Written by Alden J. Bianchi
So much attention has been paid to the issuance of the final employer shared responsibility regulations that some might have missed the news that final regulations were recently issued under another of the Affordable Care Act’s provisions affecting group health plans—i.e., the ban on waiting periods that exceed 90 days. (For a description of these final regulations and a concurrently issued proposed regulation, please see our client advisory of March 4, 2014). The final employer shared responsibility regulations are discussed in previous posts of February 10, 2014, February 18, 2014, and February 24, 2014.
The focus of this post is a narrow but nevertheless important one: what is the relationship between the permitted 3-month delay in offers of coverage under the Act’s employer shared responsibility rules and the Act’s rules prohibiting waiting periods of more than 90 days?
Final regulations implementing the Act’s employer shared responsibility rules provide two alternative testing methods for determining an employee’s status as a full-time employee: the “monthly measurement method” and the “look-back measurement method.” Under both methods, employers are generally permitted to delay offers of group health plan coverage for three full months without exposure for excise tax penalties. (The rule is actually more liberal, since the offer can in certain instances be delayed until the first day of the month following the completion of three full calendar months.) Moreover, in the case of the look-back measurement method, offers of coverage for certain new hires (i.e., new variable hour, new seasonal, and part-time employees) can be delayed for up to 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.
In contrast, final regulations implementing the 90-day waiting period requirement are quite clear that the standard is 90 contiguous days. The regulators expressly declined to adopt a rule under which three months would be deemed to be the equivalent of 90 days. As a result, compliance with the employer shared responsibility rules does not ensure compliance with the ban on waiting periods longer than 90-days. Indeed, the preamble to the final employer shared responsibility regulations acknowledges this to be the case (79 Fed. Reg. at p 8,546):
“Under the section 4980H final regulations, there are times when an employer will not be subject to an assessable payment with respect to an employee although the employer does not offer coverage to that employee during that time. However, the fact that an employer will not owe an assessable payment under section 4980H for failure to offer coverage during certain periods of time does not, by itself, constitute compliance with [the ban on waiting periods longer than 90-days].”
Employers and plans faired marginally better when it comes to coordination with the look-back measurement method. Under the final 90-day waiting period regulations, the “time period for determining whether a variable-hour employee meets the plan's hours of service per period eligibility condition” will not be considered to be designed to avoid compliance with the 90-day waiting period limitation if coverage is made effective 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. Thus, the final regulation aligns the 90-day waiting period rule with the look-back measurement method. To be clear, however, the first day on which coverage must be offered under the employer shared responsibility rules is the first day on which coverage must be offered under the final 90-day waiting period regulations. The 90-day waiting period does not commence on the first day on which coverage must be offered under the employer shared responsibility rules.