Beginning January 1, 2015, the Affordable Care Act (ACA) will require large employers (with 100 or more full-time and full-time equivalent, or FTE, employees–in 2016 it drops to 50 or more employees) to offer minimum essential health insurance coverage to at least 70 percent (increasing to 95 percent in 2016 and beyond) of their full-time employees (and their dependents) or pay a penalty on all full-time employees (not including the first 30). This is commonly referred to as “play or pay.” For a large employer with a full-time workforce (employees who work more than 30 hours per week), it’s easy to determine who needs an offer of health insurance to avoid a penalty: everyone. But what about employers with large variable-hour workforces that aren’t sure who qualifies for an offer of health insurance coverage as a full-time employee?
The ACA regulations have created “measurement” and “stability” periods to address the difficulty of determining employee status. A measurement period is the time in which an employer can track the number of hours worked by a variable-hour employee to determine whether he averaged 30 or more hours per week. You can select the duration of the measurement period, from three to 12 months.
Moreover, you may select a different measurement period for different categories of employees (e.g., salaried and hourly, collectively bargained and not collectively bargained) as long as you make the determination on a uniform basis for all employees in the same category. At the end of the measurement period, a variable-hour employee who averaged 30 hours or more per week is considered full-time and is therefore entitled to an offer of insurance coverage for a specified period of time.
The specified period of time for which an employee is entitled to insurance coverage is called the stability period. A stability period must equal the measurement period or be at least six months long. The employee must be treated as full-time and receive insurance coverage during the entire stability period, regardless of how many hours she actually works.
During the stability period, there will be another overlapping measurement period in which you again track the employee’s hours. If, after the second measurement period, the employee no longer averages 30 or more hours per week, you won’t be required to offer him insurance coverage. The measurement and stability periods repeat throughout the employment relationship.
Employers also may establish an administrative period to evaluate data, offer insurance, and enroll employees. The administrative period cannot exceed 90 days.
On October 1, 2013, individuals began to shop for health insurance on the health insurance marketplace. During the application process, they must identify their employer, disclose their income, and state whether they are provided with insurance coverage through their employer.
When play or pay takes effect in 2015, employers will receive a notice from the IRS if any of their employees qualify for a credit or subsidy to purchase insurance from the marketplace, along with a statement of the potential penalty. If you want to contest the penalty, you will need proper documentation to demonstrate either that your company isn’t a large employer subject to play or pay or that the employee isn’t entitled to insurance coverage because he didn’t qualify during the relevant measurement period.
Employers must establish measurement, stability, and administrative periods, notify employees, and add the information to the ACA section of your employee handbooks. If you have variable-hour employees, you should carefully document the hours employees work during the measurement periods so you’ll be in a position to dispute any potential penalties.