QUESTION: We sponsor a grandfathered, non-calendar-year self-insured health plan that imposes a three-month eligibility waiting period (our next plan year begins on August 1, 2014). As a grandfathered plan, are we required to comply with health care reform’s prohibition on excessive waiting periods? And, if so, would we be in compliance with the existing three-month waiting period?
ANSWER: Yes, your plan must comply, and no, a three-month waiting period does not meet the requirement. For plan years beginning on or after January 1, 2014, health care reform establishes a maximum eligibility waiting period of 90 days, which is not the same as three months. Even grandfathered plans (those in existence on March 23, 2010 that have not undergone certain changes) must comply with the requirement prohibiting “excessive” waiting periods—i.e., periods exceeding 90 days. As discussed below, in certain situations, application of a reasonable and bona fide employment-based orientation period may delay when the 90-day waiting period begins to run.
A waiting period is defined as the period that must pass before coverage becomes effective for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan. (Individuals are “otherwise eligible” if they have satisfied the plan’s substantive eligibility conditions, such as being in an eligible job classification or obtaining a job-related license.) To comply with the waiting period requirement, your plan cannot require an otherwise eligible employee or dependent to wait more than 90 days before coverage becomes effective. For this purpose, three months is not equivalent to 90 days, and all calendar days (including weekends and holidays) are counted toward the 90 days, beginning with the first day of the waiting period. Because three months can be longer than 90 days and there is no de minimis exception for the difference between 90 days and three months, a three-month waiting period would not comply with the 90-day limit.
However, final regulations issued in February 2014 introduce a reasonable and bona fide employment-based orientation period as another example of a permissible substantive eligibility condition that delays commencement of the 90-day waiting period. This orientation period is described as a period in which the employer and employee evaluate whether the employment situation is satisfactory, and standard orientation and training processes begin. Under proposed regulations issued concurrently with the final regulations, the maximum length of such an orientation period would be one month, and the plan’s waiting period may begin on the first day after the orientation period.
We recommend you consult with your benefits counsel about amending your plan to comply with the maximum 90-day waiting period starting with the plan year beginning August 1, 2014. In addition to using a waiting period of no more than 90 days (rather than three months), you could add an orientation period, if desired and appropriate. You should also note that if your plan is amended to impose the maximum 90-day waiting period and the 91st day is a weekend or holiday, your plan may chose to permit coverage to be effective earlier than the 91st day, for administrative convenience. However, the plan may not make the effective date of coverage later than the 91st day, even if the 91st day is a weekend or holiday.
Finally, if you are an applicable large employer, you should review the final regulations regarding employer shared responsibility (play or pay) penalties. The final regulations explain the conditions under which employers will avoid potential penalties by offering coverage to new full-time employees. These rules are similar to—but different from—the rules for waiting periods, and applicable large employers should familiarize themselves with both sets of rules.
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