Guidance on the 90-Day Waiting Period Limitations

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Author, Mark Kelly, Atlanta, +1 404 572 2755, mkelly@kslaw.com.

Waiting Period Defined

For plan years starting on or after January 1, 2014, a group health plan or a health insurer offering group coverage may not impose a waiting period that exceeds 90 days.  IRS Notice 2012-59 defines “waiting period” as a 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.  For this purpose, being eligible for coverage means having met the plan’s substantive eligibility conditions (for example, full-time employment at a covered location).  Notice 2012-59 clarifies that:

  • A plan may impose substantive eligibility conditions -- such as limiting coverage to only full-time employees or employees who work at a certain location--without violating the 90-day waiting period limitation, provided that the conditions are not designed to avoid compliance with such 90-day limitation;
  • A plan meets its obligation if the employee is permitted to elect coverage that would begin within the 90-day limitation period, even if the employee does not actually make an election until after the end of the 90-day period (i.e., any delay that results solely from the length of time taken by the employee to complete the enrollment materials is ignored); and
  • If a plan has a cumulative hours of service eligibility requirement, coverage must be made available to an employee no later than the 91st day after the date that the employee first meets the hours requirement.  A cumulative hours of service requirement of more than 1,200 hours will be considered designed to avoid compliance with the 90-day waiting period limitation.

For example, assume that Plan A limits coverage to full-time employees, with coverage beginning on the first day of the month after an employee becomes eligible. A part-time employee who begins working full-time on April 11 enrolls in the plan with coverage effective beginning May 1. The period from April 11 through April 30 is a waiting period that satisfies the 90-day limit.  Since part-time employees are not eligible for coverage under the plan, the period when the employee was working part-time before April 11 is not counted as part of the 90 day waiting period.

Application to Variable Hour Employees

If a health plan conditions eligibility on an employee regularly working a specified number of hours of service in a given period, and it cannot be determined that a newly-hired employee is reasonably expected to work that number of hours per period, the plan may take a reasonable period of time to determine whether such newly-hired employee meets the plan’s eligibility conditions.  The period may include a measurement period that is consistent with the initial measurement period the employer uses to determine whether it is subject to the shared responsibility provisions of Code section 4980H (under which large employers may become subject to penalties for failure to offer affordable health coverage).  The safe harbor rules for determining full-time employees for purposes of the shared responsibility provisions are discussed in IRS Notice 2012-58, which is the subject of a separate Alert.  

The use of an initial measurement period will not be considered an attempt to avoid compliance with the 90-day waiting period limit as long as the employee has an opportunity for coverage to become effective within 13 months after his or her start date. If the employee’s start date is a date other than the first day of a calendar month, the time remaining between the start date and the first day of the next calendar month may be added to this 13-month period.

For example, assume that Plan C limits coverage to full-time employees, with coverage beginning on the first day of the first calendar month after enrollment forms are received from an eligible employee.  For purposes of determining whether variable hour employees are full-time, the plan utilizes a safe-harbor measurement and stability period.  A variable hour employee is hired on November 26, 2014; his or her initial measurement period ends on November 25, 2015. If the employee is determined to be a full-time employee and elects coverage, coverage will begin on January 1, 2016. Because coverage can become effective no later than 13 months from the employee's start date (plus the time remaining until the first day of the next month), the plan is not considered to be designed to avoid compliance with the 90-day waiting period limitation.

Reliance

Employers may rely on the guidance provided in Notice 2012-59 at least through 2014. 

King & Spalding would be pleased to provide you with additional information regarding IRS Notice 2012-59 or other issues regarding compliance with PPACA.