Do I need a waiting period before employees get health insurance?

The 90-day rule and where it comes from

The ACA added section 2708 to the Public Health Service Act. The same rule appears in ERISA section 715 and Internal Revenue Code section 9815, and the three agencies issued matching regulations (29 CFR 2590.715-2708, 26 CFR 54.9815-2708 and 45 CFR 147.116). It applies to covered group medical plans, including grandfathered plans, at any employer size. Excepted benefits, such as qualifying stand-alone dental or vision coverage, are treated differently. Small size alone is not an exception.

• A group health plan can't make an otherwise eligible employee wait more than 90 days for coverage to start.
• The 90 days are calendar days, including weekends and holidays, counted from the date the employee becomes eligible.
• If day 91 falls on a weekend or holiday, the plan may start coverage earlier, never later.
• A bona fide orientation period of up to one month can come before the 90 days.
• Eligibility conditions that aren't based only on time are allowed: for example, being in an eligible job class, or getting a license.
• A cumulative hours requirement (for example, "eligible after 1,000 hours") is allowed only up to 1,200 hours, and the 90 days then start after it's met.
• Carriers may set their own rules within that limit.

Counting the 90 days, with dates

A common drafting mistake is "first of the month after 90 days." That can push the start to day 92 or later, which breaks the rule. "First of the month after 60 days" is a commonly used first-of-month rule that stays within the federal limit when counted correctly.

Orientation periods and variable-hour employees

An orientation period lets you confirm the employee is working out before the 90-day clock starts. It can be at most one month, counted by adding one calendar month to the start date and subtracting a day. Start October 1, orientation ends October 31. Start January 30, it ends February 28 (February 29 in a leap year), because the next month lacks the corresponding date. After that, the 90 days begin. The regulators expect a real orientation, not a label added to stretch the wait.

For employees whose hours vary and you can't yet tell if they'll be full-time, the regulations allow a measurement period of up to 12 months. For someone who qualifies, coverage must meet the 13-month outer limit plus any initial partial month, and waiting time apart from the measurement period cannot exceed 90 days.

Rehires. You may treat a rehired employee as new and apply the waiting period again, if that's reasonable and not a way around the rule. The regulations give an example of a retiree rehired three months later for a one-year contract, who can face a new waiting period.

I would separately review rehires at an ALE. The employer mandate has break-in-service rules that can treat a returning worker as continuing rather than new, even when the waiting-period regulation would permit a reasonable restart. An orientation period also cannot excuse an ALE from its own offer deadline. Document both analyses rather than assuming that passing one rule means the start date passes every rule.

How the 90-day rule fits with the employer mandate

If you're an applicable large employer, a second rule applies under IRC section 4980H. A new full-time hire can be in a "limited non-assessment period": you won't owe a mandate penalty for that person if you offer coverage by the first day of the fourth full calendar month of employment. The 90-day rule can be stricter, and you must meet both.

State rules that are stricter

• Hawaii. Under the Prepaid Health Care Act, employees working 20 or more hours a week and earning at least 86.67 times the state minimum hourly wage a month become eligible after four consecutive weeks of employment. Coverage must then start at the plan's earliest enrollment date, and the plan itself must be approved by the Hawaii Department of Labor. That applies to remote employees working in Hawaii too.
• Insured plans must also follow the issuing carrier's rules, and some state insurance laws limit waiting periods or orientation periods. Check with your carrier or broker in your situs state.

What a waiting period actually saves

A waiting period does make sense in a few cases: high turnover in the first weeks, many short-term or seasonal hires, or a tight budget where every month of premium matters. If you use one, tell candidates in the offer letter and explain their bridge options.

How new hires bridge a waiting period

• COBRA from the old employer. The employee has 60 days to elect COBRA, and coverage is retroactive to the day the old coverage ended. Deferring election can leave bills pending and requires enough cash for all retroactive premiums; track the election and payment deadlines separately. See our COBRA guide.
• Marketplace special enrollment. Losing job-based coverage opens a 60-day special enrollment period for an individual plan.
• A spouse's plan. Losing coverage is a qualifying life event for a spouse's employer plan. See qualifying life events.

Waiting period mistakes that cause problems

• Wording that delays coverage past day 91. The limit permits a 90-day wait and coverage on day 91. A later first-of-month start can violate it; exactly 90 days followed by coverage is permissible.
• Stacking an orientation period on top of a long wait. One month of orientation plus 90 days is the outside limit, and only when the orientation is real.
• Different start dates in the offer letter and the plan. Employees rely on the offer letter. If it says day one and the carrier application says 60 days, someone will have an uncovered claim.
• Forgetting dependents. A new hire's spouse and children follow the employee's start date. Make sure they're on the enrollment form before the plan's deadline.
• Blaming the paperwork. Time an employee spends delaying their own enrollment doesn't count against the 90 days. Time lost because your onboarding was slow does, so send forms in week one.
• Promotions into an eligible class. When a part-time employee moves into a full-time, benefits-eligible role, the 90 days start from the date they become eligible, not from their original hire date. Track that date so coverage starts on time.

How to set your waiting period

1. Pick a rule Day one, first of the month after hire, or first of the month after 30 or 60 days. If using a 90-day wait, specify coverage on day 91 rather than a later first of the month.
2. Put it in the plan documents The waiting period goes in the carrier application or plan document and in the summary plan description. It must match what you tell employees.
3. Apply it consistently Use the same rule for everyone in an eligible class. Don't make exceptions for one hire.
4. Tell new hires in writing Put the coverage start date in the offer letter and the onboarding packet.
5. Enroll before the start date Send enrollment forms in the first week so coverage is active, not pending, when the waiting period ends.

What I recommend

Cover new hires on day one or the first of the following month. A waiting period saves a little money and costs you goodwill, and new hires often have to buy COBRA from their old employer to bridge the gap.

Getting it wrong has a real cost. A plan that breaks the 90-day rule fails a federal market reform, which can trigger the IRC section 4980D excise tax of $100 per day for each affected employee, self-reported on Form 8928, plus claims from employees who had to pay for care during the gap.