The Patient Protection and Affordable Care Act (PPACA) provides that for plan years beginning on or after Jan. 1, 2014, a group health plan or health insurance issuer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days. A waiting period is defined by the Public Health Service Act as a “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.”
An employer whose waiting period exceeds 90 days may be subject to penalties under Code 4980H, beginning in 2014, for every month the employer does not offer coverage if any employee obtains coverage through an exchange and is eligible for a premium tax subsidy.
Some employer plans provide that employees will become eligible for insurance coverage on the first of the month after 90 days (or longer). IRS guidance indicates that this plan design is not acceptable as it would typically exceed the 90-day limit. In these circumstances, employers would need to change their eligibility to the first of the month after 60 days or any other shorter waiting period that does not exceed 90 days to avoid penalties.
To comply with this regulation, carriers will offer a maximum waiting period of the first of the month after 60 days. We anticipate this change will be effective on a roll-in basis for plans renewing/beginning on or after January 1, 2014. Shorter waiting periods will continue to be available.
Any employee whose waiting period extends after the renewal date will be subject to the new regulation.
For example: A group has a current waiting period of the first of the month after 90 days, and the plan renewal date is October 1, 2014.
Scenario 1: A newly hired employee becomes eligible for the health plan March 12, 2014; current requirements remain intact and his or her coverage effective date will be July 1, 2014.
Scenario 2: A newly hired employee becomes eligible for the health plan August 10, 2014. Under the current waiting period of the first of the month after 90 days, the employee would have had a coverage effective date of December 1, 2014. When the group renews on October 1, 2014, it changes the waiting period to the first of the month after 60 days to comply with the mandate. Since that new employee is still in the waiting period process, the employee’s coverage effective date would change to November 1, 2014, to comply with the new waiting period of the first of the month after 60 days.
