The month of February was marked by two rounds of important guidance under the Affordable Care Act. First, the IRS finalized its regulations under the “play-or-pay” provision applicable to certain “large employers.” For a summary of those regulations, see our February 19, 2014, article. Second, the three agencies charged with implementing the ACA’s 90-day cap on eligibility waiting periods issued final and proposed regulations on that topic.
All plans – both grandfathered and non-grandfathered – are already subject to the 90-day cap on waiting periods as of the 2014 plan year. The IRS issued earlier guidance on this topic in Notice 2012-59, and in 2013 proposed regulations, as summarized in our September 7, 2012, and April 8, 2013, articles. The recently finalized regulations basically confirm the earlier guidance and answer a number of questions that had remained unresolved.
Clarifications in Final Regulations
The final regulations confirm several points that were part of the proposed regulations. Those include the following:
- The term “waiting period” continues to be defined 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.”
- 90 days means 90 calendar days, including weekends and holidays. Thus, coverage must generally begin no later than the 91st day after an employee’s date of hire (assuming the employee is hired into an eligible classification). Note, however, that the proposed regulations discussed below (regarding orientation periods) may allow employers to extend the coverage effective date to on the first day of the month following a 90-day waiting period. Additionally, plans are permitted, for administrative convenience, to allow coverage to become effective earlier than the 91st day if the 91st day is a weekend or holiday.
- Plans may use an initial “measurement period” of up to twelve months to determine whether a variable-hour employee has satisfied a “full-time” eligibility condition, provided that coverage is made available to any employee satisfying the eligibility condition no later than 13 months after the employee’s start date plus the time, if any, remaining until the first day of the next calendar month.
- Plans may impose a one-time, cumulative hours of service requirement, provided that such requirement does not exceed 1,200 hours.
- The 90-day limit applies only to eligibility requirements that are based solely on the passage of time. Plans may still impose other substantive eligibility conditions. Thus, the 90-day clock does not begin ticking until those other eligibility conditions have been met.
A former employee who is rehired may be treated as newly eligible for coverage upon rehire. This means that a plan may require a rehired employee to satisfy a new waiting period if it is reasonable under the circumstances to do so. The termination and rehire cannot be a subterfuge to avoid compliance with the 90-day waiting period limitation. The same analysis applies to an individual who moves to a job classification that is ineligible for coverage under the plan but then later moves back to an eligible job classification.
Employment-Based Orientation Period
The final regulations add one new example of a permissible “substantive” eligibility condition. In addition to 1) being in an eligible job classification (e.g. salaried vs. hourly) and 2) achieving job-related licensure requirements, the regulations now include 3) satisfying a “reasonable and bona fide employment-based orientation period.”
The proposed regulations, issued simultaneously with the final regulations, would provide that one month is the maximum allowed length of any reasonable and bona fide employment-based orientation period. One month would be determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date in a position that is otherwise eligible for coverage. The proposed regulations provide an example indicating that if an employee’s start date in an otherwise eligible position is May 3, the last permitted day of the orientation period is June 2. If there is not a corresponding date in the next calendar month (e.g., August 31 start date), the last permitted day of the orientation period is the last day of the next calendar month (e.g. September 30).
Special Multiemployer Plan Rules
The final regulations also provide some comfort for multiemployer plans that frequently have unique operating structures and may include different eligibility conditions. Under the 2013 proposed regulations, it remained unclear how the ACA waiting period rules would apply in these situations. Subsequent to the issuance of the 2013 proposed regulations, the Departments issued a set of frequently asked questions that suggested that substantive eligibility conditions under a multiemployer plan operating pursuant to an arms-length collective bargaining agreement would be deemed to be a unique operating structure (and, therefore, not designed to avoid compliance with the 90-day waiting period limitation.) The final regulations include a specific example that is consistent with that FAQ.
The final rules on eligibility waiting periods will apply as of the first day of the plan year beginning in 2015. In the interim, plans may comply with either the 2013 proposed regulations or the new final regulations. The proposed orientation period regulations may be relied upon at least through the end of 2014. To the extent that the final regulations or other guidance on orientation periods is more restrictive, such final regulations or other guidance will not be effective prior to January 1, 2015, and will provide plans a reasonable opportunity to comply.