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Implementing Health Reform: Waiting Periods And Enforcement Of Market Reforms



March 19th, 2013
by Timothy Jost

On March 18, 2013, Gary Cohen, the Director of the Office of Consumer Information and Insurance Oversight, stated on a national stakeholder call that most of the final rules needed to implement the Affordable Care Act 2014 insurance reforms are now in place.  HHS is now in the final stages of ACA implementation, and it is moving forward.

Cohen, joined by Cindy Mann, Director of the Center for Medicaid and CHIP Services, and Julie Bataille, Director of the Office of Communications, laid out the final steps that must be taken before the exchanges open their doors on October 1.  They also introduced two new HHS websites that join HealthCare.gov, the HHS consumer information portal that has been in operation for nearly three years.  These are Marketplace.cms.gov, where tools and resources are available to assist those who will help Americans apply, enroll, and get coverage through the exchanges, and the Open Door Forum Page, where the states and other stakeholders can engage with HHS with respect to health care reform.  A call center will also go live in June to respond to questions about the 2014 reforms.

While most of the major rules are now out, there are still odds and ends to tidy up.  On March 18, 2013, the implementing agencies (Labor, Treasury, and HHS) issued a proposed regulation that will implement ACA’s ninety-day waiting period limitation and make technical amendments to other regulations.  The proposed regulation also fixes older regulations implementing the 1996 Health Insurance Portability and Accountability Act, which had limited the use of pre-existing conditions clauses.  With a total ban on pre-existing condition clauses effective January 1, 2014, these regulations have become obsolete.

In addition, the proposed regulation amends examples found in the earlier regulations to recognize other changes brought about by the ACA, such as elimination of lifetime and annual limits.  The proposed rule further clarifies that multi-state plans are subject to the federal external review process for claims that are subject to external review under the federal rules.

Prohibiting Waiting Periods Longer Than 90 Days

The primary purpose of the proposed rule, however, is to implement the 90-day waiting period limitation of the ACA.  Public Health Service Act section 2708, added by the ACA and incorporated into the Employee Retirement Income Security Act (ERISA), prohibits insured and self-insured group health plans from imposing a waiting period that exceeds 90 days before coverage can begin for eligible group members.  Waiting periods are common in group health plans.  The preamble notes that about 400 thousand of the 5.1 million new employees who receive group health coverage annually are subject to waiting periods of four months or more.

The Affordable Care Act does not, of course, require employers to offer health insurance (although large employers who fail to do so may be subject to a penalty if their employees receive premium tax credits to purchase individual insurance).  It also does not require employers to cover part-time employees, nor does it prohibit non-temporal conditions of coverage as long as they are not designed to avoid compliance with the 90-day waiting period requirement.  The proposed rule defines a waiting period and clarifies when conditions of coverage would be barred by the 90-day waiting period prohibition.

The proposed rule follows on Guidance issued in 2012 on the waiting period requirement and contains no surprises.  Conditions based solely on the lapse of a time period before an employee or dependent becomes eligible for group health coverage cannot exceed 90 days.  This requirement is absolute — the period cannot be extended past 90 days because the 90th day falls on a weekend or holiday and is not synonymous with three months.  The prohibition does not mean, however, that an employee cannot take more than 90 days to sign up for coverage, as long as the employee could have begun coverage after 90 days.  If an employee or dependent enrolls as a late enrollee or during a special enrollment period, the period before enrollment is not a waiting period.

The 90-day waiting period limitation does not bar other eligibility criteria, such as being in an eligible job classification or achieving job-related licensure requirements.  Neither does it require employers to offer coverage to any particular class of employees.  The prohibition does not bar one-time cumulative hours of service requirements, as long as they do not exceed 1200 hours.  The running of the 90-day waiting period may be delayed until a cumulative hours-of-service requirement has been met.  The preamble notes that the 90-day limit does not bar hour-banking arrangements in multi-employer plans or buy-in arrangements where employees may pay part of the cost of insurance when they do not have enough hours in a pay period to qualify for full coverage.  Insurers may rely on representations of employers as to eligibility information provided by employers as long as they have no specific knowledge that a waiting period in excess of 90 days is being imposed.

Variable-hour employees.  Special considerations are presented by variable hour employees — situations where it is not clear at the time of hiring whether an employee will be a part-time or full-time employee and only full-time employees are covered by a group plan.  The employer responsibility regulations, discussed in an earlier post, contains a complex scheme for determining the status of a variable-hour employee using measurement periods (during which hours of service are tracked) followed by stability periods (during which the status determined during the measuring period applies).

The waiting-period proposal provides that a plan may apply a measuring period of up to 12 months — beginning on any date between the employee’s start date and the first day of the first calendar month following the start date — to determine whether the employee meets plan eligibility conditions.  Coverage for an employee determined to be eligible must become effective, however, no later than 13 months from the employee’s start date plus, if the employee’s start date is not the first date of a calendar month, the time remaining until the first day of the next calendar month.

The Federal Role In Enforcing The ACA’s Market Reforms

In a final development, HHS has given notice that it will be enforcing the health insurance market reforms in at least four states.  Primary responsibility for enforcing the insurance reforms of the ACA resides in the states.  If a state lacks authority to enforce the reforms, however, or if HHS determines that a state is not substantially enforcing a reform, HHS can take direct enforcement action.  Under the Public Health Services Act, HHS can impose penalties on insurers of up to $100 per day for each individual to whom a violation applies.

HHS intends to work collaboratively with states that lack enforcement authority but that are willing and able to perform regulatory functions.  These states will attempt to obtain compliance voluntarily, but will refer a matter to HHS for enforcement if voluntary compliance is not attained.  In states that do not have enforcement authority and are not willing to enter into a collaborative arrangement, HHS will enforce the ACA directly.  As of March 1, 2013, HHS has determined that this will be the case in Missouri, Oklahoma, Texas, and Wyoming.

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