The look-back measurement method works best for organizations with hourly or variable-hour employees, interns, and seasonal workers. It allows these employees to maintain eligibility for employer-provided health benefits consistently.
After a standard measurement period, an employee enters a stability period (or optional administrative period). During the stability period, if they were treated as full-time during the initial or standard measurement periods, they must be offered coverage.
What Is a Measurement Period?
A measurement period is when an employer measures employee hours to offer health coverage. At Tango, we use a 12-month measurement period to determine eligibility for our employees and require them to remain employed into the subsequent Stability Period to maintain their status as full-time under the ACA.
For new hires who still need to enroll in the group plan, the ACA requires that an initial look-back measurement period be used. An initial measurement period can be 3 to 12 months long and must be used for all new hires. The Stability Period must be the same length as the ACA measurement periods and must also be for all new hires who are measured as full-time.
Employers with a salaried workforce or whose employee schedules do not vary are best served by the look-back measurement method for determining which employees are eligible for health coverage. The look-back measurement period makes it much easier for these employers to identify full-time and part-time employees in advance.
On the other hand, an employer with variable hours or seasonal employees who work above and below 30 hours per week may need help using the look-back method. The ACA allows for an alternative solution: the monthly measurement method. Under this method, an employer measures an employee’s monthly hours and then offers coverage. This initial measurement period can be as short as three months and must be followed by administrative and stability periods.
How Long is a Measurement Period?
The length of a measurement period is an essential decision employer must make. Ongoing employees are generally measured over a standard period of 12 months. An ongoing employee who averages 30 or more hours per week over a standard measurement period is considered full-time and eligible for employer-sponsored coverage. If an ongoing employee isn’t offered coverage in a subsequent stability period, they must be offered it in the following calendar year (also known as the “look-back” method).
A new variable hour and seasonal employees are measured over an initial measurement period upon hire. This initial measurement period can be from 3-12 months, but the initial stability period can be six months at maximum (plus an administrative period if the employer chooses to have one).
Employers must offer ACA-compliant coverage to all employed individuals during their initial measurement or stability periods. These individuals are known as the “look-back” population and must be offered coverage to avoid ACA employer-shared responsibility penalties. For many ALEs, this means offering health coverage to all employees in their initial measurement or stability periods, regardless of whether those individuals were working what the ACA considers full-time. However, there may be better approaches for some ALEs. Seek professional advice for guidance on your specific situation.
What Is the Stability Period?
The stability period is the time frame within which eligible employees must be offered coverage. This period should align with the plan year and can be no shorter than the measurement period. The stability period is essential for ALEs to understand because it determines when seasonal or variable-hour employees should be offered coverage and which employees should be eligible for the employer-shared responsibility penalty relief.
If an employee averages 30 or more hours per week or 130 hours per month over the measurement period, they must be offered coverage for the corresponding stability period. The stability period must be as long as the measurement period and cannot exceed six months.
ALEs must consistently follow these rules for new hires and ongoing employees alike. New variable hour, seasonal, and part-time employees can be placed into an initial measurement period upon hire to determine their full-time status. For this reason, it’s essential to consider how these new hires will be measured throughout the first year of employment when determining the length of the initial measurement period.
For ongoing employees, a standard measurement period is used to determine their eligibility for coverage. This is because these employees have already worked through one entire measurement period. If they average 30 or more hours per week or 130 or more hours per month over the standard measurement period, they must be offered coverage for their corresponding stability period.
What Is the Administrative Period?
The ACA’s employer shared responsibility provisions require ALEs to offer health coverage to employees who work at least 30 hours per week or equivalent. Using look-back measurement periods and subsequent stability periods, the ACA allows employers to track their hourly workforce’s progress toward this goal.
This method is best for businesses with variable hour, seasonal or part-time workforces where employees’ schedules can change regularly. By setting a standard measurement period of three to 12 months, the look-back measurement method allows for a consistent review of employees’ hours. Once an employee’s status is determined, it can be locked in for the subsequent stability period.
Stability periods can be 6 to 12 months long and must run consecutively with the initial or standard measurement period. During the stability period, the employer must offer employee health coverage to those who measured as full-time in the previous measurement period, regardless of their current number of hours worked (as long as they remain employed and not on an unpaid leave of absence such as vacation, holiday, illness, incapacity, military duty or jury duty).
The benefits of using look-back measurement periods and a subsequent stability period are evident. It makes budgeting easier, reduces the risk of time and attendance tracking errors, and gives employees a consistent set of rules to follow that are consistent with ACA compliance. However, the most important thing for any ACA-compliant business to remember is compatibility with their measurement and stability periods. Otherwise, they may find themselves at risk of an ACA penalty.