Sometimes. Employers may be able to offer health insurance for certain employees when the difference is based on a legitimate employment classification and the rule is applied consistently. Examples can include full-time versus part-time status, work location, or length of service. Once an employee is otherwise eligible for a group health plan, however, the plan generally cannot impose a waiting period longer than 90 days.
JS Benefits Group works with employers across Pennsylvania and the Mid-Atlantic on employee benefits plan design, eligibility, group health insurance, and compliance support. The exact rules can depend on employer size, plan funding, plan documents, and other requirements.
This article is for general educational purposes and is not legal, tax, or compliance advice. Employers should review specific eligibility changes with qualified benefits, legal, or tax professionals when needed.
Eligibility Factor | What Employers Should Consider |
Full-time vs. part-time status | Whether the classification is part of the employer’s normal business practices |
Work location | Whether employees in different locations are treated as distinct employment groups |
Date of hire or length of service | Whether the rule is applied consistently and complies with waiting-period limits |
Health status or claims | These should not be used to deny eligibility or charge similarly situated employees more |
Employer size | ALE status can create additional ACA responsibilities |
Plan funding | Fully insured and self-insured arrangements can have different nondiscrimination considerations |
Which Employees Can Have Different Health Insurance Eligibility?
Employers can sometimes use different health insurance eligibility rules for different groups of employees.
Under HIPAA, distinctions among similarly situated employees must be based on bona fide employment-based classifications that are consistent with the employer’s usual business practices. Examples include full-time versus part-time employees, employees in different geographic locations, and employees with different dates of hire or lengths of service.
For example, an employer may offer health coverage to employees who meet its full-time eligibility requirements while part-time employees are not eligible. Different rules may also apply to employees in different locations when the distinction reflects a legitimate employment classification rather than a health factor.
Meeting HIPAA’s nondiscrimination rules does not automatically mean an eligibility arrangement complies with every other federal or state law that may apply. Employers should evaluate the full plan structure before making a change.
How Does the 90-Day Waiting Period Affect Eligibility?
Length of service can sometimes be part of an employer’s eligibility rules, but there is an important limit.
Once an employee has satisfied the plan’s substantive eligibility conditions, a group health plan generally cannot impose a waiting period longer than 90 days before coverage becomes effective. The federal waiting-period rule does not require an employer to offer coverage to every employee or class of employees.
That distinction matters. An employer may have legitimate eligibility conditions, but a waiting period based only on the passage of time generally cannot exceed 90 days after the employee is otherwise eligible.
Can Health Status Affect Who Gets Health Insurance?
Generally, no. An employee’s health condition or medical claims should not determine whether that employee can enroll in a group health plan.
HIPAA generally prohibits group health plans from denying eligibility or continued eligibility, or charging a similarly situated employee more, based on health factors. These factors include health status, medical conditions, claims experience, medical history, genetic information, evidence of insurability, and disability.
For example, an employer should not exclude an otherwise eligible employee because that person develops a serious medical condition or has high medical claims. An employer also should not create a new employee classification simply to avoid covering someone because of their health needs.
How Does Company Size Affect Health Insurance Eligibility?
Company size matters because Applicable Large Employers, or ALEs, have additional responsibilities under the Affordable Care Act.
An employer is generally considered an ALE for a calendar year if it averaged at least 50 full-time employees, including full-time-equivalent employees, during the preceding calendar year. For this purpose, a full-time employee generally averages at least 30 hours of service per week or 130 hours of service per month.
An ALE may face an employer shared responsibility payment if it does not offer minimum essential coverage to at least 95% of its full-time employees and their dependents and at least one full-time employee receives a Marketplace premium tax credit. Even when the 95% threshold is met, affordability and minimum value can still affect potential liability for particular full-time employees.
For these ACA rules, a dependent generally means an employee’s child who has not reached age 26. A spouse is not considered a dependent for employer shared responsibility purposes.
Employers below the ALE threshold generally are not subject to the ACA employer shared responsibility provisions, although other health plan, tax, and nondiscrimination requirements may still apply.
Can Managers or Executives Receive Different Health Benefits?
Sometimes, but employers should not assume that managers or executives can automatically receive more favorable health benefits.
Self-insured medical reimbursement plans are subject to nondiscrimination requirements under Internal Revenue Code Section 105(h). If a self-insured plan discriminates in favor of highly compensated individuals as to eligibility or benefits, excess reimbursements to those individuals can become taxable.
The Affordable Care Act also added nondiscrimination provisions for certain insured group health plans under PHS Act Section 2716. IRS Notice 2011-1 delayed required compliance and sanctions until further regulatory or administrative guidance was issued. Because executive benefit arrangements can involve multiple tax and benefit rules, employers should have the structure reviewed before making changes.
What Should Employers Check Before Limiting Coverage?
Before changing eligibility, employers should review the reason for the distinction and how the rule fits with the rest of the health plan.
A practical review can follow seven steps:
- Identify the employee classification. Determine whether the group is based on full-time status, location, length of service, or another normal employment distinction.
- Confirm the classification is used consistently. The group should reflect a genuine employment practice rather than being created only for health coverage purposes.
- Make sure health factors are not involved. Medical conditions, claims history, disability, or other health factors should not determine eligibility.
- Determine whether the employer is an ALE. Employers with at least 50 full-time employees, including full-time equivalents, may have additional ACA responsibilities.
- Identify how the plan is funded. Fully insured and self-insured arrangements can be subject to different tax and nondiscrimination considerations.
- Compare the rule with the written plan. Eligibility requirements should match the plan documents and administrative process.
- Review other applicable requirements. If employees pay premiums through a Section 125 cafeteria plan or the arrangement involves highly compensated employees, additional tax nondiscrimination rules may need to be considered.
One simple question can help during the review:
Would we apply the same eligibility rule to another employee in the same situation?
If the answer is no, the employer should understand why before making the eligibility decision.
Frequently Asked Questions About Health Insurance Eligibility
In many cases, yes. Full-time and part-time employees can be treated as separate groups of similarly situated employees when the classification is consistent with the employer’s normal business practices. ALEs must also consider their ACA responsibilities for full-time employees.
Not always. ALEs have specific ACA responsibilities involving offers of coverage to full-time employees and their dependents, while employers below the ALE threshold generally are not subject to the employer shared responsibility provisions. Other plan, tax, and nondiscrimination requirements may still apply.
Sometimes. Different groups of similarly situated employees may have different eligibility provisions, benefits, or costs when those groups are based on bona fide employment classifications rather than health factors. Other plan and tax rules can also affect how the arrangement is structured.
Generally, no. A group health plan cannot deny eligibility or charge a similarly situated employee more because of health factors such as a medical condition, claims history, genetic information, or disability.
Possibly, but the label alone does not automatically make the arrangement compliant. Employers should confirm that the groups reflect a bona fide employment classification used in their normal business practices and that the eligibility structure complies with the health plan and other applicable requirements.
What Should Employers Review Before Changing Health Insurance Eligibility?
Employers may be able to offer health insurance to certain employee groups, but the reason for the distinction matters. Define the groups clearly, apply eligibility rules consistently, confirm that health factors are not driving the decision, and review how the change fits with the plan documents and applicable requirements.
JS Benefits Group helps employers review group health insurance, employee eligibility, employee benefits plan design, and compliance considerations. Employers considering a change to who qualifies for coverage can learn more about JS Benefits Group’s employee benefits plan design and consulting services before communicating a new eligibility structure to employees.
