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Employers frequently ask their health insurance brokers about establishing different waiting periods and/or benefit-contribution amounts for varying classes of employees. From a high level, this is generally permissible from a regulatory/legal perspective; however, there are strict compliance rules that often deter employers from creating such arrangements. Furthermore, employers must also ensure compliance with insurance carriers’ underwriting guidelines, which often prevent an employer from taking this route — even if it is otherwise permissible from a regulatory and legal perspective.
 
Regulatory and Legal Compliance
The Employee Retirement Income Security Act of 1974 — more commonly known as “ERISA” law — is the regulatory ocean of the health insurance industry. It contains many of the depths of what is, and what is not, permissible for health benefit plans, among many other items. ERISA law’s nondiscrimination rules give employers the ability to vary contributions or waiting periods for different classes of employees; however, the classifications must exist for bona fide business reasons. In other words, the classes of employees cannot exist for the sole purpose(s) of varying contributions and/or waiting periods for benefits plans.
 
ERISA law further requires plan-sponsoring employers to establish plan documents (sometimes called Summary Plan Descriptions [SPDs] or ERISA Wrap documents), which detail benefit eligibility, employer contributions, waiting periods, and more. Almost all health-plan-sponsoring employers, with very few exceptions, must create these legal ERISA plan documents in accordance with federal law. Employers commonly utilize ERISA counsel or a contracted ERISA Third Party Administrator (TPA) to comply with Plan Document requirements. Carriers do not create ERISA plan documents for employers; they are the responsibility of the "plan adminisrator" (generall, the employer) under ERISA law.
 
Before taking action, the employer should verify its classes of employees are genuine and consistent with ERISA law. The employer should also verify it has a legally compliant policy on the practice written into its plan documents that does not obfuscate or discriminate against any class(es) of employees.
 
ERISA nondiscrimination rules detail types of classes that may be considered “bona fide” and are listed as follows:

• Full-Time (FT) vs. Part-Time (PT) status
• Different geographic locations
• Date of Hire (DOH)
• Length of service
• Current employee vs. Former employee status
• Different occupations
• Membership in a collective bargaining unit

 
Age is not an eligible class. It is therefore generally impermissible for an employer to contribute a more-generous amount to employees’ premiums solely due to one’s age — even though the Affordable Care Act (ACA)’s age-banded rating structure sets premium rates according to a person’s age in the Small-Group and Individual markets. ACA law applies a 3:1 ratio in its rating rule, which limits the premium that can be charged to a 64-year old to three-times the amount charged to a 21-year old. Note that it is generally permissible for an employer to contribute a percentage of employees’ premiums — say 75% — which will ultimately vary in dollar amount per employee, according to the employee’s premium associated with his/her/their age.
 
Carrier Underwriting Guidelines
Although ERISA law may permit such employment-classes (and benefit contribution and waiting period variances between them), health insurance carriers have their own underwriting guidelines and rules in addition to ERISA law. Many health insurance carriers limit or restrict employers’ abilities to vary employer contributions or waiting periods by job classifications or any other aforementioned class. So, in addition to establishing compliance with ERISA law and its notification requirements, the employer must also check with the health insurance carrier to make sure the policy does not violate carrier guidelines or underwriting rules. Your Word & Brown representative can help you understand carrier guidelines, including whether contributions or waiting periods may vary by class.
 
Legal Guidance Should Be Sought
Due to the complexity of the law in this area, and concerns for potential discrimination claims by employees, any employer considering establishing groups of employees in order to vary waiting periods and/or benefit contributions should do so in consultation with ERISA counsel. This will help ensure full compliance with all applicable laws, according to the employer’s own specific circumstances.
 
For more information on ERISA, refer to the Department of Labor’s overview: The Employee Retirement Income Security Act of 1974 (ERISA).