This blog poswas authored by Jessica Frier.Healthcare.jpg

On May 29, 2013, the Departments of Labor, Health and Human Services and Treasury issued final regulations governing wellness programs.  The final regulations replace interim proposals issued in 2012.  The regulations will apply to plan or policy years beginning on or after January 1, 2014, and will apply to health insurance issuers in the group market and to grandfathered and non-grandfathered group health plans, including self-insured health plans.  Thus, while the final regulations may be modified, as currently issued, these regulations will not require action by employers unless they self-insure.

HIPAA Nondiscrimination Rule – The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) prohibits group health plans and group health insurance issuers from discriminating based on health status, including health factors like tobacco use, cholesterol level, weight, or body mass index.  An exception allows employers to offer incentives, including adjustments to benefits or premiums, for participation in certain “wellness programs” that promote health and prevent disease.  The Affordable Care Act (“ACA”) extends HIPAA’s prior nondiscrimination and wellness program provisions and sets additional criteria for wellness programs to qualify for an exception to the nondiscrimination rule.  The final regulations divide wellness programs into two general categories, “participatory wellness programs” and “health-contingent wellness programs.” 

Participatory Wellness Programs – Participatory wellness programs are programs that either do not provide a reward, or do not include any conditions for obtaining a reward that are contingent on an individual satisfying a standard related to a health factor.  Employers must make participatory wellness programs available to all similarly situated individuals, regardless of health status.  Examples of participatory wellness programs include:

  • A program that reimburses employees for all or part of the cost of membership in a fitness center.
  • A program that provides a reward for diagnostic testing and does not base any part of the reward on the outcome of the test.
  • A program that provides a reward to employees for attending a monthly, no-cost health education seminar.

Health-Contingent Wellness Programs – Health-contingent wellness programs, on the other hand, require satisfaction of standards related to a health factor in order to obtain a reward.  ACA divides health-contingent wellness programs into two categories, “activity-only” wellness programs and “outcome based” wellness programs.  Examples of activity-only wellness programs include walking, diet, or exercise programs.  Examples of outcome-based wellness programs include testing for specific medical conditions or risk factors (such as high cholesterol) and providing a reward to employees who test within a normal or healthy range, while requiring employees outside the normal or healthy range to take additional steps (such as meeting with a health coach) to obtain the same reward.  The final regulations contain five requirements for health-contingent wellness programs:

(1)   Once-Per-Year – Programs must give individuals eligible for the program the opportunity to qualify for the reward at least once per year.

(2)   Size of Reward – Programs must limit the size of rewards to a specific ratio of the total size of the reward to the total cost of employee-only coverage.  The applicable percentages range from 30-50% of the cost of coverage, and depend on factors such as participation of dependents and inclusion of tobacco cessation programs. 

(3)   Reasonable Design – Programs must have a reasonable chance of improving health or preventing disease, not be overly burdensome, not be a subterfuge for discrimination based on a health factor, and not be highly suspect in the method chosen to promote health or prevent disease.

(4)   Uniform Availability and Reasonable Alternative – Programs must make the full reward under a health-contingent wellness program (whether activity-only or outcome-based) available to all similarly situated individuals and must provide a reasonable alternative standard to those who fail to meet such goals due to a medical condition or health factor, but who take certain other healthy actions. 

(5)   Notice of Availability of Reasonable Alternative Standard – Programs must give notice that a reasonable alternative standard is available, and must include this notice in all plan materials that address the terms of the health-contingent wellness program.  Plans must also include this notice when they notify an individual employee that he or she did not meet the initial standard of an outcome-based program.  This notice must include contact information for obtaining information about the reasonable alternative standard, and must state that the recommendations of an individual employee’s physician will be accommodated. 

Affordability and Minimum Value of Tobacco Prevention/Reduction Programs Proposed regulations released May 3, 2013 govern how an employer factors a wellness program designed to prevent or reduce tobacco use into its affordability or minimum value analysis under the employer shared responsibility provisions.  The affordability of an employer-sponsored plan will be determined by assuming that each employee satisfies the requirements of a nondiscriminatory wellness program related to tobacco use.  Thus, the affordability of a plan that charges a higher initial premium for tobacco users is calculated based on the premium charged to non-tobacco users (or to tobacco users who complete the related wellness program, such as attending smoking cessation classes).  The proposed regulations also provide that minimum value calculations may assume that every eligible individual satisfies the terms of a nondiscriminatory wellness program designed to prevent or reduce tobacco use.  The regulations note that these exceptions are “consistent with other Affordable Care Act provisions (such as the ability to charge higher premiums based on tobacco use) reflecting a policy about individual responsibility regarding tobacco use.”  Employers can review the proposed regulations at