Aug 4 2014 | Ford Darger
When I try to help my sons assemble toys on Christmas morning, I’m appreciative of the instruction booklets that teach me how to do it properly. Usually there’s a pretty picture on the front of what the toy’s supposed to look like when completed and pages of step-by-step directions for how to get there. Imagine a world where the instructions to build the toy are confusing, written in a different language and only apply to those who have other parts of the toy line in question. That would make building the toy properly a difficult and frustrating process. Guidance can sometimes cause more confusion than help.
I equate this to how provided group health plan could be no longer than 90 days effective with the first plan year in 2014. However, this year, guidance (proposed regulations in February and final regulations in June) came out regarding orientation periods. As a result, many employers are under the impression that these orientation periods can be combined with a 90-day waiting period to create, in essence, a 120-day waiting period.
This is an incorrect interpretation. A plan cannot have a waiting period greater than 90 days. The final regulations regarding the waiting period were released Feb. 20, 2014. 26 CFR 54.9815-2708 states:
a. “General rule. A group health plan and a health insurance issuer offering group health insurance coverage, must not apply any waiting period that exceeds 90 days, in accordance with the rules of this section…
b. Waiting period defined. For purposes of this part, a waiting period is 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 orientation period guidance is confusing, written in a manner that is hard to understand and only helpful to certain types of employers. As such, it’s created even more confusion. The orientation period will really only be beneficial for small employers (who are not subject to the employer mandate), large employers that offer coverage to employee types not required by the employer mandate to be covered (i.e., part-time employees), or large employers with waiting periods of less than 90 days.
The federal rule that a plan’s waiting period cannot exceed 90 days remains. However, the waiting period doesn’t necessarily have to begin on the first day of employment. A waiting period begins after an individual is determined to be otherwise eligible for coverage under the terms of the plan. Examples include achieving job-related licensure requirements, transferring into a benefits-eligible job classification or completing a bona fide employment-based orientation period. Orientation periods:
• Can be up to a maximum period of one month (measured by adding one calendar month to the employment start date and subtracting one day)
• Cannot be used with new variable-hour or seasonal employees who may be placed in a measurement period
• Are periods of time directly after hire used to determine if the employer/employee relationship will work, perform training, etc.
The biggest stumbling block employers face regarding this guidance is how it works with existing requirements under the employer mandate. Under the mandate, an applicable large employer must offer its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan by the first day of the fourth month. Will use of a 30-day orientation period combined with a 90-day waiting period work in that case? Does the employer mandate provide an exception under those circumstances? The answer to both questions is “no.” While employers are free to use a bona fide orientation period with their waiting period, maxing out the length of both will put them squarely at risk of incurring an employer mandate penalty.
As an example of how the waiting period/orientation period and employer mandate should be viewed in tandem, consider the following. A new employee begins employment April 10 in a position that is normally eligible for benefits. The employer can properly impose an orientation period until May 9. The waiting period begins May 9. An applicable large employer would be at risk of an employer mandate penalty if it does not offer coverage to this employee by the first day of the fourth month of employment. Using this example, if the employer imposed a 90-day waiting period beginning on May 9, coverage for this new employee would not begin until Aug. 8. However, to avoid a penalty under the employer mandate, this employee would need to be offered coverage by Aug. 1. The takeaway is that applicable large employers will need to make sure they use waiting period lengths and orientation period lengths that ensure coverage is offered to full-time employees by the first day of the fourth month of employment.