Counting to 90: ACA and the waiting period

Original article

By Keith McMurdy

Under the Affordable Care Act, once we decide who we have to offer coverage to, then we have to decide when they get the coverage. Generally the new rule is that a waiting period for coverage cannot exceed 90 days. More recently, the IRS has given us proposed rules on the 90 day waiting period. As with all proposed rules, they are not final until they are final, but these do give employers some additional guidance on how to maintain the correct waiting period.

The proposed regulations define a waiting period as “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.” What this means is that once eligibility requirements are met (meaning that an employee is "full time"), coverage must begin 90 calendar days after eligibility is obtained. This includes weekends and holidays. If day 91 falls on a weekend or holiday, the plan sponsor may elect to have coverage be effective earlier than the 90th day, for administrative convenience, but may not delay coverage past the 91st day. So plan sponsors should eliminate any plan provisions that provide that coverage begins at some time after the 90th day (like the first day of the month after the expiration of the 90 day period.)

The proposed rule also provides that a plan may impose eligibility criteria such as completion of a period of days of service (which may not exceed 90 days), attainment of a specific job category, or other criteria, so long as they have not been designed to avoid compliance with the 90 day waiting period. For example, a plan provides coverage only to employees with the title of manager. John is hired on September 1, 2014 as an associate. On April 1, 2015, he is promoted to manager.  John must be offered coverage no later than July 1, 2015. This does not mean that John might not have otherwise been offered coverage as a full-time employee. So be wary of reading too much into this job classification option. We still have to measure how many hours John works even as an associate.

Also, there had been some question about certificates of creditable coverage being required after January 1, 2014. The proposed rules provided that these certificates will be phased out by 2015 because ACA's prohibition on exclusions from coverage due to pre-existing health conditions renders them obsolete. Since pre-existing condition exclusions have to be eliminated for plan years beginning on or after January 1, 2014, these certificates are no longer necessary.  But they still have to be provided throughout the 2014 plan year.

There are other specifics in the proposed rules that will have to be fleshed out and, again, these rules are proposed and subject to change. But they serve as an ongoing reminder that plan sponsors have to be watchful of how they administer their plans and must make sure that their stated eligibility rules satisfy the requirements of both ERISA and ACA.


90-Day Limit on Eligibility Waiting Period

Original article from United Benefit Advisors

Unlike the shared responsibility penalties (which will apply only to larger employers), the 90-day limit on eligibility waiting periods will apply to virtually all employer health plans - regardless of the employer's size and even if a plan remains "grandfathered" under health care reform.  All employers should thus familiarize themselves with the guidance in Notice 2012-59.

Citing regulations issued in 2004, the agencies define a "waiting period" as "the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective."  (Emphasis added.)  Consistent with the italicized language, the agencies note that nothing in health care reform requires a plan to provide coverage to any particular category of employees.  (Of course, as noted earlier, a large employer may incur a shared responsibility penalty if the exclusion of a full-time employee results in that employee receiving subsidized coverage through an Exchange.)

Much of Notice 2012-59 is devoted to explaining when the agencies will view an eligibility condition as being designed to avoid compliance with the 90-day waiting period limitation - and therefore a violation of this requirement.  For instance, a plan may validly require that an employee be in an eligible job classification - such as hourly, salaried, or working at a specified location - in order to participate.  And any period in an ineligible classification need not be counted against the 90-day limit. On the other hand, any eligibility condition that is based solely on the lapse of time may last no longer than 90 days.

So far, this is all clear enough.  But the guidance then goes on to address certain harder cases.  For instance, what if a plan conditions an employee's eligibility on working "full-time" (under either the 30-hour-per-week standard or otherwise) and an employee is hired on a variable hour or seasonal basis?  Here, Notice 2012-59 refers to the "initial measurement period" concept outlined in Notice 2012-58.  As explained above, this concept could allow for a period of up to twelve months (plus a brief administrative period) for a plan to determine whether an employee has satisfied this eligibility condition - even though such a period greatly exceeds 90 days.

What about a different type of eligibility condition, such as one offering coverage to part-time employees only after they have completed a total of 1200 hours of service?  An example in Notice 2012-59 specifically approves of this approach, even though the employee in that example was therefore required to work nearly a year before entering the plan.  Interestingly, however, the Notice appears to set a 1200-hour limit on such an eligibility condition, noting that the agencies would consider a requirement to complete more than 1200 hours to be designed to avoid compliance with the 90-day waiting period limitation.

Finally, Notice 2012-59 connects the 90-day limit on eligibility waiting periods to the shared responsibility penalties discussed in Notice 2012-58.  It does so by noting that a large employer may require even a full-time employee to satisfy a waiting period of up to 90 days without thereby running the risk of incurring a shared responsibility penalty.  Moreover, during that waiting period, the employee may qualify for subsidized coverage through an Exchange.  In this way, the Notice closes an analytical gap in the statutory language.

What to Do Now

Although neither of the requirements discussed in this article will take effect until January 1, 2014, sponsors of employer health plans will want to begin planning for their implementation well before that date.  In fact, any employer planning to use the look-back/stability period safe harbor for identifying full-time employees during 2014 must begin counting hours of service during 2013.

Moreover, the agencies have stated that this interim guidance will remain in effect through at least the end of 2014 - with any more restrictive guidance taking effect no earlier than 2015.  Accordingly, employers can be certain that these are the rules that will apply during the first year the requirements are effective.