When it comes to offering employee benefits, determining who is eligible for your group health plan is one of the most important decisions you’ll make as an employer.

While businesses do have some flexibility in designing eligibility criteria, those choices must align with a range of federal compliance requirements, including rules under the Affordable Care Act (ACA), ERISA, HIPAA, and Medicare Secondary Payer (MSP) regulations.

To help employers navigate these rules with confidence, we've outlined the most important health plan eligibility do’s and don’ts. From following your plan document to avoiding costly compliance missteps, here's what you need to know to stay on the right track.

Health Plan Eligibility: What Employers Should Do

1. Do Follow the Terms of Your Plan Document
Under ERISA (Employee Retirement Income Security Act), every health plan must have a formal written plan document. This document outlines who’s eligible for coverage – such as full-time employees, spouses, and dependents – and any waiting periods or enrollment conditions.

Employers must follow the plan’s terms consistently in daily operations. Review the document regularly to ensure it reflects current legal requirements. Going beyond the outlined eligibility rules can put employers at risk – especially in fully insured plans – if claims are denied for ineligible participants.

2. Do Offer Affordable Coverage to Full-Time Employees (For ALEs)
If your company is an Applicable Large Employer (ALE) – meaning you have 50 or more full-time employees (or equivalents) – you’re required by the Affordable Care Act (ACA) to offer affordable, minimum-value coverage to full-time staff.

Failing to meet these standards could trigger costly ACA penalties if just one full-time employee gets a premium subsidy through the Marketplace. Full-time employees are defined as those working an average of 30+ hours per week or 130+ hours per month.

3. Do Extend Coverage to Adult Children Up to Age 26
ACA rules mandate that group health plans offering dependent coverage must make it available to adult children until age 26, regardless of whether the child is financially dependent, living with the parent, a student, or married.

The plan must treat all children under 26 equally and cannot impose extra conditions or higher premiums (unless the child is over 26 and covered under a different category).

4. Do Continue Offering Coverage to Medicare-Eligible Employees
If you have 20 or more employees, your group health plan is the primary payer over Medicare for eligible employees aged 65 or older. According to Medicare Secondary Payer (MSP) rules:

• You must offer the same coverage to Medicare-eligible employees as you do to others.
• You cannot incentivize employees to drop your plan in favor of Medicare.
• You may offer cash-in-lieu of coverage, but only if it’s available to all employees, not just those eligible for Medicare.

Health Plan Eligibility: What Employers Should Not Do

1. Don’t Offer Coverage to Nonemployees
It may be tempting to extend coverage to independent contractors, directors, or freelancers, but doing so can lead to compliance problems. This could trigger classification issues or create a Multiple Employer Welfare Arrangement (MEWA), which is heavily regulated and can be legally risky.

Only offer health coverage to employees to avoid issues with worker misclassification and state-level MEWA rules.

2. Don’t Impose a Waiting Period Longer Than 90 Days
Under the ACA, group health plans cannot impose a waiting period longer than 90 calendar days, including weekends and holidays. Employers may set additional eligibility conditions, such as being in a specific job classification or completing a brief orientation period (limited to one month), but waiting time alone can’t exceed 90 days.

3. Don’t Overlook Nondiscrimination Requirements
Certain plans, like self-insured health plans and Section 125 cafeteria plans, must comply with nondiscrimination rules to ensure they do not unfairly benefit highly compensated employees.

Examples of potential red flags include:

• Offering different eligibility or benefits for salaried vs. hourly workers
• Having separate plans for different groups
• Setting different waiting periods for different employees

Failing to meet these requirements can result in tax consequences for high earners and plan disqualification.

4. Don’t Discriminate Based on Health Factors
HIPAA prohibits group health plans from denying or limiting coverage based on health status-related factors such as:

• Medical conditions or history
• Disabilities
• Claims experience
• Genetic information

You also can’t:

• Require physical exams for eligibility
• Charge more based on health risks
• Delay coverage for someone not “actively at work” due to illness

All similarly situated employees must be treated equally when it comes to plan eligibility.

How to Stay Ahead on Health Plan Eligibility Rules

Navigating health plan eligibility doesn’t have to be overwhelming, but it does require careful attention to complex federal regulations like the ACA, ERISA, HIPAA, and Medicare Secondary Payer rules. These laws not only establish clear boundaries around who qualifies for coverage, but they also carry potential penalties for noncompliance – penalties that can impact your bottom line and your employees' trust.

By following the eligibility do’s and don’ts outlined above, you can stay ahead of compliance risks, ensure equitable access to benefits, and build a stronger, more reliable health plan offering for your workforce.

Our team of employee benefits compliance experts is here to help you review your plan, interpret the rules, and implement best practices – so you can focus on what matters most: your people and your business.

Need additional guidance? Contact us today to protect your business with a fully compliant health plan!