Agencies Finalize Rules that Define How an Orientation Period Works with the 90-day Waiting Period

June 25, 2014

On June 20, 2014, the Departments of Health and Human Services, Labor, and Treasury (“Departments”) released final rules setting forth how an orientation period works with, and impacts, the requirement that employers cannot impose a waiting period of more than 90 days before beginning coverage for an otherwise eligible employee. As this article will simply discuss the operational impact of an orientation period, individuals that are interested in an in-depth discussion of the 90-day waiting period limitation can access our article on that rule by clicking here.
In general, the Patient Protection and Affordable Care Act requires that for plan years beginning on or after January 1, 2014, plan sponsors shall not apply any waiting period that exceeds 90 days. This requirement prevents an otherwise eligible employee (or dependent) from having to wait more than 90 days before coverage becomes effective. Being “otherwise eligible” to enroll in a plan means an individual has met the plan’s substantive eligibility requirements (for example, being in an eligible job classification). One such legitimate requirement specified in the rules is completing a reasonable and bona fide employment-based orientation period. Plans must be compliant with the recently released final regulations (those incorporating the orientation period) beginning with plan years starting on or after January 1, 2015. Until the final rules are applicable, the Departments will consider compliance with the proposed regulations to constitute compliance with the limitation on waiting periods.
Orientation Period
Many employers utilize orientation periods with their workforce as a means of evaluating new hires while also allowing them time to begin an orientation and training process. However, regulators are concerned that employers may use an orientation period as a means of evading the 90-day waiting period limitation. To prevent this from occurring, the final rules provide that an orientation period must be reasonable and bona fide and cannot exceed a maximum period of one month. As such, no orientation period longer than one month is allowed and the 90-day waiting period must begin the day after the orientation period. Employers who violate this rule will be subject to a penalty of $100 per employee per day of violation.
Under the final rules, a one month orientation period is measured by adding one calendar month and subtracting one calendar day from the employee’s start date in a position that is otherwise eligible for coverage. For example, if an employee’s start date in an otherwise eligible position is October 16, the last permitted day of the orientation period is November 15. The 90-day waiting period must commence on November 16 and coverage must begin on February 14, the 91st day after the start of the waiting period.
The final rules emphasize that the measurement of the orientation period is one month – not 30 or 31 days. As such, if there is no corresponding date in the next calendar month when adding a calendar month, the last permitted date of the orientation period is the last day of the next calendar month. For example, if the employee’s start date is January 30, the last permitted day of the orientation period is February 28 (or February 29 in a leap year).
It is important to note that the 90-day waiting period rule is separate and distinct from an applicable large employer’s requirement to offer coverage to its full-time employees no later than the first day of the fourth full calendar month of employment, or potentially face penalties. The addition of the orientation period to the 90-day rule allows applicable large employers the option of aligning their waiting periods with the requirement to offer coverage under the employer mandate. However, employers must carefully plan the timetable of when an otherwise eligible employee is offered coverage and allowed to enroll under the plan, since it is possible that employers that wait the full orientation period and the full 90 days to offer coverage to a full-time employee will violate the employer mandate – specifically, the requirement to offer full-time employees coverage no later than the first day of the fourth full calendar month of employment. For example, if an employee is hired as a full-time employee on January 6, a plan may offer coverage May 1 and comply with both provisions. However, if the employer is an applicable large employer and starts coverage May 6, which is one month plus 90 days after the date of hire, the employer may be subject to a penalty under the employer mandate.
Gallagher Benefit Services, through its compliance experts and consultants, will continue to monitor developments on healthcare reform legislation and regulation and will provide you with relevant updated information as it becomes available. In the interim, please contact your Gallagher Benefit Services Representative with any questions that you may have.

The intent of this analysis is to provide general information regarding the provisions of current healthcare reform legislation and regulation. It does not necessarily fully address all your organization’s specific issues. It should not be construed as, nor is it intended to provide, legal advice. Your organization’s general counsel or an attorney who specializes in this practice area should address questions regarding specific issues.

Our compliments and thanks for this article from our friends at Gallagher Benefits.