Due to health care reform, "pure" defined contribution health benefits (such as a Section 105 Healthcare Reimbursement Plan) may not impose a waiting period that exceeds 90 days, as of January 1, 2014. Read on for an overview on what this means for Section 105 Healthcare Reimbursement Plans.
What is a Section 105 Healthcare Reimbursement Plan?
A Section 105 Healthcare Reimbursement Plan, or HRP, is an IRS-approved employer health benefit plan where an employer reimburses an employee for health insurance premiums. An HRP is not health insurance. Rather, the HRP is a way to provide employees a healthcare allowance. An HRP is often the foundation of "pure" defined contribution health benefits.
What is a Waiting Period?
Under existing law, the term waiting period means "the period that must pass ... before the individual [who is a potential participant or beneficiary] is eligible to be covered for benefits under the terms of the plan."
Generally, a waiting period is the period of time that must pass before a newly hired employee who is otherwise eligible for the HRP benefit can become effective. Being eligible for HRP coverage means having met the plan’s eligibility conditions (such as being in an eligible job classification).
What Does the 90 Day Waiting Period Rule Mean for HRPs in 2014?
Starting January 1st, 2014, under PHS Act Section 2708, eligibility conditions that are based solely on the lapse of a time period are permissible for no more than 90 days. Other conditions for eligibility under the terms of an HRP are generally permissible, unless the condition is designed to avoid compliance with the 90-day waiting period limitation.
If, under the terms of an HRP, an employee may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, the 90-day waiting period limitation is considered satisfied. Thus, an HRP will not be considered to have violated PHS Act section 2708 merely because employees take additional time to elect coverage.
What Happens if an HRP Does Not Comply with the 90-day Waiting Period Rule?
Violations by HRPs are subject to the excise tax under §4980D of the Code, as well as other civil enforcement remedies under ERISA and the PHS Act.
Additional Resources on the 90 Day Waiting Period Rule
- IRS Notice 2012-17
- IRS Notice 2011-36
- Technical Release 2012-01
- CCIIO Guidance on 90-Day Waiting Period Limitation under Public Health Service Act § 2708