Ask the Experts: Stability Periods and Variable Hour Employees

Question: Does California allow for the use of a standard measurement period and stability period for variable hour employees? I.e. Can an employer require that these employees wait 12 months during the measurement period “safe harbor” available under the Federal ACA regulations, or not because the California AB 1083 doesn’t address this?

Answer: Please keep in mind that the “variable hour” employee measurement and stability period concept will only be applicable to a very small subset of employees and/or industries. It is designed to be used for those employees where there is no readily available way to determine whether or not they will be working more or less than 30 hours per week on average. Most employees are hired with some sort of schedule, unless hired on-call/per diem, or in certain industries such as restaurants, retail, or hospitality. That being said, most employees even within these industries will be hired with some sort of “hourly” expectation for the week.

California group health policies issued or renewed January 1, 2014 may not impose an eligibility waiting period longer than 60 calendar days (and may not impose different waiting periods on different classes of employees).  These provisions were made part of the California Insurance Code and California Health and Safety Code due to AB 1083 and subsequent legislation.

This law, and other state insurance laws, apply to health insurers and HMOs but do not apply to the employer.  Each carrier works with California’s state regulators for guidance and approval of group applications, contract language, etc.  The employer, as policyholder, may rely on its carrier’s interpretation of the law.  For instance, the employer may apply a “measurement period” (look-back tracking of work hours) before determining that a variable-hours employee is eligible for coverage.  In that case, the waiting period would begin immediately after the end of the measurement period.  This practice is compliant provided that the carrier agrees to this approach.

In our experience, all California “large group” carriers have agreed that their policy waiting period does not begin until the employer determines that the employee is eligible.  Most employees are defined as eligible as of date of hire, and then the waiting period would begin.  That is not always the case.  For example, let’s say that an employee is hired for a part-time position (not eligible) and then promoted to a full-time position (eligible), so the waiting period would begin on the date the employee becomes a full-time (eligible) employee.  In another example, a variable-hours new hire does not become eligible until the end of employer’s “initial measurement period”, so the waiting period would begin on the day following the end of the measurement period.  The employer should disclose its practice to its carrier and ensure that the carrier’s group contract defines “eligible employee” consistent with the employer’s practice.  Again, compliance with California’s waiting period rule is the responsibility of the carrier, so the employer merely needs to confirm that the carrier is comfortable with the employer’s practice.

Employers that use “measurement periods”, “stability periods”, etc. are “large employers” (generally 50 or more full-time-equivalent employees) due to the ACA’s “play or pay” rules starting next year.  We note that California’s “waiting period” law does contain language defining eligible employees for “small group” products (and the language is different than the ACA’s “measurement period” language) but that would not matter for a California large employer.

Finally, please note that a new bill (SB 1034) has been introduced in the California Senate which may change or eliminate California’s “waiting period” rule for 2015 and forward.  The proposed bill may be revised as it goes through the various committees and “houses” (Senate and Assembly) as part of the legislative process.  California carriers and brokers will be monitoring the progress of this bill, and we will report any changes as they become available.