On March 19, 2012, the Departments of Labor, Treasury, and Health and Human Services (the "Departments") issued proposed rules implementing the 90-day waiting period limitations under the Patient Protection and Affordable Care Act ("PPACA"). These 90-day waiting period limitations apply to insured as well as self-funded plans (regardless of grandfathered or non-grandfathered status). These proposed 90-day waiting period rules take effect for plan years beginning on or after January 1, 2014.
The proposed rules also include amendments to certain provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") to conform these provisions to the requirements of PPACA (e.g., to discontinue HIPAA certificate of creditable coverage requirements).
Waiting Period Limitations
Under the proposed regulations, a group health plan may not impose a "waiting period" that exceeds 90 days. A waiting period is defined as the period of time that must pass before coverage for an employee or dependent that is otherwise eligible under the terms of a group health plan will become effective. The proposed rules clarify that a group health plan will not violate the waiting period rules merely because an individual chooses to elect coverage after the 90-day waiting period has elapsed.
Plan May Still Impose Eligibility Requirements
The proposed regulations point out that the 90-day waiting period rules do not require employers to offer coverage to any particular employee or class of employees (e.g., part-time employees). Further, a group health plan may impose eligibility requirements as a condition to gaining coverage under the plan (e.g., satisfying a certain job related licensure requirement, or being in an eligible job classification). However, once an employee or dependent has met these eligibility requirements, the plan may not require these otherwise eligible individuals to wait more than 90 days before coverage becomes effective. It is important to note that although the 90-day waiting period rules do not require that an employer provide coverage to any particular category of employee, failure by an applicable large employer to offer coverage to a full-time employee may give rise to penalties under the Employer Shared Responsibility rules found under 4980H of the Internal Revenue Code (the "Code"). For example, if an employer’s group health plan provides that a full-time employee will become eligible for group health plan coverage 90 days after obtaining a pilot’s license, this requirement will not violate the 90-day waiting period limitations. However, this same group health plan provision may cause the employer to incur penalties under the Employer Share Responsibility provisions for failing to provide coverage to a full-time employee within three months of the employee’s hire date.
The proposed rules provide examples of "permissible" eligibility conditions (i.e., conditions that are not considered to be designed to avoid compliance with the 90-day waiting period limitation requirements.) For example, the proposed rules discuss plan eligibility provisions that are based on cumulative hours-of-service. Where cumulative hours-of-service are required for eligibility, up to 1,200 hours may be required. A requirement of more than 1,200 hours-of-service would be considered designed to avoid compliance with the 90-day waiting period limitation. The proposed rules further clarify that the cumulative hours-of-service requirement must be designed to be a one-time eligibility requirement only. An individual may not be subjected to this cumulative hours-of-service requirement on an annual basis.
Further, many multi-employer plans have an hours-bank arrangement which allows workers to bank excess hours from one measurement period and then draw down on them in a succeeding period to prevent lapses in coverage—this type of eligibility provision is permissible under the 90-day waiting period rules.
In contrast, "eligibility conditions" that are based solely on the lapse of a time period are not permissible if the time period exceeds 90 days. For example, a group health plan that provides that employees are eligible for coverage after one year of service would be in violation of the 90-day waiting period rules.
How to Measure the 90-Day Waiting Period
When measuring the 90-day waiting period, the plan must count all calendar days, including the actual enrollment date. However, if the 91st day falls on a weekend or holiday, the plan does have the option of providing coverage earlier than the 91st day for administrative convenience.
Although many plans provide for coverage as of the first day of the month after a waiting period ends (i.e., resulting in a waiting period longer than 90 days), the Departments have declined to adopt this approach for calculating the waiting period. The Departments also declined to allow a "de minimis exception" that would allow plans to impose a "three month waiting period" (versus a 90-day waiting period), because a three month waiting period could exceed 90 days.
Utilizing Measurement Periods to Determine Full-Time Status Will Not Violate 90-Day Waiting Period Rules
The proposed waiting period regulations were drafted to work in conjunction with the Employer Shared Responsibility rules under Section 4980H of the Code. If a group health plan conditions eligibility on an employee working a specified number of hours of service (i.e., working full-time) and it can’t be determined whether a newly hired employee is reasonably expected to work on a full-time basis (i.e., the employee is a variable hour employee), the plan can take a reasonable period of time (i.e., a measurement period) to determine whether the employee meets the plan’s hours-of-service requirements. The measurement period may be up to 12 months. Provided that coverage for the variable hour employee is made effective within 13 months of the employee’s start date (plus a partial month if the employee’s start date is not the first day of the calendar month), this plan eligibility criteria is not considered as designed to avoid compliance with the 90-day waiting period limitations.
HIPAA Certificates Not Required after December 31, 2014
The proposed regulations also amend regulations under HIPAA to remove provisions relating to pre-existing condition exclusions. Effective for plan years beginning on or after January 1, 2014, group health plans are not permitted to impose pre-existing condition exclusions. Because pre-existing conditions exclusions will no longer be permitted, it will no longer be necessary for plans to issue HIPAA certificates of creditable coverage. Plans will not have to issue HIPAA certificates of creditable coverage beginning on December 31, 2014.
Action Items for Employers
Employers will need to review their plan documents and enrollment materials to ensure that these documents do not contain provisions requiring waiting periods that exceed 90 days. Employers should also work with their third party administrators and insurance carriers to ensure that HIPAA Certificates of Creditable Coverage are not issued after the 2014 plan year.