Federal Agencies Issue Final Rules Relating to Permissible Orientation Periods Under the ACA

The U.S. departments of the Treasury, Labor and Health and Human Services (the “Departments”) recently released final regulations clarifying the maximum allowed employment-based orientation period consistent with the 90-day waiting period limitation set forth in the Affordable Care Act (ACA).  

For plan years beginning on or after January 1, 2014, the ACA prohibits group health plans from applying a waiting period of more than 90 days.  In February, 2014, the Departments issued final regulations on the 90-day waiting period limitation, along with proposed regulations addressing employee orientation periods.  The proposed regulations provided that requiring an employee to complete a reasonable and bona fide employment-based orientation period in order to become eligible for a group health plan would be permissible if the orientation period does not exceed one month and the maximum 90-day waiting period begins on the first day after the orientation period. 

Under the final regulations, one month is calculated by adding one calendar month and subtracting one calendar day, measured from an 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 June 26, the last permitted day of the orientation period is July 25.  If there is no corresponding date in the next calendar month, the last permitted day of the orientation period is the last day of the next calendar month.  This means that 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). 

Employers subject to the requirements of Internal Revenue Code Section 4980H (often referred to as the “employer mandate”) need to consider how the orientation period rules interact with the employer mandate.  Namely, the orientation period rule does not supersede the rule in the employer mandate regulations requiring an applicable large employer to offer full-time employees affordable minimum coverage by the first day of the fourth full calendar month of employment in order to avoid the employer mandate penalty.  Thus, an applicable large employer will not be able to impose both a full one-month orientation period and a full 90-day waiting period without potentially becoming subject to the employer mandate penalty. 

The newly issued final regulations are effective for plan years beginning on or after January 1, 2015.  Until that date, compliance with the proposed regulations is sufficient.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.