I don’t know why people get frustrated with health care reform. Just think of it like a magic trick. The one where there are three half shells and a rock under one of them, and the magician keeps switching them around and asking you “Okay, now where is the rock?” And you never get it right, but it’s fun anyway. So just think of health care reform like that magic trick, and it won’t be so frustrating. Case in point: the California 60-day cap on waiting periods.
My Journey Through the California 60-Day Waiting Period Fog
Initially I thought the 60-day waiting period language in AB 1083 [FN 1] was just continuing what the prior law said. It appeared to be the same language, which limited HMOs to a 60-day “affiliation period” or waiting period, but did not prevent an employer from imposing a longer waiting period before an employee was eligible to join the group health plan. Then I accepted the fact that I had misinterpreted it (shame on me!), and that the new 60-day cap actually was intended to trump an employer’s ability to impose a longer waiting period, but I thought the 60-day waiting period only applied to small group insured plans and HMOs in California.
Then it was pointed out that the “up to 60 days” language referenced not only the small group sections of California law, but also sections applicable to all size plans. I re-read the language, and, indeed it did. I even wrote an article explaining it, since I thought I finally understood it. (Published Sept. 18, 2013, https://news.leavitt.com/health-care-reform/california-60-day-waiting-period-applies-to-both-large-and-small-insured-plans/ ) We (and others) advised clients to offer coverage no later than the first of the month after 30 days of service for California insurance plans and HMOs, and the first of the month after 60 days of service for other plans (to comply with the Affordable Care Act’s (ACA’s) 90-day limit on waiting periods). For both California and federal law, the cap on waiting periods would apply as of the first day of the 2014 plan or policy year
Then on February 20, 2014, the federal government issued final regulations on the ACA 90-day waiting period, and also issued proposed regulations “clarifying” how a new one-month bona fide “orientation period” would coordinate with the ACA 90-day limit, and a whole new issue arose. Does the California 60-day waiting period, like the ACA 90-day waiting period, begin immediately after the one-month orientation period? Or does California law somehow define the waiting period to begin at an employee’s date of hire, so the new “orientation period” rule does not apply to employees in California insured plans and HMOs? It seemed to me the California waiting period could begin immediately after the orientation period, since California law says the waiting period of up to 60 days must be “applied equally to all eligible employees and dependents” and must be consistent with PPACA. That seems to allow an employer to say an employee is not “eligible” until he or she has completed the one-month bona fide orientation period. Other attorneys disagreed, or at least cautioned their clients to take the more conservative approach, since there was no “official” clarification from California legislators or regulators.
Also in February, California state Senator Monning (author of AB 1083) introduced SB 1034, for the stated purpose (according to the Bill Analysis) of “resolv[ing] a confusion that exists between state and federal laws by removing current waiting periods for health plans and insurers.” SB 1034 will allow employers to impose waiting periods (consistent with ACA or other applicable requirements), but will prohibit health insurers and HMOs from imposing waiting periods. Since the stated legislative intent is to allow waiting periods consistent with the ACA requirements, it appears California plan sponsors also could impose bona fide “orientation periods” as long as they are compliant with ACA rules. SB 1034 has been moving through committee hearings in March and April and was set to be heard in the Senate Appropriations Committee on April 28, 2014.
In March several insurers in California began telling group policy holders (employers) that their group policies would no longer include waiting period limits or other specific eligibility criteria. This increased employers’ confusion, since there was still no official guidance on this issue.
Out of the Fog at Last!
NOW there seems to be a consensus and a clear resolution in the works.
I spoke informally with an attorney at the Department of Managed Health Care (DMHC), who confirmed that:
- The 60-day cap under current law (AB 1083) applies only to insurers and HMOs (because the DMHC and Dept. of Insurance (DOI)) have jurisdiction only over HMOs and insured plans and not over employers), and
- Employers can impose whatever waiting period they want before an employee is eligible for the plan (subject to any applicable limits in the ACA or state labor law).
- Many carriers have deleted any reference to a waiting period in their policies.
Additionally, SB 1034 is moving through the appropriate committees without objection, and we think it probably will be enacted soon and sent to Governor Brown for signature. SB 1034 will remove waiting periods from HMO contracts and insurance policies. If it is enacted as “emergency legislation,” it will become effective immediately when it is signed by the Governor.
Next Steps for Employers
- If your 2014 plan year has not yet begun, decide what waiting period and/or orientation period you want to adopt and notify eligible employees and plan participants, either in your Summary Plan Description (SPD) or in a Summary of Material Modifications (SMM) if your new waiting period will be different from your prior one.
- California employers can impose an ACA-compliant waiting period, which is a waiting period of up to 90 days (first of the month after 60 days). Additionally, the waiting period can begin the first day after a one-month bona fide “orientation period.”
- If your 2014 plan year already began (so you already changed your eligibility waiting period to be first of the month after 30 days) and want to change to first of the month after 60 days, or to include a bona fide orientation period, you will need to amend your plan and notify plan participants and eligible employees. You can only make this change prospectively, not retroactively. You must give prior notice because it may be considered a “material” reduction in benefits. You will need to provide a Summary of Material Reductions (SMR) to participants within 60 days after the change is adopted. You will not need to amend the Summary of Benefits and Coverage (SBC), because the waiting period is not specified in the SBC.
- You probably cannot increase the waiting period for employees who are already in their 60-day waiting period.
- Remember to think of health care reform like that magic trick with the half shells, and try not to let your blood pressure and stress level skyrocket when the whole process seems frustrating and ridiculous.
FN 1: SB 1083 (chaptered Sept. 20, 2013) amended CA Insurance Code section 10198.7(c) and Health & Safety Code section 1357 .506(b) to provide for a “waiting period of up to 60 days as a condition of employment if applied equally to all eligible employees and dependents and if consistent with PPACA.”
PDF of this article: California 60-Day Cap on Waiting Periods – Going, Going, Gone