On June 3, 2013, the Departments of Labor, Health and Human Services, and the Treasury published final Regulations on Incentives for Nondiscriminatory Wellness Programs in Group Health Plans. Generally, the final Regulations follow the proposed Regulations published on November 26, 2012 with some reorganization and clarification.
Categories and New Subcategories of Wellness Programs
The final Regulations maintain two categories of wellness programs:
- participatory wellness programs, and
- health-contingent wellness programs.
Health-contingent wellness programs are further divided into two new subcategories:
- activity-only wellness programs, and
- outcome-based wellness programs.
The Regulations also implement an increase in the permissible reward for a health-contingent wellness program from 20 percent to 30 percent of the total cost of the coverage under the group health plan (and an additional 20 percent, for a total of 50 percent, for programs designed to prevent or reduce tobacco use). The Regulations generally apply to group health plans for plan years beginning on or after January 1, 2014 and apply to both grandfathered and non-grandfathered plans.
While the Regulations do not apply until plan years beginning on or after January 1, 2014, employers should begin evaluating their wellness programs soon in order to ensure proper design and communication for 2014. Also, any assessments or certifications (such as biometric screenings or health risk assessments) performed in 2013 for premium reductions in 2014 must comply with the final Regulations.
Participatory wellness programs are those that neither provide a reward nor include any conditions for obtaining a reward based on an individual satisfying a standard related to a health factor. Examples of participatory wellness programs include reimbursement for the cost of a fitness center membership, a reward for participating in a diagnostic testing program without regard to the outcome or a reward for attending a monthly no-cost health education seminar. The final Regulations clarify that participatory wellness programs are permissible under the HIPAA nondiscrimination rules as long as they are available to all similarly situated individuals regardless of health status.
While participatory wellness programs are generally deemed to automatically comply with HIPAA, they must continue to comply with other laws, including ERISA, GINA and the ADA.
Health-contingent wellness programs are those that require an individual to satisfy a standard related to a health factor to obtain a reward (or require an individual to undertake more than a similarly situated individual, based on a health factor, to obtain the same reward). As noted above, health-contingent wellness programs are divided into two subcategories: activity-only and outcome-based.
Activity-only wellness programs require an individual to perform or complete an activity related to a health factor to obtain an award, but not to attain or maintain a specific health outcome. Examples of activity-only wellness programs include walking, diet or exercise programs.
Under outcome-based wellness programs, an individual must attain or maintain a specific health outcome (such as not smoking or attaining certain results in biometric screenings) to obtain a reward. Generally, outcome-based wellness programs have two tiers:
- a measurement, test or screening as part of an initial standard, and
- wellness activities that target individuals who do not meet the initial standard.
Even when an education program is offered to individuals who do not meet the initial standard as an alternative means of receiving the reward, such wellness programs are still considered outcome-based because individuals who do not meet the initial standard are required to do more than individuals who meet the initial standard. Examples of outcome-based wellness programs include programs that test individuals for specified medical conditions or risk factors (such as high cholesterol, high blood pressure, abnormal BMI or high glucose level) and provide a reward to employees identified as being within a normal or healthy range, while requiring employees identified as outside the normal or healthy range to take additional steps (such as meeting with a health coach, taking a health or fitness course, adhering to an improvement action plan or complying with a health care provider's plan of care) to obtain the same reward.
Five Requirements for Health-Contingent Wellness Programs
The final Regulations maintain the five requirements for health-contingent wellness programs, which apply to both activity-only and outcome-based programs, and clarify to whom a reasonable alternative standard must be offered and how those standards are administered differently for activity-only and outcome-based programs.
Frequency of Opportunity to Qualify
All health-contingent wellness programs must permit individuals eligible for the program the opportunity to qualify for the full reward at least once per year.
Size of Reward
The total amount of the reward offered to an individual under all health-contingent wellness programs cannot exceed 30 percent of the total cost (including both employer and employee costs) of the employee-only coverage under the plan. If spouses or dependents are eligible to participate in the wellness program, the maximum percentage can be based on the total cost of the coverage in which the employee and dependents are enrolled. The percentage is increased an additional 20 percent, to a total of 50 percent, for health-contingent wellness programs designed to prevent or reduce tobacco use.
Proposed regulations under the Patient Protection and Affordable Care Act provide that the premium used in determining whether a plan is "affordable" or provides "minimum value" for purposes of triggering the pay or play penalty generally should be determined as if the individual satisfied the criteria for a tobacco-related wellness program and failed to satisfy the criteria for any other type of wellness program.
A health-contingent wellness program must also be reasonably designed to promote health or prevent disease. The final Regulations provide that a wellness program is reasonably designed if it:
- has a reasonable chance of improving the health of, or preventing disease in, participating individuals,
- is not overly burdensome,
- is not a subterfuge for discrimination based on a health factor, and
- is not highly suspect in the method chosen to promote health or prevent disease.
Uniform Availability and Reasonable Alternative Standards
The full reward under a health-contingent wellness program must be available to all similarly situated individuals. This means that in certain circumstances, a health-contingent wellness program must provide a reasonable alternative standard (or waiver of the otherwise applicable standard) for qualifying for the reward. The final Regulations clarify that to satisfy the requirement to provide a reasonable alternative standard, the same, full reward must be available to individuals who qualify by satisfying a reasonable alternative standard as is provided to those who qualify by satisfying the program's otherwise applicable standard.
When an individual requires time to request, establish and satisfy a reasonable alternative standard, the individual must receive the same, full reward provided to those who meet the initial standard. This means that if an individual does not satisfy a reasonable alternative standard for a premium discount until April 1 of a plan year, the plan must provide the premium discount for January, February and March in addition to the balance of the year. The plan has the flexibility to determine how to provide the portion of the reward corresponding to the period before the alternative was satisfied (for instance, through a lump sum payment for the retroactive period or pro rata over the remainder of the year).
All facts and circumstances are taken into account in determining whether a plan has provided a reasonable alternative standard, including but not limited to the following factors:
- If the reasonable alternative standard is completion of an educational program, the plan must make the educational program available or assist the employee in finding such a program, and may not require an individual to pay for the cost of the program.
- The time commitment required must be reasonable (for example, requiring attendance nightly at a one-hour class would be unreasonable).
- If the reasonable alternative standard is a diet program, the plan is not required to pay for the cost of food, but must pay any membership or participation fee.
- If an individual's personal physician determines a plan standard is not medically appropriate for that individual, the plan must provide a reasonable alternative standard that accommodates the physician's recommendations regarding medical appropriateness.
In addition to the requirements above for all health-contingent wellness programs, additional requirements for reasonable alternative standards apply to both activity-only and outcome-based programs.
Reasonable alternative standards for activity-only wellness programs. An activity-only program must allow a reasonable alternative standard (or waiver of the otherwise applicable standard) for obtaining the reward for any individual for whom it is either:
- unreasonably difficult to meet the otherwise applicable standard due to a medical condition, or
- medically inadvisable to attempt to satisfy the otherwise applicable standard.
For example, some individuals participating in an activity-only wellness program may be unable to participate in or complete (or have difficulty participating in or completing) the program's prescribed activity due to a health factor. For example, an individual may be unable to participate in a walking program due to a recent surgery or pregnancy, or may have difficulty participating due to severe asthma.
If reasonable, the plan may also seek verification to determine that medical judgment is required to evaluate the validity of the request. This may include a statement from the individual's personal physician that a health factor makes it unreasonably difficult or medically inadvisable for the individual to satisfy the otherwise applicable standard in an activity-only wellness program.
Reasonable alternative standards for outcome-based wellness programs. To the extent that the initial standard for obtaining a reward (or a portion of a reward) is based on the results of a measurement, test or screening related to a health factor (such as a biometric screening or a health risk assessment), the program must provide a different, reasonable means of qualifying for the reward, even if it is not unreasonably difficult or medically inadvisable for the individual to meet or attempt to meet the applicable standard.
If the reasonable alternative standard for an outcome-based program is another outcome-based program, the reasonable alternative standard cannot be a requirement to meet a different level of the same standard without taking into account the individual's circumstances and providing additional time to comply. For example, if the initial standard is to achieve a BMI less than 30, the reasonable alternative standard cannot be to achieve a BMI less than 31 on the same date. However, a reasonable alternative standard could be to reduce the individual's BMI by a small amount or a small percentage over a realistic period of time, such as within a year. In addition, an individual must be given the opportunity to comply with his or her personal physician's recommendations as a second reasonable alternative standard to meeting the reasonable alternative standard defined by the program, but only if the physician joins in the request.
Notice of Availability of Reasonable Alternative Standard
Program sponsors must disclose the availability of a reasonable alternative standard to qualify for a reward (and, if applicable, the possibility of waiver of the otherwise applicable standard) in all materials describing the terms of a health-contingent wellness program. The final Regulations provide that the disclosure must include contact information for obtaining the alternative and a statement that an individual's personal physician's recommendations will be accommodated. For outcome-based wellness programs, this notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard.
What Should a Group Health Plan Do in Response to the Final Regulations?
Generally, employers who have incorporated wellness programs into their overall health benefits strategy should:
- Review their plan design for all wellness programs for the 2014 plan year and future years to ensure compliance with the final Regulations. Changes in plan design will most likely be needed to comply with the Regulations.
- Revise communications regarding wellness programs for the 2014 plan year and future years to ensure compliance with the additional disclosures required by the final Regulations. This includes communications sent in 2013 about programs for 2014 and beyond. Employers should note that the notices need to include a statement that an individual's personal physician's recommendations will be accommodated.