Waiting Period Limits for California Small Group Early Renewals

The following post was published on September 5, 2014 and updated on September 23, 2014.

As we posted a few days ago, some uncertainty remains for California employers regarding eligibility waiting period limits for “late renewal” insured group health plans that follow, most commonly, a December 1 through November 30 cycle.   Many small to mid-sized California employers switched from a calendar year policy cycle to a late renewal cycle in 2013, in an effort to postpone their exposure to increased health premiums resulting from ACA coverage mandates and insurance market reforms taking effect in 2014.

The ACA permits an eligibility waiting period of up to 90 days for plan years beginning on and after January 1, 2014.  California law governing insurers and HMOs restricted the waiting period to 60 days under legislation that very recently has been repealed effective January 1, 2015.  The repeal left open the issue of whether carriers would hold employers renewing late in 2014 to the 60-day waiting period limit.

At least with regard to small group coverage (2 to 50 employees), the original answer to that question appeared to be “yes” for two major carriers in the state whose approach may be a bellwether for other carriers:  Anthem and Blue Shield.   Originally upon announcement of S.B. 1034’s passage, neither would permit a 90-day eligibility waiting period on small group policies or HMO contracts that are renewed or first issued during the remainder of 2014.  The permissible waiting period choices were to have been limited to first of month following date of hire, or first of the month following 30 days from the date of hire.  However Anthem later modified its position in this regard, and will permit employers to request, in writing, a waiting period extension (not to exceed 90 days total) to go into effect as of January 1, 2015.  Blue Shield appears to be sticking to the renewal options listed.

For small group policy renewals and new sales occurring on or after January 1, 2015, the carriers will permit waiting periods equal to 90 days from date of hire, first of month following date of hire, and first of month following 30 days from the date of hire.   One of the carriers may also offer first of month following 60 days, but this is not yet certain.  Another carrier will prorate premiums when the 91st day after hire falls in the middle of the month.

So far these carriers are silent on waiting periods for large group renewals and new sales occurring in the remainder of this year.  Employers in this category likely can establish their own waiting period limits within the overall ACA 90-day cap.

The carriers are permitting the 90-day waiting period limit for individuals whose small group coverage takes effect on or after January 1, 2015.  Therefore, coverage for individuals whose waiting period bridges the end of 2014 and the beginning of 2015 should begin at the end of the waiting period that began in 2014, rather than after “tacking on” additional wait time permitted in 2015.  Although not expressly required by carriers, this would seem to be a logical strategy for large group employers to take with regard to employees whose waiting periods began to elapse at a time when the maximum limit was 60 days, but end after the point at which the employer increased the maximum limit to 90 days.   This would also have the advantage of meeting ACA requirements so long as the total waiting period does not exceed 90 days.

The final regulations on the maximum ACA waiting period state that carriers (technically, “health insurance issuers”) may rely on eligibility information reported by the employer or other plan sponsor, and will not be considered to have violated the ACA waiting period rule in instances where both of the following requirements are met:

• the carrier requires the employer/plan sponsor to disclose the terms of any eligibility conditions or waiting period, and to provide notice of any changes to these rules; and
• the carrier has no specific knowledge of the imposition of a waiting period that would exceed the maximum 90-day period.

Imposing eligibility waiting periods in excess of the ACA 90-day cap other than will trigger excise taxes equal to $100 per day, per impacted plan participant, up to a maximum of $500,000.  Employers and other plan sponsors must voluntarily disclose and pay the tax on IRS Form 8928, Section II.   The excise tax may be abated in whole or in part if the violation was due to reasonable cause and not willful neglect.