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The Look Back Measurement Method – Ongoing Employees

September 26, 2016


This is part three of a three part series. Please use the links below to view the other parts of the series. Part OnePart TwoPart Three


Despite almost being two years into the Play or Pay provision of the Affordable Care Act (ACA) there is still confusion surrounding some aspects of the complex provision. The ACA provides an employer the option to offer 95 percent of its full-time employees minimum essential coverage or risk paying a section 4980H penalty. For section 4980H purposes, a full-time employee is an employee who averages at least 30 hours of service per week. An employer can treat 130 hours of service as the monthly equivalent of 30 hours per week. Additionally, an employer has the option to adopt the look back measurement method. The logical choice for almost every employer is to adopt the optional look back measurement method to track its employees’ hours of service.

If the look back measurement method is adopted, an employee can be classified as a full-time employee, a part-time employee, a variable hour employee, a seasonal employee, or an ongoing employee. The remainder of this publication reviews the rules of the look back measurement method as it relates to ongoing employees. This publication is the third part of a three part series. All of the points, such as documenting the look back measurement method, counting hours of service, and employee classification, discussed in first part and second part of the three part series are relevant for the third part.

An ongoing employee is an employee who has been employed for at least one standard measurement period. Once an employee meets the ongoing employee definition, the other classifications (full-time, part-time, variable hour, and seasonal) are irrelevant. An ongoing employees status is solely determined by the standard measurement period unless there is an initial measurement period (see below). The standard measurement period is similar to the initial measurement period discussed in part twoof this three part series. However, the standard measurement period is typically the same for all ongoing employees as opposed to the initial measurement period which is unique to each individual employee, if applicable, depending on the employee’s start date. The standard measurement period, like the initial measurement period, is made up of three periods of time.

The standard measurement period is a time period chosen by the employer of at least three, but not more than 12 consecutive months. The employer will look back at each ongoing employee’s total hours of service during the standard measurement period to determine whether the employee averaged at least 30 hours of service per week to be classified as full-time. It makes sense to tie the standard measurement period to the start of an employer’s plan year so employees that accumulate an average of 30 hours per week during the standard measurement period can easily be offered coverage during the open enrollment period.

The stability period is a period that follows the standard measurement period and any administrative period. Assuming the standard measurement period is 12 months (almost always the logical choice), the stability period will be 12 consecutive calendar months. It is important to recognize that the stability period must begin on the first day of a calendar month. In general, if an employer determines an employee accumulated an average of 30 or more hours of service per week during the standard measurement period, the employer must offer the employee coverage for the entire corresponding stability period regardless of the employee’s hours of service so long as the employee remains employed. If the employer determines an employee did not accumulate an average of 30 hours of service per week during the standard measurement period, the employer does not have to offer the employee coverage for the entire corresponding stability period regardless of the employee’s hours of service during the stability period.

The final period an employer can utilize for the standard measurement period is the administrative period. The administrative period may last up to 90 days, but may neither reduce nor lengthen the standard measurement period or the corresponding stability period. To prevent gaps in coverage the administrative period will overlap with the prior year’s stability period during which time an employee’s classification (full-time or not full-time) will remain unchanged from the prior stability period classification.

Consider the following examples that discuss the concepts discussed in this publication.

Example 1 – ABC Inc. is an applicable large employer. ABC Inc. has adopted the look back measurement method and offers health coverage to all employees who accumulate an average of 30 hours of service per week. The plan offered by ABC Inc. meets the minimum essential coverage threshold and provides minimum value at an affordable price. ABC Inc. has elected to use a standard measurement period for ongoing employees that begins on November 10 of year one and ends on November 9 of year two. ABC Inc. uses a 52 day administrative period that begins on November 10 of year two and ends on December 31 of year two. The corresponding stability period runs from January 1 of year three until December 31 of year three.

Holly has been employed by ABC Inc. since June 28, 2010. From November 10, 2014 until November 9, 2015 Holly accumulates 1,809 hours of service with ABC Inc. (an average of 34.79 hours of service per week during the standard measurement period). Therefore, Holly would be considered a full-time employee for section 4980H purposes from January 1, 2016 until December 31, 2016 regardless of Holly’s hours of service during that timeframe so long as Holly remained employed by ABC Inc.

Example 2 – Assume the exact same facts as example 1. McGee has been employed by ABC Inc. since October 2, 2012. From November 10, 2014 until November 9, 2015 McGee accumulates 1,504 hours of service with ABC Inc. (an average of 28.92 hours of service per week during the standard measurement period). Therefore, McGee would not be considered a full-time employee for section 4980H purposes from January 1, 2016 until December 31, 2016 regardless of McGee’s hours of service during that timeframe.

There are special rules for an employee transitioning from an initial measurement period to a standard measurement period. There are four scenarios an employer will encounter each of which provides the employee the benefit of being treated as a full-time employee for the maximum number of calendar months. The first scenario occurs when the employee is a full-time employee during both the initial measurement period and the overlapping standard measurement period. In this case, the employer must make an offer of coverage available to the employee during the stability period associated with both the initial measurement period and the standard measurement period so long as the employee remains employed.

Example 3 – ABC Inc. elects to utilize the look back measurement method which it documents in a policy created by the company. The policy creates an initial measurement period that lasts for 12 months beginning on the first day of the calendar month after the employee’s start date or on the employee’s start date, if, and only if, the employee’s start date occurs on the first day of the calendar month. The corresponding stability period lasts 12 months and begins on the first day of the 14th calendar month following the employee’s start date. The time between the employee’s start date and the beginning of the initial measurement period and the end of the initial measurement period and the beginning of the stability period will be included as an administrative period. The administrative period will last at most a partial calendar month (from the employee’s start date until the first day of the calendar month following the employee’s start date, if any) plus a full calendar month following the end of the initial measurement period and the beginning of the stability period. Assume the same standard measurement period as example 1.

Lilly is hired by ABC Inc. on February 10, 2014 at which time ABC cannot reasonably determine if Lilly will average at least 30 hours of service per week during the initial measurement period. Therefore, Lilly is classified as a variable hour employee. During Lilly’s initial measurement period from March 1, 2014 until February 28, 2015 Lilly accumulates 1,594 hours of service with ABC Inc. (an average of 30.65 hours of service per week during the initial measurement period). During Lilly’s overlapping standard measurement period from November 10, 2014 until November 9, 2015 Lilly accumulates 1,608 hours of service with ABC Inc. (an average of 30.92 hours of service per week during the standard measurement period). Therefore, Lilly will be considered a full-time employee for the stability period associated with Lilly’s initial measurement period from April 1, 2015 until March 31, 2016. Lilly will also be considered a full-time employee for the stability period associated with Lilly’s overlapping standard measurement period from January 1, 2016 until December 31, 2016.

In the second scenario the employee is not a full-time employee during both the initial measurement period and the overlapping standard measurement period. In this case, the employer does not have to make an offer of coverage available to the employee in the subsequent stability period associated with both the initial measurement period and the standard measurement period.

Example 4 - Lilly is hired by ABC Inc. on February 10, 2014 at which time ABC cannot reasonably determine if Lilly will average at least 30 hours of service per week during the initial measurement period. Therefore, Lilly is classified as a variable hour employee. During Lilly’s initial measurement period from March 1, 2014 until February 28, 2015 Lilly accumulates 1,494 hours of service with ABC Inc. (an average of 28.73 hours of service per week during the initial measurement period). During Lilly’s overlapping standard measurement period from November 10, 2014 until November 9, 2015 Lilly accumulates 1,508 hours of service with ABC Inc. (an average of 29 hours of service per week during the standard measurement period). Therefore, Lilly will not be considered a full-time employee for the stability period associated with Lilly’s initial measurement period from April 1, 2015 until March 31, 2016. Lilly will also not be considered a full-time employee for the stability period associated with Lilly’s overlapping standard measurement period from January 1, 2016 until December 31, 2016.

In the third scenario the employee is a full-time employee during the initial measurement period, but is not a full-time employee during the overlapping standard measurement period. In this case, the employer must make an offer of coverage available to the employee for the duration of the stability period associated with the initial measurement period. At the conclusion of the stability period associated with the initial measurement period, the employer does not have to offer the employee coverage for the remainder of the stability period associated with the standard measurement period.

Example 5 – Brody a variable hour employee is hired by ABC Inc. on September 3, 2014. During Brody’s initial measurement period from October 1, 2014 until September 30, 2015 Brody accumulates 1,678 hours of service with ABC Inc. (an average of 32.27 hours of service per week during the initial measurement period). During Brody’s overlapping standard measurement period from November 10, 2014 until November 9, 2015 Brody accumulates 1,523 hours of service with ABC Inc. (an average of 29.29 hours of service per week during the standard measurement period). Therefore, Brody will be considered a full-time employee for the entire stability period associated with Brody’s initial measurement period from November 1, 2015 until October 31, 2016. However, Brody will not be considered a full-time employee for the remainder of the stability period associated with Brody’s standard measurement period that does not overlap with the stability period from the initial measurement period from November 1, 2016 until December 31, 2016.

In the fourth scenario the employee is not a full-time employee during the initial measurement period, but is a full-time employee during the overlapping standard measurement period. In this case, the employer must make an offer of coverage available to the employee for the entire stability period associated with the standard measurement period. The employer does not have to offer the employee coverage for the portion of the stability period corresponding to the initial measurement period that does not overlap the stability period corresponding to the standard measurement period.

Example 6 – Brody a variable hour employee is hired by ABC Inc. on September 3, 2014. During Brody’s initial measurement period from October 1, 2014 until September 30, 2015 Brody accumulates 1,555 hours of service with ABC Inc. (an average of 29.90 hours of service per week during the initial measurement period). During Brody’s overlapping standard measurement period from November 10, 2014 until November 9, 2015 Brody accumulates 1,675 hours of service with ABC Inc. (an average of 32.21 hours of service per week during the standard measurement period). Therefore, Brody will be considered a full-time employee for the entire stability period associated with Brody’s standard measurement period from January 1, 2016 until December 31, 2016. However, Brody will not be considered a full-time employee for the part of the stability period associated with Brody’s initial measurement period that does not overlap with the stability period from the standard measurement period from November 1, 2015 until December 31, 2015.

The dates for the standard measurement period are the same for every employee who falls under the same classification and, in general, are the same for all employees of the employer. The consistent dates make the standard measurement period simpler to apply than the initial measurement period which could, theoretically, have 365 different dates all operating at once compared to just one for the standard measurement period. The one rule to apply when the initial measurement period and the standard measurement period overlap is to always offer an employee coverage for the entire corresponding stability period if the employee accumulates a sufficient number of hours to be considered full-time during the measurement period.

An employer must know when an employee has to be offered coverage. Not timely offering coverage to a person who is considered full-time could subject the employer to a section 4980H penalty. Accord has sophisticated, automated software that can be integrated with various third-party platforms and can process any look back measurement method that complies with the rules of the final regulations. Should you have any questions regarding this article or the look back measurement method please don’t hesitate to contact us.


About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorney's P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the newly created Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.


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