Having worked with thousands of businesses, I have seen a great deal of variety in what a typical business may establish for a benefits eligibility waiting period. The benefits eligibility waiting period is the time that a business gives to a new hire before they start administering benefits. They’ve ranged from 1st of the month following the date of hire to another extreme of 1 year of full-time employment. However, the most common waiting period seen in my experience is 1st of the month following 90 days of employment. Most employers can back me up on this.
There are a host of reasons for establishing this length of time, but predominately it is driven by the need for both the employee and the employer to establish the “right fit” for the organization, prior to the business incurring the additional expense and, for business with more than 20 employees, the much longer term commitment of offering COBRA if the relationship fails. Of course, this need is balanced by employees who desire coverage not wanting to wait a significant amount of time prior to their coverage effective date. Higher turnover businesses, such as retail and hospitality, are among those who may more commonly go to 6 months or, in rare cases, 1 year prior to making an employee benefit eligible.
On paper, the new requirement coming from Obamacare and the 90 day waiting period requirement would appear to only impact those businesses that exceeded the 1st of the month following 90 days.
Not so fast…
The Affordable Care Act and subsequent regulations are very specific; the waiting period under Obamacare and hiring new employees cannot exceed 90 days from the date of eligibility to the effective date of coverage. Here is the exact definition of the waiting period from the IRS:
A group health plan and a health insurance issuer offering group coverage may not use a waiting period that exceeds 90 days. A waiting period is the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective. For this purpose, being eligible for coverage means having met the plan’s substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan’s terms).
Those who work in the benefit administration, accounting and/or benefits reconciliation department could describe a host of reasons why the 1st of the month effective dates are critical to reducing the notification, enrollment, and accounting complexities for both current employees and, moreover, for those participating on COBRA. While businesses may have a choice, depending on carrier cooperation, of pro-rating premiums on an employee-by-employee basis each and every month, it is anticipated a vast majority of employers will continue with 1st of the month effective dates.
What does this mean?
In short, those employers not pro-rating premiums on a month-to-month basis on each and every covered employee will have to change their benefit eligibility periods to 1st of the month following 60 days. Arguably recruitment and selection has always been among the most import part of the employment lifecycle, but the cost of losing 30-59 days in the “introductory period” requires further fine tuning of an already notoriously difficult process. While a 1st of the month following 60 days may, depending upon the date of hire, still get a full 90 vetting process, it could also be as short as 60 days.
In many organizations, it takes at least 60 days to know and understand just what the organization does and the role one plays in it. However, that’s hardly enough time for either the employee or the employer to know whether there’s a cultural fit or whether the employee has the prerequisite knowledge, skills, and abilities to perform the essential functions of their job.
While there has been very little mentioned about this provision, the human resources community is going to have to hone their skills. The soft cost of a bad hire is well documented, but often doesn’t contemplate both hard and soft costs associated with offering and administering health insurance, not to mention the costs of offering and administer COBRA when the relationship doesn’t work out.
If you’re looking for more information on Obamacare and the 90 day waiting period, here are a few links from other organizations:
- Guidance on the 90-Day Waiting Period Limitations
- New 90-day waiting period rule for group health plans under health care reform
- 90-Day Rule Guidance Affects Multiemployer Plans
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