California’s 60-Day Cap on Eligibility Waiting Periods

California Assembly Bill 1083 (chaptered September 30, 2012) brings California law governing group health insurance products and HMOs, into conformity with insurance market reforms and other provisions of the Affordable Care Act.

AB 1083 varies in some respects from the ACA.  Perhaps the most notable difference is in the maximum eligibility waiting period for group health plan participation, which the ACA sets as no more than 90 days after the date on which an individual satisfies all requirements for eligibility (which occur upon hire).

AB 1083 imposes a shorter maximum waiting period not to exceed 60 days, with regard to group health insurance policy or HMO contract years beginning on or after January 1, 2014.

At first it was believed that this rule applied only to group policies or HMO contracts for small employers, with “small” defined as having at least 1 but no more than 50 eligible employees (i.e., 30 or more hours per week) on at least 50% of work days during the preceding calendar quarter or calendar year.  (In California this definition of small employer applies for 2014 and 2015, after which the eligible employee limit increases to 100.)

However, a close reading of AB 1083 reveals that the language setting forth the maximum 60-day limit on waiting periods is not confined to the provisions applicable to small group products.

Specifically, AB 1083 includes the 60-day limit in portions of the bill that amend and replace subsections of Health and Safety Code § 1357.51 and Insurance Code § 10198.7.  Neither of those code sections are limited to small group products, and they each currently permit a 60-day waiting period to be imposed under policies and contracts that impose no pre-existing condition exclusions.  Given that the ACA prohibits pre-existing condition exclusions for plan years beginning on or after January 1, 2014, the California Departments of Insurance and Managed Health Care appear to have viewed this as an opportunity to make the 60-day maximum limit generally applicable to all group coverage, rather than expand prior California law to permit the longer waiting period that the ACA allows.

The new provisions setting forth the 60-day limit take effect January 1, 2014 and will be applied to “plan” years beginning on or after that date.  AB 1083 defines “plan year” in the same way as HHS regulations  – as the year that is designated as the plan year in any applicable group health plan documentation.  In the absence of self-standing group health plan documentation (as is often the case with fully insured group health plans), the plan year is the annual cycle on which deductible amounts or other dollar limitations renew.  In the absence of any annual deductibles or limits under the plan, the plan year is the policy year that is designated in policy documentation.

AB 1083 states that the maximum 60-day waiting period is available if it is “applied equally to all eligible employees and dependents,” and if it is “consistent with PPACA.”  This last phrase is the source of some confusion.  Because the PPACA allows waiting period that do not exceed 90 days, the shorter waiting period under AB 1083 is “consistent” with the ACA.  Similarly, a state law that banned waiting periods of any length would likely be determined to be “consistent” with the ACA’s outside limit of 90 days.

As of the date of this post, I have not seen any formal written guidance from the California Department of Insurance or the Department of Managed Health Care, confirming application of the 60-day waiting limit to large group products.  However I have reviewed email forwarded from the DMHC and from a large carrier in the state, both indicating that the maximum 60-day limit would apply in the large and small group markets in California, with the carrier further stating that it would be applied as of renewals on or after January 1, 2014 (rather than as a “hard deadline” on 1/1).

Note:  It is not out of the question that the California Departments of Insurance and Managed Health Care (the “agencies”) could back away from this interpretation of AB 1083 and declare that large group products remain subject only to the maximum 90-day waiting period under the ACA.  Any such retrenchment would likely be the result of pressure from the business sector rather rather than a wholly voluntary change by the agencies.  If there are any developments along these lines I will update this post accordingly.

Please note in this regard that both the California 60-day limit, and the 90-day limit under the ACA, are maximum consecutive day limits, such that employers may not delay enrollment until “first of month following” attainment of the 60 or 90 day anniversary of the date on which an individual meets all eligibililty requirements (which may be the date of hire).  As a consequence, many California employers are using first of month following 30 days after hire as the enrollment deadline, as a way to permit timely enrollment for all eligible employees at the beginning of a coverage month.

Please also note that AB 1083’s maximum limit on waiting periods applies to group insurance policies and HMOs that are grandfathered, or non-grandfathered, under the ACA.  Self-funded employers are not subject to California’s Insurance or Health and Safety Codes, hence may impose a maximum 90-day waiting period under their plans.

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14 Comments

Filed under 90-Day Waiting Period, Affordable Care Act, California AB 1083, California Insurance Laws, Health Care Reform, PPACA

14 responses to “California’s 60-Day Cap on Eligibility Waiting Periods

  1. Debbie Klug

    Good morning, Christine –

    I just wanted to send you a big THANK YOU for your post below. We have been trying like mad to get clarification on whether the 60 day rule applied to small groups – so I so appreciate your insight.

    Keep up the great work!!

    Kind Regards,
    Debbie Klug
    Compliance & Resources Administrator
    CalNonprofits Insurance Services

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    • Debbie you are most welcome. As I have modified my post to read, it remains possible that California’s Dept. of Insurance and DMHC could back away from this interpretation in response to pressures from employers/business community. They have little incentive to do so themselves.

  2. Laura Riesenberg

    Please note that the IRS regulations on the 90-day waiting period measure the 90 days from the date on which the employee would otherwise be eligible for coverage. This allows the imposition of reasonable requirements other than passing of time. Unlear whether the state law is consistent.

  3. SCA

    Does the recent passage of CA SBX1-2 change any of this? My understanding is that the 60 day waiting period applies to all groups and takes effect 1/1/14 regardless of plan year.

  4. You state that self-funded plans are exempt – does this exemption also apply to multiple employer self-funded plans?

  5. Craig Hargett

    Hi Christine, Thanks for the analysis. Do you know how this provision will apply to plans that are partially self-funded? I have a sense that the law will apply to the fully-funded piece, and which would therefore govern the whole, but some clarity would be nice before providing any guidance to clients.

    • Hi. I think common sense would dictate that if any insured benefits are present, than 60 days will be the max waiting period across the board. This is one of those fine point that HHS, et al. probably would not bother to address and that the California Insurance Commissioner would not have authority to address, i.e., it is a limbo area. I could imagine different arrangements where the self-funded and insured components are discrete (e.g., self-funded dental, insured medical) but even in that setting it introduces a lot more administrative complexity than most employers are comfortable with.

      Reluctantly ending a sentence with a preposition,
      Chris R.

      • Craig Hargett

        I appreciate your response and the clarity (or lack thereof) regarding the position of the various governmental departments tasked with administering these changes.

        And I think we can all forgive your egregious grammatical misstep, it is after all a convention adopted rather than a prescription required.

  6. Steve C.

    To Laura’s point, I wonder if a plan sponsor could impose an eligibility requirement of completion of 600 hours of service, but in no event longer than 90 days. The 600 hours of service requirement is permissible under ACA, and limiting the time to 90 days would let you be consistent with your waiting period for employees in other states.

  7. Stacy

    Have you seen any sign of guidance from the Department of Insurance or Department of Managed Healthcare on this issue?

  8. Pingback: Contractors Prevailing Wage Dev Site – How ObamaCare Will Affect California Health Care?

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