90-Day Waiting Period

Regulators define how it applies to enrollment in employee benefit plans

The federal agencies tasked with implementing healthcare reform have issued additional guidance that employers and their advisors need to be aware of. In this latest version, the Internal Revenue Service (IRS), Dept. of Labor (DOL), and Dept. of Health and Human Services (HHS) attempt to communicate what is considered compliant (at least initially) as it relates to “excessive” waiting periods for coverage. This “temporary” guidance will remain in effect at least through the end of 2014.

IRS Notice 2012-59 states that a “waiting period is the period of time that must pass before coverage for an employee—or dependent—who is otherwise eligible to enroll under the terms of the plan can become effective.” Being eligible for coverage means the employee or dependent has met all of the plan’s eligibility conditions.

In general, the intent is to prohibit a group health plan or health insurance issuer from imposing a waiting period beyond 90 days for coverage. Thus, eligibility based solely on the lapse of time is permissible only if the time period does not exceed 90 days. Other conditions are also generally acceptable as long as they do not undermine the 90-day rule. (Example: If an employee chooses to wait longer than 90 days before electing coverage, the employer will not be considered non-compliant.)

The guidance also addresses the circumstance in which a group health plan bases eligibility on a specified number of hours worked per week/pay period, specifically when it cannot be determined at the date of hire whether an employee will work sufficient hours to be covered. For this purpose, the guidance conforms to the applicable large employer rules under the “pay or play”[i] penalty. Generally, plans are allowed a reasonable period of time (up to 12 months) in which to determine if the employee meets the hourly requirement. The time period in which to determine whether the employee meets the plan’s eligibility condition will not be considered to violate the 90-day rule if coverage is made effective no later than 13 months from the employee’s start date. 

This guidance is certainly welcome, and will be useful for plans implementing design changes to comply by 2014 with the new waiting period rules. Meanwhile, some important questions remain unanswered. For instance, lacks clarity is lacking regarding how hours of service are counted, or whether a plan may use equivalencies.

[i] The Patient Protection & Affordable Care Act (PPACA) employer mandate/pay-or-play provisions require large and midsize employers to choose between providing health coverage for full-time employees or paying a penalty. Whether full-time, part-time, or variable, all employees (of large and midsize employers) who are not offered the opportunity to enroll in health insurance by their employer will be eligible for premium tax credits and cost-sharing reductions for Exchange coverage.

 

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