March 5, 2014
The federal agencies charged with implementing the 90-day limit on waiting periods for obtaining health coverage recently issued final regulations. These rules play an extremely important role for employers as they coordinate participation in their group health plans with the employer mandate to offer coverage and not having an excessive waiting period of more than 90 days. The new guidance provides clarification on the definition of a "waiting period" and who is an eligible individual, while setting out a new proposed rule on an "employment-based orientation period." These regulations also amend HIPAA regulations on preexisting conditions.
Health reform prohibits group health plans and health insurance carriers from applying any waiting period that exceeds 90 days. This provision of health care reform, unlike the employer mandate, does not require an employer to offer coverage to any particular individual or class of individuals. These final rules clarify the law merely prevents a waiting period that exceeds 90 days after an employee is otherwise eligible for health coverage. (Of course, an employer could have a lesser waiting period, or even no waiting period.) Please note that some state laws may require insured policies to impose an even shorter waiting period. This discussion focuses on federal rules.
The final regulations define a "waiting period" as the "period that must pass before coverage for an individual who is otherwise eligible to enroll under the terms of a group health plan can become effective." An "otherwise eligible" individual is someone who has met the plan's eligibility requirements - such as being in an eligible job classification, meeting a licensure requirement, or satisfying a reasonable bona-fide employment-based orientation period. These new regulations focus more attention on an employer's other eligibility rules, and provide some planning opportunities for job requirements to affect benefits eligibility outside of a waiting period. However, job classifications may be of limited use as a plan design and cost containment tool, as discussed below.
If plan eligibility requirements are only based on the passage of a certain amount of time, then the timeframe can be no more than 90 days. So, a plan rule that provides an employee is not eligible until after 6 months of service would violate this 90-day rule. Note, these rules do not affect the use of measurement periods for determining full-time status for variable hour employees.
Key regulatory provisions include:
- Eligibility conditions: A group health plan can place conditions on plan eligibility, as long as the conditions are not used to circumvent the 90-day waiting period limitation.
- Variable Hour Employee: The final regulations are very similar to the initial rules that allow for measurement of hours worked by a variable hour employee over a period of up to 12 months. A variable hour employee is someone who at the start date cannot be determined to reasonably be expected to work on average at least 30 hours per week. An employer can use a measurement period that begins on the employee's date of hire (or starting as late as the first of the month following hire) and measure for 12 months to determine if the employee is full-time and must be offered health coverage. The employer is deemed to be in compliance with the employer mandate if the employee, deemed full-time, is offered coverage no later than the last day of the first full calendar month following the employee's anniversary. These new regulations adopt the same approach. If plan eligibility is conditioned on an employee regularly having a specified number of hours of service per period, or working full-time, and coverage is offered within the aforementioned time frame, then the 90 day waiting period limitation is met. (If after the 12 months, a 90 day waiting period is imposed, then this would violate the limitation.)
- Cumulative hours-of-service requirements: A plan can condition eligibility on a cumulative-hours-of service requirement of up to 1,200 hours. A waiting period, which cannot exceed 90 days, can begin on the first day after the employee satisfies the hours requirement. This is a one-time eligibility requirement for the first year of employment and cannot be imposed in subsequent years unless the individual is deemed to be a new employee.*
*Although the agencies specifically articulate an option for up to a 1200 cumulative work hour requirement, it appears that employers availing themselves of that option could nonetheless run afoul of the mandate penalty trigger for individuals who obtained coverage and qualified for a tax subsidy. Disturbingly, the agencies seem to view the waiting period rules and the mandate penalty trigger as operating independently. HUB International is seeking specific clarification on this point from the federal agencies and recognizes this is an urgent matter for resolution.
- Bona-fide employment-based orientation period: The agencies seem to have created a conflict between the employer mandate regulations and these waiting period rules. In the employer mandate rules, they say an employer should offer a new full-time employee coverage offered by the first day of the fourth calendar month following the month full-time employment begins. That seems to contradict these final regulations providing that a waiting period cannot exceed 90 days including all calendar days as of the hire date. The agencies have stated the employer mandate rule somewhat oddly to accommodate a new proposed concept: an employment-based orientation period up to one month which an employer may impose as a plan eligibility provision. An employer can add this requirement now, or can retain such a rule if part of current plan terms. The concept may (or may not) be continued in the future; the proposed regulation can be relied upon through the end of 2014.
- Rehired employees and job classification change: A former employee who is rehired or a current employee who moves to a job classification which affects eligibility may be treated as newly eligible upon rehire or classification change. It remains to be seen how this provision will coordinate with the break in service rule on 13 weeks of separation (26 for educational institutions).
- Unique operating structures: Recognizing that multiemployer plans, due to collective bargaining agreements, have eligibility arrangements that differ from single employer plans, the final regulations allow union plan operating structures (health plan rules) that are not designed to avoid compliance with the 90-day waiting period. A collectively bargained "hours bank" where hours from one work period can be credited towards another work period is probably the most common example of a unique operating structure.
- Health insurers: A health insurer can rely on eligibility information provided by an employer or plan sponsor without violating the 90-day waiting period rule if meeting certain conditions. As a result, health insurance carriers will require the plan sponsor to state its plan eligibility conditions or waiting periods and keep them updated. The carrier also cannot have any knowledge of a sponsor's waiting period that exceeds the permitted 90-day period, so carriers may review employer rules much more closely than in the past. HUB International anticipates a need to explain more creative eligibility rules, such as hours worked, to insurers who are uncomfortable with anything other than a simple 90-day period.
These provisions are effective for plan years beginning on or after January 1, 2015. However, for plan years beginning in 2014, a plan sponsor can comply using either these final regulations or the previous proposed regulations.
Prohibition on Preexisting Conditions
Health plans must provide certificates of creditable coverage to participants losing coverage so they may avoid preexisting condition exclusions in new coverage. Health reform prohibits preexisting condition exclusions, but some group health plans may be able to impose these exclusions as late as December 31, 2014, so certificates need to be issued by all group health plans until then. After that date, the requirement is eliminated; groups should make sure any third party charges for that service are removed after the end of this year.
These final regulations clarify the definitions of a waiting period, eligible individuals, orientation periods, and unique operating structures in union plans. Employers need to review any and all documents governing their health plans (such as the ERISA plan document and SPD) to ensure that eligibility and participation requirements comply with these regulations. Along with the recently-issued employer mandate rules, described in a recent HUB Client Bulletin, employers now have the information they need to finalize and implement a strategy for complying with health reform eligibility rules.
Prior HUB Client Bulletins