Rehire Rules for Health Care Coverage Waiting Period
Question: Our company sponsors a group health plan under which full-time employees are eligible for coverage after a 90-day waiting period. We’re a small business (fewer than 20 employees) and not subject to the Affordable Care Act’s (ACA) employer shared-responsibility provisions. Because of business needs, we occasionally rehire employees whose employment was previously terminated. Are we permitted to impose the plan’s waiting period on such rehires?
Answer: Generally, former employees who are terminated and rehired may be treated as newly eligible for coverage upon rehire. This means that your plan may require such individuals to meet the plan’s eligibility criteria and satisfy the plan’s waiting period anew. But regulations specify that imposition of the waiting period must be reasonable under the circumstances — for example, the termination and rehire cannot be a subterfuge to avoid compliance with the 90-day waiting period limitation.
The regulations don’t elaborate on what’s required for a new waiting period upon rehire to be “reasonable under the circumstances” and not a “subterfuge.” They do, however, include an example in which the terminating employee had “no expectation of providing further services” and the gap between the termination date and the rehire date was approximately three months.
In that scenario, the regulations permit the employee to be treated as newly eligible for coverage under the plan upon rehire, allowing the imposition of the plan’s waiting period. This suggests that there shouldn’t be a prearranged understanding that the terminating employee will return to employment.
In addition, there should be a sufficient period of time between the termination date and the rehire date. For instance, applying a new waiting period to an employee who terminates on a Friday and is rehired on the following Monday likely wouldn’t be considered reasonable under the circumstances.
Applicable large employers subject to the ACA’s employer shared-responsibility provisions should keep in mind that these rules differ from the waiting period rules, which require some returning employees (including rehires) to be deemed continuing employees even after relatively lengthy absences.
Thus, even though the waiting period rules may allow a new waiting period for a rehired employee, implementing a waiting period for an employee who must be treated as a continuing full-time employee under the ACA’s “play or pay” provision could expose an applicable large employer to penalties.
As a small business, you may understandably want to bring back familiar faces for seasonal or "busy period" purposes. Work with your benefits advisor to handle these rehires in a compliant manner.
If you have questions about health care eligibility, please contact Ron Present, Partner and Health Care Industry Group Leader, at firstname.lastname@example.org or 314.983.1358.