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Oct 2012
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October 03, 2012

IRS Puts Limits on 90-Day Waiting Period for Health Plans


Beginning in 2014, employers may not impose a waiting period longer than 90 days for entry into a health plan. Recent guidance explains that this restriction applies not only to a waiting period that begins to run once an individual meets an eligibility rule, but also to an eligibility condition that is based solely on the passage of time.

Under the guidance, issued recently by the IRS, an otherwise eligible employee or dependent must not have a waiting period of more than 90 days before his or her coverage becomes effective. A “waiting period” is “the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective.”

Generally, an individual is eligible for coverage when he or she has met all of the plan’s substantive eligibility conditions. However, the guidance also clarifies that an eligibility rule that is based solely on the passage of time may not exceed 90 days. Thus, rules that delay health plan eligibility for 6 months or 12 months are no longer viable. And while a plan may place other conditions on eligibility, these conditions may not be a subterfuge for getting around the regulations.

Under this guidance, an entry date of the first day of the month following 90 days of employment will be impermissible. But an entry date of the first day of the month following 60 days of employment will work. Also, a plan can tie the first day of coverage to the date on which the employee submits his or her election form, even if in some cases coverage would begin more than 90 days after the individual became eligible. For example, if the plan provides that the individual is eligible on the first day of employment and coverage begins 90 days from the date of election, the rule is valid because coverage could begin by the 90th day of becoming eligible, even if it starts after that because some employees wait a few days to submit their enrollment paperwork.

For part-time employees (those below the 30-hour per week threshold that goes into effect in 2014), a plan can condition eligibility on cumulative hours of service, but only up to 1,200 hours. Once an employee has met the cumulative hours eligibility threshold, he or she could then also be subject to a 90-day waiting period. The existing guidance has not provided any information regarding how the hours of service are counted or whether health plans can borrow the concept of equivalencies from retirement plans.

Some employees work variable hour schedules, where it is difficult to know in advance whether they will be full-time or part-time. In those cases, the plan may have a “measurement period” – up to 12 months – to determine whether the employee is a full-time employee. The employer may also have a waiting period that follows the measurement period, but coverage must begin no later than 13 months from the employee’s start date. If the start date is mid-month, the waiting period may also include time remaining until the first day of the next month.

This new guidance is effective through the end of 2014, at which point it will likely be replaced by new regulations. 

If you have any questions about how this ruling will impact your group health plan or about Health Care Reform generally, please contact  April Goff (agoff@wnj.com or 616.752.2154), Norbert F. Kugele (nkugele@wnj.com or 616.752.186), or any other member of the Warner Norcross & Judd Health Care Reform Task Force or Employee Benefits Group.

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