McGuireWoods Healthcare Reform Guide: Installment No. 43
This is the 43rd 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). This article provides a summary of the final rules on the Act’s 90-day waiting period limitation for group health benefits (Final Rules). We also address new proposed rules (New Proposed Rules) that were issued at the same time as the Final Rules.
The Final Rules will be effective on April 25, 2014 and will apply to both grandfathered and non-grandfathered group health plans, and to health insurance issuers offering group health insurance coverage for plan years beginning on or after Jan. 1, 2015. In this article, the terms “group health plan” or “plan” refer to both insured and self-funded arrangements.
A waiting period is any period under a group health plan that must pass before coverage under the plan can become effective for an employee or dependent who is otherwise eligible to enroll under the terms of the 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. A group health plan does not have to contain a waiting period, but if it does contain such a period, the Act limits that period to 90 days.
The Final 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 Final 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 Final Rules, a coverage denial to a full-time employee may give rise to a penalty under Section 4980H of the Internal Revenue Code (Code), which was enacted as part of the Act. See our article on the final rules under the “play-or-pay” employer mandate.
Changes Made by Final Rules
The Final Rules generally follow the proposed rules from 2013. The principal area of change is how a plan’s waiting period relates to the plan’s eligibility criteria. The waiting period starts when the employee is otherwise eligible to enroll. The Final Rules recognize that a plan may have substantive eligibility conditions that must be met before an employee is eligible to enroll. Examples of eligibility conditions are being in an eligible job classification, meeting job-related licensure requirements or satisfying a “reasonable and bona fide employment-based orientation period” (explained below). A plan can have other eligibility conditions unless the condition is designed to avoid compliance with the 90-day waiting period limitation.
The Final 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 Final Rules do not permit a reapplication of the cumulative service requirement to the same individual each subsequent year.
The Final 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 he 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 that 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 Section 4980H. The application of measurement periods is discussed in detail in our play-or-pay employer mandate article referred to above.
The Final Rules create a limited “safe harbor” for some plans that combine a measurement period with a waiting period. The safe harbor applies only if (1) the plan conditions eligibility on an employee’s regularly having a specified number of hours of service in a period, and (2) it cannot be determined that a newly-hired employee would reasonably be expected to fulfill that eligibility requirement. In that circumstance, 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.
Counting Days – Not Months
Under the Final 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, plans that provide for coverage to start at the beginning of a calendar month or pay period will have to use a waiting period less than 90 days.
Orientation Period Would Be Limited
The preamble to the New Proposed Rules indicates that during an orientation period, an employer and employee could evaluate whether the employment situation was satisfactory for each party, and standard orientation and training processes would begin. Under the New Proposed Rules, any orientation period before the waiting period begins would be limited to one month. The one month would be calculated by adding the next calendar month and then subtracting one day (even when the next month is shorter). Here are some examples:
Click here to view the table.
Special Rule for Health Insurance Issuers
The Final 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.
If a non-governmental group health plan fails to comply with the 90-day waiting period limitation, Code Section 4980D generally 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 Section 2723 of the Public Health Service Act, 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.
Certificates of Creditable Coverage Eliminated After 2014
In a related change, as of Dec. 31, 2014, group health plans will no longer be required to issue certificates of creditable coverage under HIPAA.