90-Day Waiting Period Rule Can Lead to Problems Between Employers, Unions and Health Plans

May 2014Articles For Your Benefit

Earlier this year, the agencies implementing the Patient Protection and Affordable Care Act (ACA) published a final rule that prohibits health plans and health insurance issuers from applying any waiting period that exceeds 90 days (i.e., the waiting period that must pass before an individual is eligible to receive benefits under a health plan).

Even though a proposed 90-day waiting period rule was released last year, and despite the fact that the rule took effect for plan years beginning on or after January 1, 2014, many plan sponsors have yet to update their work policies (e.g., employee handbooks and collective bargaining agreements) in order to coordinate their provisions with the rule and/or with plan document language that incorporates the rule.

For example, while a health plan may have changed its waiting period to 90 days, the employer and/or labor union may not have reflected this change in the relevant employee handbook and/or collective bargaining agreement. This may result in not only confusing employees about how long their waiting period is, but also create disputes among these different entities.

Fortunately, there are exceptions to the 90-day rule that allow additional time to be tacked on to the 90-day waiting period; these are for certain orientation periods, cumulative hours of service requirements and rules developed by multiemployer plans in the collective bargaining context.

Orientation Periods: The final rule permits a group health plan or health insurance issuer to have certain substantive eligibility conditions which include, among other things, “satisfying a reasonable and bona fide employment-based orientation period.” The final rule permits this orientation period eligibility requirement to tack on to the 90-day waiting period. The maximum time period for this orientation period is one month. The one-month maximum time period means a period that begins on any day of a calendar month and is determined by adding one calendar month and then subtracting one calendar day (e.g., if the employee’s start date is May 3, the last permitted day of the orientation period is June 2). The proposed regulations provide that if there is not a corresponding date in the next calendar month upon adding a calendar month, the last permitted day of the orientation period is the last day of the next calendar month. An example is provided: “if the employee’s start date is January 30, the last permitted day of the orientation period is February 28 (or February 29 in a leap year).”

Cumulative Hours of Service Requirements: In addition, the final rule permits group health plans and health insurance issuers to condition health coverage eligibility on an employee’s completion of a “cumulative hours of service” requirement (not to exceed 1,200 hours) without such requirement being considered “designed to avoid compliance with the 90-day waiting period limitation.”

Exception for Multiemployer Plans: Lastly, the final rule permits multiemployer plans to use eligibility criteria to tack on to the 90-day requirement if such criteria is based on the participating employer’s industry or unique operating structure (for example, the regulation permits a multiemployer plan’s eligibility provision that would allow employees to become eligible for coverage by working a specified number of hours of covered employment for multiple contributing employers where the plan aggregates hours in a calendar quarter, and then, if enough hours are earned, coverage begins on the first day of the next calendar quarter).

For plan sponsors that have not yet implemented the 90-day waiting period rule, they should review all eligibility requirements in all work policies in order to ensure that no waiting period that is based solely on a period of time exceeds 90 days (“three-month” or “quarter” language will not work) and where employees are offered health insurance coverage only after working a certain number of hours, ensure that the hours requirement does not exceed 1,200 hours.

For more information regarding this topic, please contact Michelle M. McCarthy at (310) 598-4153or [email protected] or any member of the Fox Rothschild LLP Employee Benefits and Compensation Planning Practice Group.