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Orientation Period Final Rules Address Employer Mandate
Practical Law Legal Update 2-572-1408 (Approx. 5 pages)
Orientation Period Final Rules Address Employer Mandate
by Practical Law Employee Benefits & Executive Compensation
| Published on 24 Jun 2014 • USA (National/Federal) |
The Departments of Labor (DOL), Health and Human Services (HHS) and Treasury have issued final regulations on the maximum length of a reasonable and bona fide employment-based orientation period, for purposes of the 90-day waiting period limit under the Affordable Care Act (ACA). In finalizing the rules, the Departments address how orientation program compliance affects the ACA's employer mandate.
On June 20, 2014, the Departments of Labor, Health and Human Services and Treasury (the Departments) issued final regulations on the maximum length of a reasonable and bona fide employment-based orientation period, for purposes of the 90-day waiting period limit under the Affordable Care Act (ACA) (see Practice Note, Ninety-day Limit on Waiting Periods under the ACA). The regulations, which finalize proposed rules issued in February, provide that a reasonable and bona fide employment-related orientation period may not exceed one month (see Legal Update, Final Waiting Period Rules for Health Plans Address Employer Orientation Periods).
90-day Waiting Period Limit
In February 2014, the Departments issued final regulations defining a waiting period as the time that must pass before coverage for an individual who is "otherwise eligible to enroll" under the plan terms can become effective. 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) (see Legal Update, Final Waiting Period Rules for Health Plans Address Employer Orientation Periods).
Being "otherwise eligible to enroll" under the plan terms 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.
- Satisfying a reasonable and bona fide employment-based orientation period.
The final regulations issued by the Departments on June 20 discuss the orientation period eligibility condition.
Employment-based Orientation Periods
The orientation period final regulations (like the proposed version of these rules), provide that one month is the maximum length of a reasonable and bona fide employment-based orientation period. As a result, if a plan conditions eligibility on an employee's having completed a reasonable and bona fide orientation period, that period is not considered designed to avoid compliance with the 90-day waiting period limit if:
- The period is not more than one month.
- The 90-day waiting period begins on the first day after the 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 final 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.
If there is not a corresponding date in the next calendar month when adding a calendar month, the last permitted day of the orientation period is the last day of the next calendar month. For example, if:
- The employee's start date is January 30, the last permitted day of the orientation period is February 28 (or February 29 in a leap year).
- The employee's start date is August 31, the last permitted day of the orientation period is September 30.
Interaction with Employer Mandate
In response to commenters' requests, the Departments address how the 90-day period rules interact with the ACA's employer mandate (see Employer Mandate Toolkit). The Departments indicate that in some cases a large employer may not be able to impose both a full one-month orientation period and a 90-day waiting period without incurring possible employer mandate liability. (In earlier guidance, the Departments stated that plans may have a waiting period that is shorter than 90 days, or no waiting period at all.)
In this context, the Departments note that for a full-time employee who is hired by a large employer on January 6, a plan may offer coverage on May 1 and comply with both the waiting period rules and the employer mandate. However, if the employee is hired on January 6 and health coverage begins on May 6 (that is, one month plus 90 days after the date of hire), the employer will comply with the waiting period requirements but may be subject to an employer mandate penalty.
Applicability Date
The final regulations apply to group health plans and insurers for plan years beginning on or after January 1, 2015. The Departments will consider compliance with the proposed regulations as compliance with the ACA's 90-day waiting period rules through the end of 2014.
The final regulations will be published in the Federal Register on June 25, 2014.
Practical Impact
Employers that are considering adding an orientation period as an eligibility condition should note the Departments' warning that the orientation and waiting period structure does not determine compliance with the employer mandate. In some cases, as the Departments emphasize, an employer will not be able to offer the permitted one-month orientation period without running afoul of the employer mandate rules.