February 25, 2014 ACA 90-Day Waiting Period
KEEPING YOU INFORMED…
The Affordable Care Act (“the ACA”) established minimum standards for health insurance plans. One of those standards is prohibiting an individual who is otherwise eligible for health insurance coverage from waiting more than 90 days for coverage to become effective. This memorandum addresses the requirements for the new 90-day waiting period limitation rule.
For calendar year plans, the new rule is effective as of January 1, 2014. For non-calendar year plans, the rule goes into effect on the first day of the plan year beginning on or after January 1, 2014. In other words, for a plan year that begins on July 1, the rule goes into effect on July 1, 2014.
The 90-day period is based upon calendar days, including holidays and weekends. The affected individual must be eligible to enroll before the conclusion of the 90-day waiting period. Thus, if the 90th day is a holiday or weekend, the individual must be eligible to commence coverage on or before the 89th day.
When this new rule goes into effect, there may be individuals who are in the midst of a waiting period. For these individuals, the 90-day period includes any days that have already passed in the prior plan year. For example, if a plan year began on January 1, 2014 and an employee had already waited 50 calendar days prior to January 1, 2014, then he/she may only have been required to wait a maximum of 40 calendar days after January 1, 2014 before he/she became eligible to elect coverage. Likewise, and using the same plan year beginning on January 1, 2014, if an employee had already waited 90 calendar days by January 1, 2014, the employee immediately became eligible for coverage on that date.
For an individual who is ineligible for health insurance coverage when first hired, but who later becomes eligible, the 90-day waiting period commences upon the date of eligibility. The same is true with regard to special enrollees; i.e., those who enroll in the plan during a period that is outside of open enrollment.
The regulations do not specifically state what, if any, penalty will apply to employers that do not comply with the 90-day waiting period limitation. There is, however, a penalty that generally applies to all violations of group health plan requirements, including those required by the ACA. That penalty is a fine of up to $100 per day per employee whose waiting period exceeded 90 days.
Eligibility Conditions and the 90-Day Limit
Group health plans, contracts and/or policies dictate various criteria that must be met before an employee is considered “eligible” for coverage. These criteria could impact upon the commencement of the 90-day waiting period. The use of eligibility criteria is generally permissible, provided that the criteria are substantive, employment-based eligibility conditions that are not solely based on the passage of time and are not “designed to avoid compliance with the 90-day limit.” Eligibility conditions that are based solely on a waiting period are not permissible if they require waiting longer than 90 days. For example, requiring employees to have one year of service to be eligible for coverage is not permissible.
By contrast, a plan that conditions eligibility on meeting a specified level of commission or a sales goal is legal because the eligibility is substantive in nature and not designed to avoid compliance with the 90-day waiting period limit.
As another example, certain plans require that a new part-time or full-time employee work a designated number of cumulative hours to be eligible for coverage. The waiting period commences once that employee has worked the designated hours. The regulations deem requiring a new employee to provide more than 1,200 cumulative hours of service illegal on the theory that the requirement is designed to avoid compliance with the 90-day waiting period. Thus, any plan document, contract, practice and/or policy requiring more than 1,200 hours of service should be modified.
Variable Hour Employee Exception
There is an exception to the 90-day waiting period rule for variable hour employees. As we have advised in previous memoranda, the ACA permits employers to designate measurement periods for the purpose of determining whether an employee is full-time. If only full-time employees are eligible for health insurance, the employer is permitted to use the designated measurement period to make the eligibility determination without violating the 90-day waiting period rule. The combined duration of the measurement period and any associated administrative period (which functions as a waiting period) cannot exceed a total of 13 months plus the number of days between the employee’s one-year anniversary date and the end of the first month beginning on or after that date. Thus, as long as the employee is eligible to enroll prior to the end of that approximately 13-month time period, the employer has complied with the 90-day waiting period rule.
Collective bargaining agreements, practices and/or other related policies may need to be revised to make them compliant with the new 90-day waiting period rule. The waiting period for non-unionized employees can be unilaterally changed by the employer. For unionized employees, employers are required to negotiate changes to terms and conditions of employment. Health insurance falls within the definition of “terms and conditions of employment,” and issues related to it are generally (although not always) a mandatory subject of bargaining.
When the implementation of a statutory requirement is not within the employer’s discretion, the employer does not have to negotiate over the change in the length of its plan’s waiting period, although it may have a duty to negotiate over the impact of that change. An employer may not use a waiting period that is longer than 90 calendar days, regardless of whether there is a contradictory contract provision, practice and/or policy.
In contrast, any statutory provision that permits an employer to exercise its discretion, such as the rules for eligibility for health insurance coverage or adding additional waiting period days to a waiting period that is already compliant with the ACA, will likely have to be negotiated prior to implementation. For example, if an employer already uses a waiting period that is shorter than 90 days, the decision to extend that period to 90 days would be discretionary because the shorter period already complies with the ACA. As a result, the employer would likely have to negotiate lengthening the waiting period with the affected union prior to implementing the change.
We will continue to apprise you of any new substantive developments with regard to the ACA. Please contact us if you need assistance with negotiating new waiting period language or if you have any questions about complying with the 90-day waiting period limitation or any other related issues.
THIS MEMORANDUM IS MEANT TO ASSIST IN GENERAL UNDERSTANDING OF THE CURRENT LAW. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. THOSE WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.
TAX ADVICE DISCLOSURE: THIS WRITTEN COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER. THIS STATEMENT HAS BEEN PROVIDED PURSUANT TO U.S. TREASURY REGULATIONS GOVERNING TAX PRACTICE.
© Lamb & Barnosky, LLP 2014
1. If an eligible employee has the opportunity to elect to enroll in the health insurance plan before the expiration of the 90-day period, the employer has complied with the new rule. This is true even if the employee elects to enroll more than 90 days after he/she has met the eligibility criteria.
2. The regulations do not define “new employee” for purposes of the 90-day waiting period limitation.