Employee Benefits-EBSA Provides Guidance on ACA Exchange Notice and 90-Day Waiting Period Limit

In FAQs about the Affordable Care Act Implementation Part XVI, the Employee Benefits Security Administration (the “EBSA”) provides guidance on two provisions of the Affordable Care Act (the “ACA”): (1) the notice about the ACA Insurance Exchanges to be provided to employees and (2) the 90-day limit on waiting periods for health care plans. Here is what the EBSA said:

Exchange Notices

Section 18B of the Fair Labor Standards Act (the “FLSA”), as added by section 1512 of the ACA, generally provides that, in accordance with regulations promulgated by the Secretary of Labor, employers must provide each employee notice of coverage options available through a Health Insurance Marketplace (also referred to as an “Exchange”). On May 8, 2013, the Department of Labor issued Technical Release 2013-02 providing temporary guidance on FLSA section 18B, as well as model notices.

An employer will have satisfied its obligation to provide the notice with respect to an individual if another party-such as the insurer, multiemployer plan or third party administrator- provides a timely and complete notice. The Department of Labor notes that, as explained in Technical Release 2013-02, FLSA section 18B requires employers to provide notice to all employees, regardless of whether an employee is enrolled in, or eligible for, coverage under a group health plan. Accordingly, an employer is not relieved of its statutory obligation to provide notice under FLSA section 18B if another entity sends the notice to only participants enrolled in the plan, if some employees are not enrolled in the plan.

When providing notices on behalf of employers, multiemployer plans, issuers, and third party administrators should take proper steps to ensure that a notice is provided to all employees regardless of plan enrollment, or communicate clearly to employers that the plan, issuer, or third party administrator will provide notice only to a subset of employees (e.g., employees enrolled in the plan) and advise of the residual obligations of employers with respect to other employees (e.g., employees who are not enrolled in the plan).

90-day Waiting Period Limitation

PHS Act section 2708 provides that a group health plan may not apply any waiting period for the plan that exceeds 90 days. Section 2704(b)(4) of the PHS Act, section 701(b)(4) of ERISA, and section 9801(b)(4) of the Internal Revenue Code define a waiting period to be the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan. Proposed regulations on the 90-day waiting period limit were issued on March 21, 2013.

The proposed regulations generally provide that a group health plan may not impose a waiting period that exceeds 90 days. The proposed rules also provide that a waiting period is the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective. For this purpose, being otherwise eligible to enroll in a plan generally means having met the plan’s substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan’s terms). However, eligibility conditions based solely on the lapse of time are permissible for no more than 90 days. Other conditions for eligibility under a plan are generally permissible unless the condition is designed to avoid compliance with the 90-day waiting period limitation. The proposed regulations provide several illustrations of how to apply this rule.

Compliance with the proposed rules will be treated by the applicable government Departments (the Departments of Labor, Health and Human Services and the Treasury) as compliance with PHS Act section 2708 at least through 2014. To the extent final regulations are more restrictive on plans than the proposed regulations, they will not be effective prior to January 1, 2015 and the Departments expect they will give plans sufficient time to comply.

Under the proposed rules, to the extent plans impose substantive eligibility requirements not based solely on the lapse of time, these eligibility provisions are permitted if they are not designed to avoid compliance with the 90-day waiting period limitation. Therefore, for example, if a multiemployer plan operating pursuant to an arms-length collective bargaining agreement has an eligibility provision that allows employees to become eligible for coverage by working hours of covered employment across multiple contributing employers (which often aggregates hours by calendar quarter and then permits coverage to extend for the next full calendar quarter, regardless of whether an employee has terminated employment), the Departments would consider that provision designed to accommodate a unique operating structure (and, therefore, not designed to avoid compliance with the 90-day waiting period limitation).