New Rules on 90-Day Waiting Period Limitation Announce End of “Certificates of Creditable Coverage”

Proposed Regulations published in the Federal Register on March 25, 2013 explain how the maximum 90-day limitation on waiting periods will operate under employer-sponsored group health and insured individual health plans, beginning January 1, 2014.   The rules, set forth in Section 2708 of the Public Health Service Act (PHSA), apply to insured and self-funded group health plans, and to individual insured coverage, and apply equally to grandfathered and non-grandfathered plans.

The Proposed Regulations on waiting periods is consistent with earlier guidance issued in the form of IRS Notice 2012-19, which I summarized, in FAQ format, in this earlier post.   For your convenience, however, the key provisions of the regulations are set forth below:

  • The Proposed Regulations define a waiting period consistent with prior HIPAA regulations, as “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.”
  • Once eligibility requirements are met, coverage must begin once 90 calendar days, including weekend and holiday days, have elapsed.  If the 91st day falls on a weekend or holiday, the carrier or plan sponsor may elect to have coverage to be effective earlier than the 91st day, for administrative convenience, but may not delay coverage past the 91st day.
    • This means that the popular eligibility provision under which coverage begins 90 days after the first day of the first month following the date of hire is no longer permissible.  The new safe harbor is to ensure that coverage begins no later than 60 days after the first day of the first month following the date of hire.
    • As was described in Notice 2012-59, an employer or issuer has fulfilled the 90-day waiting period limitation so long as an employee can elect to begin coverage no later than 90 days after satisfying eligibility criteria, even if the employee is late in completing and submitting enrollment materials.
      • The Proposed Regulations describe, as permissible, language calling for coverage to begin “on the first day of the first payroll period on or after the date an employee is hired and completes the applicable enrollment forms,” provided that enrollment materials are provided to the employee on his or her start date and can reasonable be completed within 90 days.
      • In provisions mainly applicable to group health plans, whether self-funded or insured, a plan may impose eligibility criteria such as completion of a period of days of service (which may not exceed 90 days), attainment of a specific job category, or other criteria, so long as they have not been designed to avoid compliance with the 90-day waiting period.
        • As an example, a plan provides coverage only to employees with the title of sales associate.  Sarah is hired on October 17, 2014 as a junior sales associate.  On April 3, 2015, she is promoted to sales associate.  She must be offered coverage no later than July 3, 2015.
        • When a plan conditions eligibility on a cumulative service requirement, such as completion of a set number of hours of service, the hours-of-service requirement must not exceed 1,200.
        • When a “variable hour” or seasonal employee is hired – i.e., someone who cannot be classified as full-time (30 or more hours per week) or part-time, an employer is allowed to classify the employee as full-time (or not full time) over a measurement period not to exceed 12 months, consistent with proposed regulations on employer shared responsibility duties.   If the employee is determined to be full-time at the end of the measurement period, an employer will be deemed to have met the 90-day waiting period limitation period if the employee enters the plan no later than 13 months from the employee’s start date, plus the time remaining until the first day of the next calendar month (in instances when the employee’ start date is not the first day of a month).
      • The Proposed Regulations are effective for plan years beginning on or after January 1, 2014, however elimination of the requirement to provide Certificates of Creditable Coverage has a later effective date of January 1, 2015, as discussed below.
        • For employees who are in a waiting period for coverage when the Proposed Regulations go into effect on January 1, 2014 , the 90-day maximum period is applied to the entire waiting period, including time “served” prior to January 1, 2014.  The Regulations use an example of a calendar year plan with a 6-month waiting period and an employee hired on October 1, 2013, and require that that person be offered coverage no later than January 1, 2014, which is 93 days after her start date, because otherwise the plan would be applying, on January 1, 2014, a waiting period that exceeds 90 days.   The Regulations specify, however, that coverage is not required to be made effective before January 1, 2014.
        • The proposed regulations do not provide an example using a fiscal year plan, but presumably the same rule would apply to employees in a waiting period for coverage as of the start of the 2014-2015 fiscal plan year.
      • Notice 2012-59 stated that employers and insurance carriers could rely on its guidance through the end of 2014, and the Proposed Regulations take the position that they are consistent with, and no more restrictive than, the provisions of Notice 2012-59.  Accordingly, compliance with the terms of the Proposed Regulations will constitute compliance with Section 2708 of the PHSA at least through 2014.  If final regulations are more restrictive, they will not take effect prior to January 1, 2015.
      • Applicable large employers must be mindful that compliance with the 90-day waiting period limitation does not insulate them from penalty taxes under employer shared responsibility rules going into effect January 1, 2014.  For instance, a “full-time” employee (30 hours or more/week) who is required to complete 1,000 hours of service to meet plan eligibility rules may qualify for financial aid on a health exchange/marketplace while such eligibility period is met, even if the waiting period which follows does not exceed the 90-day maximum.

One significant change the regulations announce is that the “Certificates of Creditable Coverage” required under Title I of HIPAA will be phased out by 2015, having been made obsolete by the Affordable Care Act’s prohibition on exclusions from coverage due to pre-existing health conditions.  HIPAA limits exclusions from coverage due to a pre-existing condition to a maximum of 12 months (18 months in the case of special enrollment) which periods are reduced, month-for-month, by proof of prior “creditable coverage” under a group or individual health plan or policy.  Such proof takes the form of Certificates of Creditable Coverage.   The Affordable Care Act wholly eliminated the “pre-ex” condition exclusion for dependent children up to age 19 for plan years beginning on or after September 23, 2010, and the exclusion fully will be repealed for group or individual health plans with plan or policy years beginning on or after January 1, 2014.  Elimination of the pre-ex condition exclusion eliminates the need for Certificates of Creditable Coverage.

However, it will remain necessary for employer sponsors of self-funded group health plans, and for insurers, to continue to provide Certificates of Creditable Coverage through to December 31, 2014, to allow individuals joining plans in 2014 that have non-calendar plan years to avoid or reduce application of a pre-existing condition exclusion.  The agencies issuing the Proposed Regulations (IRS, DOL, Health and Human Services) invite public comment about those proposed applicability dates.

 

 

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Filed under 90-Day Waiting Period, Affordable Care Act, Employer Shared Responsibility, Health Care Reform, HIPAA and HITECH, PPACA, Pre-Existing Condition Exclusion

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