The Internal Revenue Service (the “IRS”) through the Treasury Department, along with the Department of Labor and Department of Health and Human Services (together, the “Departments”), have issued final regulations implementing the 90-day waiting period limit for group health plans-including multiemployer health plans-under the Affordable Care Act. Under this limit, a group health plan cannot impose a waiting period for health care coverage to begin that exceeds 90 days, and cannot use provisions designed to avoid this requirement. This limit generally applies for plan years beginning after 2013. Except as otherwise stated in the final regulations or its preamble, the final regulations apply in plan years starting after 2014.
Issues have arisen as to how the 90-day waiting period limit applies to multiemployer health plans, and whether certain provisions in these plans will be treated as being designed to avoid the limit. The preamble to the final regulations says the following:
In the preamble to the proposed regulations, the Departments recognized that multiemployer health plans maintained pursuant to collective bargaining agreements have unique operating structures and may include different eligibility conditions based on the participating employer’s industry or the employee’s occupation. For example, some multiemployer plans determine eligibility based on complex formulas for earnings and residuals or use “hours banks” in which workers’ excess hours from one measurement period are credited against any shortage of hours in a succeeding measurement period, functioning as buy-in provisions to prevent lapses in coverage. Owing to the nature of the bargaining process, the multiemployer health plans often have detailed and coordinated eligibility provisions (some requiring aggregation of data from multiple contributing employers), and the unique operating structure of these plans often allows for continued coverage after an employee’s employment terminates (or after an employee’s hours are reduced) until the end of the quarter.
On September 4, 2013, the Departments issued a set of frequently asked questions (“FAQs”) pertaining, in part, to the 90-day waiting period limit. These FAQs stated that, 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. See FAQs about Affordable Care Act Implementation (Part XVI), Q2. The FAQs further provide that, 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).
The final regulations include the following example, consistent with this FAQ:
Example 9. (i) Facts. A multiemployer health plan operating pursuant to an arms-length collective bargaining agreement has an eligibility provision that allows employees to become eligible for coverage by working a specified number of hours of covered employment for multiple contributing employers. The plan aggregates hours in a calendar quarter and then, if enough hours are earned, coverage begins the first day of the next calendar quarter. The plan also permits coverage to extend for the next full calendar quarter, regardless of whether an employee’s employment has terminated.
(ii) Conclusion. In this Example 9, these eligibility provisions are designed to accommodate a unique operating structure, and, therefore, are not considered to be designed to avoid compliance with the 90-day waiting period limitation, and the plan complies with this section.
Blogger’s Point: This guidance specifically allows a multiemployer health plan to determine eligibility for health care coverage by counting hours, from different employers, over a quarterly period, and then-if enough hours are credited- starting and continuing the coverage for the entire next quarterly period. Similar provisions should be permissible, due to the plan’s operating structure, particularly, where the provision has been in existence for many years prior to the effective date of the 90-day limit, and where the provision reflects the need for the plan administrators to have time to count hours or other periods of service and determine who has coverage.