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Employment Blog

Most Recent Final ACA Rules Address 90-Day Waiting Period: Getting Your Orientation

Authored by Ruder Ware Attorneys
Posted on July 7, 2014
Filed under Employment

Recently, the Departments of Labor, Health and Human Services, and Treasury, published final rules concerning the so-called "orientation" periods, which implicate the Affordable Care Act's ban on waiting periods exceeding 90 days. The final rules go into effect on August 25, 2014, and are applicable for plan years beginning on or after January 1, 2015.

Pursuant to the final rules, employers are permitted to continue the common practice of implementing introductory employment periods to determine whether new employees are able to handle the duties and challenges of the job, without violating the ACA's prohibition on waiting periods in excess of 90 days. However the introductory period must be a reasonable and bona fide [something that has yet to be clarified, but will be analyzed on a case-by-case basis], employment-based orientation period, and not simply an attempt to evade regulatory obligations.

According to the final rules, available here: http://www.gpo.gov/fdsys/pkg/FR-2014-06-25/pdf/2014-14795.pdf, one-month (sort of-read on) is the maximum allowed length of an employment-based orientation period. The "one-month" period is determined 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. According to the final rules, "if an employee's start date in an otherwise eligible position is May 3, the last permitted day of the orientation period is June 2. If there is not a corresponding date in the next calendar month upon adding a calendar month, the last permitted day of the orientation period is the last day of the next calendar month." This means, "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)." If an employer avails itself of the employment-based orientation period, the maximum, 90-day waiting period "begins on the first day after the orientation period," assuming the employee is otherwise eligible to enroll under the terms of a group health plan [having met the plan's substantive eligibility conditions].

NOTE: Compliance with the permissible orientation period does not determine compliance with Section 4980H of the Internal Revenue Code (which implements the so-called "shared responsibility" rules for applicable large employers). Under the shared responsibility rules, an applicable large employer is subject to penalties if it fails to offer affordable, minimum-value coverage to certain newly hired full-time employees by the first day of the fourth full calendar month of employment. For this reason, an applicable large employer may not be able to impose the full one-month orientation period and the full 90-day waiting period without possibly becoming subject to penalties. For example, if an applicable large employer hires a full-time employee on January 3, but offers coverage on May 2, which includes the "one month" orientation period plus 90 days,the employer may be subject to penalties under Code Section 4980H, because coverage was not provided on May 1 [which is the first day of the fourth full calendar month of employment].

Employers are encouraged to conspicuously preserve "at-will" employment in connection with permissible employment-based orientation periods.