ACA: Waiting Periods

The Affordable Care Act (ACA) provides that a group health plan or health insurance issuer offering group health insurance coverage may not apply any waiting period that exceeds 90 days.  This applies to grandfathered and non-grandfathered plans and without regard for the size of the employer.  It is effective for plan years beginning on or after January 1, 2014.

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.  The waiting period begins on the date the employee meets the plan’s substantive eligibility requirements; i.e., those criteria that do not relate solely to the passage of time. For example, plans may still impose eligibility criteria related to factors such as being in an eligible job classification or meeting applicable licensure requirements.

All calendar days are counted beginning on the enrollment date, including weekends and holidays.

Illustration

Employer’s group health plan provides for coverage to begin on the first day of the first payroll period on or after the date an employee is hired and completes the applicable enrollment forms. Enrollment forms are distributed on an employee’s start date and may be completed within 90 days. Employee D is hired and starts on October 31, which is the first day of a pay period. D completes the enrollment forms and submits them on the 90th day after D’s start date. Coverage is made effective 7 days later, which is the first day of the next pay period.   Under the terms of W’s plan, coverage may become effective as early as October 31, depending on when D completes the applicable enrollment forms. Under the terms of the plan, when coverage becomes effective is dependent solely on the length of time taken by D to complete the enrollment materials. Therefore, under the terms of the plan, D may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, and the plan complies with this section, even though D coverage in fact becomes effective more than 90 days after hire.

Eligibility Requirement Examples

If a group health plan conditions eligibility on an employee regularly having a specified number of hours of service per period (or working full-time), and it cannot be determined that a newly-hired employee is reasonably expected to regularly work that number of hours per period (or work full-time), the plan may take a reasonable period of time, not to exceed 12 months and beginning on any date between the employee’s start day and the first day of the first calendar month following the employee’s start date, to determine whether the employee meets the plan’s eligibility condition.

If a group health plan conditions eligibility on an employee’s having completed a number of cumulative hours of service, the eligibility condition is not considered to be designed to avoid compliance with the 90-day waiting period limitation if the cumulative hours-of-service requirement does not exceed 1,200 hours.  Similarly, “hours bank” requirements that are frequently found in multiemployer plans are permissible.

Orientation Periods

While a plan may impose substantive eligibility criteria, such as requiring the worker to fit within an eligible job classification or to achieve job-related licensure requirements, it may not impose conditions that are mere subterfuges for the passage of time.

If a group health plan conditions eligibility on an employee’s having completed a reasonable and bona-fide employment-based orientation period, it will not violate the waiting period limit as long as the eligibility condition does not exceed one month and the maximum 90-day waiting period begins on the first day after the orientation period.

Under the final regulations, one month would be determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date in a position that is eligible for coverage. .

Play or Pay Penalty

Compliance with these final regulations does not guarantee compliance with section 4980H of the Code, under which an applicable large employer may be subject to an assessable payment if it fails to offer affordable minimum value coverage to certain newly-hired full-time employees by the first day of the fourth full calendar month of employment.

For example, an applicable large employer that has a one-month orientation period may comply with both PHS Act section 2708 and Code section 4980H by offering coverage no later than the first day of the fourth full calendar month of employment. However, an applicable large employer plan may not be able to impose the full one-month orientation period and the full 90-day waiting period without potentially becoming subject to an assessable payment under Code
section 4980H. For example, if an employee is hired as a full-time employee on January 6, a plan may offer coverage May 1 and comply with both provisions. However, if the employer is an applicable large employer and starts coverage May 6, which is one month plus 90 days after date of hire, the employer may be subject to an assessable payment under Code section 4980H.