Effective for plan years beginning on or after January 1, 2014, employer group health plans, regardless of whether they are grandfathered or non-grandfathered, must comply with the following additional consumer protections such as:

  • waiting periods cannot exceed 90 days;
  • no more annual limits on essential health benefits (for 2013 the annual limit could be $2 million); and
  • no pre-existing condition exclusions for adults.

Non-grandfathered plans are subject to additional mandates as described in our newsletter of July 10, 2013—Agencies Provide Guidance on Additional Health Care Reform Changes Impacting Non-Grandfathered Employer Group Health Plans. Additionally, grandfathered plans will no longer be able to deny coverage to a child who is eligible for coverage under another employer’s plan.

Most of these changes are self-explanatory, and some had taken partial effect in earlier plan years. However, the new 90-day cap on waiting periods warrants further explanation.

90-Day Waiting Period

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Affordable Care Act” or “ACA”), incorporates into the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “Code”) a provision under which group health plans and health insurance issuers offering group health insurance coverage may not apply any waiting period that exceeds 90 days (the “90-Day Limit”). For this purpose, a “waiting period” is defined as a period that must pass with respect to an individual before the individual is eligible to be covered for benefits under the terms of the plan.

  • Example A: Company A’s group health plan provides that full-time employees are eligible for coverage under the plan. Elizabeth begins employment as a full-time employee on January 19. In this example, any waiting period for Elizabeth would begin on January 19 and may not exceed 90 days. Coverage under Company A’s plan must be effective no later than April 19 (assuming February lasts 28 days).

The 90-Day Limit does not require an employer to offer coverage to any particular employee or class of employees, including part-time employees. The 90-Day Limit merely prevents an otherwise eligible employee (or dependent) from being required to wait more than 90 days before coverage becomes effective.

Regulations

In March 2013, the Internal Revenue Service (“IRS”), the Department of Labor (“DOL”) and, Health and Human Services (“HHS”) (collectively the “Agencies”) issued proposed regulations addressing the prohibition on excessive waiting periods. The proposed regulations are very similar to the temporary guidance the Agencies issued in August 2012, but provide some clarifications and additional examples.

The Agencies recently announced that they do not expect to issue final regulations until December 2013, so the proposed regulations take on more significance as the effective date for calendar year plans, January 1, 2014, draws closer.

The August 2012 guidance provided that group health plans and health insurance issuers could rely on it through at least the end of 2014. The Agencies have indicated that the proposed regulations are consistent with, and no more restrictive on employers than, the August 2012 guidance. Therefore, the Agencies have indicated that they consider compliance with the proposed regulations as compliance with the 90-Day Limit at least through the end of 2014.

To the extent final regulations or other guidance with respect to the 90-Day Limit is more restrictive on plans and issuers than these proposed regulations, the Agencies have indicated that the final regulations or other guidance will not be effective prior to January 1, 2015. The Agencies most recently reiterated this in a series of Frequently Asked Questions issued on September 4, 2013 by stating that to “the extent final regulations are more restrictive on plans or issuers than the proposed regulations they will not be effective prior to January 1, 2015 and the Departments expect they will give plans and issuers sufficient time to comply.”

The proposed regulations are described below.

Effective Date & Application

The 90-Day Limit applies for plan years beginning on or after January 1, 2014. The rules apply to both grandfathered and non-grandfathered group health plans and health insurance issuers offering group health insurance coverage. The rules do not apply to “excepted benefits.” Many stand-alone dental and vision plans qualify as “excepted benefits.”

With respect to individuals who are in a waiting period for coverage before the effective date, beginning on the first day the 90-Day Limit applies, the waiting period can no longer apply to the individual if it would exceed 90 days with respect to the individual.

  • Example B: Company B’s group health plan is a calendar-year plan. Prior to January 1, 2014, the plan provides that full-time employees are eligible for coverage after a 6-month waiting period. Mary begins work as a full-time employee on October 1, 2013. The first day of Mary’s waiting period is October 1, 2013 because that is the first day she is otherwise eligible to enroll under the plan’s substantive eligibility provisions, but for the waiting period. Beginning January 1, 2014, the plan may not apply a waiting period that exceeds 90 days. Accordingly, Mary must be given the opportunity to elect coverage that begins no later than January 1, 2014 (which is 93 days after her start date) because otherwise, on January 1, 2014, the plan would be applying a waiting period that exceeds 90 days. Company B’s plan is not required to make coverage effective before January 1, 2014.

Commenters have requested relief that the 90-Day Limit only apply with respect to waiting periods starting in plan years beginning on or after January 1, 2014. However, until final regulations are issued granting such relief, it is safer to assume that the transition to the new rule will take effect as explained in Example B.

The 90-Day Limit Rules

  • Counting days—The proposed regulations clarify the method for counting days when applying a waiting period. Under the proposed regulations, due to the clear text of the Affordable Care Act, the waiting period may not extend beyond 90 days, and all calendar days are counted beginning on the enrollment date, including weekends and holidays. For a plan with a waiting period, “enrollment date” is defined as the first day of the waiting period. If, with respect to a plan or issuer imposing a 90-day waiting period, the 91st day is a weekend or holiday, the plan or issuer may choose to permit coverage to be effective earlier than the 91st day, for administrative convenience. However, a plan or issuer may not make the effective date of coverage later than the 91st day.
    • First of month after 90-day waiting period. It is a common practice to have a 90-day waiting period with coverage effective the first day of the month after the 90-day waiting period. This common practice will not work. Employers who prefer to use a first-day-of-month rule may instead want to use a 60-day waiting period.
    • 90 days does not equal 3 months. Another common practice is to allow employees to participate after three months of employment. In many cases, this common practice will not work.
      • Example C: An employee is hired on July 5 and is eligible to participate after completing 3 months of employment, making him eligible on October 6. This rule results in a 93-day waiting period which does not comply with the 90-Day Limit.
  • Employees may take additional time to elect coverage—Plans often give employees additional time to complete enrollment forms. This practice will not cause a plan to fail the 90-Day Limit.
    • Example D: Company D’s group health plan provides for coverage to begin on the first day of the first payroll period on or after the date an employee is hired and completes the applicable enrollment forms. Enrollment forms are distributed on an employee’s start date and may be completed within 90 days. John is hired and starts on October 31, which is the first day of a pay period. John completes the enrollment forms and submits them on the 90th day after his start date. Coverage is made effective seven days later, which is the first day of the next pay period. In this example, under the terms of Company D’s plan, coverage may become effective as early as October 31, depending on when John completes the applicable enrollment forms. Under the terms of the plan, when coverage becomes effective depends solely on the length of time taken by John to complete the enrollment materials. Therefore, under the terms of the plan, John may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, and the plan complies with the 90-Day Limit.
  • Eligible to enrollThe proposed regulations set forth rules governing the relationship between a plan’s eligibility criteria and the 90-day waiting period limitation. The proposed regulations provides that being otherwise eligible to enroll in a plan means having met the plan’s substantive eligibility conditions, such as being in an eligible job classification, achieving job-related licensure requirements specified in the plan’s terms, meeting certain sales goals, or earning a certain level of commission.
    • Example E: Company E’s group health plan provides that only employees who have completed specified training and achieved specified certifications are eligible for coverage under the plan. Megan is hired on May 3 and meets the plan’s eligibility criteria on September 22. In this example, Megan becomes eligible for coverage on September 22, but for the waiting period. Any waiting period for Megan would begin on September 22 and may not exceed 90 days. Coverage under Company E’s plan must become effective no later than December 21.
  • Coverage not required for any employees—The 90-Day limit generally does not require the plan sponsor to offer coverage to any particular employee or class of employees, including, for example, part-time employees. Instead, the proposed regulations simply prohibit requiring otherwise eligible participants and beneficiaries to wait more than 90 days before coverage is effective. Under the proposed regulations, eligibility conditions that are based solely on the lapse of a time period are permissible for no more than 90 days. Other conditions for eligibility under the terms of a group health plan (i.e., those that are not based solely on the lapse of a time period) are generally permissible unless the condition is designed to avoid compliance with the 90-Day Limit.
    • Example F: Company F’s group health plan provides that only employees with the job title “customer service rep” are eligible for coverage under the plan. Dan begins employment in job title photographer on January 30. In this example, Dan is not eligible for coverage under Company’s F’s plan, and the period while Dan is working as a photographer, and therefore is not in an eligible class of employees, is not part of a waiting period.
    • Example G: Same facts as above, except Dan transfers to a new position with job title customer service rep on April 11. In this example, Dan becomes eligible for coverage on April 11, but for the waiting period. Any waiting period for Dan begins on April 11 and may not exceed 90 days. Coverage under the plan must become effective no later than July 10.
    • Example H: Company H’s group health plan provides that employees are eligible for coverage after one year of service. In this example, the plan’s eligibility condition is based solely on the lapse of time and, therefore, is impermissible because it exceeds 90 days.
  • Late and special enrollments—The proposed regulations clarify that if an employee or dependent enrolls as a late enrollee or special enrollee, any period before such late or special enrollment is not a waiting period.
  • Cumulative hour-of-service requirements—Another type of plan eligibility provision addressed in the proposed regulations is a cumulative hours-of-service requirement, which uses more than solely the passage of a time period in determining whether employees are eligible for coverage. Under the proposed regulations, if a group health plan or health insurance issuer conditions eligibility on any employee (part-time or full-time) having completed a number of cumulative hours of service, the eligibility condition is not considered to be designed to avoid compliance with the 90-Day Limit if the cumulative hours-of-service requirement does not exceed 1,200 hours. Under the proposed regulations, the plan’s waiting period must begin once the new employee satisfies the plan’s cumulative hours-of-service requirement and may not exceed 90 days. This rule is designed to be a one-time eligibility requirement only—the proposed regulations do not permit, for example, re-application of such a requirement to the same individual each year.
    • Example I: Jim begins working 25 hours per week for Company I on January 6 and is considered a part-time employee for purposes of Company I’s group health plan. Company I sponsors a group health plan that provides coverage to part-time employees after they have completed a cumulative 1,200 hours of service. Jim satisfies the plan’s cumulative hours of service condition on December 15. In this example, the cumulative hours of service condition with respect to part-time employees is not considered to be designed to avoid compliance with the 90-Day Limit. Accordingly, coverage for Jim under the plan must begin no later than the 91st day after Jim works 1,200 hours. If the plan’s cumulative hours of service requirement were more than 1,200 hours, the Agencies would consider the requirement to be designed to avoid compliance with the 90-day waiting period limitation.
  • Application to variable hour employees—The proposed regulations propose an approach when applying waiting periods to variable-hour employees in cases in which a specified number of hours of service per period, such as 30 hours per week or 250 hours per quarter, is a plan eligibility condition. Under the proposed regulations, if a group health plan conditions eligibility on an employee regularly performing a specified number of hours of service per period, or working full-time, and it cannot be determined that a newly-hired employee is reasonably expected to regularly work that number of hours per period, or work full-time, the plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition, which may include a measurement period of no more than 12 months that begins on any date between the employee’s start date and the first day of the first calendar month following the employee’s start date. This is consistent with the timeframe permitted for such determinations under the employer shared responsibility penalties under Code Section 4980H and its implementing regulations. Except for cases in which a waiting period that exceeds 90 days is imposed in addition to a measurement period, the time period for determining whether a variable-hour employee meets the plan’s hours of service per period 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, plus if the employee’s start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month.
    • Example J: Under Company J’s group health plan, only employees who are full-time, defined under the plan as regularly averaging 30 hours per week, are eligible for coverage. Jane begins work for Company J on November 26 of Year 1. Jane’s hours are reasonably expected to vary, with an opportunity to work between 20 and 45 hours per week, depending on shift availability and Jane’s availability. Therefore, it cannot be determined at Jane’s start date that Jane is reasonably expected to work full-time. Under the terms of the plan, variable-hour employees, such as Jane, are eligible to enroll in the plan if they are determined to be full-time after a measurement period of 12 months that begins on the employee’s start date. Coverage is made effective no later than the first day of the first calendar month after the applicable enrollment forms are received. Jane’s 12-month measurement period ends November 25 of Year 2. Jane is determined to be full-time and is notified of her plan eligibility. If Jane then elects coverage, her first day of coverage will be January 1 of Year 3. In this Example, the measurement period is permissible because it is not considered to be designed to avoid compliance with the 90-day waiting period limitation. The plan may use a reasonable period of time to determine whether a variable-hour employee is a full-time employee, provided the period of time is no longer than 12 months and begins on a date between the employee’s start date and the first day of the next calendar month, provided coverage is made effective no later than 13 months from Jane’s start date (plus if the employee’s start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month) and provided that, in addition to the measurement period, no more than 90 days elapse prior to the employee’s eligibility for coverage.
  • Issuers may rely on information from employers—Some commenters raised concerns about communication between a plan and issuer regarding the 90-Day Limitation. Commenters stated that many issuers rely on the plan sponsor for information about an individual’s eligibility for coverage and that issuers may not have knowledge of certain plan terms, such as eligibility conditions and waiting periods. The commenters expressed concern that health insurance issuers are required to comply with the 90-Day Limit, but must rely on the information plan sponsors and employers report to them regarding eligibility information such as an employee’s start date. At the same time, small employers purchasing insurance coverage often rely on their issuers for compliance assistance. While the 90-Day Limit applies to both the plan and issuer, to the extent coverage under a group health plan is insured by a health insurance issuer, the proposed regulations provide that the issuer may rely on the eligibility information reported to it by an employer (or other plan sponsor) and will not be considered to violate the requirements of the proposed regulations in administering the 90-Day Limit if the issuer requires the plan sponsor to make a representation regarding the terms of any eligibility conditions or waiting periods imposed by the plan sponsor before an individual is eligible to become covered under the terms of the employer’s plan (and requires the plan sponsor to update this representation with any changes), and the issuer has no specific knowledge of the imposition of a waiting period that would exceed the permitted 90-day period.

Conclusion

It is obvious that plans with waiting periods in excess of 90 days will need to be modified to comply with the 90-Day Limit. However, plans with lesser waiting periods may also need to be tweaked to make sure they comply with the proposed regulations.

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