Top Risks Associated with using ACA Monthly Measurement Period instead of the ACA Look Back Measurement Period to Stay Compliant
Many of our customers ask what are the pro’s and con’s around Monthly Measurement Periods versus Lookback Measurement Periods. ACA Monthly Measurement sounds simple. But it can quickly become very complex, unscalable and a management nightmare. Let’s use examples to deep dive into top risks associated with ACA Monthly Measurement versus the Lookback Measurement method.
Risk #1: ACA Penalty—Employees not Offered Benefits
50 Person Company, Monthly Measurement – missed offering coverage for 1 month.
Let’s say your company is just over the cusp of the 50-person reporting rule. You have one HR lead who is helping the management team track hours according to the ACA Monthly Measurement Period option. The rules are straightforward, your employees are ineligible as long as they work
• No more than 30 hours a week
• No more than 120 hours in a 4-week month reporting period
• No more than 150 hours in a 5-week month reporting period.
It’s January, your team is all on board, all of the part-time employees schedules are laid out, work tasks are laid out, vacations are planned, all part-time people will be under the 30 hour work requirement. Then the usual work stuff happens, a few people are sick, a few people have some kids sick or special school activities, a customer crisis occurs and extra effort (aka hours) are needed, some product issue occurs and more hours are needed.
Suddenly all those good intentions at the beginning of the month are not a reality. At the end of the month in order to meet business objectives, 3 of your part time employees worked more than 30 hours per week and exceeded the monthly IRS limit. The IRS ACA MEC Sledgehammer fine imposed (also known as A-penalties) for exceeding the monthly limit is $193.33 per employee per month – so for a company with 50 employees, you would be fined $9,667 for that month. $9,667.
Unfortunately, there’s nothing you can do, this is the rear-view mirror ACA penalty, you missed the guidelines you will get the penalty. Based on a solid estimate of of $500.00 per month for health care, per employee it’s likely you could have covered 1.5 people in health benefits for less than the fine and saved the company from the IRS penalty. You can see how quickly a month of two of errors could generate significant amounts in IRS ACA MEC A-penalties.
Looking at any number of real life situations, this is problematic for a smaller 50 person company much less a mid to large sized company, as employees size grows so does the penalty risk. Add in something like a merger or acquisition and this multiplies exponentially.
For more on what the A-Penalty involves, including a detailed penalty chart, take a look at these four resources:
- White paper: ACA Penalties and What You Need to Do When You Receive an IRS Letter 226J
- Web page: What You Need to Know About IRS ACA Penalties
- Blog: Summary of A-Penalties and B-Penalties
- Blog: A Message to CFO’s – ACA isn’t just an HR Problem
Risk #2: Negative Impact on Employee Satisfaction
50 person company, employees yo-yo on and off benefits due to hours worked and eligibility
Companies who face any amount of employee turnover know the HR and the Management teams usually focus heavily on employee satisfaction and retention. Using the ACA Monthly Measurement Period implies your company will be managing benefits monthly
To illustrate the employee satisfaction risk, let’s continue what happened above, employees worked over the limit for January. Your company has set aside reserves with Finance to cover the penalty amount of $9.6K. Since the work situation isn’t changing and no one wants another month with that ACA penalty, you hedge your bets. You offer these part-time employees benefits in February and March. Then in April it looks as if the work is slowing down, so you remove their benefits Taking away health benefits isn’t going to help your employee satisfaction or retention efforts. Of course, Murphy’s Law happens and in April the work issues didn’t go away, and those 3 employees worked over the IRS weekly and monthly limits. Your company gets hit with another $9.6K penalty and you have some really frustrated (and un-insured) employees You now have over $19K in ACA fines , poor employee satisfaction, and a lot of explaining to do.
Why Using the ACA Lookback Measurement Period Wins
The Lookback Measurement method is a multi-level statistical analysis for an employee’s work hours. Tango Health recommends the 12-month lookback measurement period, which then allows for the ups and downs in an employee’s work hours to be statistically averaged. With the Lookback Measurement Method, you receive some advanced warning to take action and offer coverage to any part-time employees who have measured eligible before the IRS ACA penalties are incurred. Statistical averaging works wonders, especially for ACA compliance.
So as seen in Example 1 above, if the part time employees work just a couple of month’s extra, and the Lookback method is being used, no fines. Yes no fines, and a window of trending time for management to take action and prevent ACA penalties.
Also, no yo-yoing of giving benefits and then taking them away. If an employee is trending eligible for benefits, the Lookback method starts to clearly show which employees should be getting benefits and the company has plenty of time to react and either provide benefits or take actions to properly manage work hours. Of course, to do this, the company must be reviewing information monthly.
Review Benefits Eligibility Monthly
If your FTE (Full Time Equivalent) sum of part-time employees goes over the IRS limits (50 employees), the ACA MEC Sledgehammer A-Penalties may apply. Key message, make sure your HR and Finance team are reviewing measurement details monthly. If the ACA Lookback Measurement Period method is being used, the management team will have a chance review and resolve or reduce the probability of any ACA MEC A-Penalties (NOTE: ACA B-Penalties may still apply, but they are much less onerous). See this blog for more insight on the MEC B-Penalties: www.tangohealth.com/blog/aca-penalties-keep-rolling-in.
Getting Help with ACA Lookback Measurement Period
When someone says “ACA Monthly Measurement Period” that sounds easy compared to “ACA Lookback Measurement Period”. And yes, after reading IRS web site documents, law, and other references, the Lookback Method details are more difficult. But you don’t have to do it all yourself. You can engage a partner, like Tango Health, who has invested a large number of resources into software, expertise and services to handle the complexities around the Lookback Measurement Period method.
At Tango Health, as part of our business practices, we ingest all the needed payroll data, benefits data, LOA info, COBRA data, and aggregate into our Cloud based toolset to provide companies with a high level status on their employee population and the ability to scope into the per employee details and work through the complex offer and provide employees health coverage per the IRS ACA requirements.
Monthly Measurement Period –
- Keep your eyes wide open on the ACA penalty risks for just one or two months of missed IRS hourly rules.
- If employee retention or satisfaction is key to your business success, evaluate worst-case scenarios with your HR, Finance, and Management teams to understand the impact of providing ad taking health benefits away monthly.
- If you’re acquiring companies, work with experts on the subtle nuances of asset vs. stock acquisitions and what the acquiring entity must do for ACA compliance.
- While it is more difficult, statistically speaking this is the best method for measuring benefits eligibility.
- The right vendor can minimize the complexity of the lookback method with software, services, and monthly reporting and reviews.
Tango Health is an expert in ACA compliance. And complex businesses such as government, higher education, healthcare systems and companies with union or part-time employees is where our data engineers and powerful software really shine. We offer ACA reporting and compliance solutions to help solve ACA compliance challenges year-round with expertise and guidance throughout the process. From monthly data aggregation and cleaning of your data, to calculations and reporting, to printing and filing and then assisting with penalties and audits as needed, we are with our clients at every step at no extra charge.
If you’d like more information about Tango Health’s ACA Compliance and Reporting Solution, email us at firstname.lastname@example.org.
Categorized in: ACA