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Key Decision Points in ACA Reporting Vendor Setup Questionnaires: Part I

Question: How should employers approach the basic ACA reporting questions in the setup forms used by most payroll or benefits administration systems?

Short Answer: The three key inputs are the measurement method, affordability safe harbor, and—for those employers utilizing the look-back measurement method—the measurement and stability periods.

Note: This is the first post in a four-part series addressing ACA reporting vendor setup questions.

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General Rule: ACA Reporting

The ACA requires Applicable Large Employers (ALEs) subject to the ACA employer mandate to report whether they offered medical coverage (i.e., minimum essential coverage) that was affordable and provided minimum value to full-time employees.  This reporting is generally handled via IRS Forms 1094-C/1095-C.

Although Congress effectively repealed the ACA individual mandate in the Tax Cuts and Jobs Act by zeroing out the tax penalty as of 2019, employers with a self-insured plan (and insurance carriers for a fully insured plan) are still required to report the months of coverage for the employee and any covered dependents.  Self-insured ALEs report this coverage information—despite it no longer having any federal income tax consequence—in Part III of the Form 1095-C. Insurance carriers for fully insured plans report this coverage information on a separate Form 1095-B.

For more details from an employer perspective:

  • Newfront's ACA Employer Mandate & ACA Reporting Guide
  • Newfront Compliance Alert: ACA Reporting Deadlines Extended Again

For more details from an employee perspective:

Key Decision Point #1: Measurement Method

The ACA employer mandate offers employers the option to choose between two alternative measurement methods to determine which employees are treated as full time (i.e., averaging at least 30 hours of service per week) for §4980H (employer mandate) purposes:

  • The Monthly Measurement Method (MMM)
  • The Look-Back Measurement Method (LBMM)

https://www.irs.gov/affordable-care-act/employers/identifying-full-time-employees

In general, employers must apply the same measurement method across all employees.  For example, the employer cannot apply the LBMM to variable hour employees while applying the MMM to regular full-time employees.

However, employers are permitted to choose separate measurement methods for the following classes of employees:

  • Hourly vs. salaried employees
  • Employees in different states
  • Union vs. non-union employees
  • Employees in different union groups

Understanding the Monthly Measurement Method

The MMM is best thought of as the ACA’s default measurement method for determining employees’ full-time status.  It is relatively simple and straightforward.

In short, the MMM provides that an employee is considered full-time for any given calendar month if the employee completes at least 130 hours of service.

Important Point: There is no measurement, administrative, or stability period under the MMM.  It is simply a month-to-month approach.

The ACA reporting industry rarely discusses the advantages and disadvantages of each measurement method.  Below is a high-level summary of some of the main considerations for the MMM:

Advantages of the MMM:

  • Administrative simplicity for workforces with generally stable hours
  • Limited non-assessment period available the first time an employee works full-time in a month

Disadvantages of the MMM:

  • No predictability as to full-time/part-time status for the plan year because it is determined monthly
  • Not feasible for workforces with a significant population that regularly fluctuates above or below 30 hours of service per week
  • Won’t know hours of service for any given month until the month has been completed—and at that point it’s too late to offer coverage for prior month if worked full-time (130+ hours of service)
  • No initial measurement period available to delay the offer of coverage to new variable/seasonal/part-time employees for 13 months

Recommended For:

  • Employers with all or almost all full-time workforce
  • Employers who set eligibility below 30 hours of service per week (e.g., 20 hours/week)
  • Employers without a significant number of new variable/seasonal/part-time hires
  • Employers without a significant number of ongoing employees whose hours may fluctuate above and below 30 hours of service per week

Understanding the Look-Back Measurement Method

The ACA did not originally contain a LBMM.  Instead, it required ALEs to look an employee’s full-time status each month to determine whether the employee averaged at least 30 hours of service per week—which the IRS now refers to as the MMM.  (See IRC §4980H(c)(4)(A): “The term ‘full-time employee’ means, with respect to any month, an employee who is employed on average at least 30 hours of service per week.” (emphasis added)).

When the IRS first referred to the LBMM concept in Notice 2011-36 prior to issuing the proposed employer mandate regulations, the rationale was clear:

“A determination of full-time employee status on a monthly basis for purposes of calculating an employer’s potential §4980H liability may cause practical difficulties for employers, employees, and the State Exchanges. These difficulties include uncertainty and inability to predictably identify which employees are considered full-time and, consequently, inability to forecast or avoid potential § 4980H liability. This issue is particularly acute in circumstances in which employees have varying hours or employment schedules (e.g., employees whose hours vary from month to month or who are employed for a limited period)… One possible alternative would permit applicable large employers, at their option, to use a look-back/stability period safe harbor that would provide certainty as to which employees would be considered full-time for a particular coverage period.”

To summarize: The IRS gave birth to the LBMM as an optional alternative to the default MMM particularly to address concerns for employers with largely variable hour workforces.

As the final regulations were later issued in 2014, the IRS gave the MMM its formal name to reflect the default measurement method.  Prior to the final regulations, the MMM didn’t even have a name.  It was just the standard way of determining full-time status under the ACA.  Only the LBMM initially needed a name because it was developed subsequently as an alternative to the standard statutory approach (the MMM).

For potentially dubious reasons, the reporting vendor industry has largely turned the ACA full-time employee determination on its head.  ACA reporting vendors generally treat the LBMM as the default measurement method, while dismissing the MMM as an unusual and obscure alternative.  In reality, both measurement methods are viable and reasonable, depending on the employer’s workforce characteristics.

The reporting industry rarely discusses the advantages and disadvantages of each measurement method.  Below is a high-level summary of some of the main considerations for the LBMM:

Advantages of the LBMM:

  • Predictability as to which employees are full-time and which are part-time for the entire plan year (the stability period)
  • Ability to place variable hour, seasonal, and part-time new hires in an initial measurement period and initial administrative period (up to 13 months, plus a partial month for a mid-month hire) prior to offering coverage with no potential penalties (limited non-assessment period)
  • Standard stability period will generally track traditional plan year

Disadvantages of the LBMM:

  • Administratively complex and demanding to track hours—particularly for new variable/seasonal/part-time hires
  • May require paying the ACA reporting vendor an additional fee per employee to perform hours tracking and administer the measurement/administrative/stability periods
  • To avoid potential pay or play penalties, the LBMM requires offering coverage to previously full-time employees currently working under 30 hours of service per week for the duration of the stability period (e.g., employees who move to part-time or go on an unpaid, non-protected leave)

Recommended For:

  • Employers with significant population of new variable/seasonal/part-time hires
  • Employers that set health plan eligibility at 30 hours of service per week and have significant population of ongoing employees who fluctuate above and below that threshold

Brian Gilmore

About the author

Brian Gilmore

Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law. Connect with Brian on LinkedIn.


The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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