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

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 third post in a four-part series addressing ACA reporting vendor setup questions.

  • Part I: The Measurement Method
  • Part II: The Affordability Safe Harbor

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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Although Congress effectively repealed the ACA individual mandate in the Tax Cuts and Jobs Act by zeroing out the tax penalty as of 2019, employers with a self-insured plan (and insurance carriers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:

For more details from an employee perspective:

Key Decision Point #3: The Measurement, Administrative, and Stability Periods (LBMM Only)

Although the look-back measurement method (LBMM) in its most granular details is likely the most complex compliance aspect of employer-sponsored group health plans, the basics of the LBMM are quite simple: Employees’ status as full-time or part-time is generally kept stable for the current stability period (typically the plan year) based on the prior-year measurement period. 

There are three main components to the LBMM structure:

  • The Measurement Period: The period that determines whether employees have averaged at least 30 hours of service per week to determine full-time status.
  • The Administrative Period: The period used to a) review the results of the measurement period, and b) make an offer of coverage (effective as of the start of the subsequent stability period) to employees reaching full-time status.
  • The Stability Period: The period during which employees’ full-time or part-time status is kept “stable” based exclusively on the hours of service averaged in the prior associated measurement period.

The key design feature of the LBMM is that ongoing employees’ current average hours of service are not relevant in determining whether they are full-time during the current stability period (typically the plan year).  Only the employees’ average hours worked over the prior-year measurement period will determine whether they are full-time during the present stability period.  Any change in hours of service will affect the employee’s full-time status only for the subsequent stability period—and even then only if it causes the employee’s average hours of service to change above or below 30 during the current measurement period.

The IRS treats 130 hours of service per month as the threshold that applies to determine whether the employee averaged 30 hours per week.  Most employers have a 12-month standard measurement period.  Therefore, in most cases employees must complete at least 1,560 hours of service (130 x 12) in the measurement period to reach full-time status for the associated subsequent stability period.

There are different and more complex rules that apply for new hires and in other special situations, but those basic concepts drive most of the LBMM’s practical effect.

For details on many of the LBMM’s most intricate and difficult aspects:

Ongoing Employees: Establishing the Standard Measurement, Administrative, and Stability Periods

The standard measurement, administrative, and stability periods apply to determine the full-time status of ongoing employees, which are employees who have completed at least one full standard measurement period.

There are many rules and possible variations in the possible arrangement for these purposes, but for practical purposes almost all employers follow the same common-sense approach:

  • Standard Measurement Period: 12 months, ending with a two-month gap before the start of the stability period.
  • Calendar Plan Year Standard Approach: November 1 – October 31
  • Standard Administrative Period: 2 months, comprising the two-month period between the end of the standard measurement period and the start of the stability period.
  • Calendar Plan Year Standard Approach: November 1 – December 31
  • Standard Stability Period: 12 months, tracking the employer’s plan year.
  • Calendar Plan Year Standard Approach: January 1 – December 31

Note: The 90-day administrative period limit prohibits a measurement period running from 10/1 because that period would result in an administrative period of 91 days (exceeding the limit by one day!). Some employers prefer to use 10/15 as the start of the measurement period as a middle-ground approach, but ultimately the complexity of the mid-month end date calculations may not be worth it.

New Non-Full-Time Hires: Establishing the Initial Measurement, Administrative, and Stability Periods

Employers must offer coverage to new full-time employees that is effective no later than the first day of the fourth full calendar month of employment to avoid potential ACA employer mandate penalties.

However, new hires who can be classified as variable, seasonal, or part-time employees can first be placed into an initial measurement period to determine their full-time status before offering coverage.  The limit on the combined length of the initial measurement period and initial administrative period is 13 months (plus a partial month for a mid-month hire).  This combined initial measurement/administrative period before the new hire reaches a stability period is referred to as a “limited non-assessment period” (i.e., a period during which no ACA employer mandate pay or play penalties will apply under certain conditions).

Important Point: Only new variable, seasonal, and part-time employees will be placed in an initial measurement period.  New full-time hires do not have an initial measurement period.

There are therefore four classifications for new hires:

1. New Full-Time Employees: No Initial Measurement Period

A new hire who is reasonably expected at the employee’s start date to be a full-time employee (i.e., average 30 hours of service per week), and is not a seasonal employee, is considered a new full-time employee.  Factors include whether the prior person in the position averaged 30 hours of service per week, and whether the job was advertised/communicated as requiring 30 hours of service per week.

For new full-time employees, employers must offer coverage to be effective no later than the first day of the fourth full calendar month of employment to avoid potential pay or play penalties.  There is no initial measurement period.

2. New Variable Hour Employees: Initial Measurement Period

A new hire for whom the employer cannot determine whether the employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period is a variable hour employee.  Caution: The employer may not consider the likelihood that the employee may terminate employment before the end of the initial measurement period.

3. New Seasonal Employees: Initial Measurement Period

An employee who is hired into a position for which a) the customary annual employment is six months or less, and b) the period of employment begins each calendar year in approximately the same part of the year (such as summer or winter) is a seasonal employee regardless of average weekly hours of service.

4. New Part-Time Employees: Initial Measurement Period

A new hire who is reasonably expected to average less than 30 hours of service per week during the initial measurement period is a part-time employee who will also be placed into the initial measurement period to confirm part-time status for the subsequent initial stability period.

For practical purposes almost all employers follow the same common-sense approach to the LBMM periods for new non-full-time hires:

  • Initial Measurement Period: 12 months, begins first of the month following the date of hire.
  • March 15, 2021 Hire Date Example: Runs from April 1, 2021 through March 31, 2022
  • Initial Administrative Period: One month, begins after the end of the initial measurement period (and technically also includes the first partial month, if any, of employment).
  • March 15, 2021 Hire Date Example: Runs from March 15, 2021 through March 31, 2021 (front-end of split administrative period), and then from April 1, 2022 through April 30, 2022 (back-end of split administrative period)
  • Initial Stability Period: 12 months, begins after the end of the initial administrative period (begins 13 months—plus a partial month for a mid-month hire—after date of hire).
  • March 15, 2021 Hire Date Example: Runs from May 1, 2022 through April 30, 2023

Note: A special rule permits employers to have an 11-month initial measurement period (i.e., one-month shorter than the stability period), which allows for a two-month back-end initial administrative period approach.  Many employers choose this approach, but its added complexity ultimately may not be worth it.

For more details, see slide our ABD 2020 ACA Employer Mandate Pay or Play and ACA Reporting Guide.


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.


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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