Even three years after the ACA required employer coverage for all “full-time” employees, the “look-back” and “stability” periods continue to confuse HR professionals. These periods do not affect most employees; but they come into play with some new employees and with employees who are seasonal or have variable working hours. With these employees, the question of their “full-time” status becomes an acute one for the employer to answer.

What’s more, information about these periods must be in the employer’s Summary Plan Description documents; if they are not, the employer lays itself open for disputes with employees and/or insurance carriers over claim payments.

The ACA requires an employer to offer an eligible employee coverage that is effective by the 91st calendar day, including weekends and holidays. If an employee takes longer than 90 days to accept the offered coverage, the employer is not in violation of the 90-day limit.

Using the “look-back” measurement period is one of two methods to determine if an employee is a “full-time” equivalent employee or FTE.  The second method is the monthly measurement period.   An FTE is an employee who works on average of at least 30 hours per week for an employer. 

The look-back period approach is important to determine if variable and seasonal employees must be offered healthcare insurance.  A variable employee is one who works various hours but no set pattern, so it is difficult to determine if the employee meets the 30-hour per week minimum.  A seasonal employee is one who is hired into a position that will last six months or less. 

Employers have the option to use a look-back measurement period of 3-12 months to determine whether new variable-hour employees or seasonal employees are full-time employees, and avoid being subject to a payment under §4980H for this period with respect to those employees.

The employer will “look back” and calculate the employee’s total hours of service during this time. The term “hour of service” means each hour for which an employee is paid, or entitled to be paid, for the performance of duties to the employer, and each hour for which an employee is paid, or entitled to be paid, 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.

An “administrative” time period is the traditional waiting period that an employee must observe (in the case of the ACA no longer than 90 days) before obtaining healthcare coverage from the employer.

The “stability” period is a period of time that follows the look-back measurement time period and any administrative time period.  The stability period can range from 3-12 months, but cannot be shorter than the length of the corresponding look-back period.  Once an employee is determined to have met the eligibility requirements during the look-back period, the employee is entitled to healthcare coverage beginning at the end of the administrative period and lasting throughout the time of the stability period. This requirement would hold even if the employee works less than the required 30 hours per week and changes status. 

This calculation for these employees would be done on a year-to-year basis, using the same time period for calculation (e.g., three months, 12 months, etc.).  Therefore, if the new employee was determined to be full-time during the Initial Measurement Period, but part-time in the Standard Measurement Period, the employee would cease to be eligible for healthcare insurance at the end of the following Initial Stability Period.

One area of concern for HR arises if the plan’s Summary Plan Description (SPD) does not discuss eligibility requirements or is unclear about them. This situation is much more common than expected today. HR needs to ensure that the SPD contains the eligibility conditions of the plan. For example, if an employer does not synchronize its look-back measurement method with its health plan eligibility, and an employee has high medical expenses, there could be a dispute involving the employee, the employer, and the insurer as to who is liable for the medical expenses.  Therefore, HR should work with legal counsel to ensure its plan’s SPD has clear and concise information on healthcare coverage eligibility.

Source:  CCH 5/3/16. Media Services, IRS.gov