Waiting Periods

Important Details:

• The law does not distinguish between part-time and full-time employees, merely eligible ones.
• So long as the employee has the option of electing coverage within the 90-day period, the requirement is met.
• This requirement does not apply to HIPAA excepted benefits.

Variable Hour Employees – Specific Number of Hours per Period Required for Eligibility

A group health plan may condition eligibility on an employee regularly working a specified number of hours per period.  If it cannot be determined that a newly hired employee is reasonably expected to regularly work that number of hours per period (or work full time), the plan may use a measurement period.  Measuring periods are not considered to be waiting periods for purposes of this rule.

Measuring periods may not be used to avoid the 90-day eligibility rule.  The time period for determining whether an employee is full time will not be considered an attempt to avoid the 90-day waiting period limitation if coverage can become effective no later than 13 months from the employee’s date of hire, plus the time remaining until the first day of the next calendar month (if the employee’s start date is not the first day of a calendar month).

On Aug. 30, 2012, the U.S. Internal Revenue Service issued new guidance on how to define a “full-time employee” under the employer responsibility provisions of Patient Protection and Affordable Care Act (PPACA). The Departments of Labor, Health and Human Services, and the Treasury also issued guidance on how the 90-day waiting period limit should be implemented for certain variable-hour employees.

Full-Time Employee

Under the shared responsibility provisions of the PPACA (section 4980H), beginning in 2014, employers with 50 or more full-time or full-time equivalent employees will be required to provide “minimum essential” health care coverage for their full-time employees or pay an annual penalty. Although the statute defines “full-time” employee as one who works an average of at least 30 hours per week in any given month, much uncertainty remains as to how this definition should be calculated and applied, particularly with respect to variable-hour and seasonal employees.

The new guidance, IRS Notice 2012-58, expands on previously issued guidance on this topic and discusses a safe harbor method that employers can apply to newly hired employees. IRS Notice 2011-36 described a lookback/stability period for determining the full-time status of ongoing employees. IRS Notice 2012-17 also outlined a potential process for determining the full-time status of new employees.

The new guidance explains that its intent is to, among other goals, encourage employers to continue to provide (and potentially expand) group health coverage to their employees “by permitting employers to adopt reasonable procedures to determine which employees are full-time employees without becoming liable” for a penalty payment under the “pay or play” PPACA design.

To this end, the new IRS notice expands the safe harbor method for assessing whether or not an employee constitutes a full-time employee as described in the earlier notices and provides other guidance. Specifically, IRS Notice 2012-58 provides the following:

Ongoing employees.  Under the safe harbor method for ongoing employees, an employer determines each ongoing employee’s full-time status by looking back at the standard measurement period (a defined time period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer):

• For an employee whom the employer determines to be a full-time employee during the standard measurement period, the stability period would be a period of at least six consecutive calendar months that is no shorter in duration than the standard measurement period.
• If the employer determines that the employee did not work full-time during the standard measurement period,the employer would be permitted to treat the employee as not a full-time employee during the stability period that follows, but is not longer than, the standard measurement period.

Different categories of employees. Allows employers to use measurement periods and stability periods that differ either in length or in their starting and ending dates for the following categories of employees:

• Collectively bargained employees and non-collectively bargained employees
• Salaried employees and hourly employees
• Employees of different entities
• Employees located in different states

Variable and seasonal employees. Specifically, employers have the option to use a “look back” measurement period of between three and 12 months to determine whether new variable-hour employees or seasonal employees are full-time employees, without being subject to a payment under section 4980H. The stability period for such employees would be the same as for ongoing employees. An employee would be considered a variable-hour employee “if, based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.”

Administrative periods. Provides employers the option to use specified administrative periods of up to 90 days between the measurement period and stability period to determine which ongoing employees are eligible for coverage and to notify and enroll employees. The employer can use an administration period of up to 90 days for new variable-hour and seasonal employees, which may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of their start date.