Additional waiting periods for late enrollees

[Guest JulieJ]

Is there anything in HIPAA that prohibits a self-funded ERISA plan from imposing an additional waiting period for late enrollees?

Here's the scenario: Plan has different waiting periods for eligibility based on classes of employees. After the applicable waiting period, the employee may enroll for coverage. Pretty standard. The plan states the appropriate information regarding special enrollees. Again, standard. The plan also has a provision that states that late enrollees can enroll in the plan at a later date, but will be subject to the pre-existing condition limitations (i.e., 18 months minus any prior creditable coverage). Basically, if they do not enroll when first eligible, then they can get on the plan at any time during the year, but they will be subject to pre-existing conditions limitations. The plan opted not to have an open enrollment period, but instead went with this "late enrollee" provision. Rather lenient, in my opinion. What is happening is employees are on the plan, drop coverage (e.g., don't want to pay the premiums), then decide later that they want on the plan. The plan allows them to come on, but subject to pre-ex. The group is concerned about people just jumping on and off only when the person "needs" coverage.

The group now wants to amend their plan to impose an additional one-year waiting period for employees who either do not enroll when first eligible or have coverage, drop it, and want back on. I understand that any additional waiting period would run concurrent with the pre-ex limitation (i.e., 18 months). However, would this be violating HIPAA in anyway?

I know that HIPAA does not require a late entrant provision, but does require pre-ex limitations and special enrollment provisions. This scenario just seems a little sticky because of how it is barring coverage.

Any thoughts??

[papogi]

Before I go further into your question, I wanted to ask if you take pre-tax payroll deductions for your health benefits. If you do, then you and your employees need to abide by the Section 125 rules which give you both the tax advantages you enjoy. Section 125 clearly states that employees can only change their elections with qualified status changes. They should not be able to drop coverage simply because they don't want to pay the premium any longer. That might be allowed in the provisions of your underlying health plan, and would then be fine if the payroll deductions are taken post-tax. If they are pre-tax, they do not have the luxury of being able to drop coverage whenever they want. That alone would eliminate a large chunk of the problem you have posted about.

[Guest JulieJ]

Good point about the Section 125. You are correct that the elections would be irrevocable unless a qualified status change takes place.

In looking at this client's Flex Plan, it only provides for health FSA and Dependent Care reimbursement. There is no mention of a POP feature. For the sake of avoiding argument, let us say that health care plan premiums are being taken post-tax.

[Sandra Pearce]

Forgetting the issue of the Section 125 plan (although if the company has spending accounts they probably also have a premium conversion option as well) the plan would have to allow late entrants when the late entrant meets the HIPAA special enrollment requirements. Why don't you just amend the plan to strictly adhere to the HIPAA required special enrollments without adding an open enrollment period and shut down all other late enrollees. This is how our health plan operates. We chose to adhere to the most strict interpretation of the HIPAA regulations as relates to late entrants.

[Guest JulieJ]

I completely agree with you Sandra. It is what I would do; however, I do not make those decisions about amending the plan. It is the client that is having to decide. I am just trying to gather information to help in the decision-making. The scenario is what they are proposing to do, and they want to know if they will be violating any laws by doing it that way. I agree that the issue would be solved by amending the plan to only allow enrollment when the employee is first eligible and when a special enrollment event occurs ONLY. However, the initial question still remains unanswered.

More thoughts??

[Sandra Pearce]

I can't think of anything in the regulations that would prevent you from having a waiting period for late entrants (other than special enrollments as stated in the regulations). The plan would still be more generous than the regulations require. The 18 month pre-ex would have to run, as you indicated, concurrently with the waiting period established.

[papogi]

I also see nothing anywhere which would prevent your client from imposing a longer waiting period to these late entrants. As long as waiting periods are applied uniformly to a specific class of employee or benefit, and are not based on health factors, they are normally fine. I admit I’ve never seen it applied in this exact way before, and HIPAA does not specifically cite this distinction as OK or not OK, either. I understand that there are employees who waive coverage because they have coverage elsewhere, and that this other coverage may end (hopefully that other employer is following the rules with regard to employees dropping coverage mid-year). When that coverage ends, a HIPAA special enrollment period begins with your client. HIPAA states that the new coverage must be effective no later than the first day of month following the submission of the request for late enrollment. They will not be able to impose their waiting period in those legitimate cases. They will only be able to impose the waiting period for those people they are allowing on the plan for no reason. Again, if Section 125 is involved, all of this is moot, since none of these changes should be allowed, anyway. Your client may be taking post-tax deductions (if the coverage were completely company-paid, nobody would waive it), which should allow them to drop coverage whenever they want, but most plans would not allow them to come on the plan whenever they want. The FSA portion of their benefits must still abide by certain 125 rules. Hopefully your client is not allowing people on and off the FSA whenever they want, as well. I know you are asking for an answer to a very limited question, and you seem to be getting roundabout answers. This is because your question appears to be a question that the client should have never been put in the place to ask in the first place. Putting band-aids all over the holes in this plan which has very little regard for adverse selection is not addressing the root of the problem.