American Benefits Council
Benefits Byte


February 20, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Administration Finalizes Rules for PPACA 90-Day Waiting Period, Issues Additional Proposed Rules

The U.S. departments of Treasury, Labor and Health and Human Services (collectively, the departments) released final regulations on February 20, implementing the 90-day waiting period limitation under Section 2708 of the Public Health Service Act (PHSA), as added by the Patient Protection and Affordable Care Act (PPACA). At the same time, the departments also issued a new set of proposed regulations addressing "employment-based orientation periods" and how they interact with the final waiting period rules.

PPACA provides that, in plan years beginning on or after January 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period for coverage that exceeds 90 days. Unlike the employer responsibility provisions under Section 4980H of the Internal Revenue Code (governing employer shared responsibility provisions of PPACA, for which final regulations were released on February 12), PHSA Section 2708 does not distinguish between full-time and part-time employees.

Final Regulations

The final regulations, to be effective beginning April 25, 2014, generally follow Internal Revenue Service (IRS) Notice 2012-59 (issued in August 2012) and the previously proposed regulations (issued in March 2013) with regard to the definition of the term “waiting period,” as well as the application of the rules to variable-hour employees when a specified number of hours of service per period is a plan eligibility requirement.

Most notably, the final regulations set forth rules governing the relationship between a plan’s eligibility criteria and the 90-day waiting period limitation. “Waiting period” is defined as the period that must pass before coverage for an individual who is otherwise eligible to enroll under the terms of a group health plan can become effective. The final regulations provide that being otherwise eligible to enroll in a plan means having met the plan’s substantive eligibility conditions (such as, for example, being in an eligible job classification, achieving job-related licensure requirements specified in the plan’s terms or satisfying a reasonable and bona fide employment-based orientation period). Other conditions for eligibility under the terms of a plan (that are not based solely on the lapse of a time period) are generally permissible unless the condition is designed to avoid compliance with the 90-day waiting period limitation.

The final rules also provide, among other things, guidance regarding how to determine whether a variable hour employee satisfies a plan’s eligibility conditions, applicability of waiting periods for rehired employees, waiting periods in multiemployer plans, and how an issuer can rely on information provided by an employer in administering the 90-day waiting period limitation.

The final regulations also include technical amendments stating that as of December 31, 2014, health plans will no longer need to issue certificates of creditable coverage as required by the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

The Council filed written comments on the proposed regulations in May 2013, recommending, among other things, that the 90-day waiting period limitation be considered satisfied if coverage is made effective no later than the first day of the fourth full calendar month beginning after the employee’s start date, and transition relief for collectively bargained plans.

Proposed Regulations

It appears that the new proposed regulations relating to “employment-based orientation periods” were issued in response to concerns expressed by employers, specifically about how the waiting period rules would interact with the Code Section 4980H rules (which generally require, as a condition for avoiding a penalty, that health benefits begin by the first day of the fourth calendar month following the month in which the full-time employee begins employment).

Employers had also asked for flexibility to begin coverage effective the first day of the first month following a 90-day waiting period, or to impose a waiting period of three calendar months instead of 90 days. While the final regulations retain the requirement that a waiting period may not extend beyond 90 days, they also provide that a requirement to successfully complete a reasonable and bona fide employment-based orientation period may be imposed as a condition for eligibility for coverage under a plan. The proposed regulations specifically address employment-based orientation periods.

Under the newly proposed regulations, the orientation period could be no longer than a period that begins on any day of a calendar month, adding the next calendar month, and then subtracting one day. Under an example in the proposed regulations, an employee begins working full time on October 16. The employer sponsors a group health plan, under which full-time employees are eligible for coverage after they have successfully completed a one-month orientation period. The employee completes the orientation period on November 15. Plan coverage for the employee must begin no later than February 14, which is the 91st day after the orientation period ends.

The proposed regulations also provide that, to the extent final regulations or other guidance with respect to the application of the 90-day waiting period limitation to orientation periods is more restrictive on plans and issuers, such final regulations or other guidance will not be effective prior to January 1, 2015, and will provide plans and issuers a reasonable time period to comply.

Comments on the proposed regulations are being sought through April 25. To provide input for a Council comment letter, or for more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).