Final Waiting Period Rules for Health Plans Address Employer Orientation Periods

Practical Law Legal Update 1-558-2785 (Approx. 5 pages)

Final Waiting Period Rules for Health Plans Address Employer Orientation Periods

by Practical Law Employee Benefits & Executive Compensation

Applicability Date

The final regulations' rules addressing the 90-day waiting period limit apply to group health plans and insurers for plan years beginning on or after January 1, 2015. For plan years beginning in 2014, the Departments will consider compliance with either the proposed or the final rules on the 90-day waiting period limit as compliance with the requirement.

However, a different rule applies for the final regulations' HIPAA certificate of creditable coverage requirements (see Elimination of HIPAA Certificates of Creditable Coverage).

90-day Waiting Period Limit

The final regulations define a waiting period as the time that must pass before coverage for an individual who is otherwise eligible under the plan terms can become effective (see Practice Note, Ninety-day Limit on Waiting Periods under the ACA).

Eligibility conditions based solely on the passage of time cannot exceed 90 days, and all calendar days are counted for this purpose (beginning on the enrollment date and including weekends and holidays). Plans and insurers are not considered to violate the 90-day waiting period limit solely because employees or other classes of participants may take additional time beyond the end of the 90-day waiting period to elect coverage.

Interaction of Waiting Period Limit and Eligibility Criteria

A waiting period may not extend beyond 90 days after an individual is "otherwise eligible to enroll" under the plan terms, which means the individual has satisfied the plan's substantive eligibility terms, for example:

Being in an eligible job classification.
Achieving job-related licensure requirements specified in the plan's terms.

The final regulations add a third eligibility condition, namely, satisfying a reasonable and bona fide employment-based orientation period.

Length of Employment-based Orientation Periods

Although the final regulations do not specify the length of a reasonable or bona fide orientation period, the related proposed regulations (also issued on February 20, 2014) provide that one month is the maximum length of a reasonable and bona fide employment-based orientation period. During this one-month period, according to the Departments, the employer and employee can:

Evaluate whether the employment situation is satisfactory to both parties.
Begin standard orientation and training procedures.

Under the proposed regulations, the one month period is determined by adding one calendar month and subtracting one calendar day, measured from an employee's start date in a position that is otherwise eligible for coverage. For example, if an employee's start date is:

May 3, the last permitted day of the orientation period is June 2.
October 1, the last permitted day of the orientation period is October 31.

An orientation period would not be considered designed to avoid compliance with the waiting period limit if:

It is not more than one month.
The maximum 90-day waiting period begins on the first day after the orientation period.

As a result, an employee's plan coverage must begin by the 91st day after completion of the orientation period.

Reliance on Employee Orientation Rules

The Departments will consider compliance with the proposed regulations' rules addressing reasonable and bona fide employment-based orientation periods as compliance with the ACA's 90-day waiting period rules through the end of 2014. If final regulations addressing orientation periods (or other guidance on the 90-day waiting period limit) include more restrictive rules, that guidance will not be effective before January 1, 2015.

Former Employees

The final regulations clarify how the 90-day waiting period limit applies regarding employees that:

Are terminated and then rehired by the same employer.
Move between a job classification that is or is not an eligible job classification for plan coverage.

Under the final regulations, a former employee that is rehired may be treated as newly eligible for coverage at the time of rehire. Therefore, a plan or insurer may require the person to meet the plan's eligibility criteria and waiting period anew, if reasonable under the circumstances. For example, a termination and rehire cannot be a subterfuge to avoid compliance with the 90-day waiting period limit.

The same analysis applies to an employee who:

Moves to a job classification that is ineligible for coverage under the employer's health plan.
Later moves back to an eligible job classification.

As a result, the employer could require an employee who returns to an eligible job classification to meet the waiting period requirements anew, if reasonable under the circumstances.

Multiemployer Plans

Consistent with FAQ guidance issued after the March 2013 proposed regulations were issued, the final regulations include an example illustrating how the waiting period limit applies to multiemployer plans (see Legal Update, Exchange Notices, Due October 1, Can Be Distributed by TPAs and Insurers: 90-day Waiting Period Limit). The example involves a multiemployer plan that:

Operates pursuant to an arms-length collective bargaining agreement.
Includes an eligibility provision allowing employees to become eligible for coverage by working a specified number of hours of covered employment across multiple contributing employers.

Under this arrangement, an employee's hours may be aggregated by calendar quarter and the employee's coverage begins in the next full calendar quarter (assuming sufficient hours are earned), regardless of whether the employee has terminated employment. The Departments would view this provision as:

Intended to accommodate a unique operating structure.
Not designed to avoid compliance with the 90-day waiting period limit, and therefore compliant with these rules.

Elimination of HIPAA Certificates of Creditable Coverage

The final regulations also amend rules implementing HIPAA's portability provisions to reflect the ACA's prohibition on preexisting conditions (see Practice Note, Preexisting Condition Exclusions and Rescissions under the ACA). This includes elimination of the requirement to provide certificates of creditable coverage, which applies beginning December 31, 2014, on the grounds that:

The prohibition on preexisting condition exclusion applies (as to adults) for plan years beginning on January 1, 2014.
A plan with a plan year beginning December 31, 2013 could impose a preexisting condition exclusion (requiring an individual to need a certificate of creditable coverage) through December 30, 2014.

Practical Impact

The final regulations include a timing rule regarding variable employees that is intended to align with the timeframes for making full-time employee determinations regarding variable-hour employees under the ACA's employer mandate requirements (see Legal Update, Final Rules on Employer Mandate Include 2015 Transition Relief for Mid-sized Employers). The waiting period rules apply if:

A plan conditions eligibility depends on an employee regularly having a certain number of hours of service per period (or working full-time).
It cannot be determined whether a newly-hired employee is reasonably expected to regularly work that number of hours per period (or work full-time).

In that case, the plan may take a reasonable period of time to determine whether the employee meets the plan's eligibility conditions. This period may not exceed 12 months 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.

Final Waiting Period Rules for Health Plans Address Employer Orientation Periods | Practical Law