Yes, an employer can waive the health insurance waiting period for some or all employees, but there are some important factors to consider before doing so.
A waiting period is the time between when an employee becomes eligible for health insurance and when the coverage actually begins.
It is usually a way to reduce costs and prevent abuse of the plan by people who only enroll when they need medical care.
However, waiving a waiting period can also have some benefits, such as attracting and retaining talent, improving employee satisfaction, and avoiding gaps in coverage.
Understanding Health Insurance Waiting Periods
A waiting period is frequent in health insurance policies, particularly employer-provided ones. An employee or dependant who is qualified for the plan must wait before getting benefits. Adverse selection—when individuals only get health insurance when they need it—is discouraged by waiting periods. This may raise plan prices for everyone. Waiting periods allow employers and insurers to verify employee and dependant eligibility and enrollment.
Waiting periods vary by plan, employer, and state. The Affordable Care Act (ACA) prohibits group health plan waiting periods more than 90 days. California and New York have 60- and 30-day restrictions, respectively. Example waiting periods:
- A new employee has to wait 60 days after their hire date before they can enroll in their employer’s health plan.
- An employee who changes from part-time to full-time status has to wait 30 days before they can switch from their individual plan to their employer’s group plan.
- An employee who adds a new dependent (such as a spouse or a child) to their plan has to wait until the first day of the next month before the dependent can receive benefits.
Exceptions to Health Insurance Waiting Periods
There are some situations where an employer can waive or shorten a waiting period for some or all employees without violating the ACA or other laws. These include:
The ACA Look-Back Measurement Method
This is a way for employers to determine if their employees are full-time or part-time for the purposes of offering health coverage. Under this method, employers can track and measure their employees’ hours of service over a certain period of time (called the measurement period) and then apply that status for a future period of time (called the stability period). For example, an employer can measure an employee’s hours from January to December of one year and then use that status for the next year. If an employee is determined to be full-time during the measurement period, they must be offered health coverage during the stability period, regardless of any waiting period.
The ACA Monthly Measurement Method
This is another way for employers to determine if their employees are full-time or part-time for the purpose of offering health coverage. Under this method, employers can look at each employee’s hours of service on a month-by-month basis and offer coverage accordingly. For example, if an employee works at least 130 hours in January, they must be offered health coverage for February, regardless of any waiting period.
State Paid Family Leave Law Updates
Some states have enacted or updated their paid family leave laws, which provide employees with partial wage replacement and job protection when they take time off to care for themselves or their family members. Some of these laws also require employers to maintain health coverage for employees during their leave, regardless of any waiting period. For example, in New York, Governor Kathy Hochul signed legislation in November 2021 that expanded family care to cover siblings and waived any waiting period for health coverage during paid family leave.
Potential Consequences of Waiving a Waiting Period
While waiving a waiting period can have some advantages for employers and employees, it can also have some drawbacks and risks. Some of these are:
Invalidating the Waiting Period
If an employer waives a waiting period for some employees but not others, it may invalidate the waiting period altogether or expose the employer to claims for health benefits that would otherwise be unavailable to the employees and their dependents. This is because ERISA requires plan administrators to apply the policies of covered health plans consistently and fairly.
Exposing the Employer to Liability
If an employer waives a waiting period for some employees but not others, it may also create the appearance of discrimination and give rise to claims under other federal and state laws, such as Title VII, ADA, ADEA, FMLA, and state human rights laws. For example, if an employer waives a waiting period for younger employees but not older ones, it may be accused of age discrimination. Similarly, if an employer waives a waiting period for male employees but not female ones, it may be accused of sex discrimination.
Tips for Employers Considering Waiving Waiting Periods
If an employer decides to waive a waiting period for some or all employees, it should follow some best practices to avoid potential problems and ensure compliance with the law. Some of these are:
Understand Legal Requirements
An employer should be aware of the federal and state laws that govern health insurance waiting periods, such as the ACA, ERISA, HIPAA, COBRA, and state-paid family leave laws. An employer should also consult with their insurance carrier or broker to understand the terms and conditions of their health plan and how waiving a waiting period may affect them.
Consider the Impact on Employee and Employer Budget: An employer should weigh the costs and benefits of waiving a waiting period for themselves and their employees. Waiving a waiting period may increase the employer’s premiums and claims, as well as the employee’s contributions and taxes. On the other hand, waiving a waiting period may also improve employee retention, morale, and productivity, as well as reduce turnover and absenteeism.
Communicate Clearly with Employees
An employer should inform their employees about their health insurance waiting period policy and any changes or exceptions to it. An employer should also provide employees with clear and accurate information about their health coverage options, eligibility, enrollment, and benefits. An employer should also update their plan document, summary plan description, and summary of material modifications to reflect any changes or exceptions to their waiting period policy.
Seek Professional Guidance
An employer should seek the advice of experienced benefits counsel, accountants, and consultants before waiving a waiting period for some or all employees. These professionals can help an employer assess the legal, financial, and operational implications of waiving a waiting period and ensure compliance with the law.