The ACA prohibits group health plans from having a waiting period in excess of 90 days. The prohibition went into effect for plan years beginning on or after January 1, 2014. Since this rule isn’t new, you may be wondering why I am writing this blog post about it now. In the past several months, I have spoken to several employers who were violating this rule and didn’t know it.
One employer was using the first day of the month following 90 days based on the advice from their broker that using this time frame didn’t subject the employer to pay or play penalties since the pay or play penalties don’t apply until the employee’s fourth full month of employment. While the broker was correct on that point, the broker failed to mention to the employer that there was another provision in the ACA that prohibits employers from using a waiting period longer than 90 days (with several exceptions). This rule is a strict 90 days. It is not 3 months and it is not first of the month following 90 days. Therefore, if you have a waiting period that is in excess of 90 days, you should immediately change it or discuss with benefits counsel whether you meet one of the limited exceptions.
While there are several minor exceptions, there is no exception for small employers. We have been reviewing handbooks for several small employers recently where we discovered they were still using a waiting period longer than 90 days. In one situation, they believed the rule didn’t apply to them because they weren’t a large employer and in two other situations, they had never sought benefits counsel and hadn’t been advised by a broker so they had no idea there was any prohibition on waiting period. Whether you have 2 employees or 2,000 employees, this restriction on the waiting period applies to your group health plan.
The penalty for violating this rule is $100 per participant per day. That works out to be $36,500 per participant per year.