Three years into health care reform, many employers know the basics of penalties and coverage. However, in spite of their potential advantages for employers, measurement and stability periods remain opaque for many. We hope to change that in five questions or less.
What Are Measurement and Stability Periods?
The easiest way to understand measurement and stability periods is to consider what you do as an employer today. Today, most employers determine eligibility for health care on a monthly basis. Ignoring periods of leave, employers generally determine whether or not an employee is eligible for health coverage by looking at the hours the employee worked in a given month, and regardless of hours, employers often exclude seasonal employees and employees with particular job classifications.
Beginning in 2014, this general structure will change for employers with 50 or more full-time equivalent employees because these employers will be required to offer coverage to employees working 30 or more hours per week or risk liability for a penalty. Employers that do not elect to use stability and measurement periods will continue to determine eligibility on a monthly basis, so these employers will have an obligation to offer coverage to variable hour and seasonal employees who worked an average of 30 or more hours per week in a given month regardless of their hours in the prior or subsequent month. Measurement and stability periods offer an alternative to this approach.
Instead of determining eligibility on a monthly basis, employers that elect to use measurement and stability periods will determine eligibility for variable hour and seasonal employees over a longer period of time. To do this, employers will count the number of hours variable hour and seasonal employees work during a designated period of three to twelve months (the measurement period).
Employees that average 30 or more hours per week during the measurement period, will be eligible for coverage during the period of three to 12 months following the measurement period (the stability period). An administrative period of up to 90 days separates the stability and measurement periods and allows employers to count hours and enroll eligible employees.
Within the framework of three to 12 months, employers have the freedom to define the lengths of their measurement and stability periods, but employers must use the same length of measurement and stability period for all employees within a particular employment class. Employers may vary measurement and stability periods for employees based on status as an hourly versus a salaried employee or based on collective-bargaining status. With the exception of a stability period covered by the transitional rule (see below), a stability period cannot exceed the length of the preceding measurement period.
Which Employers Should Consider Using Measurement and Stability Periods?
Employers with 50 or more full-time equivalent employees who employ variable hour and seasonal employees should consider whether they wish to use measurement and stability periods. (Smaller employers need not consider measurement and stability periods at this point because they are not subject to pay or play penalties.)
Are There Any Special Rules That Govern Measurement and Stability Periods In 2013/2014?
Yes, as a general rule, a stability period cannot exceed the length of the preceding measurement period, but a transitional rule applies to measurement periods beginning in 2013. Employers that commence a measurement period of at least six-consecutive months in 2013 may follow it with a 12-month stability period. To fall under this transitional rule, the measurement period must commence by July 1, 2013.
How Do Measurement and Stability Periods Work for New Employees?
If a new employee is reasonably expected to work at least 30 hours per week during the measurement period and is not a seasonal employee, measurement and stability periods do not apply, and employers should enroll the new employee in coverage following any waiting period. However, if the employer does not reasonably know if the employee will work 30 or more hours during the measurement period because the employee is a variable hour or seasonal employee, the employer should begin an initial measurement period for the employee on the employee’s first day of employment or the first day of the month following the employee’s first day of employment.
Like an employer’s standard measurement period, the length of an employer’s initial measurement period is set by the employer and can range from three to 12 months in length. It is also subject to the same consistency requirements as a standard measurement period, so employees of the same class (e.g., hourly versus salaried) must have consistent measurement periods. This initial measurement period will then be followed by an initial stability period, but employers must also test the new employee’s hours during the first of the employer’s standard measurement periods that begins after the employee commences employment. This means that there may be a period during which the new employee’s hours are being measured under both an initial measurement period and the employer’s standard measurement period. However, new employees do ultimately link up to an employer’s standard measurement and stability periods.
How Do Employers Implement Measurement And Stability Periods?
When used strategically, measurement and stability periods can save employers the administrative hassle of moving employees on and off their health plans and can help employers avoid offering health coverage to some employees. In addition, once employers establish the initial structure necessary to implement measurement and stability periods, actually administering these periods will be quite straight forward.
To begin the process, an employer should ask its payroll company to run a report showing hours worked for all employees from January 1, 2013 to date. Using this report, the employer should work with its consultants or attorneys to determine the most advantageous measurement and stability periods for each workforce group.
Iris Tilley is an attorney at Barran Liebman LLP, where she specializes in employee benefits. Contact her at 503-276-2155 or itilley@barran.com.
