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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law governing insurers and HMOs restricted the waiting period to 60 days under legislation that very recently has been repealed effective January 1, 2015.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.

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Waiting Period Uncertainty Remains for Some California Employers

Recently enacted California Senate Bill 1034 prohibits California insurers and HMOs from imposing any waiting or affiliation period on group health coverage, other than that imposed by the employer sponsoring the group health plan.  As described in earlier posts, SB 1034 negates the effect of a prior law, AB 1083, that for 2014 imposed a maximum 60-day eligibility waiting period on California group health insurance policies and HMO contracts.   As a result, many California employers with insured group health plans have been foreclosed from using the maximum 90-day eligibility waiting period permitted under the ACA, which went into effect for plan years beginning on and after January 1, 2014.

The repeal under SB 1034 does not go into effect until January 1, 2015.  Employers with calendar year plans/policies that currently are subject to the 60-day limit can make a clean transition to the 90-day maximum waiting period effective January 1, 2015.  However, many employers who chose “early renewal” in 2013 in order to lock in pre-ACA rates for an additional 11 months will start new policy/plan years on December 1, 2014, raising the question of whether carriers will require compliance with the 60-day waiting period limit (a) for the balance of the 2014 calendar year; (b) for the entire 2014-2015 policy year; or (c) not at all, once the 2013-2014 policy year has come to a close.  Early renewal was most prevalent among small group plans, although it also was available to some large employers who were grandfathered into small group coverage. 

In the wake of the repeal measure, the major players in the California group coverage market are taking a cautious approach with regard to transition guidance.  Some carriers stopped enforcing the 60-day waiting period earlier this year when repeal of AB 1083 appeared certain, and logically these carriers would not hold employers to compliance through 2014.  Other carriers that followed the letter of California law in this regard will hopefully announce soon whether they will require compliance through December 31, 2014 or the end of 2014-2015 policy years.   We will post updates as further word from carriers becomes available.

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California Progresses Towards Parity with ACA Waiting Period Rule

Editor’s Note:  Governor Brown signed SB 1034 into law on August 15, 2014.

California Senate Bill 1034, which will remove the 60-day limit on eligibility waiting periods under California insurance and HMO group health contracts earlier mandated by Assembly Bill 1083, is in the late stages of legislative approval in Sacramento. Senate and Assembly Floor and committee votes have been unanimous in the bill’s favor. As discussed in an earlier post, once passed the bill will:
• permit California-licensed carriers and HMOs to administer employer-imposed eligibility waiting periods so long as they do not exceed the ACA’s 90-day limit, and
• prohibit such carriers and HMOs from imposing any separate, additional affiliation or waiting periods.

Pending passage of this bill, it appears that California carriers and HMOs are writing coverage without requiring that employers limit waiting periods to 60 days in accordance with AB 1083 as codified in the California Insurance and Health and Safety Codes. Those provisions went into effect on January 1, 2014 but almost immediately met resistance from brokers and benefit advisors and their clients.

Passage of SB 1034, which is slated to take effect on January 1, 2015, will permit employers with California-issued or renewed group health coverage to simply follow the ACA’s 90-day maximum limit on eligibility waiting periods (which apply to all employers, not just “applicable large employers” with 50 or more full-time employees, counting full-time equivalents). This will simplify these employers’ lives in number of ways:

• It will remove any doubts that they may impose “substantive” eligibility requirements such as licensure or attainment of a job level (e.g., assistant manager or higher), separate and apart from the 90-day waiting period, provided that the substantive requirement is not designed to avoid compliance with the 90-day limit. The federal waiting period regulations make it quite clear that this is permitted, but the separate California waiting period rules introduced a measure of uncertainty. That will no longer be the case.
• It will permit ALEs to use a “limited non-assessment period” of up to three full calendar months after hiring a full-time employee, such that an offer of coverage can be postponed until the first day of the fourth full calendar month after hire.

On this last point, the final ACA 90-day waiting period regulations state that a 3-month period cannot be substituted for 90-days. However, separate regulations were proposed, and finalized, that permit employers to impose a bona fide and employment-based orientation period of up to one month, beginning immediately after hire or after transfer to a new, benefitted job position. After the one month orientation period is up, the eligibility waiting period of up to 90 days would begin to elapse. Therefore, if properly administered, the orientation period may be combined with the 90-day waiting /limited non-assessment period to cover the entire period between the date of hire, and the first day of the fourth full month after hire.

Note in this regard that the orientation period cannot simply be an arbitrary stretch of time but instead must be used for the new hire/transfer and the employer to evaluate each other, and for the new hire/transfer to undergo orientation and training for his or her position. There are other implementation details to be aware of, and employers should get expert benefit advice in order to ensure compliance with these brand new rules.

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.

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California’s 60-Day Cap on Eligibility Waiting Periods

California Assembly Bill 1083 (chaptered September 30, 2012) brings California law governing group health insurance products and HMOs, into conformity with insurance market reforms and other provisions of the Affordable Care Act.

AB 1083 varies in some respects from the ACA.  Perhaps the most notable difference is in the maximum eligibility waiting period for group health plan participation, which the ACA sets as no more than 90 days after the date on which an individual satisfies all requirements for eligibility (which occur upon hire).

AB 1083 imposes a shorter maximum waiting period not to exceed 60 days, with regard to group health insurance policy or HMO contract years beginning on or after January 1, 2014.

At first it was believed that this rule applied only to group policies or HMO contracts for small employers, with “small” defined as having at least 1 but no more than 50 eligible employees (i.e., 30 or more hours per week) on at least 50% of work days during the preceding calendar quarter or calendar year.  (In California this definition of small employer applies for 2014 and 2015, after which the eligible employee limit increases to 100.)

However, a close reading of AB 1083 reveals that the language setting forth the maximum 60-day limit on waiting periods is not confined to the provisions applicable to small group products.

Specifically, AB 1083 includes the 60-day limit in portions of the bill that amend and replace subsections of Health and Safety Code § 1357.51 and Insurance Code § 10198.7.  Neither of those code sections are limited to small group products, and they each currently permit a 60-day waiting period to be imposed under policies and contracts that impose no pre-existing condition exclusions.  Given that the ACA prohibits pre-existing condition exclusions for plan years beginning on or after January 1, 2014, the California Departments of Insurance and Managed Health Care appear to have viewed this as an opportunity to make the 60-day maximum limit generally applicable to all group coverage, rather than expand prior California law to permit the longer waiting period that the ACA allows.

The new provisions setting forth the 60-day limit take effect January 1, 2014 and will be applied to “plan” years beginning on or after that date.  AB 1083 defines “plan year” in the same way as HHS regulations  — as the year that is designated as the plan year in any applicable group health plan documentation.  In the absence of self-standing group health plan documentation (as is often the case with fully insured group health plans), the plan year is the annual cycle on which deductible amounts or other dollar limitations renew.  In the absence of any annual deductibles or limits under the plan, the plan year is the policy year that is designated in policy documentation.

AB 1083 states that the maximum 60-day waiting period is available if it is “applied equally to all eligible employees and dependents,” and if it is “consistent with PPACA.”  This last phrase is the source of some confusion.  Because the PPACA allows waiting period that do not exceed 90 days, the shorter waiting period under AB 1083 is “consistent” with the ACA.  Similarly, a state law that banned waiting periods of any length would likely be determined to be “consistent” with the ACA’s outside limit of 90 days.

As of the date of this post, I have not seen any formal written guidance from the California Department of Insurance or the Department of Managed Health Care, confirming application of the 60-day waiting limit to large group products.  However I have reviewed email forwarded from the DMHC and from a large carrier in the state, both indicating that the maximum 60-day limit would apply in the large and small group markets in California, with the carrier further stating that it would be applied as of renewals on or after January 1, 2014 (rather than as a “hard deadline” on 1/1).

Note:  It is not out of the question that the California Departments of Insurance and Managed Health Care (the “agencies”) could back away from this interpretation of AB 1083 and declare that large group products remain subject only to the maximum 90-day waiting period under the ACA.  Any such retrenchment would likely be the result of pressure from the business sector rather rather than a wholly voluntary change by the agencies.  If there are any developments along these lines I will update this post accordingly.

Please note in this regard that both the California 60-day limit, and the 90-day limit under the ACA, are maximum consecutive day limits, such that employers may not delay enrollment until “first of month following” attainment of the 60 or 90 day anniversary of the date on which an individual meets all eligibililty requirements (which may be the date of hire).  As a consequence, many California employers are using first of month following 30 days after hire as the enrollment deadline, as a way to permit timely enrollment for all eligible employees at the beginning of a coverage month.

Please also note that AB 1083’s maximum limit on waiting periods applies to group insurance policies and HMOs that are grandfathered, or non-grandfathered, under the ACA.  Self-funded employers are not subject to California’s Insurance or Health and Safety Codes, hence may impose a maximum 90-day waiting period under their plans.

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New Rules on 90-Day Waiting Period Limitation Announce End of “Certificates of Creditable Coverage”

Proposed Regulations published in the Federal Register on March 25, 2013 explain how the maximum 90-day limitation on waiting periods will operate under employer-sponsored group health and insured individual health plans, beginning January 1, 2014.   The rules, set forth in Section 2708 of the Public Health Service Act (PHSA), apply to insured and self-funded group health plans, and to individual insured coverage, and apply equally to grandfathered and non-grandfathered plans.

The Proposed Regulations on waiting periods is consistent with earlier guidance issued in the form of IRS Notice 2012-19, which I summarized, in FAQ format, in this earlier post.   For your convenience, however, the key provisions of the regulations are set forth below:

  • The Proposed Regulations define a waiting period consistent with prior HIPAA regulations, as “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.”
  • Once eligibility requirements are met, coverage must begin once 90 calendar days, including weekend and holiday days, have elapsed.  If the 91st day falls on a weekend or holiday, the carrier or plan sponsor may elect to have coverage to be effective earlier than the 91st day, for administrative convenience, but may not delay coverage past the 91st day.
    • This means that the popular eligibility provision under which coverage begins 90 days after the first day of the first month following the date of hire is no longer permissible.  The new safe harbor is to ensure that coverage begins no later than 60 days after the first day of the first month following the date of hire.
    • As was described in Notice 2012-59, an employer or issuer has fulfilled the 90-day waiting period limitation so long as an employee can elect to begin coverage no later than 90 days after satisfying eligibility criteria, even if the employee is late in completing and submitting enrollment materials.
      • The Proposed Regulations describe, as permissible, language calling for coverage to begin “on the first day of the first payroll period on or after the date an employee is hired and completes the applicable enrollment forms,” provided that enrollment materials are provided to the employee on his or her start date and can reasonable be completed within 90 days.
      • In provisions mainly applicable to group health plans, whether self-funded or insured, a plan may impose eligibility criteria such as completion of a period of days of service (which may not exceed 90 days), attainment of a specific job category, or other criteria, so long as they have not been designed to avoid compliance with the 90-day waiting period.
        • As an example, a plan provides coverage only to employees with the title of sales associate.  Sarah is hired on October 17, 2014 as a junior sales associate.  On April 3, 2015, she is promoted to sales associate.  She must be offered coverage no later than July 3, 2015.
        • When a plan conditions eligibility on a cumulative service requirement, such as completion of a set number of hours of service, the hours-of-service requirement must not exceed 1,200.
        • When a “variable hour” or seasonal employee is hired – i.e., someone who cannot be classified as full-time (30 or more hours per week) or part-time, an employer is allowed to classify the employee as full-time (or not full time) over a measurement period not to exceed 12 months, consistent with proposed regulations on employer shared responsibility duties.   If the employee is determined to be full-time at the end of the measurement period, an employer will be deemed to have met the 90-day waiting period limitation period if the employee enters the plan no later than 13 months from the employee’s start date, plus the time remaining until the first day of the next calendar month (in instances when the employee’ start date is not the first day of a month).
      • The Proposed Regulations are effective for plan years beginning on or after January 1, 2014, however elimination of the requirement to provide Certificates of Creditable Coverage has a later effective date of January 1, 2015, as discussed below.
        • For employees who are in a waiting period for coverage when the Proposed Regulations go into effect on January 1, 2014 , the 90-day maximum period is applied to the entire waiting period, including time “served” prior to January 1, 2014.  The Regulations use an example of a calendar year plan with a 6-month waiting period and an employee hired on October 1, 2013, and require that that person be offered coverage no later than January 1, 2014, which is 93 days after her start date, because otherwise the plan would be applying, on January 1, 2014, a waiting period that exceeds 90 days.   The Regulations specify, however, that coverage is not required to be made effective before January 1, 2014.
        • The proposed regulations do not provide an example using a fiscal year plan, but presumably the same rule would apply to employees in a waiting period for coverage as of the start of the 2014-2015 fiscal plan year.
      • Notice 2012-59 stated that employers and insurance carriers could rely on its guidance through the end of 2014, and the Proposed Regulations take the position that they are consistent with, and no more restrictive than, the provisions of Notice 2012-59.  Accordingly, compliance with the terms of the Proposed Regulations will constitute compliance with Section 2708 of the PHSA at least through 2014.  If final regulations are more restrictive, they will not take effect prior to January 1, 2015.
      • Applicable large employers must be mindful that compliance with the 90-day waiting period limitation does not insulate them from penalty taxes under employer shared responsibility rules going into effect January 1, 2014.  For instance, a “full-time” employee (30 hours or more/week) who is required to complete 1,000 hours of service to meet plan eligibility rules may qualify for financial aid on a health exchange/marketplace while such eligibility period is met, even if the waiting period which follows does not exceed the 90-day maximum.

One significant change the regulations announce is that the “Certificates of Creditable Coverage” required under Title I of HIPAA will be phased out by 2015, having been made obsolete by the Affordable Care Act’s prohibition on exclusions from coverage due to pre-existing health conditions.  HIPAA limits exclusions from coverage due to a pre-existing condition to a maximum of 12 months (18 months in the case of special enrollment) which periods are reduced, month-for-month, by proof of prior “creditable coverage” under a group or individual health plan or policy.  Such proof takes the form of Certificates of Creditable Coverage.   The Affordable Care Act wholly eliminated the “pre-ex” condition exclusion for dependent children up to age 19 for plan years beginning on or after September 23, 2010, and the exclusion fully will be repealed for group or individual health plans with plan or policy years beginning on or after January 1, 2014.  Elimination of the pre-ex condition exclusion eliminates the need for Certificates of Creditable Coverage.

However, it will remain necessary for employer sponsors of self-funded group health plans, and for insurers, to continue to provide Certificates of Creditable Coverage through to December 31, 2014, to allow individuals joining plans in 2014 that have non-calendar plan years to avoid or reduce application of a pre-existing condition exclusion.  The agencies issuing the Proposed Regulations (IRS, DOL, Health and Human Services) invite public comment about those proposed applicability dates.