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Employer Shared Responsibility: Look-Back Measurement Method Examples

Pay or Play Penalties

The Affordable Care Act (ACA) imposes a penalty on applicable large employers (ALEs) that do not offer health insurance coverage to substantially all full-time employees and dependents. Penalties may also be imposed if coverage is offered, but is unaffordable or does not provide minimum value. The ACA’s employer penalty rules are often referred to as “employer shared responsibility” or “pay or play” rules.

On Feb. 12, 2014, the IRS published final regulations on the ACA’s employer shared responsibility rules. The final regulations provide an optional safe harbor method that employers can use for determining full-time status, called the look-back measurement method. The look-back measurement method involves a measurement period for counting hours of service, a stability period when coverage may need to be provided, depending on an employee’s average hours of service during the measurement period, and an administrative period that allows time for enrollment and disenrollment.

This Legislative Brief provides examples of potential measurement, administrative and stability periods for plan years beginning in each month throughout the 2015 and 2016 calendar years. These examples assume that the employer will be using a 12-month standard measurement period, a two-month administrative period and a 12-month stability period.

It also provides examples of optional transition measurement periods in 2015, if allowed for the plan year. The final regulations allow employers to use shorter measurement periods for stability periods starting in 2015 under the look-back measurement method. For 2015, employers can determine full-time status by reference to a transition measurement period in 2014 that:

  • Is shorter than 12 consecutive months, but not less than six consecutive months long; and
  • Begins no later than July 1, 2014, and ends no earlier than 90 days before the first day of the first plan year beginning on or after Jan. 1, 2015.

If permitted under the employer shared responsibility rules with respect to their plan years, employers can choose to use either the standard measurement period or the transition measurement period for stability periods beginning in 2015.

Download the Health Care Reform Legislative Brief for more details on Plan Year Selection and Calendar-Year Plans. You can also contact Clark and Associates of Nevada for more information on the employer shared responsibility rules.