May 27 2016 | K.C. Barner, Assistant Vice President, Benefits Compliance, Counsel
Employers historically had flexibility in determining whether they sponsored a group health plan and if so, to which employees they offered coverage. Those that offered a group plan commonly based eligibility on classifications such as job title or geographic location.
Everything has changed under PPACA, large employers (those with 50 or more full-time equivalent employees) are required to sponsor a group health plan or risk an employer-shared responsibility payment, more commonly known as the employer mandate penalty. Further, all employees working 30 hours or more per week (full time employees, or FTEs) must be eligible for coverage (regardless of the employer’s classification) or, again, the employer will be at risk for a penalty.
Seems simple enough, right? Well, as we all know, it is anything but simple. The primary confusion for employers is determining to whom they need to offer coverage. So, naturally they all want to know more about the measurement methods and periods. How do they function? How long can they be? How does a change in an employee’s status affect them?
One question that is starting to surface more involves leaves of absence. Specifically, how do measurement methods and periods affect the offer of coverage during leaves of absence?
As far as PPACA is concerned, the answer depends on whether the employer is using either the monthly measurement method or the look-back measurement method.
Under the monthly method, an employer looks at hours in a month and determines whether the employee is an FTE for that month. If so, then they must offer coverage; and if not, then they do not have to offer coverage. The monthly method is fairly straightforward and easy to apply to most permanent employees, since the employer knows well ahead of time whether the employee will be working full-time hours.
To answer the question, if the employer is using the monthly measurement method, then the employer does not need to continue coverage for any month beyond the month in which the leave of absence begins. The reason is because the employer is looking at the employee’s hours for each month. In that situation, the change in status results in the employee not being a full-time employee for the month. So, since he/she is not full-time, there is no obligation to offer coverage (of course FMLA and other federally mandated laws are still potentially applicable to an employer and should be considered).
The look-back measurement method, however, may make more sense for employers with many seasonal or variable hour employees, since the employer doesn’t always know ahead of time whether the employees will be working full-time hours or for how long the employee will actually remain employed. For seasonal and variable hour employees, the employer can implement look-back measurement periods: A time period over which an employee’s hours are averaged to determine if they are actually full-time. The easiest example is a 12-month measurement period (they can be anywhere from 3-12 months) where an employer uses a calendar year (let’s say 2016) as the measurement period. If the employee averages 30 hours or more per week during 2016, then the employee is treated as an FTE for the subsequent period (known as a ‘stability period.’ which must be the same length as the measurement period), or all of 2017.
Note that if the employees do not fall into the seasonal or variable hour definitions, and they are working full-time hours during the period of employment, the employer will have to offer coverage by that first day of the fourth month following date of hire. If they do not, the employees—considered as FTEs under the mandate—may potentially trigger an employer mandate penalty for the employer.
As for the answer, if the employer is using the look-back measurement method, and the employee is in his/her stability period when the leave of absence begins, then the employer must continue offering coverage through the end of the stability period regardless of how many hours are worked. The reason being that the employee’s status as ‘full-time’ has been locked in for that entire stability period. The exception would be if the employee were actually terminated from employment. In that case, there is no PPACA obligation to continue to offer coverage to a terminated employee (although the employer would need to offer them COBRA according to those rules, as the employer would usually do for a terminated employee that was covered under the plan prior to termination).
Thus, it comes back to whether the employer is using the monthly versus look-back method. If it’s monthly, there’s no need under the PPACA to continue to offer coverage to employees for anytime beyond the leave date. If it’s look-back, then the employee’s status is locked in for the remainder of the stability period, which means the employer may have to continue to offer coverage during the leave (for up to 12 months, depending on the length of the measurement/stability periods and at what point during the stability period the leave occurs).