Final Orientation Regulations Released

Final regulations have been issued which are to take effect on August 25, 2014, but will not be applicable until January 1, 2015. These regulations specifically impact those companies that require new hires to undergo an “orientation” period before their 90-day waiting period. The main impact of this regulation is to cap “orientation” at one month.

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Legal Authority:
Public Health Services Act (“PHS”) section 2704(b)(4), ERISA section 701(b)(4), and Code section 9801(b)(4) define a waiting period to the period that must pass with respect to an individual before the individual is eligible to be covered for benefits under the terms of the plan. In 2004 regulations implementing the HIPAA portability provisions, the DOL, HHS, and the Treasury (“Departments”) defined a waiting period to mean the period that must pass before coverage for any employee or department who is otherwise eligible to enroll under the terms of a group health plan can become effective.

Currently, a group health plan and a health insurance issuer offering group health insurance coverage may not apply any waiting period that exceeds 90 days. These final regulations clarify the maximum allowed length of an “employment-based orientation period,” and work in conjunction with the 90-day waiting period limitation set forth in section 2708 of the Public Health Services Act.
Orientation periods are commonplace and the Departments do not intend to call into question the reasonableness of short, bona fide orientation periods. The main concern of these new regulations is to avoid abuse by employers who may try to draw out “orientation” periods in an effort to save money. Accordingly, the final regulations provide that one month is the maximum allowed length of an employment-based orientation period.
During the orientation period, the employer and employee will generally evaluate the relationship and whether the particular situation is satisfactory for each party. For any period longer than one month that precedes a waiting period, the Departments refer back to the general rule, which provides that the 90-day period begins after an individual is otherwise eligible to enroll under the terms of a group health plan.

Under the final regulations, one month would be determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date.

For a copy of the orientation period final regulations, please click on the link below.

TAX ADVICE NOTICE:  we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

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