Waiting Period Rules

The Affordable Care Act (ACA) established limits on waiting periods for group health plan coverage. The general rule is that employees who are otherwise eligible for coverage cannot be required to wait more than 90 calendar days before enrollment, but there are exceptions to the rules as well as interaction with the ACA’s §4980H offer of coverage and break-in-service rules. By understanding how these rules work, employers can structure eligibility and waiting period policies that comply with federal requirements and support efficient benefits administration.

Plans Subject to Waiting Period Rule

The ACA waiting period limitation applies to group health plans, regardless of employer size. However, the following types of benefits are excluded from these rules:

• Excepted benefits such as stand-alone dental and vision plans or health flexible spending accounts (FSAs); and
• Non-health benefits such as life insurance, disability coverage or dependent care assistance programs (DCAPs).

While employers may impose longer waiting periods on excepted benefits and other non-group health plan benefits, many employers choose to apply a single waiting period across all benefit programs to simplify administration and avoid confusion on the timing of benefit eligibility.

90-Day Limit

Under ACA regulations, group health plans may not impose a waiting period that exceeds 90 calendar days. A waiting period is defined as the period that must pass before coverage for an employee or dependent who is otherwise eligible for coverage becomes available. The waiting period begins on the first day the employee meets the plan’s eligibility conditions (e.g., date of hire or date of full-time status). All calendar days, including weekends and holidays, must be counted toward the 90-day limit. Coverage must begin no later than the 91st calendar day for those who elect to enroll.

Example 1
On June 19 an employee is promoted to a full-time position that qualifies for coverage. Because eligibility begins on June 19, the waiting period must be measured from that date and coverage must begin no later than September 17 (the 91st calendar day after eligibility begins).

Rule Exceptions

Although the waiting period itself may not exceed 90 days, employers may require employees to satisfy certain conditions before the waiting period begins. In addition, applicable large employers (ALEs) may impose an initial measurement period and administrative period instead of the normal waiting period.

Achievement of Licensure or Certification

A group health plan may condition eligibility for coverage on an employee obtaining a required professional license or certification, provided the requirement is a bona fide employment-based condition that is unrelated to the employee’s health status. In these situations, the employee does not become eligible for coverage until the licensure or certification requirement is satisfied, and the plan’s waiting period of up to 90 calendar days may begin at that point.

This exception can be useful for positions that require professional licensure or certification before an employee may fully perform the duties of the role. However, ALEs should consider how the timing of the licensure requirement may affect their obligation to timely offer coverage under §4980H rules.

Cumulative Hours of Service

Plans may condition eligibility on completion of a specified number of hours of service so long as the requirement does not exceed 1,200 cumulative hours. If a plan uses a cumulative hours requirement, the waiting period of up to 90 calendar days begins after the employee satisfies the hours threshold.

This exception can be useful for employers with variable hour workforces or for employers wanting to extend the time before an offer of coverage is required, but this option is only available to small employers (<50 FTEs) because it would risk §4980H penalties for an ALE.

1-Month Orientation Period

Employers may require a bona fide employment-based orientation period before the waiting period begins. The orientation period allows the employer and employee to evaluate whether the employment relationship is satisfactory and may include training or onboarding activities. The orientation period may last no longer than one calendar month, and then up to a 90 calendar day waiting period could follow.

Example 2
If an employee’s start date is August 25, the orientation period can run through September 24, and the waiting period must begin no later than September 25. If the employer imposes a waiting period of 1st of the month following 60 days, coverage would need to be available on December 1.

This exception is available to small employers (<50 FTEs) and ALEs, but ALEs must also coordinate with §4980H offer of coverage timing requirements.

Look-Back Measurement Method

ALEs can measure full-time status using either the monthly measurement method or the look-back measurement method. For ALEs choosing to use the look-back measurement method, the employer may impose an initial measurement period on employees who are hired as part-time, variable hour or seasonal. Under this approach, the employer averages hours over an initial measurement period of up to 12 months to determine whether the employee averages at least 30 hours per week. If the employee is averages full-time hours during the initial measurement period, coverage must be offered for a corresponding stability period.

The employer’s initial measurement period plus administrative period cannot be more than 13 months plus a partial month after the hire date for employees determined to be full-time, but the combination of the initial measurement period and administrative period essentially replaces the waiting period. NOTE: The employer’s normal waiting period would apply to employees hired into a full-time position. This exception is available only to employees hired as non-full-time.

Example 3
Employer hires a variable hour employee on May 10. The employer applies an initial measurement period beginning on June 1 and ending May 31 of the following year. After the initial measurement period ends, the employer uses a 1-month administrative period and determines the employee averaged full-time hours, so coverage must be available no later than July 1.

§4980H Requirements

ALEs must comply with the waiting period rule and §4980H rules, including break in service rules.

Offer of Medical Coverage

ALEs must offer medical coverage to full-time employees no later than the first day of the fourth full calendar month following an employee’s full-time status to avoid potential penalties. This is longer than the 90-day waiting period limitation, but it limits ALEs’ ability to take advantage of some of the waiting period rule exceptions described above.

Break in Service Rules

Break in service rules determine whether an employee who is rehired or returning from a leave of absence is treated as a continuing employee or a new hire.

• Continuing Employee: If an employee returns to work within <13 weeks (26 weeks for an educational organization), the employee is a continuing employee and a new waiting period or initial measurement period cannot be imposed; instead coverage lost be made available again no later than first of the month following the employee’s return to an eligible position.
• New Hire: If an employee returns to work after 13 weeks or more (26 weeks for an educational organization), the employee is considered a new hire and a new waiting period or initial measurement period may be imposed as applicable.

Other Compliance Considerations

Protected Leaves of Absence

If an employee voluntarily drops coverage or loses coverage due to nonpayment during a protected leave of absence and later returns to work, the employer must allow the employee to re-enroll without a new waiting period, provided the employee returns upon exhausting the protected leave.

Benefit Nondiscrimination Rules

There is some flexibility to impose differing waiting periods for different classes of employees, but more favorable waiting periods for highly compensated or key employees could create compliance issues under §125 cafeteria plan nondiscrimination rules or §105(h) self-insured plan nondiscrimination rules.

Author