Employee Benefits Compliance, Employer Mandate

90-Day Limit on Waiting Periods: March 2013 Update

(This article was revised May 8, 2013, to note the 60-day limit for California insured plans.)

Proposed regulations issued March 2013 address compliance with the 90-day limitation on waiting periods for group health plans under Health Care Reform.  The proposed regulations are substantially similar to temporary guidance issued last August 2012, with some clarifications and additional examples.  As expected, the 90-day limits means that, in practice, most plans will have to offer coverage as of the first day of the month following 60 days of employment.

Under California law, however, (AB 1083) small insured plans will have to offer coverage by the 60th day, so this probably will mean as of the first of the month after 30 days of employment.  It’s not clear whether the California 60-day limit applies to large insured plans as well. It does not apply to self-insured plans.

Plans Affected by this Rule

The PPACA 90-day limit on waiting periods applies to both grandfathered and non-grandfathered group health plans of any size, both insured and self-funded.  The effective date is January 1, 2014 for calendar year plans and the first day of the 2014 plan year for non-calendar year plans, e.g. a plan year beginning July 1 would need to comply by no later than July 1, 2014.

The Rule Generally

The general rule is a group health plan may not apply any waiting period (that is based solely on lapse of time) that exceeds 90 days. A “waiting period” is defined as the period of time that must pass before coverage for an employee or dependent (who is otherwise eligible to enroll under the terms of a group health plan) can become effective.

As long as an employee is offered coverage within the allowed time, the plan will not be considered to violate the rules even if an employee takes more than 90 days to actually elect coverage.

If an employee or dependent enrolls as a late enrollee or special enrollee, any period before such late or special enrollment is not a waiting period.

Method for Counting Days

The proposed regulations confirm that all calendar days are counted beginning with the enrollment date, including weekends and holidays.  Enrollment date is defined as the first day of the waiting period.

Coverage must be available no later than the 91st day.  If a plan wishes to begin coverage on the first day of a calendar month, or if the 91st day falls on a weekend or holiday, the plan may choose to make coverage effective earlier, but not later, than the 91st day. In practice, this means that most plans will have to offer coverage as of the first day of the month following 60 days of employment.  (See last sentence of opening paragraph to this article, regarding 60-day limit for California insured plans.)

Exceptions to the Rule

Other conditions for eligibility under the terms of a group health plan (i.e., those that are not based solely on the lapse of a time period) are generally permissible unless the condition is designed to avoid compliance with the 90-day waiting period limitation.  The regulations give examples of: 1)  substantive eligibility conditions, 2)  newly hired employees whose average hours cannot be determined up front, and 3) and cumulative eligibility conditions.

Substantive eligibility conditions

Eligibility conditions based solely on the lapse of time cannot be more than 90 days as described above. However, “substantive” eligibility conditions (for example, being in an eligible job classification or achieving job-related licensure requirements)  included in governing plan terms are generally allowed if they are not designed to avoid compliance with the 90-day waiting period.  Plan provisions that base eligibility on whether an employee is, for example, meeting certain sales goals or earning a certain level of commission, are also substantive eligibility provisions that do not trigger the 90-day waiting period limitation.  The 90-day waiting period does not begin until the substantive eligibility condition is met.

Important note:   While a substantive eligibility condition that denies coverage to employees may be permissible under this section, a failure by an applicable large employer to offer coverage to a full-time employee may still give rise to an assessable payment under employer shared responsibility.  For example, an employer will have to pay a $250/month penalty for a commission employee who purchases coverage in an Exchange and receives a subsidy if the employee works on average at least 30 hours per week but is not eligible for coverage until the employee’s monthly sales or commission amount reaches a threshold dollar level.

Newly Hired Employees whose average hours cannot be determined upfront

The proposed rules also address the application of the 90-day limitation to waiting periods where eligibility for group health plan coverage is conditioned on an employee regularly working a specified number of hours per period (or working full time), and it cannot be determined that a newly-hired employee is reasonably expected to regularly work that number of hours per period. In such cases:

  • The plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition, which may include a measurement period of no more than 12 months that begins on any date between the employee’s start date and the first day of the first calendar month following the employee’s start date.
  • In general, this time period will not be considered to be designed to avoid compliance if coverage is made effective no later than 13 months from the employee’s start date (plus the time remaining until the first day of the next calendar month, if the employee’s start date is not the first day of a calendar month).

Cumulative eligibility conditions

If a group health plan or health insurance issuer conditions eligibility on completion of a number of cumulative hours of service, that requirement will not be considered to be designed to avoid compliance as long as the required hours do not exceed 1,200.

In addition, as long as the employee, once eligible, is offered coverage within 90 days, it will not be considered a violation.  This provision is designed to be a one-time eligibility requirement only; the proposed regulations do not permit this requirement to be re-applied each year to the same individual.

Additional Information

Insurers can rely on eligibility information reported to them by employers or other plan sponsors, and will not be considered to violate the waiting period limit if the insurer:

requires the plan sponsor to make a representation about the terms of any eligibility conditions or waiting periods imposed by the plan sponsor before an individual is eligible for coverage under the plan terms;

  • requires the plan sponsor to update its representation to reflect any changes; and
  • has no specific knowledge that the employer is imposing a waiting period that exceeds 90-days.

Plan provisions may permit employees to make a self payment, or buy-in, allowing the employees to satisfy any otherwise permissible hours-of-service requirements.

The proposed rules include other changes to existing requirements (such as preexisting condition limitations) that have become moot or need amendment due to new provisions under Health Care Reform, including a proposed amendment to eliminate the HIPAA requirement to issue a certificate of creditable coverage.

The rules also propose that a multi-state plan offered through Exchanges must comply with health care reform’s federal external review process.