California has repealed its recent 60-day maximum health plan waiting period rule, thus restoring some equilibrium to the health plan waiting period universe.
The Patient Protection and Affordable Care Act (PPACA, or ACA for short), the federal healthcare reform law, limits the length of a waiting period a health plan may impose on an eligible employee. This federal limit is 90 days, although under recently finalized regulations, plan sponsors may precede the start of the 90-day clock with a one-month “orientation period.” There are other exceptions, too, such as a special rule for employees with variable work hours, and employees whose eligibility depends on them working a specific number (up to 1,200) hours of service, or satisfying other substantive criteria (like earning a certification), in order to gain eligibility for coverage. We’ve most recently addressed the federal rule in the Spring 2014 edition of Compliance News.
Not to be outdone, in 2012 California leapt into the fray and required health insurers and HMOs covering California residents to impose no waiting period greater than 60 days, beginning this year. The California law, Assembly Bill 1083, thus created a disconnect between how health insurers and HMOs were required to administer waiting periods in California, and how insurers and HMOs were operating elsewhere. It also created inconsistency between the way insured plans covering Californians, and self-insured plans (in California and elsewhere), could administer waiting periods, as the ACA’s waiting period rule applies to self-insured health plans, and AB 1083 did not.
These inconsistencies were not extraordinary; health insurance laws vary wildly from state to state, and self-insured ERISA plans have always been permitted to ignore state insurance mandates. Yet, given the 90-day federal rule, AB 1083’s 60-day limit simply seemed largely unnecessary.
The real issue with AB 1083 was that it confused insurers and their employer customers about precisely to what extent the California law could affect the waiting period that the employer/group contract holder wanted to apply. ERISA shields employers from the application of state insurance law against them, meaning that while AB 1083 could apply to insurers and HMOs insuring Californians, it could not apply to the employer/group contract holder.
This left insurers and HMOs operating in California unclear as to what they could allow the employer/group contract holder to do. Some insurers concluded that the employer/group contract holder remained free to impose a waiting period of up to 90 days (the ACA limit), even though the insurer could not reflect such a 90-day waiting period in its group contract.
Ultimately, the California legislature recognized the angst it had created, and repealed the 60-day waiting period limit. The bill repealing the limit, Senate Bill 1034, prohibits insurers and HMOs from imposing any waiting period over and above whatever the plan sponsor imposes, and permits insurers and HMOs to administer a waiting period selected by the employer/group contract holder, as long as the waiting period complies with the ACA.
SB 1034 is effective for policies issued or renewed on or after Jan. 1, 2015. As for 2014, recall that AB 1083 applies to insurers and HMOs, not employers. Some insurers might require the employer to limit any waiting period for 2014 to 60 days, at least for employees in California (and their dependents), by reflecting a maximum 60-day waiting period in the group contract. Other insurers are allowing the employer/group contract holder to decide on the length of the waiting period, and simply not referring in the group contract to any waiting period. The employer must nevertheless comply, of course, with the ACA’s 90-day waiting period maximum.