Treasury, Health and Human Services (HHS), and the Department of Labor (DOL) had issued proposed rules in March 2013 and issued final rules earlier this year. 79 Fed. Reg. 10296 (Feb. 24, 2014). Below we address questions concerning the waiting period requirements and, in particular, how these rules interact with the ACA shared responsibility rules under Internal Revenue Code section 4980H, effective for most plans as of 1/1/15.
What waiting period are plans permitted to impose?
Under the ACA, a group health plan may not impose a waiting period of more than 90 days. The final regulations define a “waiting period” as the period that must pass before coverage for an individual who is otherwise eligible to enroll under the terms of the group health plan can become effective. The rules clarify that 90 days means calendar days, including weekends and holidays.
To which plans does this rule apply?
The rule applies to group health plans that are subject to the other insurance market reform rules under the ACA, including ERISA group health plans, health insurance issuers, governmental health plans, and church health plans. The rule does not apply to benefits that are considered “excepted benefits” under HIPAA, such as stand-alone dental and vision coverage, EAPs, supplemental coverage, or disease-only policies that meet the HIPAA excepted benefits requirements.
When does the waiting period start?
The 90-day waiting period must start when an individual has met the plan’s substantive eligibility conditions, such as being in an eligible job classification or obtaining a required license, as long as the eligibility condition is not designed to avoid compliance with the 90-day rule. In addition, a plan may require that an employee completes a minimum amount of cumulative hours of service in order to eligible, as long as the number of hours does not exceed 1,200 hours. The rules provide that other eligibility conditions “based solely on the lapse of time” only are permissible if they are no more than 90 days.
What is the new orientation period that is permitted?
The agencies also issued a new proposed rule that would allow a new “orientation period” on top of the 90-day waiting period. 79 Fed. Reg. 10320 (Feb. 24, 2014). The orientation period is limited to one month, which is determined by adding one calendar month and subtracting a day. For example, if an employee is hired May 3rd, the orientation period would end June 2nd, and the waiting period would begin June 3rd. Plans are permitted to rely on the proposed rule until final rules are issued, at least through 2014.
How do the waiting period rules interact with 4980H / shared responsibility?
The waiting period rules and 4980H rules marry up in a number of ways - plans should pay attention to both sets of rules.
· When Coverage Starts: Full-Time Employees - Under the 4980H rules, plans must provide coverage to full-time employees no later than the first day of the fourth month following date of hire. Depending on the hire date, this meant that plans sometimes had more than 90 days before coverage had to start. For example, if someone’s hire date was March 2nd, coverage under 4980H did not have to start until July 1st – the first day of the fourth month. This was more than 90 days, so plans not providing coverage until the date required under 4980H could violate the waiting period rule. The new orientation period bridges this gap, allowing plans to be able to take advantage of the full period allowed by 4980H.
· Variable Hour Employees – For plans that are not able to predict an employee’s hours to know if they will be full-time, the 4980H rules provide a “look-back method” to measure hours. The final waiting period regulations provide a similar rule, allowing plans to count hours, as long as coverage ultimately is provided no later than 13 months from the employee’s start date (or beginning of next month if this is mid-month). This time period lines up with the 4980H requirement as to when coverage must begin.
What if an employee is terminated and rehired?
The final waiting period rules provide that a plan may treat an employee who terminates and is rehired as a newly eligible employee. Plans can require the employee to meet the waiting period anew “if reasonable under the circumstances.” If an employee routinely terminates and rehires employees, this practice may violate the anti-abuse rule, but if an employee is legitimately terminated and rehired, plans should be able to impose a new waiting period. Note, however, that the 4980H rules have their own restrictions related to rehires – generally, if an employee is rehired less than 13 weeks after termination, 4980H rules require the plan to reinstate them into their same coverage. So plans will need to consider both sets of rules together when determining how and when waiting period requirements will apply.
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Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C. She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare. She represents employers designing health plans as well as insurers designing new products. Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.
Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.PLEASE NOTE: This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.