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AFFORDABLE CARE ACT'S

PROPOSED 90-DAY WAITING PERIOD

On March 21, 2013, the Departments of Labor, Health and Human Services (HHS), and the Treasury (the Departments), provided temporary guidance regarding the 90-day waiting period limitation in the Public Health Service Act (PHS Act) section 2708. The guidance will remain in effect at least through the end of 2014. The proposed guidance allows waiting periods up to 90 calendar days that being after the participant has satisfied the plan's eligibility provisions. The Departments limit the length of time in which certain eligibility conditions must be satisfied. PHS Act section 2708 provides that, for plan years beginning on or after January 1, 2014, a group health plan or health insurance issuer shall not apply any waiting period in excess of 90 days. Additionally, if an employee is in a waiting period in excess of 90 days that began before the beginning of the plan year, the waiting period must be reduced.

It is the Departments' view that the proposed rules provide flexibility to both multi-employer and single-employer health plans to meet their needs in defining eligibility criteria, while also ensuring that employees are protected from excessive waiting periods.

Waiting Period Defined

A waiting period is the 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 (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan's terms).

Eligibility conditions that are based solely on the lapse of a time period are general permissible, such as a provision that a participant work full-time or work a specified number of hours in a work period. . Other conditions for eligibility under the terms of a group health plan are generally permissible, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. Furthermore, if, under the terms of a plan, an employee may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, the 90-day waiting period limitation is considered satisfied. Accordingly, a plan or issuer will have complied with the requirement even if the plan or issuer allows additional time beyond the 90-day waiting period for the employee to complete the election materials so long as coverage becomes effective no later than the 91st day.

Application to Variable Hour Employees

The proposed rule provides a provision to address "Variable Hour Employees". A variable hour employee is an employee who is required by the plan to work a certain number of hours over a specific time frame, and it cannot be determined that the newly-hired employee is reasonably expected to regularly work that number of hours per period.

Variable Hour Employee general rules:

  • The plan may take a reasonable period of time to determine whether the employee meets the plan's eligibility conditions.
  • This time period may include a measurement period no longer than 12 months that begins on any date between the start date and the first day of the next calendar month.
  • The time period for determining whether such an employee meets the plan's eligibility condition will not be considered to be designed to avoid compliance with the 90-day waiting period limitation if coverage is made effective no later than 13 months from the employee's start date, plus if the employee's start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month

A plan sponsor with variable hour employees could have a measurement period of up to 12 months in which to determine satisfaction of the plan's eligibly provisions by a participant. However, coverage must be effective no later than 13 months from the participant's start date (plus remaining time in the calendar month).

Cumulative Hours of Service Requirement

The proposed regulation allows plans to condition eligibility on an employee's having completed a number of cumulative hours of service under the following circumstances.

  • The cumulative hours-of-service requirement does not exceed 1,200 hours; and
  • 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 rule differs from the variable hour rule discussed above. The variable hour rule is based on the participant working a set number of hours over a specific time period. The cumulative service requirement is a set number of hours without a specific time frame for completion.

Flexibility in the Proposed Rule

The Departments view eligibility provisions that are based on compensation as substantive eligibility provisions that are not designed to avoid compliance with the 90-day waiting period limitation. In addition, hours banks, which are common multi-employer plan provisions that allow workers to bank excess hours from one measurement period and then draw down on them to compensate for any shortage in a succeeding measurement period and prevent lapses in coverage, function as buy-in or self-pay provisions.

It is the Departments' view that the proposed rules provide flexibility to both multi-employer and single-employer health plans to meet their needs in defining eligibility criteria, while also ensuring that employees are protected from excessive waiting periods.

This communication is designed to provide a summary of significant developments to our clients. Information presented is based on known provisions. Additional facts and information or future developments may affect the subjects addressed. It is intended to be informational and does not constitute legal advice regarding any specific situation. Plan sponsors should consult and rely on their attorneys for legal advice.