One of the many requirements bearing down on group health plans in 2014 is the 90-day waiting period rule found in section 2708 of the Public Health Service Act (PHS Act), as added by the Affordable Care Act (ACA). Because of the way the statute has been interpreted by recently proposed regulations, sponsors of group health plans, should not assume that an existing waiting period satisfies the regulations just because it is not more than 90 days long. Various factors such as how eligibility requirements are applied, when that 90-day period begins and how it is measured will determine compliance with the proposed regulation. Further, the 90-day waiting period requirement is impacted by the related proposed regulations that dictate how a group health plan sponsor identifies its full-time employees under what is known as the "employer- shared responsibility" provisions of the ACA.
PHS Act section 2708, which applies to grandfathered and non-grandfathered group health plans as well as group health insurance issuers, requires that coverage for an otherwise eligible employee (or dependent) must be effective no later than 90 days after the employee satisfies the plan's eligibility conditions, such as being hired into a particular classification or group of employees or completing a required minimum number of hours worked. Regardless of whether the employee takes more than 90 days to actually elect coverage, the plan will be in compliance if the employee is offered coverage in such a manner as to cause coverage to be effective no later than the end of the 90-day waiting period.
Eligibility Conditions Not Based Solely on Lapse of Time
Other eligibility conditions (i.e., those not based solely on the lapse of time) will generally be allowed unless the condition is designed to avoid compliance with the 90-day waiting period rule. The proposed regulations provide guidance to help employers or plan sponsors ensure that their group health plan's eligibility requirements are not considered, in the eyes of the Departments of Treasury, Labor and Health and Human Services, a mechanism for avoiding compliance. The following are some considerations for group health plans that have cumulative service eligibility requirements or may cover variable-hour employees:
If a plan's eligibility conditions are based solely on completing a number of cumulative hours of service, the requirement cannot exceed 1,200 hours of service.
If a plan has a cumulative hours of service requirement, the waiting period must begin not later than when the new employee satisfies the eligibility requirement. Once an employee meets the cumulative hours of service requirement, the plan cannot require an employee to meet the cumulative hours of service requirement in subsequent years.
If a plan has variable-hour employees, the plan may use a measurement period to determine whether a variable-hour employee meets the eligibility requirements. A variable-hour employee is an employee for whom, as of the employee's first day of work with the employer (the employee's "start date"), the plan sponsor cannot determine whether the employee will work full-time or meet the service hour requirement. For this purpose, the measurement period must begin on any date between the employee's start date and the first day of the first calendar month following the employee's start date, and the measurement period may not exceed 12 months.
If a plan combines a measurement period with a waiting period, compliance with the 90-day waiting period rule will be presumed as long as coverage is effective for an employee within the first 13 months, as measured from the employee's start date.
Failure to comply with the 90-day waiting period rules may result in various penalties, including a penalty for each day of the failure as to each individual to whom the failure relates. Possible penalties may be imposed by one or more of the government agencies involved and thus defy concise summarization.
While a substantive eligibility condition that determines when coverage is available to employees may be permissible under these proposed waiting period regulations, and therefore not trigger the particular waiting period penalties, such a substantive eligibility condition could still result in a violation of the ACA's employer-shared responsibility requirements. For example, an "applicable large employer" (an employer with 50 or more full-time equivalent employees) may not impose a substantive eligibility condition requiring its employees to work more than 30 hours per week to be eligible for group health plan coverage and escape potential liability under the employer-shared responsibility provisions, also known as the "employer mandate." Further information on the employer mandate can be found in our recent Benefits Broadcast Article "Start Counting! Employers and Group Health Plans Must 'Count' Themselves into Compliance with the Affordable Care Act in 2013 and 2014."