California currently requires a group health plan to enroll eligible individuals in health coverage within 60 days. The ACA allows for a 90 day waiting period. Recent regulations under the ACA now also permit a one month orientation period. The ACA waiting period and orientation period may become more relevant in California if the pending legislation to eliminate the 60 day waiting period is passed into law.
Under the ACA, group health plans and health insurance issuers may not require an otherwise eligible individual to wait more than 90 days before coverage becomes effective. For this purpose, group health plans are employer plans, including self-insured plans or plans of employee organizations, that provide health care to employees, former employees, or their families.
Last month, the Centers for Medicare and Medicaid Services, Internal Revenue Service, and Employee Benefits Security Administration issued a final rule clarifying the use of a bona fide orientation period in conjunction with the 90-day waiting period. Under the rule, an employer may institute a one-month orientation period before a waiting period lasting up to 90 days. That one-month period is calculated 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. (e.g. for a start date of May 3, the last permitted day of the orientation period would be June 2). If there is no corresponding date in the next calendar month, the last permitted day of the orientation period is the last day of the next calendar month. (e.g. start January 30, the last day would be February 28 (or February 29 in a leap year). The purpose of the bona fide orientation period is for both the employer and the new employee to evaluate whether the employment situation is suitable and to conduct standard orientation or training processes.
The Departments explained that "[o]rientation periods are commonplace and the Departments do not intend to call into question the reasonableness of short, bona fide orientation periods. The danger of abuse increases, however, as the length of the period expands." The one-month period allows both the employer and employee to orient to the new employment situation, but also prevents against abuse.
CAVEAT!! - It is important to remember that while the final rule effectively permits up to 120 days before a an eligible employee must be covered under a plan, large employers can still be separately penalized for a failure to timely offer affordable, minimum value coverage under Section 4980H, the ACA' s "employer mandate." Employers of any size may create policies requiring completion of a reasonable, bona fide one-month orientation period for evaluation, orientation and training, followed by up to 90 days before any coverage offered to an eligible employee becomes effective. Such a policy would not violate the 90-day limitation on waiting periods. However, the orientation period rule does not supersede potential penalties applicable to large employers for failure to offer substantially all full-time employees affordable, minimum coverage by the first day of the fourth full calendar month of employment. As a result, large employers subject to the employer mandate will not be able to impose both a full one-month orientation period and a full 90-day waiting period without risking potential penalties under Section 4980H.
The rule becomes effective sixty days after its official publication in the Federal Register and will apply to plans with plan years beginning on January 1, 2015, or after.
The final rule is available at: http://www.ofr.gov/OFRUpload/OFRData/2014-14795_PI.pdf.