February 21, 2014
For plan years beginning on or after January 1, 2014, the Affordable Care Act (ACA) prohibits group health plans and group health insurance issuers from applying any waiting period that exceeds 90 days. On February 20, 2014, the U.S. Departments of Labor, Treasury, and Health and Human Services (collectively, the "Departments") announced the publication of final regulations under the ACA implementing the 90‐day limit on waiting periods for health coverage. These regulations generally finalize provisions in proposed regulations issued in March 2013, with minimal changes. At the same time, the Departments released a separate proposed rule regarding a new provision permitting orientation periods under the 90‐day waiting period limit.
The final rules regarding the waiting period limitation requirements become effective for plan years beginning on or after January 1, 2015. For 2014, group health plans and health insurance issuers could either rely on the March 2013 proposed rules or these final rules. Notwithstanding, fully insured group health plans and health maintenance organizations (HMOs) subject to California state law, which mandates a maximum 60‐day waiting period limitation. These proposed or final regulations would not impact this requirement.
Like the proposed regulations, the final regulations continue to define "waiting period" as the period of time that must pass before coverage becomes effective for an employee or dependent who is otherwise eligible to enroll in the plan. Being "otherwise eligible to enroll" in a plan means having met the plan's substantive eligibility conditions. Examples include being in an eligible job classification, meeting certain sales goals, earning a certain level of commission, or as indicated above, satisfying a reasonable and bona‐fide employment based orientation period. Once an individual is determined to be otherwise eligible to enroll, all calendar days are counted to determine the length of the waiting period, beginning on the enrollment date, including weekends and holidays. However, if an individual enrolls as a late enrollee or special enrollee, any period before the individual's late or special enrollment is not a waiting period.
The waiting period limit does not require an employer to offer coverage to any particular employee or class of employees, including part‐time employees.
As noted above, the final regulations provide that employers may require an employee to successfully complete a reasonable and bona‐fide employment based orientation period as a condition for eligibility for coverage under a group health plan. This is specifically intended to address concerns of employers that are only capable of beginning coverage on the first day of any given month. During an orientation period, the Departments envision that an employer and employee could evaluate whether the employment situation was satisfactory for each party and standard orientationand training processes would begin.
The final regulations do not specify the circumstances under which the duration of an orientation period would not be considered "reasonable or bona fide." However, separate proposed regulations published at the same time as the final regulations propose one month as the maximum length of any orientation period. This one‐month maximum is generally a period that begins on any day of a calendar month, and is determined by adding one calendar month and then subtracting one calendar day. If there is not a corresponding date in the next calendar month upon adding a calendar month, the last permitted day of the orientation period is the last day of the next calendar month. For example, if an employee's start date is January 30, the last permitted day of the orientation period would be February 28 (or February 29, in a leap year).
If a group health plan conditions eligibility on completing a reasonable and bona‐fide employment‐based orientation period, the eligibility condition would comply with the 90‐day waiting period limitation if the orientation period did not exceed one month and the maximum 90‐day waiting period would begin on the first day after the orientation period.
The Departments will consider compliance with the separate 2014 proposed regulations to constitute a reasonable and bona‐fide employment‐based orientation period at least through the end of 2014. To the extent final regulations or other guidance is more restrictive on plans and issuers, the final regulations or other guidance will not be effective prior to January 1, 2015, and plans and issuers will be given a reasonable time period to comply.
Like the March 2013 proposed regulations, eligibility conditions based on other than a lapse of time are also permitted but they cannot be designed to avoid compliance with the 90‐day waiting period limitation. Requiring employees to complete a certain number of hours before becoming eligible for coverage is generally allowed as long as the requirement is capped at 1,200 hours. Under the final regulations, the waiting period must begin on the first day after the employee satisfies the hours of service requirement and cannot exceed 90 days. Furthermore, this must be a one‐ time hours of service requirement. Once an individual satisfies this requirement, he or she must not be required to satisfy that requirement again to be eligible for a subsequent year.
The final regulations also retain the approach in the proposed regulations regarding the eligibility requirements for variable hour employees and considers the 90‐day waiting period requirement to be complied with as long as coverage is made effective no later than 13 months from the employee's start date, or the time remaining until the first day of the next calendar month, if the start date is anything other than the first day of the month.
The final regulations provide that a former employee who is rehired may be treated as newly eligible for coverage upon rehire. Therefore, a group health plan or health insurance issuer may require that individual to meet the plan's eligibility criteria and to satisfy the plan's waiting period again, if reasonable under the circumstances. The requirement would not be reasonable if the termination and rehire is a subterfuge to avoid compliance with the 90‐day waiting period limitation. The same analysis would apply to an individual who moves to a job classification that is ineligible for coverage under the plan but then later moves back to an eligible job classification.
The 90‐day waiting period limit applies to both a group health plan and health insurance issuer offering coverage in connection with the plan. However, to the extent coverage under a group health plan is insured by a health insurance issuer, the final regulations provide that the issuer can rely on the eligibility information reported to it by an employer (or other plan sponsor). The issuer will not violate the 90‐day waiting period limit requirements if it requires the plan sponsor to make a representation regarding the terms of any eligibility conditions or waiting periods imposed by the plan sponsor (and update this representation with any applicable changes) and has no specific knowledge of the imposition of a waiting period that would exceed the permitted 90‐day period.
Fully insured health plans and HMOs that are subject to California state law requirements must have waiting periods that are no more than 60 days in length. As the ACA considers health plans with waiting periods of less than 90 days to be in compliance with the ACA and final regulations, pending additional guidance from the state of California, the 60‐day maximum limitation to these plans still applies.
The final regulations are available at: http://www.dol.gov/opa/media/press/ebsa/20140220-redfeg1.pdf.
The February 20, 2014 proposed regulations are available at: http://www.dol.gov/opa/media/press/ebsa/20140220-redfeg2.pdf.
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