Health Care Reform prohibits group health plans, which includes certain Health Reimbursement Account (HRA) and Medical Flexible Spending Account (FSA) Plans, from imposing a waiting period in excess of 90 days. This means that any individual who meets the plan’s eligibility requirements must be given the opportunity to commence coverage on or before the 91st day after the date the individual satisfies the eligibility requirements. Medical FSAs that are excepted benefits* and retiree-only HRAs are exempt from the 90-day waiting period limitation.
The proposed rule was published in March 2013 by the Departments of Treasury, Health and Human Services and Labor and becomes effective for plan years beginning on or after January 1, 2014. On February 24, 2014, the final regulations were issued, along with proposed regulations expanding on orientation periods. These final regulations are applicable for plan years beginning on or after January 1, 2015. However, for 2014, a plan will be in compliance if it complies with either the March 2013 proposed or the February 2014 final regulations.
1. What is a waiting period?
- A waiting period is the period of time that must pass before coverage for an individual who is otherwise eligible to enroll under the terms of the plan can become effective. For late or special enrollees, any time frame before such late or special enrollment is not a waiting period.
2. How are the 90 days calculated?
- All calendar days are counted beginning on the first day of the waiting period, including weekends and holidays.
- If plans have a 90-day waiting period and the 91st day falls on a weekend or a holiday, the employer may make coverage effective either on the weekend, the holiday or previous day.
- Ninety days does not equal three months.
- Employers cannot have a 90-day waiting period with coverage effective the first day of the month following the 90-day waiting period.
- There are special rules for variable hour employees. Some plans require employees to regularly work over a specified time period to be eligible for coverage (e.g., a plan that only covers employees who work 30 or more hours per week). A variable hour employee is an employee who the employer cannot determine at the employee’s start date whether the employee will meet the specified work requirement. For variable employees:
- The plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility conditions.
- This period may include a measurement period not to exceed 12 months.
- For plans that adopt a 12 month measurement period, a variable employee who satisfies the plan’s eligibility requirement must be offered coverage commencing no later than 13 months from the employee’s start date plus, if the employee’s start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month.
- Example: Plan eligibility rule is to cover full-time employees who regularly work 30 hours per week.
- November 26 (year 1): Employee begins work and the hours are expected to vary from 20 to 45 hours per week; the employer cannot determine at start date if the employee meets the full-time definition.
- November 25 (year 2): Employee’s measurement period ends and it is determined that the full-time definition has been met and the employee is eligible for coverage.
- January 1 (year 3): Employee’s first day of coverage begins.
- For those employees who have to complete a number of cumulative hours of service to be eligible to participate in the plan:
- The cumulative hours-of-service requirement cannot exceed 1,200 hours of service and coverage must take effect no later than the 91st day afer the employee reaches 1,200 hours.
- The cumulative hours-of-service requirement must be a one-time eligibility requirement that will not be applied to the same individual each year.
- For those employees who must complete a period in which the employer and employee evaluate whether the employmeht situation is satisfactory and standard orientation and training process begin (“orientation period”):
- It is proposed that the maximum length of the orientation period not exceed one month, which is determined by adding one calendar month from the employee’s start date minus one calendar day. This allows employers to begin the maximum 90-day waiting period on the first day after the orientation period.
- Example: May 3, employee begins employment; June 2, orientation period ends.
- 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.
- Employees who are terminated and rehired can be treated as new employees and thus be subject to a new waiting period. The same applies to employees who transfer from benefit-eligible to non-eligible position and then to eligible positions.**
If the eligibility requirements for your applicable HRA and/or FSA need to be revised to comply with this new ruling, please contact your assigned Client Operations Specialist.
*Generally, a Medical FSA will qualify as an excepted benefit if: (i) all of the participants in the Medical FSA are offered group health care coverage; and (ii) the maximum Medical FSA benefit cannot exceed two times the participant’s salary reduction election (or, if greater, $500 plus the amount of the participant’s salary reduction election). Most Medical FSAs will qualify as an excepted benefit. If you have any questions as to whether your Medical FSA qualifies as an “excepted benefit”, you should consult your attorney.
**As clarified in the final regulations.