Updated: May 18
Applicable large employers with 50 or more full-time employees, including equivalents, must offer full-time employees minimum value, affordable coverage.
When an employee is hired, the employer must determine if the employee is reasonably expected to work 30 hours or more per week (full-time under the employer mandate). If yes, the employer must offer the employee coverage by the first day of the fourth full month in order to avoid a penalty. Coverage is generally in effect before that time due to the 90-day waiting period limit. Full-time employees cannot be placed in a look-back because they must be offered coverage no later than 90 days under the ACA.
For all other employees (e.g., part-time, variable hour), there are two methods of determining eligibility: the monthly measurement method and look-back measurement method. Under the monthly measurement method, an employee is offered coverage for the month if they worked FT hours that month. This is not practical when an employee’s hours fluctuate because the employer won’t typically know their hours until the end of the month.
As a result, most employers use what is called the look-back measurement method for part-time employees, variable hour, and seasonal employees (hours vary above and below 30). The employer can measure them in a look-back measurement period for up to 12 months. If the employee averages FT hours during the period, they would be offered coverage going forward for the same amount of time known as the stability period.
If the employer uses the look-back measurement method to determine full-time eligibility status, an employee who earned full-time status during the previous measurement period would remain eligible through the end of the stability period regardless of the number of hours worked. COBRA would be offered at the end of the stability period unless they had terminated employment before the end of the stability period.
A look-back measurement period is typically 12 months, which will require a corresponding 12-month stability period. Where the stability period is the Jan 1st plan year, the best approach is a measurement period that runs Nov 1 through Oct 30 each year. The rules do allow an administrative period in between the measurement and stability periods, and that admin period cannot exceed 90 days. The ongoing measurement/admin/stability period design typically is as follows:
11/1 through 10/30: Ongoing Measurement Period
Nov and Dec: Administrative Period (60 days)
1/1 through 12/31: Ongoing Stability Period
For new employees there are a few other restrictions, and a 1-month admin period is recommended. The rule for new hire initial measurement/stability period is that the stability period can begin no later than the last day of the 13th month following the date of hire.
The initial measurement period can begin on the date of hire or on the first of the month following the date of hire. So if the employer has a 12-month measurement period for newly hired employees, the admin period could only be 1 month in order to comply with the 13th month rule. Here's an example for an employee hired on 4/15/22:
Initial Measurement: 5/1/22 through 4/30/23
Initial Admin Period: 5/1/23 through 5/31/23
Initial Stability Period: 6/1/23 through 5/30/24
Thus, an employer may not use the look-back for full-time employees (those you know upon hire will work 30+ hours or more per week). Instead, the ALE must offer them coverage no more than 90 days from their date of hire. If they start working less hours, but that’s not the norm for this position (ie- they don’t change to a part-time position), you would need to terminate coverage as of the end of the month in which their hours drop and offer COBRA. However, if they move from a FT position to a defined PT or variable hour position, they could be placed in a look-back measurement period because they are in a totally different category.