California Senate Bill 1034 sponsored by Senator Bill Monning (D-Carmel) would repeal language in the Health & Safety and Insurance Code that currently limits waiting periods under small and large group HMO contracts and health insurance policies to a maximum of 60 days. The new bill, if enacted, would prohibit insurers and HMOs from imposing any waiting or affiliation period under group coverage in the small and large-group markets.
This would allow California employers to follow the Affordable Care Act’s maximum 90-day limit on eligibility waiting periods, recently confirmed in final regulations issued by the Departments of Labor, Treasury and Health and Human Services (the “Departments”). In the preamble to the final regulations, the Departments make clear that state insurance laws may impose more stringent waiting period rules than the federal standard.
I previously wrote about the waiting period rule, found in California Assembly Bill 1083 (also sponsored by Sen. Monning when he was an Assemblymember), and the confusion it created for California employers who originally understood the rule to apply only to small group coverage. AB 1083 was modified by Special Sessions bills SBX 1 2 and ABX 1 2 but the changes did not affect the 60-day cap on waiting periods. AB 1083, as amended, went into affect with respect to plan years on or after January 1, 2014.
One of the most significant disconnects between California law and the ACA in this respect is with regard to substantive eligibility requirements. The federal 90-day waiting period regulations define “waiting period” as the time period that must elapse before coverage begins for an “otherwise eligible” employee, and make it clear that employers may impose substantive eligibility requirements on employees – such as attainment of a certain job level – in order to receive group health coverage. In such instances, the maximum 90-day waiting period would not begin to elapse until the employee first attained the required job level. This dovetails neatly with the common 90-day “introductory” or “orientation” period employers use to gauge whether or not a new employee will work out on a long term basis. Successful completion of the introductory period generally triggers eligibility for a number of employment benefits and not just group health insurance.
By contrast, the California Insurance and Health and Safety Code rules containing the 60-day limit do not reference application of any substantive eligibility criteria and would appear on their face to be triggered at hire. I have counseled clients that state laws governing insurance policies and HMO contracts cannot deprive them of their right as employers to impose substantive eligibility requirements on group health coverage, but none of them welcome the complexity of layering employer-based eligibility rules over rules bolted onto the coverage itself.
The disconnect between the ACA and California law increased as a result of the final waiting period regulations, and a companion proposed regulation, published last month. Specifically, the final regulations recognize a “reasonable and bona fide employment based orientation period” as a permissible substantive eligibility condition, completion of which would trigger the 90-day maximum waiting period. The companion proposed regulation identifies one month as a reasonable orientation period, such that an employer could assess a new hire for 30 days before the 90-day waiting period began to elapse.
SB 1034 is on the radar screen of insurance and HMO regulators in the state for several weeks and, to date, no opposition to the bill has been raised. The California Department of Insurance may or may not register a position on the bill and any opposition raised by the California Department of Managed Health Care generally would not appear until further along in the legislative process. I am tracking the Bill’s progress and will continue to provide updates on its status. If passed, it would go into effect for plan (policy) years beginning January 1, 2015.
UPDATE: It has come to my attention that, notwithstanding the fate of SB 1034, at least one large insurer in California has removed 60-day waiting period language from their large group contracts so that employers in this market can impose the full 90-day waiting period permitted under the Affordable Care Act. Apparently they have interpreted the waiting period language to be binding on carriers but subject to override by the employer purchasing the large group policy. I do not know if this is an isolated instance or a trend but it is welcome news to the many employers in the state in the large group market.∞