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Affordable Care Act Measurement Methods

Introduction

To determine ACA status for variable-hour employees, the IRS requires measurement of employees' hours. Employers can use either the Monthly Measurement Method or the Look-Back Measurement Method to establish full-time status and eligibility for medical coverage. These methods also ensure that necessary data is available for completing the 1094-C and 1095-C forms at year-end.

Look Back Method (Recommended)

Under this method, employers track employee hours over a set period of time, and then calculates the average number of hours worked over that period, to determine the employee's full-time status. This is a more complex way of measuring employees but offers more flexibility for employers with hourly employees working variable hours. The Look-Back Measurement Method consists of three defined periods:

  • Measurement Period - This is a defined period of either 6 or 12 consecutive months during which the employer tracks hours to determine if the employee averages 30 hours or more per week. The IRS provides employers with the option to select the length of their measurement period; however, it is typically most often 12 months. At the end of this period, if the employee is found to be full-time, they are eligible for benefits during the subsequent Stability Period.
  • Administrative Period - A period of up to 60 days during which employers review the results of the Measurement Period and offers coverage to employees who are identified as full-time. This period often aligns with open enrollment. At this time, a new Measurement Period will begin concurrently helping to create a consistent cycle for measuring employees on an ongoing basis.
  • Stability Period - This is a defined period after the Measurement Period and Administrative Period during which the employee retains their full-time or part-time status regardless of the number of hours worked during this period of time. This ensures that employees who qualify as full-time during the Measurement Period receive health coverage for the duration of the Stability Period. The Stability Period usually matches the length of the Measurement Period and starts at the same time the coverage effective date is.

Common terminology used with the Affordable Care Act and Tracking:

  • ACA Term: Measurement Period better known as Lookback Period.
  • ACA Term: Administrative Period better known as Open Enrollment Period.
  • ACA Term: Stability Period better known as Plan Year.

Please note that each time a Measurement Period ends, a new one begins. Typically, Measurement Periods are structured as 12 months so this helps to measure employees for the next year. The length of the Stability Period (Plan Year) always matches the length of the Measurement Period (Lookback Period). Since most plans are 12 months – most Measurement Periods will also be 12 months.

It is often the case that employers find it easiest to work backwards to figure out your Measurement Period since the Plan Year (Stability Period) and Open Enrollment (Administrative Period) are dates already known by your company. It is always the Measurement Period part of the equation that must be determined.

Please review the following Look-Back Measurement Method examples:

Example #1:  Plan Year begins 1/1/2018 and ends 12/31/2018 & Admin Period is 90 days (3 months)

  • Stability Period: 1/1/2024 – 12/31/2024
  • Admin Period: 10/1/2023 – 12/31/2023
  • Measurement Period: 10/1/2022 – 9/30/2023

Example #2:  Plan Year begins 5/1/2017 and ends 4/30/2018 & Admin Period is 30 days (1 month: since the month before May has 30 days, there are 30 days in the Admin Period.  If the Admin Period month were March, it would be a 31-day period)  

  • Stability Period: 5/1/2023 – 4/30/2024
  • Admin Period: 4/1/2023 – 4/30/2023 
  • Measurement Period: 4/1/2022 – 3/31/2023

Additional Terminology

  • Ongoing Employees: non full-time employees that have been employed with the organization for at least one full Measurement Period. The Standard Measurement Period is used to track these employees.
  • New Variable Hour Employees: non full-time employees that have not been employed with the organization for at least one full Measurement Period. The Initial Measurement Period is used to track these employees. After the initial Measurement Period these employees merge in with the Ongoing Employees for tracking.

Initial Measurement vs. Ongoing Measurement

Newly hired variable and part-time employees that have not been employed for at least one full Measurement Period are measured with the Initial Measurement Period rules. All new hire Measurement Periods begin on the first of month after hire. From there, employers can choose a Measurement Period length to be between 3 to 12 months. Following this, an Administrative Period of up to 90 days will commence if the new hire is determined to be full-time. The subsequent Stability Period must last at least 6 months and can be up to 12 months, but it cannot be shorter than the Measurement Period the employer selects. During this time, the employee will transition to the ongoing Measurement Period.

Monthly Measurement Method

The Monthly Measurement Method is second of the two approved methods to track employees under the ACA's requirements. Under this method, the employer tracks the hours of service each calendar month for each employee to determine their full-time status. An employee is considered full-time if they average at least 30 hours of service per week or 130 hours per month. If the employee is determined to be full-time, they must be offered coverage for that month. This method can be administratively tedious for employers with several hourly employees with variable hours. However, it aligns better with employers who have all salaried or full-time staff.

There can be a disadvantage to using the Monthly Measurement Method considering that the employer has to offer coverage for the month before the tracking of the hours takes place. The employer may need to make an educated guess as to whether an employee will be full-time or not and then offer medical coverage accordingly. If the employer guesses wrong at the beginning of a calendar month, they can run the risk of an employee missing out on coverage they are eligible for, potentially exposing the company to a penalty levied by the IRS.

Example: Arthur works at ABC Inc.  ABC Inc. does not believe that Arthur is really working full-time hours at the beginning of January 1, 2016, so they choose not to offer him coverage. On January 31st, it turns out that Arthur worked 140 hours for the calendar month and according to the Affordable Care Act, Arthur was full-time for January. On Arthur's 1095-C form, it will show that Arthur was a full-time employee but not offered coverage. This inconsistent guess can cause serious problems for an employer, which is why most employers choose to use the Look-Back Method.  

When is the Monthly Measurement Method appropriate? There are really two practical scenarios when this tracking method may be appropriate for an employer to use:

  1. If the employer truly knows that they have all full-time and part-time people and that their hours do not fluctuate. 
  2. When an employer cannot access or get the amount of historical data that is required for the Look-Back Method. In this case it still may not be the best idea to track this way, however it at least allows for the employer to use Empeon Workforce as an auditable source of data if the IRS were to audit them.

Please Note that per the IRS, “An hour of service is each hour for which an employee is paid, or entitled to payment, for the performance of duties or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.”

For additional information about the ACA and it's requirements, please refer to Empeon's article Affordable Care Act FAQ's. For information on how Empeon can assist in establishing your organizations Measurement Method, please refer to Empeon's article Benefit Administration: ACA Setup.