandate” section requiring all Americans to buy health insurance by 2014 or face financial penalties. Although it may not seem that this could affect security operations, the law will have ramifications for all security professionals who either provide contract security services or who use such services.
The reason has to do with the situation as it now stands for officer healthcare coverage. Many security firms advertise that they offer major medical insurance plans to their officers. However, most of these plans require that the officers pay high premiums; as a result, officers don’t sign up for the coverage. Because no benefit is provided, there is no actual cost to the security provider.
Beginning on January 1, 2014, all employers with more than 50 employees will be required to provide affordable healthcare coverage to employees or to give each employee a $2,000 voucher per year so that the employee can purchase a plan through the federal Health Insurance Exchange. (The company will not be charged for the first 30 employees.)
If an employer chooses to offer healthcare coverage, the employee’s portion of the premium cannot exceed 9.5 percent of the employee’s income. For an officer making $10 an hour (approximately $20,800 a year), the cost of the healthcare premium may not exceed $1,976 annually or $164.67 per month.
To see how this would work out in the contract security industry, let’s assume that the fictional ABC Security Company has 100 full-time employees and, all of those employees choose to buy insurance through the federal exchange because the company does not provide insurance. ABC is now liable for a fee of $140,000 annually because it does not offer coverage.
The $140,000 annual fee for ABC was calculated with the fine of $2,000 per full-time employee, with the first 30 employees exempt under the law. In this example, ABC would want to try to recover their additional expense of $140,000 annually which equates to $0.67 per hour billing rate increase for all hours worked. Obviously, this average could be greater or less than $0.67 per hour, depending on the size of the contract or the number of officers used. A contract security company with 500 employees using the same example would want to recover their additional annual expense of $940,000 for a $0.90 average bill rate increase for every hour worked.
If a company is currently subsidizing health insurance premium costs in the form of a direct bill from the contract security company, the impact from the new law will not be as great. But healthcare will need to be monitored by the client company in the same way as liability insurance.
Having worked the past several years as an owner of a large Midwestern security company and now as a consultant, my experience has been that fewer organizations are allowing for security contractors to bill for a major medical insurance plan. It is unclear whether this trend will continue if the healthcare law takes effect. But it seems inevitable that one way or another at least some of the increased healthcare costs will be passed on to clients.
Security companies and clients in Massachusetts have been operating under a state imposed health insurance reform law since 2006. Their experiences offer a clue to what may happen nationally. One Massachusetts contract security firm stated that their healthcare costs increased by 30 percent in 2007, with 10 percent annual increases in subsequent years since the mandate. The company passed some of the cost on to their clients.
The same may hold true for the federal law. Some clients may simply absorb the cost of the healthcare reform. Those with contracts with only one or two officers per shift, for example, might see their annual costs increase between $8,000 and $16,000. They may simply accept that this is the cost of doing business.
Providers may eat some costs, however, not all providers will be willing or able to absorb all of the costs. Fixed contracts may be voided because increased healthcare costs were not factored in. Client companies, especially those who deal with purchasing agents, will see their contracts rebid regardless of their level of satisfaction with their current provider because of the anticipated increase in cost.
An ancillary effect may be that larger security companies will gain market share. This is counterintuitive because small security companies with fewer than 50 employees will enjoy a competitive edge since they are exempt from the law, allowing them to keep their rates low. However, they won’t be able to increase their size by adding many new clients since they must maintain their small size if they are to remain exempt.
To get around the law, some security companies and clients may try to employ a majority of part-time employees to work as security officers. This requires a person to average less than 30 hours per week of work on an annual basis. Part-time employees who work as security officers are a vital and dependable resource for security companies, but staffing an account with a majority of these positions is not a viable solution.
Also, contract security companies may see clients increase their use of technology to minimize security staffing. Some companies that currently use contract security providers may determine that it is more practical for them to move to proprietary security services.
Despite the costs, forcing security providers to offer insurance may not be all bad. Most security providers will agree that providing health insurance benefits reduces turnover and, thus, indirectly improves the quality of service. Under the Affordable Care Act, all security providers will then compete on a level playing field. If the quality of insurance plans will be mandated by the government, then this element of the bid process is removed. Of course, if the officers end up getting their coverage from the federal exchange, not the company, it will not affect turnover, because an officer can change jobs and maintain uninterrupted coverage.
Companies must begin planning to comply with the law. End users and their providers should begin discussions to analyze the potential impact and ensure that they are prepared for any financial repercussions beginning in 2014.
Ralph Brislin, CPP, is a security consultant and author of several security officer training programs including the State of California, CALSAGA Security Officer Training Program. He specializes in advising security companies and their clients as to the ever-changing contract security industry on matters such as healthcare reform and technology integration. Brislin formerly served as a security manager for various Fortune 500 companies and as the owner of a contract security guard firm.