By Larry Grudzien Attorney-At-Law
On June 20, 2014, the Departments of Labor (DOL), Health and Human
Services (HHS) and the Treasury (the Departments) released new final
regulations on application of the 30-day orientation period under the 90-day
waiting period limit. On February 20, 2014, the Departments had published
proposed regulations to address orientation periods under the 90-day waiting
period limitation of PHS Act section 2708 when the final regulations on the
90-day waiting period were published. The following summarizes the provisions
of these final regulations. The final regulations contain several
clarifications.
The Proposed Regulations
The proposed regulations had provided that one month would be the
maximum allowed length of any reasonable and bona fide employment-based
orientation period. The Departments stated that, during an orientation period,
they envisioned that an employer and employee could evaluate whether the
employment situation was satisfactory for each party, and standard orientation
and training processes would begin. Under the proposed regulations, if a group
health plan conditions eligibility on an employee's having completed a
reasonable and bona fide employment-based orientation period, the eligibility
condition would not be considered to be designed to avoid compliance with the
90-day waiting period limitation if the orientation period did not exceed one
month and the maximum 90-day waiting period would begin on the first day after
the orientation period.
The Final Regulations
The final regulations continue to provide that one month is the
maximum allowed length of an employment-based orientation period. For any
period longer than one month that precedes a waiting period, the Departments
refer back to the general rule, which provides that the 90-day period begins
after an individual is otherwise eligible to enroll under the terms of a group
health plan. While a plan may impose substantive eligibility criteria, such as
requiring the worker to fit within an eligible job classification or to achieve
job-related licensure requirements, it may not impose conditions that are mere
subterfuges for the passage of time.
These final regulations provide that the one month period would be
determined by adding one calendar month and subtracting one calendar day, measured
from an employee's start date in a position that is otherwise eligible for
coverage. For example, if an employee's start date in an otherwise eligible
position is May 3, the last permitted day of the orientation period is June
2. Similarly, if an employee's start date in an otherwise eligible
position is October 1, the last permitted day of the orientation period is
October 31.
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, if the employee's
start date is January 30, the last permitted day of the orientation period is
February 28 (or February 29 in a leap year). Similarly, if the employee's start
date is August 31, the last permitted day of the orientation period is
September 30.
The final regulations continue to provide that if a group health
plan conditions eligibility on an employee's having completed a reasonable and
bona fide employment-based orientation period, the eligibility condition is not
considered to be designed to avoid compliance with the 90-day waiting period
limitation if the orientation period does not exceed one month and the maximum
90-day waiting period begins on the first day after the orientation period.
But compliance with these final regulations is not determinative
of compliance with Section 4980H of the Code (employer mandate), under which an
applicable large employer may be subject to an assessable payment if it fails 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.
For example, an applicable large employer that has a one-month
orientation period may comply with both PHS Act section 2708 and Code section
4980H by offering coverage no later than the first day of the fourth full
calendar month of employment. However, an applicable large employer plan may
not be able to impose the full one-month orientation period and the full 90-day
waiting period without potentially becoming subject to an assessable payment
under Code section 4980H.
For example, if an employee is hired as a full-time employee on
January 6, a plan may offer coverage May 1 and comply with both provisions.
However, if the employer is an applicable large employer and starts coverage
May 6, which is one month plus 90 days after date of hire, the employer may be
subject to an assessable payment under Code section 4980H.
Effective Date
These final regulations apply to group health plans and health
insurance issuers for plan years beginning on or after January 1, 2015.
Until these final rules are applicable, as stated in the preamble to the
proposed rules, the Departments will consider compliance with the proposed
regulations to constitute compliance with PHS Act section 2708.
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