3 Highlights of the Newly Allowed One-Month Orientation Period

Back in February, the Department of Labor, IRS and Department of Health and Human Services issued final regulations on the Affordable Care Act’s (ACA’s) permissible waiting periods for health care coverage. This included creating a “reasonable and bona fide employment-based orientation period” as a substantive eligibility condition that wouldn’t count against the established limit of, generally, 90 days.

At the time, the agencies also issued proposed regulations describing such an orientation period. Then in late June, they issued regulations finalizing the proposed orientation period as one month — effective for plan years beginning on or after Jan. 1, 2015. Here are three highlights of the final regs:

1. The orientation calculation. An orientation period imposed as an eligibility condition doesn’t violate the waiting period limit so long as the orientation period doesn’t exceed one month. Further, the waiting period must begin the day after the orientation period ends.

To calculate the orientation period, employers should add one calendar month, and subtract one calendar day, from an employee’s start date in an otherwise eligible position. The preamble to the final regs explains that a longer orientation period would be subject to the general rule limiting waiting periods to 90 days and disallowing other eligibility requirements if they’re merely subterfuges for the passage of time.

2. Required activities (or lack thereof). The regulations don’t require any particular activities to be conducted during an orientation period. Although the preamble notes that the agencies envision the period being for evaluation, orientation and training, it also states that the agencies “do not intend to call into question the reasonableness of short, bona fide orientation periods.”

3. Interaction with “play or pay. The preamble cautions that, for large employers (as defined under the ACA), compliance with these rules doesn’t determine compliance with the shared-responsibility, or “play or pay,” rules. It includes an example illustrating that imposing the full orientation period plus the full 90-day waiting period may delay the start of coverage beyond the first day of the fourth full month of employment, potentially exposing a large employer to penalties.

Sidebar: IRS releases draft instructions to forms for reporting health coverage information

On Aug. 28, the IRS released draft instructions to the forms that employers with at least 50 full-time employees or the equivalent, and others, will use to file information returns and provide individual statements as required under the Affordable Care Act. Let’s review some highlights:

Form 1094-C. Here an employer reports summary information about itself. According to the instructions, an employer may choose to file multiple Forms 1094-C, each accompanied by Forms 1095-C, for different groups of employees (for example, different corporate divisions). But one of the Forms 1094-C must be designated as the “Authoritative Transmittal” and report aggregate employer-level data.

The instructions describe the reporting requirements for employers relying on various forms of shared-responsibility, or “play or pay,” transitional relief for 2015, such as the additional delay for employees with 50 to 99 full-time employees (or the equivalent).

Form 1095-C. Here an employer reports information about each employee. According to the instructions, an employer must furnish a separate Form 1095-C to each full-time employee and, if the employer’s plan is self-insured, to each employee (whether or not full-time) who enrolls in employer-sponsored coverage. Although the form is filed annually, most of the information must be reported separately for each calendar month, unless an exception applies. The instructions rely heavily on the use of indicator codes to:

  • Describe the coverage offered by the employer (for example, whether coverage provided minimum value), and
  • Ascertain the employer’s potential play-or-pay liability with respect to the offered coverage (for instance, whether the employer relied on an affordability safe harbor).

The instructions state that employer-sponsored self-insured plans will satisfy their reporting obligation by reporting actual coverage about each employee and family member on Form 1095-C.

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