Rehires, waiting periods, and the Affordable Care Act

Affordable Care Act (ACA) compliance questions often arise when employees are let go and later rehired. Determining whether to re-enroll the employee in health coverage on rehiring or reimpose a waiting period involves juggling multiple ACA regulations.

ACA Health Coverage Mandate and Breaks in Service

For larger employers subject to the ACA’s coverage mandate, special “break in service” rules come into play. With the threat of “shared responsibility” penalties, the health coverage mandate applies to businesses that employed an average of at least 50 full-time employees (or their equivalents) per month during the preceding calendar year.

It is considered a break in service if an employee returns to work after at least 13 weeks, during which no hours were credited (26 weeks for educational employees). The same applies if the break-in service is at least four weeks and is longer than the employee was previously employed. If such a break in service has occurred, an employee who ceases and then resumes providing services “may be treated as a new employee upon the resumption of services.”

Breaks in Service and Waiting Periods for Health Coverage

Under the ACA employer mandate, applicable large employers (ALEs) must offer health coverage to employees who averaged 30 or more hours per week (or 130 hours for the month) during the applicable measurement period. An employee in a waiting period is not treated as having been “offered” health coverage. Still, a waiting period may qualify as a “limited non-assessment period” during which the employer is safe from a shared responsibility penalty. Therefore, if an ALE typically imposes a waiting period (up to 90 days) on new hires, it usually may do so without incurring such a penalty.

However, this non-assessment period can only be applied once within a given “period of employment.” Therefore, unless a complete “break in service” has occurred, the employer may not impose what would be a second non-assessment period—meaning an employer shared responsibility payment could apply if health coverage is not offered for these months.

Another wrinkle arises when an employer uses the look-back measurement method to track whether employees are full-time and must be covered. If so, an employment gap that exceeds the relevant “break in service” period (13 weeks, for example) means that the employee must be given a new initial measurement period. Otherwise, the employee should be returned to the measurement and stability period that would have applied if their employment had not been interrupted.

Waiting Period Rule

The 90-day limit on waiting periods is a separate ACA requirement that applies to large and small employers alike.

This rule on waiting periods specifies that group health plans may treat an employee whose employment has terminated and who then is rehired as newly eligible upon rehire and, therefore, required to meet the plan’s eligibility criteria and waiting period anew, if “reasonable under the circumstances.” The termination and rehire must not be a “subterfuge” to avoid complying with the 90-day waiting period limitation.

The rule gives the example of someone who retires, then is rehired three months later to help train a replacement. In this case, a new waiting period (up to 90 days) is allowed. The same analysis would apply to an employee who moves from eligible to an ineligible job classification and back. Therefore, a new waiting period may be imposed after a loss of coverage even if employment is not terminated outright—for example, if the employee is furloughed.

There is no minimum waiting period, and many employers choose to waive the benefits waiting period entirely. Likewise, it is not clear from the break-in-service rule that an employer must treat a rehire as a new employee once 13 weeks have passed.

Note that any such practice should be applied equally across the board to avoid discrimination complaints and consistently with the plan documents and any applicable insurance contracts. If coverage is provided to an employee who is not eligible under the terms of the health (or stop-loss) policy, the carrier may refuse to pay any resulting expenses.