Feds Provide Final Guidance on Interplay Between Orientation Periods and 90-Day Waiting Period Limitation for Group Health Plans
The DOL, IRS, and HHS (collectively, the “Departments”) released final regulations on June 20, 2014, confirming that employers may require a “reasonable” and “bona fide” employment-based orientation period as a condition of an employee’s eligibility to participate in an employer-sponsored group health plan without violating the 90-day maximum waiting period limitation under the Affordable Care Act (“ACA”). The regulations provide employers with useful guidance on the interplay between such orientation periods and the maximum waiting period, and how employers may continue to utilize orientation periods that do not exceed one month in length as conditions of group health plan eligibility while still complying with the ACA’s 90-day maximum waiting period requirements. The final regulations are applicable for plan years beginning on or after January 1, 2015. However, through the end of the first plan year beginning on or after January 1, 2014, employers may continue to rely on the proposed regulations, which are basically identical to the final regulations.
I. Waiting Periods, Generally
The ACA and its regulations generally provide that any waiting period applicable to employees before being covered under an employer-sponsored group health plan may not exceed 90 days. ACA regulations define a “waiting period” as the period that must pass before coverage for any employee or dependent who is otherwise eligible to enroll under the terms of the group health plan can become effective. An employee is considered “otherwise eligible to enroll” if the employee has met all of the plan’s substantive eligibility requirements, including satisfaction of a reasonable and bona fide employment-based orientation period. Thus, under the ACA regulations, the 90-day maximum waiting period cannot begin to run unless or until an employee has satisfied the orientation period mandated by the plan as a condition of an employee’s eligibility to participate in the plan.
II. Reasonable and Bona Fide Orientation Periods of One Month or Less
Recognizing the potential for an employer’s abuse of an orientation period in order to delay the 90-day maximum waiting period limitation, the Departments’ regulations provide that any employment-based orientation period applied by a group health plan as a substantive eligibility requirement must be “reasonable” and “bona fide” and must not exceed one month in length. While the regulations stress that the Departments do not wish to “call into question the reasonableness of short, bona fide orientation periods,” the regulations also indicate the it is expected that a reasonable, bona fide orientation period will be used by an employer to evaluate an employee’s employment situation and to begin any standard training or orientation processes relevant to the employment.
III. Application of the One-Month Orientation Period to the 90-Day Waiting Period Limitation
Under the regulations, the 90-day waiting period limitation will not begin to run until the completion of the allowable one-month orientation period. A one-month orientation period is determined by adding one calendar month and subtracting one calendar day from the employee’s start date in a position that is otherwise eligible for coverage under the group health plan. For example, if an employee’s start date is August 15, 2014, the last day of the employee’s permitted orientation period would be September 14, 2014, and the maximum 90-day waiting period would begin on September 15, 2014 (the first day after the orientation period). If there is no corresponding date in the next calendar month, the last day of the employee’s permitted orientation period is the last day of the next month. For example, if an employee’s start date is January 31, 2014, the last day of the employee’s permitted orientation period would be February 28, 2014.
IV. A Word of Caution for Applicable Large Employers
When applying these final orientation period regulations, “applicable large employers” subject to the employer mandate provisions of the ACA (generally, those employers with 50 or more full-time equivalent employees) should be careful to recognize that the 90-day waiting period limitation is separate from the rule that an applicable large employer must offer affordable minimum value coverage to new full-time employees by the first date of the fourth calendar month of employment. An applicable large employer that satisfies the orientation period regulations by requiring a one-month orientation period prior to the application of a 90-day waiting period may nonetheless fail to satisfy its obligations to offer affordable minimum value coverage to new full-time employees by the first day of the fourth calendar month of the employment, thereby potentially subjecting the applicable large employer to a penalty for failure to offer coverage.
V. Employer Takeaways
Employer-sponsored plans that already provide for an orientation period of no longer than one month as a substantive eligibility requirement may continue to do so without violating the 90-day maximum waiting period limitation, provided the orientation period is reasonable and bona fide. Employer-sponsored plans that do not already provide for such a period may amend their plan documents to provide for a reasonable, bona fide orientation period as a substantive eligibility requirement in order to take advantage of these rules. While small employers need only worry about satisfying the 90-day waiting period limitation rules, “applicable large employers” subject to the employer mandate provisions of the ACA should determine whether a one-month orientation period followed by a 90-day waiting period may cause the employer to be subject to penalties under the employer mandate rules.