Guidance on 90-day Waiting Periods for Group Health Plans

For plan years beginning after December 31, 2013, PPACA generally prohibits both grandfathered and non-grandfathered group health plans from imposing waiting periods greater than 90 days.  The IRS[1] recently released Notice 2012-59 (the “Notice”), which provides guidance about new limitations on the maximum waiting period a group health plan may impose. 

The Notice offers temporary guidance (through at least the end of 2014) regarding good faith compliance with PPACA’s waiting period limitations.  The notice defines a waiting period as a period of time that must pass before an otherwise eligible employee may become covered by the plan. 

Eligibility conditions based solely on the lapse of a time period cannot last more than 90 days.  However, plans may continue to impose other eligibility conditions as long as they are not designed to avoid compliance with PPACA’s 90-day waiting period limitation.  The Notice provided the following examples of plan designs that will satisfy the 90-day waiting period limitation.

(1)  Time prior to employee submission of enrollment forms is not a waiting period.  When a new employee is eligible on his date of hire, but coverage becomes effective on the first day of the pay period after he completes the enrollment materials, the plan satisfies the waiting period limitations.  Under the plan’s terms, the effective date of coverage depends only on the length of time the employee takes to complete the enrollment forms, which is not a waiting period.

(2)  Period of service as an ineligible, part-time employee is not a waiting period.  If a plan limits eligibility to full-time employees and coverage only becomes effective on the first day of the month after an employee satisfies the full-time status requirements, the prior period of part-time employment is not a waiting period.  As long as the plan’s distinction between full-time and part-time status is a bona fide employment-based condition, it does not evidence intent to avoid compliance with the 90-day waiting period limitation.

(3)  Reasonable measurement period permitted for employees with variable schedules.  When a plan limits eligibility to full-time employees who regularly work 30 hours per week, the plan may use a reasonable measurement period to determine whether employees whose scheduled hours vary each week have satisfied the full-time requirement.  A plan’s reasonable measurement period of no more than 12 months demonstrates good faith compliance with the 90-day waiting period limitation.  (See our recent post and Notice 2012-58 for more information about the measurement period and determining full-time employee status.)

(4)  Minimum period of service requirement permitted for part-time employees.  An employer’s plan may also condition eligibility for part-time employees upon the completion of a cumulative number of hours of service (not to exceed 1,200 hours).  As long as part-time employees can become covered by the plan within 90 days after completing the 1,200-hour requirement, the plan satisfies the 90-day waiting period limitations.

Employees who obtain coverage through an exchange during a plan’s permissible waiting period may qualify for premium tax credits and cost-sharing reductions.  Employees may be eligible for those subsidies during the waiting period whether they work full-time, part-time or a variable schedule.

The IRS requested any comments regarding Notice 2012-59 by September 30, 2012.