Category Archives: California AB 1083

California Progresses Towards Parity with ACA Waiting Period Rule

California Senate Bill 1034, which will remove the 60-day limit on eligibility waiting periods under California insurance and HMO group health contracts earlier mandated by Assembly Bill 1083, is in the late stages of legislative approval in Sacramento. Senate and Assembly Floor and committee votes have been unanimous in the bill’s favor. As discussed in an earlier post, once passed the bill will:
• permit California-licensed carriers and HMOs to administer employer-imposed eligibility waiting periods so long as they do not exceed the ACA’s 90-day limit, and
• prohibit such carriers and HMOs from imposing any separate, additional affiliation or waiting periods.

Pending passage of this bill, it appears that California carriers and HMOs are writing coverage without requiring that employers limit waiting periods to 60 days in accordance with AB 1083 as codified in the California Insurance and Health and Safety Codes. Those provisions went into effect on January 1, 2014 but almost immediately met resistance from brokers and benefit advisors and their clients.

Passage of SB 1034, which is slated to take effect on January 1, 2015, will permit employers with California-issued or renewed group health coverage to simply follow the ACA’s 90-day maximum limit on eligibility waiting periods (which apply to all employers, not just “applicable large employers” with 50 or more full-time employees, counting full-time equivalents). This will simplify these employers’ lives in number of ways:

• It will remove any doubts that they may impose “substantive” eligibility requirements such as licensure or attainment of a job level (e.g., assistant manager or higher), separate and apart from the 90-day waiting period, provided that the substantive requirement is not designed to avoid compliance with the 90-day limit. The federal waiting period regulations make it quite clear that this is permitted, but the separate California waiting period rules introduced a measure of uncertainty. That will no longer be the case.
• It will permit ALEs to use a “limited non-assessment period” of up to three full calendar months after hiring a full-time employee, such that an offer of coverage can be postponed until the first day of the fourth full calendar month after hire.

On this last point, the final ACA 90-day waiting period regulations state that a 3-month period cannot be substituted for 90-days. However, separate regulations were proposed, and finalized, that permit employers to impose a bona fide and employment-based orientation period of up to one month, beginning immediately after hire or after transfer to a new, benefitted job position. After the one month orientation period is up, the eligibility waiting period of up to 90 days would begin to elapse. Therefore, if properly administered, the orientation period may be combined with the 90-day waiting /limited non-assessment period to cover the entire period between the date of hire, and the first day of the fourth full month after hire.

Note in this regard that the orientation period cannot simply be an arbitrary stretch of time but instead must be used for the new hire/transfer and the employer to evaluate each other, and for the new hire/transfer to undergo orientation and training for his or her position. There are other implementation details to be aware of, and employers should get expert benefit advice in order to ensure compliance with these brand new rules.

We will post a future update on SB 1034’s passage or upon any change in current carrier practices re: waiting periods of which we become aware.

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

California Bill Would Repeal 60-Day Cap on Waiting Periods

California Senate Bill 1034 sponsored by Senator Bill Monning (D-Carmel) would repeal language in the Health & Safety and Insurance Code that currently limits waiting periods under small and large group HMO contracts and health insurance policies to a maximum of 60 days.  The new bill, if enacted, would prohibit insurers and HMOs from imposing any waiting or affiliation period under group coverage in the small and large-group markets.

This would allow California employers to follow the Affordable Care Act’s maximum 90-day limit on eligibility waiting periods, recently confirmed in final regulations issued by the Departments of Labor, Treasury and Health and Human Services (the “Departments”).  In the preamble to the final regulations, the Departments make clear that state insurance laws may impose more stringent waiting period rules than the federal standard.

I previously wrote about the waiting period rule, found in California Assembly Bill 1083 (also sponsored by Sen. Monning when he was an Assemblymember), and the confusion it created for California employers who originally understood the rule to apply only to small group coverage.  AB 1083 was modified by Special Sessions bills SBX 1 2 and ABX 1 2 but the changes did not affect the 60-day cap on waiting periods.  AB 1083, as amended, went into affect with respect to plan years on or after January 1, 2014.

One of the most significant disconnects between California law and the ACA in this respect is with regard to substantive eligibility requirements.  The federal 90-day waiting period regulations define “waiting period” as the time period that must elapse before coverage begins for an “otherwise eligible” employee, and make it clear that employers may impose substantive eligibility requirements on employees – such as attainment of a certain job level – in order to receive group health coverage.  In such instances, the maximum 90-day waiting period would not begin to elapse until the employee first attained the required job level.  This dovetails neatly with the common 90-day “introductory” or “orientation” period employers use to gauge whether or not a new employee will work out on a long term basis.  Successful completion of the introductory period generally triggers eligibility for a number of employment benefits and not just group health insurance.

By contrast, the California Insurance and Health and Safety Code rules containing the 60-day limit do not reference application of any substantive eligibility criteria and would appear on their face to be triggered at hire.   I have counseled clients that state laws governing insurance policies and HMO contracts cannot deprive them of their right as employers to impose substantive eligibility requirements on group health coverage, but none of them welcome the complexity of layering employer-based eligibility rules over rules bolted onto the coverage itself.

The disconnect between the ACA and California law increased as a result of the final waiting period regulations, and a companion proposed regulation, published last month.  Specifically, the final regulations recognize a “reasonable and bona fide employment based orientation period” as a permissible substantive eligibility condition, completion of which would trigger the 90-day maximum waiting period.  The companion proposed regulation identifies one month as a reasonable orientation period, such that an employer could assess a new hire for 30 days before the 90-day waiting period began to elapse.

SB 1034 is on the radar screen of insurance and HMO regulators in the state for several weeks and, to date, no opposition to the bill has been raised.   The California Department of Insurance may or may not register a position on the bill and any opposition raised by the California Department of Managed Health Care generally would not appear until further along in the legislative process.   I am tracking the Bill’s progress and will continue to provide updates on its status.  If passed, it would go into effect for plan (policy) years beginning January 1, 2015.

UPDATE:  It has come to my attention that, notwithstanding the fate of SB 1034, at least one large insurer in California has removed 60-day waiting period language from their large group contracts so that employers in this market can impose the full 90-day waiting period permitted under the Affordable Care Act.   Apparently they have interpreted the waiting period language to be binding on carriers but subject to override by the employer purchasing the  large group policy.  I do not know if this is an isolated instance or a trend but it is welcome news to the many employers in the state in the large group market.

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March 7, 2014 · 6:41 pm

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