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From Health Law Daily, June 24, 2014

One month max for health care eligibility orientation period

By Kathryn S. Beard, JD

Orientation periods for new employees cannot last longer than one month with regard to eligibility for group health coverage, ensuring that coverage can begin no later than one month plus 90 days after the start of employment, under the advance release of a Final rule published jointly by the Internal Revenue Service (IRS), Employee Benefits Security Administration, and CMS. The regulations apply to group health plans and health insurance issuers for plan years beginning on or after January 1, 2015. The Final rule will be published in the Federal Register on June 25, 2014.

Background. Employers that provide health insurance coverage to employees or dependents who are otherwise eligible to enroll under the employer’s group health plan sometimes require a period of time to pass before coverage can become effective, known as a waiting period. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) added section 2708 to the Public Health Service Act (PHS Act) with regard to insured and self-insured group health plans. Section 2708 provides that group health plans or health insurance issuers offering group health insurance coverage cannot apply any waiting period in excess of 90 days to determine eligibility for plan benefits. This requirement applies to both grandfathered and non-grandfathered group health plans and group health insurance coverage for plan years beginning on or after January 1, 2014.

Final rule. The Final rule addresses the role of reasonable and bona fide employment-based orientation periods on Section 2708’s requirements. For individuals to be considered “otherwise eligible to enroll in a plan,” they must have met the plan’s substantive eligibility conditions, such as 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. Once an employee has become “otherwise eligible to enroll in a plan,” the maximum waiting period is 90 days; the 90-day period counts all calendar days, including weekends and holidays, beginning on the enrollment date.

Because orientation periods are commonplace as a precondition to group health plan eligibility, short, bona fide orientation periods will be considered reasonable; however, the federal agencies state that as the length of an orientation period expands, the danger of abuse increases. Therefore, the maximum allowable orientation period prior to eligibility is one month, to ensure that the orientation period is not a subterfuge to ensure the passage of time. The one-month period is determined by adding one calendar month and subtracting one calendar day from the employee’s start date in a position that is otherwise eligible for coverage; 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:

  • Start date: May 3; last date of orientation period: June 2

  • Start date: October 1; last date of orientation period: October 31

  • Start date: January 30; last date of orientation period: February 28 (February 29 in a leap year)

  • Start date: August 31; last date of orientation period: September 30

Relation to employer mandate. Compliance with the ACA’s employer mandate—which subjects applicable large employers to assessable payments for failing to offer affordable minimum value coverage to certain newly-hired full-time employees by the first day of the fourth full calendar month of employment—is not determined by compliance with this Final rule. For example, if an employee is hired by an applicable large employer on January 6, the plan may comply with both provisions by offering coverage May 1; however, if the employer starts coverage on May 6 (one month plus 90 days after the date of hire), the employer may be subject to a penalty for violation of the employer mandate.

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