Final Rule Provides Optional 30 day 'Orientation' Period Before 90 Day Maximum Waiting Period

Employers are allowed to impose "orientation" periods of up to one month before a maximum 90-day waiting period on the start of health care coverage for new employees, under final health care law reform rules.

The rules, issued Friday jointly by the U.S. departments of Health and Human Services, Labor and Treasury, finalize and clarify how such orientation periods would work.  Under the final regulations, the one-month orientation period would be calculated by adding one calendar month and subtracting one calendar day, measured from an employee's starting day.  For example, if an employee's start date is May 3, the last day of the orientation period would be June 2, the agencies said.  The agencies noted that employer orientations are "commonplace" and that they do not question the "reasonableness" of such periods as long as they are short.  "The danger of abuse increases, however, as the length of the period expands.  Accordingly, the final regulations provide that one month is the maximum allowed length of an employment-based orientation period.  The creation of a clear maximum prevents abuse and facilitates compliance," the agencies said.  Definitive statistics are not available on the prevalence of employer orientation periods.  However, few employers impose 90-day waiting periods - the maximum allowed, starting in 2015, under the Patient Protection and Affordable Care Act - before new employees can get coverage.  A 2013 Kaiser Family Foundation survey found an overall average waiting period of 1.8 months, with just 9% of surveyed employers imposing a waiting period of at least four months for newly hired employees.

The new regulations implement part of the "employer shared responsibility" provisions created by the Patient Protection and Affordable Care Act (PPACA).

Section 4980H of the Internal Revenue Code (IRC) now calls for most large and midsize employers to offer "minimum essential coverage" (MEC) to employees. If employers fail to offer MEC, and some workers end up qualifying for Medicaid or for PPACA public exchange plan subsidies through the new PPACA public exchange system, the employers could end up having to pay penalties. An employer can keep a new employee out of the employer coverage mandate calculations during a maximum 90-day waiting period.

The Obama administration has said it wants to start applying the mandate provision to employers with 100 or more employees Jan. 1, 2015. If agencies stick to that schedule, employers with 51 to 99 employees may be able to wait until Jan. 1, 2016, to comply if they agree to abide by transition relief program rules. Midsize employers that want to cut back on health benefits might have to start complying with the mandate in 2015.