Introductory Periods Must Be Reconsidered in Light of Insurance Waiting Time Rules

June 24, 2014

Most employers have an “introductory” or “probationary” period for new full-time employees. This period is usually defined as a set period of time following the date of hire, usually 90 days in length, during which a new employee is considered to be on “introductory status” and the employee and the employer get acquainted. During the introductory period, new employees are eligible only for certain benefits, such as Workers’ Compensation insurance and Social Security. Employers usually inform new hires that the period may be extended if the employer determines that the designated 90 days do not allow sufficient time to initially evaluate the employee’s performance. In addition, any significant absence during this period often extends the introductory period by the length of the absence. Upon satisfactory completion of the introductory period, employees become “regular” employees and are entitled to other benefits, such as the right to participate in group health insurance.

What employers need to know, however, is that the rules on providing health coverage have changed and there are now limits on the duration of any waiting period for employer-sponsored health care insurance under both California and federal law. Specifically, California law requires that coverage be made available to eligible employees as of the 60th day of employment; federal law states that any offered coverage apply by the 90th day of employment. All calendar days must be counted, not just business days. Further, the coverage must apply by the specified day, not on the first day of the month following that day as typically offered by insurers. Indeed, if the insurer only allows enrollment as of the first of the month, employers will have to offer coverage as of the first of the month prior to the expiration of the limit. Delays caused by an individual employee’s failure to enroll are not counted.

These laws are directed at insurers, rather than employers, and impose harsh penalties for the failure to comply with the waiting period limitation. Accordingly, most insurers are taking steps to respond to the new rules. In the meantime, the penalty under Insurance Code section 10753.18 for a carrier who fails to comply with California’s 60-day limit is a fine of $2,500 for the first violation and $5,000 for each subsequent violation. Increased penalties apply for knowing violations or violations of a frequency that indicate a general business practice.

Our thanks and reprint from: Kelly Scott | Ervin Cohen & Jessup LLP