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What employers need to know about the 90-day healthcare waiting period

Bret BusackerIn February of this year, federal regulators issued joint guidance providing details on the new Affordable Care Act requirement limiting waiting periods for employer health plans to 90 days, known as the 90-day rule.

We have become aware of some confusion as to the application of the 90-day rule. We have seen several examples of small to mid-size employers being required to significantly increase the number of employees they offer coverage to (and, as a result, the cost of their health plan). However, if these employers take a closer look at the new guidance, they may find they have additional options for delaying participation for new hires.

The main confusion about this rule centers around when the 90-day waiting period begins. The 90-day period begins on the date the employee first becomes eligible for the employer’s health plan, but this is not necessarily the date the employee is hired.

Prior to the Affordable Care Act, it was common for an employer to impose a six-month or one- year waiting period on new hires before they became eligible for the employer’s health plan. Such waiting periods can be especially useful for employers with high turnover or as part of probationary employment arrangements. Certainly, a traditional one-year waiting period that applies to all employees will likely violate the 90-day rule, but there are steps an employer may want to consider to mitigate the impact of this rule.

As an initial matter, the 90-day rule does not require employers to offer coverage to all employees. Employers may continue to establish eligibility conditions that must be satisfied before employees become eligible for coverage. These eligibility conditions may limit coverage to certain non-discriminatory classes of employees. For example, an employer could limit coverage to employees in one division and exclude employees in other divisions or an employer could offer coverage to administrative employees but exclude production employees.

In addition, employers may establish an eligibility requirement that employees must work up to 1,200 hours before they become eligible for coverage. For example, if an employer imposes a 1,200 hour eligibility requirement, a new employee working 40 hours per week will not become eligible for about 7 months, at which time the 90-day waiting period will begin. As a result, the employer will be able to exclude new employees for up to 10 months in compliance with this exception to the 90-day rule.

Finally, employers may limit coverage to full-time employees and exclude variable hour and seasonal employees for up to 12 months while they measure whether the employees are full-time or not.

It is important to note that large employers subject to the ACA shared responsibility penalties (employers with 100 or more full-time or full-time equivalent employees beginning in 2015 and employers with 50 or more full-time or full-time equivalent employees beginning in 2016) will generally be subject to shared responsibility penalties if they impose eligibility conditions other

than limiting coverage to full-time employees. For example, a large employer will generally be subject to penalties if it imposes a 1,200 hours of service requirement on full-time employees. However, smaller employers that are not subject to the shared responsibility rules have greater flexibility to exclude full-time and part-time employees in compliance with the exceptions to the 90-day rule.

Bret Busacker, an attorney at Holland and Hart’s Boise office, provides legal services to the firm’s employee-benefits and executive-compensation clients. He can be reached at bfbusacker@hollandhart.com.


About Bret Busacker