The three government agencies responsible for regulating health plan requirements under the Affordable Care Act -- IRS, DOL, and HHS -- issued final regulations on February 24, 2014 regarding the maximum 90-day waiting period.  Health reform rules applicable to employer health plans sponsored by employers (whether grandfathered or non-grandfathered) prohibit health plans from requiring more than 90 days of service for health plan eligibility, beginning in 2014 plan years.  While employers do not have to provide coverage to employees (large employers can pay "pay or play" penalties in 2015 instead), if there is a health plan, and an employee works in a position that is eligible under its terms for health coverage, the eligibility waiting period for that coverage can generally not be more than 90 days.

What's new?

The final regulations generally mirror 2013 proposed regulations, with a few clarifications.  The big news is that employers may wait until the end of an "orientation period" to begin counting the 90 days, and proposed rules issued in tandem with the final regulations tell us that such an orientation period can last no more than one calendar month (less one day).  This may allow employers to re-instate past practices of enrolling new hires on the first of the month after 90 days of service, rather than enrolling employees mid-month or shortening the waiting period to 60 days in order to allow first-of-month enrollments and still comply with the 90-day maximum. 

What is an "orientation period"? 

This orientation period must be a "bona fide" period in which the employer and employee evaluate whether the standard employee is suited to the job or during which standard orientation and training occurs.  You cannot just add a calendar month to the 90-day maximum period; this orientation period cannot be used solely for health enrollment purposes, because if so used, it would surely not be a bona fide employment practice.  We may get more guidance on what is a bona fide orientation period, after comments are received on the proposed guidelines. 

What about eligibility based on other criteria?

The final regulations also allow conditions on coverage that are not based on the passage of time, as long as the conditions are not designed to avoid compliance with the waiting period requirements.  These conditions include eligible job classifications and achieving job-related licensure requirements. 

The rules also allow a cumulative hours of service eligibility requirement instead of a time-based requirement.  This rule might be beneficial when establishing measurement periods for tracking employee hours by delaying the judgment that would usually be made at hire as to whether a worker will be "full time" (i.e., 30 hours or more likely to be worked on average) or whether  someone's hours will vary and you therefore do not know if they will be full-time, a so-called "variable hour" employee.  The regulations allow a group health plan to condition eligibility on an employee having completed a number of cumulative hours of service of up to 1,200 hours.  But, note that this is not 1,200 hours within a certain time period, so once the cumulative number is met, anyone in an eligible class has to be allowed to enroll, even if they are then working just a few hours a week.  If you use a cumulative hours rule, the  90-day waiting period need not begin running until the required hours have been completed.

Here is an example:

Assume a restaurant employer has management employees who are always schedule to work full time, and then has 200 or more hourly workers whose hours vary considerably over time or seasons. 

This employer could make both classifications of workers eligible, but allow them to enroll at the first of the month after they have worked a total of 400 hours.  For the management employees who work 40 hours a week, this would mean they might satisfy the applicable waiting period and be able to enroll after about 10 weeks of work.  If an hourly worker gets an average of 10 hours in each week, they would not be eligible to enroll until after the waiting period is satisfied at  about 10 months or so of employment; a worker who averages 20 per week would satisfy the waiting period and eligible after 5 or 6 months.  In a high turnover workforce, many hourly workers would never be enrolled under this system.

Even when using a cumulative hours eligibility rule, if a group of workers is clearly going to always be working on a very limited schedule (e.g., because they are students or have other jobs and agreed upon hire to a hours maximum, or perform tasks for which there is only limited work per day), then the employer could establish another employment classification of "part time" and exclude them from health plan eligibility entirely, with little risk of "pay" or "play" penalties.

Employers may be tempted to use a cumulative hour rule for some employment classifications, and a minimum number of days waiting period for others.  Keep in mind, however, that different eligibility conditions for different employment classes almost always poses discrimination problems under Internal Revenue Code Section 105(h) for employer with self-insured plans.  Nondiscrimination rules for fully-insured plans—mandated under the Affordable Care Act—have been delayed because we do not yet have guidance on what those standards will be.

Other clarifications in the final regulations include:

  • HIPAA Certificates of Creditable Coverage. HIPAA certificates of creditable coverage will no longer be required after December 31, 2014, when health care reform’s prohibition on preexisting conditions will be fully implemented.
  • Rehired Employees.  Rehired employees can be required to start over on the eligibility requirements and 90-day waiting period requirement under a plan, as long as the termination and rehire is not undertaken to avoid compliance with the 90-day rule. This exception would also apply to an individual who moves to a job classification that is ineligible for coverage under the plan but then later moves back to an eligible job classification, except that no such worker can be subject to a new cumulative-hours waiting period.
  • Multiemployer Plans.  A multiemployer plan is a plan offered to employees of a number of unrelated employers under collective bargaining agreements.  These plans have unique operating structures and may include different eligibility conditions based on the participating employer’s industry or the employee’s occupation. The final regulations incorporate a previously-issued FAQ, and allow reasonable eligibility requirements provided for under an arms-length collective bargaining agreement, as long as they are not designed to circumvent the 90-day rule. For example, an eligibility provision that allows employees to become eligible for coverage by working hours of covered employment across multiple contributing employers (often by aggregating hours by calendar quarter and then permitting coverage to extend for the next full calendar quarter, regardless of whether an employee has terminated employment) is expressly permitted.
  • Liability of Health Insurance Issuers for 90-day Rule Compliance. Health insurance issuers can rely on eligibility information supplied by an employer if the issuer requires the plan sponsor to make a representation regarding the terms of any eligibility conditions or waiting periods imposed by the employer and the issuer has no specific knowledge that the employer's waiting period would exceed the permitted 90-day period.  Employers should expect their insurance companies to want to know the exact eligibility requirements and to require representations from the employer that the rules are being met, so the carrier will not be liable for noncompliance penalties.

When must employers comply with the maximum waiting period rules?

Employers must use a reasonable and good faith method of complying with the rules in plan years beginning on or after January 1, 2014, and must fully comply with the final regulations for plan years beginning on or after January 1, 2015.

The cost for violating the 90-day maximum waiting period rule is an excise tax of $100 per day per affected worker, which employers are required to self-report on IRS Form 8928.