New Rules Could Extend 90 Day Waiting Period for Coverage

When the proposed ACA 90-day waiting period regulations were issued, employers were frustrated by the fact that the common design of “first of the month following 90 days” was not permissible. Apparently, their cries were heard, as more recent regulations provide some flexibility for employers.

The rules generally allow the waiting period to commence following satisfaction of the plan’s eligibility conditions. One example of a permissible eligibility condition is the completion of a “bona fide employment-based orientation period” that does not exceed one month. The guidance notes that the period should be for evaluation, orientation, and training but doesn’t specify any particular activities that need to be conducted during the period. So if the maximum 90-day waiting period begins on the first day after the orientation period ends, an employee actually can be required to wait more than 90 days before coverage is offered. A “first of the month following 90 days of employment” design can actually work.

Example: Husky Company has a one-month orientation period and offers coverage on the first of the month following 90 days of employment. Jake is hired on Sept. 6 and his orientation period ends on Oct. 5. He is offered coverage effective Jan. 1. Since there are less than 90 days from the end of the orientation period to the coverage commencement date, the design would be in compliance with the 90 day waiting period rules.

Sounds too good to be true — so what’s the catch? In the new ACA world, plan eligibility conditions require consideration of the employer shared responsibility (ESR) or “pay or play” rules. Compliance with the waiting period limit does not automatically guarantee compliance with shared responsibility and the required coverage start dates under each provision require particular attention.

Specifically, the ESR rules may subject an employer to assessments if it fails to offer affordable, minimum value coverage to certain newly hired full-time employees by the first day of the fourth calendar month of employment. Certain designs that attempt to take advantage of the full orientation period and full 90 day wait can create potential issues.

Example: Duck Inc. has a one-month orientation period for new-hires and offers coverage on the 91st day after completion of the orientation period. Josephine commences work on Sept. 6, completes her orientation period on Oct. 5, and is offered coverage effective Jan. 4. This complies with the 90-day waiting period rules, but could subject Duck Inc. to ESR assessments because Jan. 1 would actually be the first day of the fourth full month of employment.

Designing the eligibility rule to make coverage effective the first of the month would remedy this issue, and plans opting for this design will want to explicitly reference the orientation period when describing the effective date. For example, the eligibility rule could be worded to say that the plan has a one-month orientation period, followed by a waiting period, with coverage effective the first of the month following 90 days of employment.

While all will agree that the flexibility under the regulations is certainly welcome, continued focus on maintaining a compliant design is critical.

Wade Symons
by Wade Symons

Leader, Regulatory Resource Group, Mercer

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