Starting in 2014, federal law will prohibit group health plans from imposing eligibility waiting periods longer than 90 days. Recently, federal regulators published proposed regulations designed to implement this limitation. Employers and health plans will be able to rely on the proposed regulations at least until the end of 2014.
Employers will need to make sure that their group health plans are in compliance with the waiting period limitation starting with the first plan or policy year that begins on or after January 1, 2014. Grandfathered plans are not exempt from this rule.
The proposed regulations make it clear that plans will still be allowed to impose eligibility requirements based on factors other than the lapse of time. For example, a plan can restrict eligibility to employees who work at a particular location or who are in an eligible job classification. The waiting period limitation simply means that coverage must be effective no later than the 91st day after the employee satisfies the substantive eligibility requirements.
As a general rule, 90 days means 90 calendar days. Provisions that result in a waiting period longer than 90 days after eligibility criteria are satisfied will violate the waiting period limitation. For example:
- A plan that starts an eligible employee’s coverage on the first day of the month after a 90-day waiting period will violate the limitation because it will result in a waiting period of longer than 90 days in many cases.
- A three month waiting period is not equivalent to a 90-day waiting period. A plan that imposes a three month waiting period after an employee becomes eligible will violate the waiting period limitation because in many situations it will result in a waiting period of 92 days.
- A waiting period cannot delay coverage beyond the 91st day even if the 91st day falls on a weekend or holiday.
While the proposed regulations are very strict in defining the 90-day waiting period limit, they offer flexibility in some situations. For example, the proposed regulations will allow some plans to take a “reasonable” period of time (up to 12 months) to determine whether an employee has met a plan’s eligibility requirements. This option will be available to plans that impose an eligibility requirement based on full or part-time status (e.g., regularly scheduled to work 30 hours a week), when it is not clear whether a new employee will meet the eligibility requirement. If the employee is determined to be eligible, his or her coverage must become effective no later than 13 months after his or her date of hire (or the first of the following month, if the date of hire was not the first day of the month).
Another example of regulatory flexibility is the special rule for plans that condition eligibility on an employee’s having completed a number of cumulative hours of service. Under this special rule, an employer may design its group health plan so that employees have to work a certain number of hours (up to 1,200) in order to be eligible. A waiting period of up to 90 days may be imposed after the employee satisfies the hours requirement.
Employers should keep in mind that they can design their plans to comply with the waiting period limitation and still end up owing penalties under the new shared responsibility (“pay or play”) rules if any full-time employees are denied coverage beyond the first three months of employment. We will be covering the shared responsibility rules in a future article.