In February 2014, the DOL, IRS and HHS issued final regulations1 on the Affordable Care Act’s 90-day waiting period rule, as well as proposed regulations regarding use of “orientation periods” as an eligibility requirement.
For plan years beginning in 2014, the Affordable Care Act includes a requirement that group health plans not impose waiting periods longer than 90 days.2 This applies to both grandfathered and non-grandfathered plans.
The 90-day maximum waiting period is separate from other legal requirements. For example, a sponsoring employer may owe play-or-pay excise taxes under IRC § 4980H in 2015 if full-time employees are not timely covered under the play-or-pay rules, regardless of whether the plan satisfies the 90-day waiting period rule. Also, a plan that complies with the 90-day waiting period rule but charges more to rank-and-file than highly compensated employees for coverage may have IRC § 125 or § 105(h) discrimination issues.
Summary of the New Regulations
Effective for plan years beginning in 2014 and later, individuals who are otherwise eligible for coverage cannot be required to satisfy a waiting period (the time that must pass before coverage takes effect) that exceeds 90 days.3 A plan can impose other eligibility requirements, so long as they’re not designed to avoid compliance with the 90-day limit. For example, a plan could exclude all part-time employees from coverage, but could not provide coverage only for part-time employees who have completed 6 months of service.
The final regulations specifically permit the following eligibility requirements:
- Completing a “reasonable and bona fide employment-based orientation period.” The agencies issued separate proposed regulations regarding orientation periods.4 An orientation period that complies with the proposed regulations will be considered compliant with the 90-day rule until further guidance is issued, and at least through 2014. An orientation period is described as the time in which “an employer and an employee could evaluate whether the employment situation was satisfactory for each party, and standard orientation and training processes would begin,” and also as “a probationary or trial period to determine whether a new employee will be able to handle the duties and challenges of the job.”5 The proposed regulations provide that an orientation period is permissible only if it does not exceed one month from an employee’s start date in a position that it is otherwise eligible for coverage.6 Thus, if an employee’s job position involves an orientation period that does not last more than a month, the proposed regulations would allow making coverage effective 90 days later, at least through calendar year 2014.
- Measurement period for variable hour employees. If an employer has variable hour employees,7 the plan may condition eligibility for those employees on working a certain number of hours in a measurement period of 12 months or less. The plan can also impose a waiting period after the measurement period ends, provided that coverage may not begin later than 13 months after the employee’s start date (plus, if the employee’s start date is not the first of a month, the time remaining until the first day of the next month).
- Cumulative hours of service. A plan may require an employee work up to 1,200 hours and then satisfy the 90-day waiting period.8 For example, a plan may make an employee eligible on the first day of the second month after the employee works 800 hours.
- Employee election. A plan may require an employee complete forms or elect coverage before it begins, so long as the employee has the opportunity to elect coverage that would begin on a date that does not exceed the 90-day limit. For example, a Plan may offer coverage the first day of the month after the plan administrator receives election forms.
- Multiemployer plan structures. The preamble to the Final Regulations indicates that eligibility requirements that are designed to accommodate a multiemployer plan’s “unique operating structure” are permissible.9
Also, a plan can re-apply its eligibility criteria and waiting period to rehired employees, and to employees who move to a job classification that is ineligible for coverage but later move back to an eligible classification.
The penalty for non-compliance with the 90-day waiting period rule is an excise tax of $100 per day per affected individual.10 In addition, the DOL or participants may sue to enforce the rule.
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Not intended as legal advice.
- For the 2014-15 plan year, plans can rely on either the final waiting period regulations or the proposed regulations that were issued in 2013. This Bulletin focuses only on the final regulations, as they are generally more favorable to plans. The final regulations are available at: http://www.dol.gov/opa/media/press/ebsa/20140220-redfeg1.pdf.
- PHSA § 2708, incorporated into Code § 9815 and ERISA § 715. If the plan is insured, the 90-day waiting period rule also applies to the insurer.
- All waiting periods must comply with the 90-day rule as of the first day of the 2014 plan year – even waiting periods already in progress.
- The proposed regulations are available at:http://www.dol.gov/opa/media/press/ebsa/20140220-redfeg2.pdf.
- Preamble to the orientation period proposed regulations, and preamble to the 90-day waiting period final regulations, respectively.
- Generally, this is calculated by adding one calendar month and subtracting one calendar day. For example, if an employee’s start date is May 3, the orientation period must end by June 2. However, if there is not a corresponding date in the next calendar month, the orientation period must end by the last day of that month. For example, if an employee’s start date is January 30, the orientation period must end by February 28.
- For purposes of this rule, a variable hour employee means a newly hired employee where it cannot be determined whether the employee is reasonably expected to regularly work the number of hours per period that are required for plan eligibility. The regulations include the following example: a plan only covers employees who regularly average 30 hours per week. The employer hires a new employee whose hours are reasonably expected to vary, with an opportunity to work between 20-45 hours per week depending on shift availability and the employee’s availability. As it cannot be determined as of the employee’s start date that the employee is reasonably expected to meet the plan’s eligibility requirement, the employee is a variable hour employee and can be tested under the plan’s measurement period for variable hour employees. Treas. Reg. § 54.9815-2708(f), Example 7.
- The preamble to the final regulations provides that any cumulative hours of service requirement must be “designed to be a one-time eligibility requirement only; these final regulations do not permit, for example, re-application of such a requirement to the same individual each year.”
- The final regulations include the following example of a permissible eligibility condition for a multiemployer plan:A multiemployer plan operating pursuant to an arms-length collective bargaining agreement has an eligibility provision that allows employees to become eligible for coverage by working a specified number of hours of covered employment for multiple contributing employers. The plan aggregates hours in a calendar quarter and then, if enough hours are earned, coverage begins 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.Treas. Reg. § 54.9815-2708(f), Example 9.
- Exceptions apply in certain circumstances – e.g., the tax will not apply to any failures due to reasonable cause, rather than willful neglect, and which are corrected within 30 days of their discovery. In addition, the tax is capped for unintentional failures that are not timely corrected, and there are minimum taxes that apply to any failure discovered on audit. Code § 4980D.