Affordable Care Act Reporting 201: Determining Eligibility for Health Coverage
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Find more educational content at www.acafluent.com We will give you helpful guidelines for determining when an employee is eligible for health coverage. We’ll dive into the two methods for measuring whether an employee is full-time (i.e. eligible for coverage): the monthly measurement method and the look-back measurement method. We’ll explain how each method works and when it is best to use each one. We’ll also go over special rules regarding employment status changes and how they affect eligibility.
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Affordable Care Act Reporting 201: Determining Eligibility for Health Coverage
- 1. Affordable Care Act Reporting 201 Determining Eligibility for Health Coverage June 2016
- 2. ELIGIBILITY DETERMINATION PAY-OR-PLAY STRATEGY RECORDKEEPING FOR REQUIRED IRS REPORTING The three pillars of preparation for employer ACA compliance
- 3. ‘Hours’ and ‘Full-time employee’ ACA REDEFINITIONS 3 ‘FULL-TIME’ means 130 hours of service in a month – the monthly equivalent of at least 30 hours of service a week ‘HOURS’ means ‘hours of service’ In addition to paid hours that are clocked on the job, this includes situations that are not paid but during which the employee is available to the employer.
- 4. The two ACA methods for measuring when an employee is full-time [eligible for coverage] Monthly measurement method Employer counts an employee’s hours of service for each month in a calendar year. Employer must treat an employee as being full-time for coverage purposes for any month in which the employee’s hours of service total 130. This method is best suited for stable workforces where employees’ schedule are predictable. 4 Look-back measurement method An employer may determine the status of an employee as full-time during a future period (referred to as the stability period), based upon the employee’s hours of service in a prior period (referred to as the measurement period). This method is the best measuring tool for workforces where employees’ hours vary. © Integrity Data 2016. All rights reserved.
- 5. Monthly measurement method • Full time status is based on 130 or more hours of service in any one month of the calendar year • If an employee reaches 130 hours in any one month, they become eligible • Best used in companies with all salaried or full-time employees. • If company has part-time employees, the employee work schedule should be stable and controlled.
- 6. Look-back measurement method • Not dependent on a single month but averages hour of service over a period of time. • Measurement periods can be between 3 and 12 months • Administrative period limits differ • Stability periods cannot be less than 6 months and cannot be greater than the measurement period Measurement Period Admin Stability Period
- 7. Standard Measurement (SM) Periods • Standard Measurement period • Can be between 3 and 12 months • Testing for ongoing variable-hour employees • To be tested, the employee must have worked the entire measurement period • Administrative period can be up to 3 months • Stability period cannot be less than 6 months but not greater than the measurement period length
- 8. Testing is continuous Measurement Period Admin Stability Period Measurement Period Admin Stability Period • When one measurement period ends, another measurement period begins • There can be no gaps in coverage • Eligibility for coverage is now like a light switch – it can be turned on and off depending on each test’s outcome. • For variable-hour employees, testing to be eligible in a measurement period does not mean you reclassify them as full-time permanently.
- 9. Initial Measurement (IM) Period • All new variable-hour employee will be tested in an initial measurement period tied to their start date – can be between 3 and 12 months. • Employee must complete the entire initial measurement period before eligibility can be determined • Administrative period: initial measurement period and administrative period cannot be greater than 13 months • Stability periods for initial measurement and standard measurement periods should be the same length
- 10. Transition from IM to SM period testing • All variable-hour employees who are tested in their initial measurement period will also be tested in the next SM period • Once the IM period is completed, the employee will be tested in SM periods along with all ongoing variable-hour employees • If the employee tested eligible in their IM period but not eligible in the subsequent SM period test, offer of coverage must be maintained through the entire IM stability period. IM Measurement Period Admin IM Stability Period SM Measurement Period Admin SM Stability Period
- 11. Special Rules around Employment Status changes 11
- 12. Employee moves from full-time to part-time • Companies cannot automatically drop coverage when employee classification changes • Employees that go from full-time to part-time will be tested as if they were a variable-hour employee from the beginning
- 13. Employees move from part-time to full-time • Company must offer them coverage no later that the first day of the month after their first three full months at the new full-time position
- 14. Rehire – break-in-service rules • The break-in-service rule applies to both the look-back and the monthly measurement methods. • Returning employee can be classified a new hire provided they: 1. Had a break in service for 13 consecutive weeks, if the employer is not an educational institution 2. Had a break in service for 26 consecutive weeks, if the employer is an educational institution 3. Had previously been employed for at least 4 weeks and their absence of service was greater than their previous service – Rule of Parity • Classifying employee as a rehire (new employee) or continuing them as an ongoing employee is at sole discretion of employer. • The ACA rehire rules do not affect other areas of a company’s benefits. They are limited to health benefits.
- 15. Returning employees that would have been in a stability period • If a returning employee had tested eligible for health coverage and they returned to service within the stability period they would have been entitled to, the company must honor that stability period. • Company would have until the first day after the employee’s first three full months after return.
- 16. Learn more! Educational resources www.acafluent.com © Integrity Data 2016. All rights reserved.16 Videos in Integrity Data’s ACA Reporting 101 series • Does your business have to comply with the ACA? Are you an ALE (Using Santa Claus as an example) • How do I comply with the ACA? And when? • What is a 1095-C? • Why comply? What are the penalties for employers? • Is the IRS ready? Downloadable e-book on “Affordable Care Act: Employer Essentials for IRS Reporting” Downloadable ACA checklist for 2016 IRS Resources Blogs Such as: • IRS reporting FAQ: Which ACA eligibility measurement method should an employer use? • ACA eligibility-testing methods: Can you change the measurement tool you use? If so, when?
- 17. Thank you for your time. To get on the fast and sure track to ACA compliance, please contact us: sales@integrity-data.com 888.786.6162 Integrity Data’s publications and presentations are designed to make employers aware of IRS reporting requirements under the Affordable Care Act, best practices for compliance with those requirements, and the consequences of noncompliance. This material is intended to provide accurate information as of the date posted. It is provided with the understanding that neither Integrity Data, nor the authors and presenters, are rendering legal or accounting advice. With respect to your organization’s decision making for Affordable Care Act compliance, review the information presented with legal counsel specializing in employment law.
Hinweis der Redaktion
- The Affordable Care Act is a massive piece of legislation – even trying to make sense of the just the employer responsibilities under the ACA can get confusing. Our goal in this webinar is to give you some helpful guidelines for determining when an employee is eligible for health coverage.
- To put this into context: being prepared for employer Affordable Care Act compliance requires preparation – we’ve organized preparation into these three pillars: Eligibility Determination (which we will talk about here) Deciding on a Pay-or-Play Strategy Recordkeeping for the Required IRS Reporting (the latter 2 are topics of our next 201 webinars!) Remember: all steps toward compliance are interrelated. Choices you make for one affect another. And this cycle never ends. It is a continuous process year after year. Let’s dive into eligibility determination.
- Quick recap: an employee is eligible for health coverage when they are full-time employee as defined by the ACA. The ACA defined has redefined “full-time employee” by: - abandoning the concept of a 40-hour work week to be classified as a full-time employee and reducing that threshold down to 30 hours a week. AND - expanding the hours that need to be tracked when crediting employees with hours of service. We’ve hosted a 201 webinar on guidelines for classifying an employee as full-time and how hours of service play into that, highlighting some tricky situations. If you missed this, please check our education site at acafluent.com to download the recording!
- Now that you know how the ACA defines “full-time” employee – you need to make a decision on how to measure that full-time status so you know when an employee is eligible for health coverage. There are two methods that can be used to determine when an employee is classified as full-time eligible under the ACA: the monthly or the look-back measurement method. When using the monthly measurement method, the employer counts an employee’s hours of service for each month in a calendar year. The employer must then treat an employee as being full-time for coverage purposes for any month in which the employee’s hours of service total 130. This method is best suited for companies with predominately salaried workers. Because these employees would be classified as full time from the beginning, there would be no benefit in having a look-back measurement period. If you adopt this method for your part-time employees, you should ensure that you have tight controls on their work schedules. The majority of our clients are on the look-back measurement method. When using this method, an employer may determine the status of an employee as full-time during a future period (referred to as the stability period), based upon the employee’s hours of service in a prior period (referred to as the measurement period). If you have hourly employees, this is the preferred method because it establishes a testing period where eligibility is determined not based on a single month, but on average weekly hours over a period of no less than three months and no more than 12 months. It allows a smoothing of hours which might spike one month to over 130 but remain well under 130 the rest of the months. For the lookback measurement method testing is continuous – when one measurement period ends, another begins. We are going to spend a few minutes diving into each of these methods.
- The monthly measurement method is the most restrictive measurement method because testing is based on each month’s hours of service. If an employee’s hours of service is 130 or more they are eligible. This is a pass/fail situation. If an employee is credited with 130 hours of service in any one month, they passed and are eligible for health coverage . This method is more appropriate for companies with all salaried workers or part-time workers with schedules that can be controlled.
- The look-back measurement method is most commonly used by companies with part-time workers. With this measurement method, testing for eligibility is not dependent on just one month but it looks at several months within what is called the measurement period to see if, in each month of that measurement period, the employee averaged 130 hours. This spreads any special circumstances (i.e., special projects, filling in for another employee, etc.) over a period of time. It smooths out peaks and valleys. A key difference with the monthly measurement period is that the employee had to work the entire testing cycle and had to average 130 hours, or 30 hours per week, in each month of the measurement period. Some companies view having to offer coverage to the eligible employee during the stability periods regardless of the hours they work during that period as being a drawback. That is not the case. In reality, if an employer was on a monthly measurement method the employee would have been eligible much earlier. Employers can change their measurement periods yearly but need to make sure that there is no gap in coverage. The next slides will go deeper into this look-back measurement method.
- Ongoing variable-hour employees are tested in standard measurement periods. In order to be tested, the employee must work the entire testing period. Statistically, the longer the testing period, the more accurate the data in determining eligibility. For companies with high turnover rates, 12 month measurement periods often eliminate many employees from eligibility determination. They would be considered full-time eligible only in the corresponding stability period for that test. Continued eligibility during the next stability period would require them to pass the corresponding Standard Measurement period test .
- Under the look-back measurement method, variable hour employees are continuously being tested for eligibility. When one measurement period ends another begins. These consecutive testing cycles raise some new challenges. - Eligibility is now much like a light switch – it can turn off and on. An employee testing eligible in one period may not test eligible in the next period thereby forcing an employer to make a determination of whether or not to cancel coverage. Remember that the ACA defines who MUST be offered coverage. Employers can choose to offer to an expanded pool if they want. - A variable hour employee who tests eligible for health coverage in a testing period does not necessitate a reclassification from variable hour to full time. All it means is that in the testing period they became eligible, they happened to work enough hours. That does not mean they are guaranteed to work the same number of hours going forward.
- Now what happens when a variable hour employee’s start date is NOT on the first day of a standard measurement period? Obviously this is not unusual. In those cases, they will always work in a initial measurement period which is tied to their start date . Like the criteria for standard measurement period testing, an employee must work the entire IM period to be tested. Note that in Initial Measurement periods, the administrative period is limited. Unlike a standard measurement period that can have up to 3 months for an admin period, in an Initial Measurement period the combined totals of the measurement and administrative period cannot exceed 13 months. Stability period must be the same in Standard Measurement and Initial Measurement. If not, there will appear gaps in coverage as they transition from the Initial Measurement period test to a Standard Measurement period test.
- For variable hour employees that will continue employment there will be a transition period where they move from an IM period to SM period testing. In the graph above you will see that there is a time at the end of the employee’s IM period that the same hours will be used for both the IM and the SM period testing. Even if employee does not test eligible their first complete SM period, if they had previously tested eligible in their IM period the employer must honor the stability period associated with the IM period test. This means that companies have an added burden of managing stability periods and knowing when each employee will exhaust their eligibility. Our ACA solution has a stability period management report that will highlight employees and show when their stability period will end, whether it be an IM stability period or a SM stability period.
- There are some special rules around employment status changes that must be addressed
- If an employee changes classification from full-time to part-time, they must be tested as if they were a variable hour employee from the beginning. So they must be tested in the last testing period they would have been eligible for, to determine if they would continue to be classified as being eligible for coverage. - If the employee did not work enough time to be tested in any measurement period, their coverage must be extended until a testing period is met so determination can be made. - Once the move is made, the employee will be tested as any other variable hour employee and eligibility for continued coverage will be based on those test results.
- Going from part-time to full-time mirrors the same rules of hiring a new employee as a full-time employee. A company must offer health coverage no later than the first day after the employee's first three full months working in the new classification. For an example an employee starts on June 10 – must be offered coverage Oct 1. When we say “first day after the employee’s first full three months” here and which also is the criteria for newly hired full-time employees , we are referring to the non-assessment period that is provided within the ACA. This should not be confused with your internal waiting period policies. The ACA gives you this non-assessment period which you generally take when submitting your yearly reporting on who was eligible by month.
- The rules for when you can classify a returning employee as a new hire under the ACA – the so-called break-in-service rules - have been tightened. They apply to both the look-back and the monthly measurement methods. Returning employee can be classified a new hire provided they: Had a break in service for 13 consecutive weeks, if the employer is not an educational institution Had a break in service for 26 consecutive weeks, if the employer is an educational institution Had previously been employed for at least 4 weeks and their absence of service was greater than their previous service = Rule of Parity The important thing to know is that determining that an employee is a new hire under these rules is at the sole discretion of the employer. An employer might not want to reclassify a returning employee as a rehire and keep them in the current measurement period. The theory here being that if they were absent for an extended period they would not accumulate enough hours to be classified as full-time. There are no non-discrimination rules here and employers do not have to adopt a universal policy that applies to all. Two employees can leave on the same date. Both can return 14 weeks later on the same date and the employer could choose to classify one as a rehire and the other as a continuing employee with no adjustment made to their hire date. The ACA rehire rules do not affect other areas of a company’s benefits. They are limited to health benefits.
- The challenging part comes when you rehire employees that, if they had remained employed, would have been in a stability period. Any employee who returns to service during a stability period in which they were previously entitled to must be offered coverage that would fulfill the stability period. The good news is that the employer has until the first day after the employee’s first three full months after return to have them signed up. Example: Employee was in a stability period from 1/1/2016 to 12/31/2016 Employee took coverage and left company on 3/2/2016 Employee returned 6/2/2016 Company must offer continue coverage no later than 10/1/2016 Company can terminate coverage 12/31/2016 and wait until the initial measurement period test results if this is a variable-hour employee
- Obviously this webinar covers only part of the ACA complexity – there is so much more to learn – make sure to visit acafluent.com for more educational resources. We have 101 videos that take you all the way from whether your business has to comply with the ACA to how to comply and when and what the penalties are. We’re recording this webinar series as a 201 series that takes you even deeper so stay tuned for more content by bookmarking that page! We have 2 great downloadable resources for you – 1 is an e-book that gives you an overview of employer essentials for IRS reporting and the second one is a handy to-do checklist for 2016 reporting We’ve got a link to IRS resources on there as well – hear it straight from the source! And finally a blog post feed where we continuously add blogs to as hot topics come up.
- Thank you for joining us. We hope you found this presentation informative. And do let us know how else we can help you.