This is the 31st in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act). In this article, we discuss the proposed rules (Rules) that were recently jointly issued by the Internal Revenue Service, Department of Labor and Department of Health and Human Services addressing the Act’s 90-day waiting period limitation for group health benefits.
The Rules apply to both grandfathered and nongrandfathered group health plans, and to health insurance issuers offering group health insurance coverage, for plan years beginning on or after Jan. 1, 2014. The 90-day waiting period limitation is found in Section 2708 of the Public Health Service Act (PHSA) and has been incorporated into ERISA and the Internal Revenue Code (Code).
PHSA Section 2708 provides that a group health plan, or health insurance issuer offering group health insurance coverage, may not apply any waiting period that exceeds 90 days. A waiting period is the period that must pass before coverage can become effective for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan. For this purpose, being eligible for coverage means having met the plan’s substantive eligibility conditions, such as being in an eligible job classification specified in the plan’s terms.
The Rules generally do not require plan sponsors to offer coverage to any particular employee or employee class; for example, coverage does not need to be offered to part-time employees. Instead, the Rules prohibit requiring an otherwise eligible employee or dependent to wait more than 90 days before coverage is effective. Importantly, while eligibility conditions denying certain employees coverage are permissible under the Rules, a coverage denial to a full-time employee may give rise to an assessable payment under Code Section 4980H. See our prior article on the “play-or-pay” employer mandate.
The Rules indicate how different kinds of eligibility conditions apply to the 90-day waiting period limitation.
Eligibility Conditions Based Solely on Lapse of Time
Eligibility conditions based solely on the lapse of time are permissible for no more than 90 days. Accordingly, a plan will not be considered to have violated the 90-day waiting period limitation if the plan terms allow an employee to elect coverage that begins earlier than 90 days, even if the employee takes additional time to elect coverage, after 90 days have passed.
Cumulative Service Requirements
Eligibility conditions based on completing a number of cumulative hours of service are permissible as long as the requirement does not exceed 1,200 hours. If the requirement exceeds this amount, the eligibility condition will be considered to be designed to avoid compliance with the 90-day waiting period limitation.
If a plan contains a cumulative service requirement, the waiting period must begin once the new employee satisfies the requirement. Also, this is a one-time eligibility requirement; the rule does not permit a reapplication of the cumulative service requirement to the same individual each subsequent year.
The Rules offer an approach for “variable-hour” employees under a plan with an eligibility condition that requires the employee to work full-time or a specified number of hours per service period. An employee is a variable-hour employee if it cannot be determined from the employee’s start date that her or she is reasonably expected to work full-time or meet the service hour requirement.
In these cases, the plan may use a measurement period, not to exceed 12 months and beginning on any date between the employee’s start date and the first day of the first calendar month following the employee’s start date, to determine whether the employee meets the plan’s eligibility requirements. This measurement period is designed to be consistent with the measurement period used for determining full-time employees under Code Section 4980H. The application of measurement periods is discussed in detail in our play-or-pay employer mandate article referred to above.
The Rules create a “safe harbor” for plans that combine a measurement period with a waiting period. Under the safe harbor, the time period for determining whether an employee meets the plan’s eligibility condition will not be considered to be designed to avoid compliance with the 90-day waiting period limitation if coverage is made effective no later than 13 months from the employee’s start date. If the employee’s start date is not the first day of a calendar month, the time between the 13th month anniversary date and the first day of the next calendar month is included in the safe harbor. However, this safe harbor will not apply in cases in which a waiting period that exceeds 90 days is imposed in addition to a measurement period.
Counting Days – Not Months
Under the Rules, all calendar days (including weekends and holidays) are counted. If the 91st day is a weekend or holiday, the plan or issuer may choose to permit coverage to become effective earlier than the 91st day, but not later. The eligibility date cannot be the first day of a month or of a payroll period after the 90 days. Accordingly, employer plans that provide for coverage to start at the beginning of a calendar month or pay period would have to use a shorter (less than 90-day) waiting period.
Special Rule for Health Insurance Issuers
The Rules provide that health insurance issuers will be allowed to rely on the eligibility information provided by the plan sponsor (typically, the employer) and will not be considered to have violated the 90-day waiting period limitation if:
- The issuer requires the plan sponsor make a representation (and provide updates with any changes) regarding any eligibility conditions or waiting periods imposed by the plan sponsor; and
- The issuer has no specific knowledge of the imposition of a waiting period that would exceed the 90-day period.
Individuals in a Waiting Period Beginning Before Jan. 1, 2014
The Rules have no phase-in period after Jan. 1, 2014. If an employee is hired before Jan. 1, 2014, the days of employment in 2013 will count toward the 90-day waiting period limitation as of Jan. 1. In such cases, coverage must become effective no later than the waiting period’s 91st day, even if the 91st day is Jan. 1, 2014.
If a non-governmental group health plan fails to comply with the 90-day waiting period limitation, Code Section 4980D imposes a penalty of $100 for each day of the failure as to each individual to whom the failure relates. Such a penalty is payable by the employer sponsoring a single-employer plan and by the plan itself in the case of a multiemployer plan. Additionally, under PHSA Section 2723, as to non-federal governmental plans, a civil penalty of up to $100 per day is payable as to each individual for whom a failure to comply with the 90-day limitation occurs. Finally, as to a plan subject to ERISA, a plan participant or the Department of Labor may bring suit under ERISA Section 502 to enjoin the failure of the plan or its insurer to comply with the 90-day limitation or for other appropriate equitable relief.