In addition to the normal transformation of an employer's business, the Affordable Care Act (ACA) added a tremendous amount of complexity to the issue of who is eligible for benefits and who is not. It did so on two, separate fronts. First, among the ACA's market reforms, Congress included a limit on waiting periods—generally 90 calendar days plus a bona fide orientation period of no more than 30 days. Second, under the auspices of the ACA employer mandate (a/k/a employer shared responsibility, a/k/a employer pay-or-play), the IRS created an extremely convoluted definition of who is a full-time employee.
90-Day Waiting Period Limit
What Plans Must Comply?
The 90-day waiting period limit applies to all plans that are "group health plans," as defined by HIPAA, except retiree-only plans and limited-scope benefits like most dental and vision plans. There is no exception for grandfathered plans. Also, there's no exception for small plans, and the limitation applies to both fully insured and self-insured plans.What Is a Waiting Period?
Regulatory agencies love to define things that seem obvious. The DOL final regulations define “waiting period” as the time that must pass before coverage may begin for an individual who is, but-for the passage of time, otherwise eligible to enroll under the terms of a group health plan. Thus, the waiting period starts on the date the individual meets all of the plan’s other substantive eligibility requirements (besides the waiting period). These eligibility requirements include, but are not limited to, the following:- membership in an eligible job classification;
- achievement of job-related licensing requirements; and
- completion of a reasonable and bona fide employment-based orientation period (more on orientation periods later).
How to Count to 90
"Ninety days" means ninety (90) days, and that includes weekends and holidays. "Ninety days" also does not mean three (3) months. There are several times throughout the calendar year when 3 months is more than 90 days. Coverage must offered effective no later than the 91st day following the date on which the individual is otherwise eligible to enroll in the plan. This means that a plan cannot use a provision stating the effective date of coverage is the "first of the month following 90 days of continuous employment."What about this “Orientation Period?”
The regulations permit an employer to condition health plan eligibility on an employee’s completion of a “reasonable and bona fide employment-based orientation period” without violating the 90-day waiting period limitation. To prevent employers from circumventing the rule, this orientation period is pretty heavily regulated.- The orientation period must not exceed one (1) month.
- The plan’s waiting period (if any) must begin on the first day after the orientation period ends.
- The employer must use the orientation period to conduct generally accepted orientation activities (e.g., evaluating whether the employment situation is suitable to the employee). The employer cannot just add 30 more days to its waiting period.
How Does the Waiting Period Limitation Interact with the Employer Mandate?
The ACA's employer mandate requires that employers with 50+ full-time equivalents offer coverage to full-time employees by the first day of the fourth month following the employee's becoming full-time. Depending on when the employee was hired, orientation periods—though permitted by the waiting period regulation—may expose the employer to penalties under the employer mandate regulations.Also, recognizing that the employer mandate regulations include the concept of a variable-hour employee (for whom coverage need not be offered for upwards of 13 months), the waiting period limitation regulations will not apply to variable-hour employees, provided the employer is properly following the look-back method and offering coverage timely such that there is no cause to penalize the employer under the employer mandate regulations.
How Does the Waiting Period Limit Apply to Rehires?
Employers may require rehired employees to complete a waiting period again upon their rehire if: (1) doing so is reasonable under the circumstances and (2) the practice is not being used as a subterfuge to avoid compliance with the ACA’s waiting period rules. The waiting period rehire regulations do not incorporate the much more rigid employer mandate break-in-service rules, but adherence to those rules for waiting period purposes is probably a good idea anyway.Are there Penalties?
Yep. The penalty for failing to comply with the ACA’s waiting period rules is $100 per day, per affected individual. The penalty is an automatic excise tax under Internal Revenue Code section 4980D, and it must be self-reported on Form 8928. No regulatory agency needs to assess it. From the IRS' perspective, failing to report and pay the excise tax is the same as failing to report income tax. The penalty will not apply if the employer corrects the failure within 30 days after it knew or should have known about the failure, and the employer can show that the failure was due to reasonable cause and not willful neglect.IRS Full-Time Employee Definition
Under the ACA employer mandate (a/k/a employer shared responsibility excise tax, a/k/a employer pay-or-play penalty), the IRS created an elaborate definition of who is a full-time employee. Fully explaining this definition will require more text than you likely have patience to read, but there are a few things to note. First, the employer mandate regulations define "full-time employee" for purposes of assessing penalties only; they do not require that plan eligibility language contain any particular provision. However, the ACA full-time employee regulations have a very strong influence on eligibility language and therefore the eligibility language should be examined carefully with the IRS full-time employee regulations in mind.Second, in its full-time employee regulations the IRS establishes certain default rules and then requires the employer to elect in writing whether any other rules will apply. For example, all employers are assumed to use the monthly measurement method unless there is a document that establishes that the employer uses the look-back method. The plan document (or a policy/procedure document referenced in the plan document) is a good place to put those written elections.
Third, when HHS begins sending subsidy eligibility determinations to employers, employers will need to respond to those determinations and state the grounds for any objection. The plan's eligibility language will be central to any dispute over an employee's eligibility for a subsidy and thus the employer's liability for a penalty.
So be sure to give your eligibility language a good once-over.