The waiting period rules under the ACA can be complex.
Question: How can an employer offer coverage as of the first day of the fourth full calendar month of employment without violating the ACA 90-day waiting period rules?
Compliance Team Response:
The ACA pay or play rules provide that an ALE will not be subject to any potential §4980H penalties during a “limited non-assessment period.” In most cases, the limited non-assessment period permits the employer to delay offering coverage to a new full-time employee until the first day of the fourth full calendar month of employment. This period may extend longer than 90 days.
Although the ACA 90-day waiting period rule prohibits waiting periods based on elapsed time that are longer than 90 days, employers are still permitted to delay offering coverage until the first day of the fourth full calendar month of employment—even if that is a period of longer than 90 days.
The reason is the ACA 90-day waiting period rules permit employers to impose a bona fide orientation period of one month from the date of hire before the 90-day waiting period begins.
The way this can be structured to coordinate the ACA 90-day waiting period rules with the ACA pay or play limited non-assessment period rules is as follows:
- Employee’s date of hire triggers a one-month bona fide orientation period for eligibility;
- Employee’s completion of the bona fide orientation period triggers the plan’s waiting period;
- The waiting period is structured as 60 days + any remaining days until the first of the calendar month on or after that 60-day period ends.
- 9/22/17: Jane hired
- 9/22/17 – 10/21/17: Jane’s bona fide orientation period (one month)
- 10/22/17 – 12/31/17: Jane’s waiting period (60 days plus remaining days in month)
- 1/1/18: Latest date offer of coverage can be effective to avoid potential pay or play penalties (first day of fourth full calendar month of employment)
This is the only structure that can take advantage of the maximum periods permitted under both the ACA 90-day waiting period rules and the ACA pay or play rules.
29 CFR §2590.715-2708:
(c) Relation to a plan’s eligibility criteria.
(1) In general.
Except as provided in paragraphs (c)(2) and (c)(3) of this section, being otherwise eligible to enroll under the terms of a group health plan means having met the plan’s substantive eligibility conditions (such as, for example, being in an eligible job classification, achieving job-related licensure requirements specified in the plan’s terms, or satisfying a reasonable and bona fide employment-based orientation period). Moreover, except as provided in paragraphs (c)(2) and (c)(3) of this section, nothing in this section requires a plan sponsor to offer coverage to any particular individual or class of individuals (including, for example, part-time employees). Instead, this section prohibits requiring otherwise eligible individuals to wait more than 90 days before coverage is effective. See also section 4980H of the Code and its implementing regulations for an applicable large employer’s shared responsibility to provide health coverage to full-time employees.
(iii) Limitation on orientation periods. To ensure that an orientation period is not used as a subterfuge for the passage of time, or designed to avoid compliance with the 90-day waiting period limitation, an orientation period is permitted only if it does not exceed one month. For this purpose, one month is determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date in a position that is otherwise eligible for coverage. For example, if an employee’s start date in an otherwise eligible position is May 3, the last permitted day of the orientation period is June 2. Similarly, if an employee’s start date in an otherwise eligible position is October 1, the last permitted day of the orientation period is October 31. If there is not a corresponding date in the next calendar month upon adding a calendar month, the last permitted day of the orientation period is the last day of the next calendar month. For example, if the employee’s start date is January 30, the last permitted day of the orientation period is February 28 (or February 29 in a leap year). Similarly, if the employee’s start date is August 31, the last permitted day of the orientation period is September 30.
Example (11) 11 (i) Facts. Employee H begins working full time for Employer Z on October 16. Z sponsors a group health plan, under which full time employees are eligible for coverage after they have successfully completed a bona fide one-month orientation period. H completes the orientation period on November 15.
(ii) Conclusion. In this Example 11, the orientation period is not considered a subterfuge for the passage of time and is not considered to be designed to avoid compliance with the 90-day waiting period limitation. Accordingly, plan coverage for H must begin no later than February 14, which is the 91st day after H completes the orientation period. (If the orientation period was longer than one month, it would be considered to be a subterfuge for the passage of time and designed to avoid compliance with the 90-day waiting period limitation.
About the author
Lead Benefits Counsel
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law. Connect with Brian on LinkedIn.
The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.
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