Affordable Care Act Update
The Affordable Care Act (“ACA”) added section 2708 to the Public Health Services Act (“PHS”), which provides that a group health plan or health insurance issuer shall not apply any waiting period that exceeds 90-days. PHS § 2708 does not require an employer to offer coverage to any particular person but does prevent an otherwise eligible individual from being required to wait more than 90-days before coverage becomes effective.
Final regulations by the Department of Labor, Department of Health and Human Services, and Department of the Treasury (the “Departments”) were issued on February 24, 2014. They defined “waiting period” as the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.
The phrase “otherwise eligible” means that an individual has met the plan’s substantive eligibility conditions. Substantive eligibility conditions include: being in an eligible job classification, achieving job-related licensure, and satisfying a reasonable and bona fide employment-based orientation period.
At the same time as these final regulations were published, the Departments published proposed regulations to address such orientation periods in relation to the 90-day waiting period limitation. The proposed regulations provided that one month would be the maximum allowed length of any reasonable and bona fide employment-based orientation period and that the 90-day waiting period would be required to begin on first day after such orientation period.
On June 25, 2014, the Departments published final regulations governing the relationship between a plan’s eligibility criteria and the 90-day waiting period limitation. To “prevent abuse and facilitate compliance” the final regulations adopted the one month maximum allowed length of an employment-based orientation period from the proposed regulations.
The one month limitation is determined by adding one calendar month and subtracting one calendar day from an employee’s start date. For example, if an employee’s start date is May 3, the last permitted day of an orientation period would be June 2.
The final regulations also touch on the relationship between the 90-day limitation rule and the penalty provisions under Internal Revenue Code § 4980H, more commonly known as the Employer Mandate. Under Code § 4980H, a large employer may be subject to penalty if it fails to offer ACA compliant coverage to newly hired full-time employees by the first day of the fourth full calendar month of employment.
Therefore, a large employer may not be able to impose the full one-month orientation period and the full 90-day waiting period without potentially being subject to a penalty under Code § 4980H. For example, if an individual is hired as a full-time employee on January 6 and the employer has a one month orientation period and a 90-day waiting period, the employee would not be covered until May 6. However, under Code § 4980H the employee should have been covered by May 1 to avoid an Employer Mandate penalty.
These final regulations apply to group health plans and health insurance issuers for plan years beginning on or after January 1, 2015. Until that date, the Departments will consider compliance with the proposed rules to constitute compliance.
Kennerly Montgomery is a general practice law firm that has provided legal advice to clients for almost 100 years. KM attorneys practice in a variety of areas, representing municipal clients, including local governments, agencies and public utilities. Bill Mason, Kathy Aslinger, and Ashley Trotto practice extensively in employee benefits law, which includes design, documentation, administration, audit, litigation, termination and qualification of employee health and welfare and pension plans for public, tax-exempt and private employers. The Firm sponsors various prototype retirement plans and prepares both interim amendments and discretionary amendments for all plan types as well as counsels with fiduciaries on ERISA and Federal & state law obligations. They also represent clients before various agencies regulating employee benefits.
©2014 Kennerly, Montgomery & Finley, P.C. This publication is intended for general information purposes only and does not constitute legal advice or a legal opinion and is not an adequate substitute for the advice of legal counsel.
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