Plan sponsors should review wellness programs for compliance with recently issued final rules, which among other things increase the maximum permissible award for certain wellness programs. On May 29, the Internal Revenue Service and Departments of Labor and Health and Human Services issued final regulations applicable to group health plans that maintain wellness programs. The rules are effective for plan years beginning on or after January 1, 2014. The rules divide wellness programs into the following categories and subcategories:
- Participatory wellness programs that either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor; and
Health-contingent wellness programs that require an individual to satisfy a standard related to a health factor to obtain a reward, and are further subdivided as:
- Activity-only wellness programs, in which an individual is only required to perform or complete an activity related to a health factor, and
- Outcome-based wellness programs, under which an individual must attain or maintain a specific health outcome in order to obtain a reward.
Participatory wellness programs must be made available to all similarly situated individuals, regardless of health status. Groups that may be treated as distinct groups of similarly situated individuals include participants based on a bona fide employment-based classification and beneficiaries such as spouses and dependent children. Participatory wellness programs are not required to meet the more stringent requirements applicable to health-contingent wellness programs.
Five Requirements for Health-Contingent Wellness Programs
1. Frequency of opportunity to qualify. For both activity-only and outcome-based wellness programs, eligible individuals must be given an opportunity to qualify for the reward at least annually.
2. Size of reward. For both activity-only and outcome-based wellness programs, the maximum permissible award, in aggregate, is 30 percent of the total cost of coverage under the plan. For programs designed to prevent or reduce tobacco use, the maximum permissible award is 50 percent. For programs that combine tobacco use prevention with other activities unrelated to tobacco use, the maximum permissible award is 50 percent, provided that the award applicable to a non-tobacco use prevention program may in no case exceed 30 percent.
3. Reasonable design. Both activity-only and outcome-based programs must be reasonably designed to promote health or prevent disease. A 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.
4. Uniform availability and reasonable alternative standards. Whether activity-only or outcome-based, the full reward must be available to all similarly situated individuals and must be available to individuals who qualify by satisfying a reasonable alternative standard to the otherwise applicable standard.
- An activity-only program may require verification that a health factor makes it unreasonably difficult or medically inadvisable for the individual to attempt to satisfy the otherwise applicable standard.
- In an outcome-based program, an individual who does not meet the initial standard based on a measurement, test, or screening must be provided with a reasonable alternative standard regardless of any medical condition or other health status to ensure that outcome-based initial standards are not a subterfuge for discrimination or underwriting based on a health factor.
5. Notice of availability of reasonable alternative standard. Both activity-only and outcome-based programs are required to disclose, in all plan materials, the availability of a reasonable alternative standard to qualify for the reward, including contact information for obtaining the alternative and a statement that recommendations of a personal physician will be accommodated.
- For outcome-based programs, the notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard.
Finally, the regulations make clear that compliance under the wellness program regulations is not determinative of compliance with any other applicable requirements, such as the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, and the Family and Medical Leave Act.