Document Archive > Affordable Care Act Final Rule: 90-Day Waiting Periods


Affordable Care Act Final Rule: 90-Day Waiting Periods and 
Proposed Rule on "Orientation Periods"

Well, the Agencies have done it again! The following is a summary of the Final Rule on the 90-day waiting period and the Proposed Final Rule addressing orientation periods.

The Basics

§  Defining the 90-Day Waiting Period. The Final Rule keeps the proposed definition of "waiting period" as the period that must pass before coverage for an individual who is otherwise eligible to enroll under the terms of the group health plan for coverage to be effective. "Days" means calendar days, including weekends and holidays.

§  Otherwise Eligible. Plan sponsors may establish substantive criteria unrelated to the passage of time in determining eligibility. The common examples would be eligibility based on job classification or meeting proper licensing requirements. The Final Rule adds a third example of substantive criteria: Bona-fide and reasonable orientation periods. The Proposed Final Rule contains a maximum permissible duration (roughly one month) for orientation periods. We discuss this issue in more depth in the Details section of this Benefits Alert.

§  Applicability of the 90-Day Waiting Period Limitation. The Affordable Care Act (ACA) Final Rule applies to health insurance policy issuers and to group health plans, whether insured or self insured, and whether grandfathered or non-grandfathered. Policy issuers have a safe harbor as discussed later in this Benefits Alert.

§  Effective Date. The 90-Day waiting period limitation is effective for plan years beginning on or after January 1, 2014. The Final Rule, itself, is effective for plan years beginning on or after January 1, 2015. To achieve compliance in 2014, plan sponsors may comply with either the 2013 proposed regulations or the 2014 Final Rule, but must comply using one rule or the other.

§  Penalty for Non-Compliance. For plans that do not comply with the waiting period rules, the plan becomes subject to a $100/day excise tax per day per failure, payable by filing IRS Form 8298 (an annual self-reporting process).

Details

1.     Permissible Eligibility Criteria. The Proposed and Final Rules require a 90-day limit when eligibility is based solely on the passage of time. They also permit plan sponsors to limit coverage solely by class (e.g. office staff versus field sales force), as long as they comply with the 90-day Rule. In situations where plan sponsors use other criteria such as reaching sales goals, obtaining a professional license, or accumulating hours of service (maximum cannot exceed 1,200 hours), it must be clear to the Agencies that such alternative eligibility rules are not designed to avoid the 90-day waiting period (e.g. standard industry practice). Plan sponsors may start the 90-day wait upon reaching these substantive criteria.

2.     Orientation Periods. For some plan sponsors, the 90-day waiting period limitation actually may be up as much as a 120-day period by altering the start date for the 90-day count to include an orientation period. The Proposed Rule issued along with the Final Rule on waiting periods (2/24/2014) seeks comments on the use of orientation periods as a substantive eligibility condition. The Final Rule requires that the orientation period be reasonable and a bona-fide employment-based orientation period. The Proposed Final Rule limits the duration of an orientation period to one calendar month minus one day for the employee's start date. The 90-day period would begin on the day following the completion of the orientation period.

The basis for this additional time, according to the Agencies, is to allow the parties a chance to assess whether the employment situation is satisfactory and to allow for standard job orientation and training. The trap here is whether this period would be considered a subterfuge for the passage of time.

3.     Hours of Service Exception to the 90-Day Limit. If eligibility is conditioned on periodic hours of service (e.g. 30 hours/week) and that factor cannot be determined easily, the plan sponsor can impose a measurement period as described in the Final Rule, not to exceed 12 months that begins on or between the employee's start date and the first day of the calendar month and following the start date. The effective date of coverage can be no longer than 13 months from the first day of the calendar month following the employee's start date. Also, where there is a fixed "hours of service" rule (e.g. 1,200 hours), the plan sponsor may add the 90-day wait.

4.     Rehires. The Final Rule permits employers to treat rehires as newly eligible and thereby subjecting them to a new 90-day waiting period. Similarly, employers can require a new 90-day wait for an employee once covered but transfers to an ineligible class and subsequently returns to an eligible class.

5.     Special or Late Enrollment. HIPAA's special open enrollment rules require plans to permit immediate eligibility for individuals who have lost health care coverage as permitted by HIPAA regulations. The Final ACA Rule makes it clear that plan sponsors may not require a waiting period where HIPAA is involved. Individuals who did not join the health plan when first eligible and do not qualify under the HIPAA special open enrollment rules may join as late enrollees as permitted under the terms of the plan, without being subject to the 90-day waiting period.

6.     Multiemployer (Union) Plans. In the event that a union bargaining agreement permits its union members to work for other contributing employers (covered by that bargaining agreement) and the hours are accumulated accordingly (e.g. hour banks) with eligibility based on calendar quarters, for example, the Agencies will accept the practice as compliant with the Final Rule.

7.     Mid-Year Hires. If a plan becomes subject to the 90-day rule (first day of the 2014 plan year) and the employer has newly hired employees whose eligibility periods (based solely on passage of time) are greater than 90 days, plan sponsors must reduce the waiting periods for those individuals to periods not more than 90 days from their dates of hire. In some instances, the new employee may become immediately eligible for coverage.

8.     Insurance Company Safe Harbor! The Final Rule allows insurers to rely on the policyholders to warrant that their eligibility rules meet the federal standard. It is my understanding that most health insurance carriers no longer include the eligibility rules in their group policies/contracts.

9.     California Employers. As you know, AB 1083 imposes its own 60-day waiting period limitation on small and large group health care policies issued in California. The California rule, in general terms, trumps the federal rules for insured plans. Self-funded plans are not subject to AB 1083. The California 60-day rule goes into effect on the policy renewal date on or after January 1, 2014.

It also is our understanding that California insurers are inconsistent in their administration of the 60-day rule. We are currently in discussions with the California Department of Managed health Care and will report back to our California clients once there is clarity.