Employee Benefits-IRS Provides Guidance On The 90-day Waiting Period Limitation Under The PHS Act

In Notice 2012-59, the Internal Revenue Service (the “IRS”) and other agencies provide guidance (or at least temporary guidance) on the 90-day waiting period limitation imposed under section 2708 of the Public Health Service Act (the “PHS Act”). The IRS says that this guidance will remain in effect at least until the end of 2014.

According to the Notice, PHS Act section 2708 provides that, for plan years beginning on or after January 1, 2014, a group health plan cannot apply any waiting period that exceeds 90 days. Under the Notice, a “waiting period” is the period of time that must pass, with respect to an employee or dependent otherwise eligible to enroll, before coverage can become effective under the plan. In turn, being eligible to enroll means that the employee or dependent has met the plan’s substantive eligibility conditions (such as being in an eligible job classification).

The Notice clarifies the following. If an eligibility requirement consists of an amount of service (e.g., 1000 hours), coverage must begin by the 91st day after the requirement has been met. An eligibility condition, which is based solely on the lapse of a time period, is permissible for no more than 90 days. An eligibility condition cannot be designed to avoid compliance with the 90-day limit. A service requirement exceeding 1,200 is treated as being designed to avoid compliance. Also, if under the terms of the plan, an employee may elect coverage that would begin on a date (the “earliest coverage date”) that does not exceed the 90-day waiting period limit , the 90-day waiting period limit is considered satisfied. Accordingly, the plan will not be considered to have violated the 90-day limit merely because an employee takes additional time to elect coverage. For example, such a plan will not be treated as violating the limit merely because an employee submits an election to be covered after the earliest coverage date, and his or her coverage does not begin until the election has been submitted.

The Notice also: (1) provides guidance for the application of section 2708 to variable hour employees where a specified number of hours of service is an eligibility condition and (2) contains examples illustrating the application of the “designed to avoid compliance with the 90-day waiting period limitation”.