The Affordable Care Act (ACA) provides that group plans or health insurance issuer offering group health insurance coverage may not apply any waiting period that exceeds 90 days.
On June 23, 2014, the Departments of the Treasury, Labor and Health and Human Services (collectively, the Agencies) finalized regulations clarifying the maximum allowed length of any "reasonable and bona fide employment-based orientation period" as it relates to the 90-day waiting period limit. Previously, on February 24, 2014, the same date that final waiting period regulations were issued, the Agencies had published proposed regulations to address orientation periods under the 90-day waiting period limitation.
Note: California polices and HMOs are currently subject to a maximum 60-day waiting period requirement. However, Senate Bill SB-1034 was introduced in the California legislature earlier this year that in effect would comport California law to federal law requirements. The bill has passed the California Senate with no opposition and currently is moving through the California State Assembly.
A waiting period is the period of time that must pass before coverage can become effective for an employee or dependent who is "otherwise eligible to enroll under the terms of a group health plan." The ACA prohibits excessive waiting periods, or those that exceed 90 days in length.
Under the final waiting period regulations issued on February 24, 2014, being "otherwise eligible to enroll" in a plan means having met the plan's substantive eligibility conditions. These conditions include:
The ACA's limitation on waiting periods applies to both grandfathered and non-grandfathered plans and is effective for plan years beginning on or after January 1, 2014.
During an orientation period, an employer and employee could evaluate whether the employment situation was satisfactory for each party, and standard orientation and training processes would begin. The proposed regulations provided that one month would be the maximum allowed length of any such orientation period.
The final regulations issued on June 23 confirm this one-month limit. The orientation period must not exceed one month and the maximum 90-day waiting period must begin on the first day after the orientation period.
The Agencies stated that orientation periods are commonplace and they do not intend to call into the question the reasonableness of short, bona fide orientation periods. However, to ensure that an orientation period is not used as a subterfuge for the passage of time, or designed to avoid compliance with the 90-day waiting period limitation, an orientation period is permitted only if it does not exceed one month. The one-month limit is intended to avoid abuse and facilitate compliance with the waiting period restrictions.
For any period longer than one month that precedes a waiting period, the Agencies refer back to the general rule, which provides that the 90-day period begins after an individual is otherwise eligible to enroll under the terms of a group health plan. While a plan may impose substantive eligibility criteria, such as requiring the worker to fit within an eligible job classification or to achieve job-related licensure requirements, it may not impose conditions that are mere subterfuges for the passage of time.
Under the June 23 final regulations, the one-month orientation period would be determined by adding one calendar month and subtracting one calendar day, measured from an employee's start date in a position that is otherwise eligible for coverage.
Example: If an employee's start date in an otherwise eligible position is May 3, the last permitted day of the orientation period is June 2. Also, if an employee's start date in an otherwise eligible position is October 1, the last permitted day of the orientation period is October 31.
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.
Example: If the employee's start date is January 30, the last permitted day of the orientation period is February 28 (or February 29 in a leap year). Similarly, if the employee's start date is August 31, the last permitted day of the orientation period is September 30.
The regulations included the following example of a bona fide orientation program:
Facts: Employee H begins working full time for Employer Z on October 16. Z sponsors a group health plan, under which full-time employees are eligible for coverage after they have successfully completed a bona fide one-month orientation period. H completes the orientation period on November 15.
Conclusion: In this example, the orientation period is not considered a subterfuge for the passage of time and is not considered to be designed to avoid compliance with the 90-day waiting period limitation. Accordingly, plan coverage for H must begin no later than February 14, which is the 91st day after H completes the orientation period.
Employers should note that compliance with the final orientation period regulations does not necessarily constitute compliance with the ACA's employer shared responsibility provisions under Internal Revenue Code (Code) Section 4980H, commonly referred to as the "play or pay" mandate.
There may be instances in which an employer subject to the play or pay mandate (applicable large employer) may not be able to impose the full one-month orientation period and the full 90-day waiting period without potentially becoming subject to a penalty under Code Section 4980H (Under the employer shared responsibility rules, an applicable large employer may be subject to penalties if it fails to offer affordable minimum-value coverage to certain newly hired full-time employees by the first day of the fourth full calendar month of employment).
Example: If a full-time employee is hired on January 6, the plan must offer the employee coverage no later than May 1, to comply with both provisions. However, if the employer offers the employee coverage effective May 6, which is one month plus 90 days after date of hire, the employer may be subject to penalty under Code Section 4980H.
Thus, applicable large employers interested in instituting an orientation period for newly hired full time employees, in particular, must properly coordinate the length of any orientation period with their waiting period to ensure compliance with both ACA requirements.
The June 23 final regulations apply to group health plans and group health insurance issuers for plan years beginning on or after January 1, 2015. Until then, employers can comply with the proposed regulations issued earlier this year.
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