March 7, 2014

Final a nd Pro posed W aiting Perio d Re gulations Issued

On February 20, 2014, final and additional proposed rules were issued regarding the 90 day waiting period under the Affordable Care Act (ACA). The rule, as we originally understood it, was effective on or after January 1, 2014, requiring a group healt h plan and a healt h insurance issuer (the carrier) 1 not to apply any waiting period that exceeds 90 days for group health insurance coverage. This rule applies to both grandfathered and non-grandfathered plans. The following outlines notable changes from previously-issued regulations:

Summary: The employer may impose an orientation period permissible for new employees who are hired into a position that is benefit eligible. Full time employees who are eligible for coverage at the time of hire may not have an orientation imposed for purposes of delaying the effective dat e of coverage. The orient ation period is also not be permissible for new variable-hour employees who are placed in an employers measurement period under ACA. Effective Date . The final regulations apply to plan years beginning on or after January 1, 2015. For plan years beginning in 2014, employers may comply with either the previouslyissued proposed regulations or the final regulations. Bona fide Employment-ba sed Orientation Period.* A waiting period is 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. To be otherwise eligible to enroll in a plan means that an individual has met the plan's substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan's terms). So, the maximum 90-day waiting period does not have to begin until the first day after the substantive eligibility conditions are met.

Nothing in the Affordable Care Act requires a group health plan, or carrier, to have a waiting period. In addition, state insurance law may be more restrictive than what the federal law requires. For example, California insurance law prohibits waiting periods that exceed 60 days. State insurance requirements are generally not applicable to ERISA self-insured plans.

This summary is intended to conv ey general inf ormation and is not an exhaustiv e analysis. This inf ormation is subject to change as guidance dev elops. USI does not prov ide legal or tax adv ice. For adv ice specific to y our situation, please consult an attorney or other prof essional.

The final regulations indicate that a reasonable and bona fide employment-based orientation period can be a substantive eligibility condition and the propos ed rule offers a one-month orientation period. The idea is that, during an orientation period, an employer and employee could evaluat e whether the employment situation was satisfactory for each party, and standard orientation and training processes would begin. One month would be determined by adding one calendar month and subtracting one calendar day, measured from an employees start date in a position that is otherwise eligible for coverage. For example, if an employees start date in an otherwise eligible position is May 3, the last permitted day of the orientation period is June 2. Similarly, if an employees start date in an otherwise eligible position is October 1, the last permitted day of the orientation period is October 31. If there is not a corresponding dat e in the next calendar month upon adding a calendar month, the last permitted day of the orientation period is the last day of the next calendar month. For ex ample, if the employees start date is January 30, the last permitted day of the orientation period is February 28 (or February 29 in a leap year). Similarly, if the employees start date is August 31, the last permitted day of the orientation period is September 30. Rehired Employees/Employees Changing to and from Eligible Job Classifications. * The final regulations provide that a former employee who is rehired may be treated as newly eligible for coverage upon rehire and, therefore, a plan may require that individual to meet the plans eligibility criteria and to satisfy the plans waiting period anew, if reasonable under the circumstances. For example, the termination and rehire cannot be a subterfuge to avoid compliance with the 90-day waiting period limitation. The same analysis would apply to an individual who moves to a job classification that is ineligible for coverage under the plan but then lat er moves back to an eligible job classification. Multiemployer Plans. Multiemployer plans maint ained pursuant to collective bargaining agreements have unique operating structures and may include different eligibility conditions based on the participating employers industry or the employees occupation. On September 4, 2013, the Departments issued a set of frequently asked questions 2 (FAQs) stating that if a multiemployer plan operating has an eligibility provision that allows employees to become eligible for coverage by working hours of covered employment across multiple contributing employers (which often aggregates hours by calendar quarter and then permits coverage to extend for the next full calendar quarter, regardless of whet her an employee has terminated employment), the Departments would consider that provision designed to accommodat e a unique operating structure, (and, therefore, not designed to avoid compliance with the 90-day waiting period limitation). The final regulations include the following example consistent with this FAQ.
* USI Comment Eligibility rules should carefully be review ed for compliance w ith the 90-day w aiting period rules as w ell as the employer penalty provisions and nondiscrimination rules. While it is per missible under the 90-day w aiting period rules for a plan to use substantive eligibility conditions (e.g., job classification) to deny coverage to certain employees, have a w aiting period of an additional month during a bona fide employ ment-based or ientation period, and impose a new w aiting period for rehir ed employees and/or employees changing to and from eligible job c lassifications, 3 this raises issues for large employers subject to the employer penalty beginning in 2015 because it not clear how it interacts w ith the employer mandate and Section

2 3

See Q&A 2 at: http://www.dol.gov/ebsa/pdf/faq-aca16.pdf These employees may be viewed as continuing employees for purposes of the employer mandate and the imposition of another 90 day waiting period may result in a penalty exposure for the employer as continuing employees generally need to be offered coverage by the first of the month follow ing return to work.

4980H penalties for employers w ho do not offer minimum value, affordable coverage w ithin 90 days to eligible employees. There is a chance that for any period of time beyond 90 days that a full time employee is made to w ait, an applicable large employer may still be subject to a shared responsibility pay ment despite this proposed rule allow ing an orientation period. In addition, having less generous eligibility rules for low er paid employees or protected classes can also violate various nondiscrimination rules.

For the regulations, visit:

Ninety-Day Waiting Period Limitation and Tec hnical Amendments to Certain Health Coverage Requirements Under the Affordable Care Act; Final Rule http://www.gpo.gov/ fdsys/pkg/FR-2014-02-24/pdf/2014-03809.pdf

Ninety-Day Waiting Period Limitation; Proposed Rule http://www.gpo.gov/ fdsys/pkg/FR-2014-02-24/pdf/2014-03811.pdf

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Disclaimer: This document is designed to highlight v arious employ ee benef it matters of general interest to our readers. It is not intended to interpret laws, regulations or to address specif ic client situations. It should not be construed as legal adv ice or opinion.
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