Smart Answers

Obamacare Means Employers Must Offer Coverage Sooner


Question: Our company has always paid for an employee’s insurance after six months of employment. Under Obamacare, we were told we must offer it after 90 days. Now we are being told we must insure before the 90 days, as no employee can be uninsured for more than 90 days. So if an employee was hired on Oct. 26, we must offer insurance as of Jan. 1 instead of Feb. 1. Is this correct?

Answer: The Affordable Care Act established a rule that prohibits what it calls “excessive waiting periods” for insurance coverage. The rule, which goes into effect on Jan. 1, 2014, says that insurance companies and employers that offer group health plans cannot make eligible individuals wait more than 90 days to get health coverage. It applies to both grandfathered and non-grandfathered plans, meaning that your company must comply even if your group policy has been in place for a number of years and is not changing otherwise.

“This doesn’t affect all that many companies, because most already cover their employees within 90 days or less” of their being hired, says John L. Barlament, a partner specializing in health reform compliance at the law firm of Quarles & Brady in Milwaukee.

The twist you’ve discovered is that the rule makes it very clear the waiting period should be measured by calendar days, including weekends and holidays. So your employee hired Oct. 26 should get coverage starting 90 days later, on Jan. 24, 2014. Most insurance plan administrators and companies, however, don’t want to bother calculating and prorating payments for a few days late in a month. In the past, you might get away with delaying coverage to Feb. 1, 2014, by not counting weekends and holidays, Barlament says.

But under the tightened rule, issued in March 2013 by the IRS and the departments of Labor and Health and Human Services, you should probably extend coverage to your employee starting in the pay period that includes Jan. 24, or add him to your plan starting Jan. 1, to ensure that you’re in compliance, Barlament says.

This issue tends to be more important to companies with high turnover and low-wage employees. For instance, when a professional service firm hires an accountant or lawyer at a high salary, the additional cost of providing him or her with health insurance is insignificant, relatively speaking. Most of those new employees typically get added to the company insurance plan within 30 days of being hired. But in an industry such as food services, health insurance represents a large cost.

“In a fast-food business with 200 percent annual turnover, where it’s very easy to replace people, employers might be inclined to stretch [the waiting period for insurance coverage] out as long as possible. If you’re paying someone $8 an hour and [her] health insurance costs you $5 an hour, that’s a big expense,” Barlament says.

There’s a nuance in the new rule that probably applies more frequently to professional service companies, he says. It allows employers to set alternative criteria, such as substantive requirements, for insurance eligibility. For instance, a law firm might hinge coverage on a new hire passing the state bar exam. That would be permissible, even if it takes several years for her to do that. “That’s OK, because eligibility isn’t based on days worked,” Barlament says.

He sees some clients skirting trouble by trying to establish squishier conditions on insurance eligibility, such as “when an employee does a satisfactory job” or “when employees have proven themselves.” The new rule hasn’t gone into effect, so it hasn’t been tested yet. But Barlament says that removing a firmer standard—such as satisfactorily completing a training course or passing an exam offered by a third-party—could get employers in trouble. “When an employer wants to impose substantive eligibility based on something they are in control of, and it coincidentally happens to occur at six months—which was their old standard—it could be a problem.”

Karen_klein
Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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