Issue 79: Final Regulations on 90-Day Waiting Period Limitation and Certificates of Creditable Coverage

This is the seventy-ninth issue in our series of alerts for employers on selected topics in health care reform. (Click here to access our general summary of health care reform and other issues in this series). This series of Health Care Reform Management Alerts is designed to provide an in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.

On February 24, 2014, final regulations were jointly issued by the Department of Treasury, Labor, and Health and Human Services (the “Departments”) regarding the prohibition under the Affordable Care Act against group health plans imposing waiting periods in excess of 90 days and amendments to Health Insurance Portability and Accountability Act (“HIPAA”) regulations for Certificates of Creditable Coverage.

90-Day Waiting Period

The final regulations primarily retain the provisions of the proposed regulations issued on March 18, 2013, but also provide certain additional clarifications and exceptions to give employers more flexibility in complying with the 90-day waiting period limitation.  The final regulations apply to group health plans and group health insurance issuers for plan years beginning on or after January 1, 2015.  For plan years beginning in 2014, group health plans and group health insurance issuers may comply with either the proposed regulations or the final regulations.

As described in Issue 60, for plan years beginning on or after January 1, 2014, employees and dependents who are otherwise eligible for coverage under an employer’s group health plan cannot be required to satisfy a waiting period longer than 90 calendar days, including weekends and holidays.  In certain limited circumstances, a waiting period that runs more than 90 days may be permitted if: (1) it relates to criteria other than the passage of time, (2) the waiting period requires the employee to complete no more than a cumulative total of 1,200 hours of  service, or (3) for “variable hour” employees (i.e., individuals who are not full-time employees), the waiting period is no longer than 12 months (plus a short associated administrative period).

The final regulations continue to define waiting period as the time 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.  Coverage will need to begin no later than the 91st day (or, where applicable, the 91st day after the employee otherwise satisfies one of the “authorized” waiting periods described above, or the new “orientation period” described below).  The regulations also address the following issues:

• Employment-Based Orientation Period:  In response to the concern that a strict 90 day waiting period  (rather than a three calendar month or first of the month following a 90 day waiting period) is more confusing to participants and difficult to administer, the final regulations provide that employers may require individuals to complete a “reasonable and bona fide employment-based orientation period” as a condition for eligibility.  Essentially, this orientation period allows plans to delay eligibility and commencement of the 90 day waiting period for up to one month following an employee’s hire date.  The final regulations do not define an “employment-based orientation period” or specify the circumstances under which the duration of an orientation period will not be considered “reasonable or bona fide.”  Thus, there is considerable uncertainty regarding how plans should implement an orientation period.  However, until other guidance is issued and at least through 2014, employers may impose an orientation period not to exceed one month in duration. 

Administration Tip:  From a practical perspective, this orientation period can be used as a means of delaying eligibility for a short period before the 90 day waiting period begins in order for employers to enroll all newly eligible employees within a given month on a standard date (rather than multiple dates based on individual hire dates).  An orientation period can also give administrators additional time to distribute enrollment materials.

• Rehired Employees and Job Transfers:  The final regulations clarify that a former employee who is rehired may be treated as newly eligible for coverage upon rehire, and the plan may require the individual to complete the waiting period again if reasonable under the circumstances (i.e., termination and rehire cannot be used as a means to avoid the 90-day waiting period limitation).

Similarly, employees who transfer from a job classification that is ineligible for coverage back to an eligible job classification may be required to complete the applicable waiting period again.

• Multiemployer Plan Exception:  The final regulations codify an earlier Department of Labor FAQ relating to multiemployer plans that suggests those plans might have some leeway to enroll otherwise eligible individuals after 90 days due to their “unique operating structure.”  The regulations provide an example of a multiemployer plan operated pursuant to an arms-length collective bargaining agreement that has an eligibility provision allowing employees to become eligible by working a specified number of hours in covered employment for multiple contributing employers. The plan aggregates hours in a calendar quarter and then, if enough hours are earned, begins coverage the first day of  the next calendar quarter.  The plan also permits coverage to extend for the next full calendar quarter, regardless of whether an employee’s employment has terminated.  The regulations conclude that the plan is acceptable even though it may enroll individuals after the 90-day waiting period limitation. 

Administration Tip:  While the final regulations do not clarify how broadly this FAQ can be interpreted, it appears that, at the very least, it would be reasonable to apply this exception in the context of a waiting period that requires employees to accumulate hours during a calendar quarter (i.e., slightly more than 90 days) to be applied toward coverage that takes effect in the next calendar quarter.  However, it does not appear that this guidance creates a blank check for multiemployer plans to impose waiting periods significantly longer than 90 days without scrutiny from the Departments.  Instead, plan sponsors will need to consider all facts and circumstances in making the determination as to whether the provisions under the multiemployer plan are similar to the example provided in the final regulations.

Certificates of Creditable Coverage

Under the Affordable Care Act, health plans may not impose any preexisting condition exclusions effective for health plans years beginning on or after January 1, 2014.  Soon certificates of creditable coverage, which are used to offset preexisting condition exclusionary time periods, will no longer be necessary.  Accordingly, the final regulations provide that, beginning December 31, 2014, health plans will no longer need to issue certificates of creditable coverage.