On March 21, 2013, the Departments of the Treasury/IRS, Labor, and Health and Human Services (the “Departments”)1 issued a proposed regulation implementing the 90-day waiting period limitation under Section 2708 of the Public Health Service Act (“PHS Act”), as added by the Patient Protection and Affordable Care Act (the “Act”). The proposed regulations also include amendments to certain provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) to conform them to the requirements of the Act. (For example, the prior law rules for demonstrating creditable coverage have been superseded by the Act’s prohibition on preexisting condition exclusions.) The 90-day waiting period limitation applies to health insurance issuers (i.e., state-licensed insurance carriers that issue group health products) and insured and self-funded group health plans, whether or not grandfathered. It takes effect for policy and plan years beginning on or after January 1, 2014.
On the subject the 90-day waiting period limitation, the proposed regulations closely track (and are no more restrictive than) prior guidance on the subject2 on which employers, plans, and issuers were entitled to rely at least through the end of 2014.
According to the proposed regulations, a group health plan, and a health insurance issuer offering group health insurance coverage, may not apply any waiting period that exceeds 90 days. (Of course, neither a plan nor an issuer offering coverage is required to have any waiting period.) If, under the terms of the plan, an employee can elect coverage that becomes effective on a date that does not exceed the 90-day waiting period limitation, the coverage complies with the waiting period rules. A plan or issuer is not deemed in violation of the waiting period rules merely because individuals choose to elect coverage beyond the end of the 90-day waiting period.
The 90-day period includes all calendar days, including the actual enrollment date. But if the 91st day is a weekend or holiday, the plan or issuer may choose to permit coverage to be effective earlier than the 91st day, for administrative convenience. While some had urged the Departments to allow a common industry practice under which eligible employees are enrolled by the first day of the month following the date on which a plan’s eligibility requirements are first satisfied, the Departments declined to do so. According to the preamble to the proposed regulations, the Departments felt constrained “due to the clear text of the statute.” For the same reason, the Departments declined to create a de minimis exception under which 3 months would be treated as the functional equivalent of 90 days.
Nothing in PHS Act Section 2708 requires a plan sponsor to offer coverage to any particular employee or class of employees, including, for example, part-time employees. The preamble to the proposed regulations points out, however, that the denial of coverage to a class of full-time employee may nevertheless result in the imposition of an assessable payment under the Act’s employer shared responsibility rules. The proposed regulations take a coordinated approach to these letter rules, particularly with respect to the treatment of “new variable hour employees.” (Read our advisory on the employer shared responsibility rules.)
Under the proposed regulations:
Eligibility conditions that are based solely on the lapse of a time period are permissible for no more than 90 days.
Other eligibility conditions (i.e., those that are not based solely on the lapse of a time period) are generally permissible unless the condition is designed to avoid compliance with the 90-day waiting period limitation.
A requirement that an employee have a specified number of hours of service per period (e.g., 30 hours per week or 250 hours per quarter) is a plan eligibility condition. 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 to determine whether the employee meets the plan’s eligibility condition. A “reasonable period of time” for this purpose includes a “measurement period” of up to 12 months that is consistent with the timeframes permitted for such determinations under the Act’s employer shared responsibility rules. Provided that coverage for a variable-hour employee is made effective within 13 months of an employee’s start date, the eligibility criteria will not be considered as “designed to avoid compliance with the 90-day waiting period limitation.”
A special rule applied where eligibility is based on cumulative hours-of-service. If a group health plan or health insurance issuer conditions eligibility on any employee’s (part-time or full-time) 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. The plan’s waiting period must begin once the new employee satisfies the plan’s cumulative hours-of-service requirement and may not exceed 90 days. This provision is intended to be a one-time eligibility requirement only. According to the preamble, “these proposed regulations do not permit, for example, re-application of such a requirement to the same individual each year.”
Lastly, in response to concerns that health insurance issuers may not have knowledge of certain plan terms, such as eligibility conditions and waiting periods, the proposed regulations provide that issuers can rely on the eligibility information reported by an employer or other plan sponsor. Under this rule, an issuer would not be considered to violate the 90-day waiting period limitation if the issuer requires the plan sponsor to make a representation regarding the terms of any eligibility conditions or waiting periods. Issuers may rely on this rule, however, only if the plan sponsor’s representation precedes an individual’s eligibility under the plan and the issuer has no knowledge that the imposition of a waiting period that would exceed the permitted 90-day period.