his is the fifth in a series of “Spring Cleaning” alerts. As part of this series, we will provide you with various to-do items and tips in the employee benefits, employment, and immigration areas.

Not only is spring a great time to encourage your employees to get outside and get active, it’s also a great time to make sure your company’s wellness program is in good shape. One of the trickier aspects of wellness program legal compliance involves a type of wellness program that more and more employers are using to jump-start healthy behaviors among employees: the “outcome-based wellness program.” This alert focuses on outcome-based wellness programs, and how and when employers must offer a “reasonable alternative standard” to qualify for an award.

An outcome-based wellness program requires an individual to attain or maintain a specific health outcome in order to obtain a reward under a group health plan. Examples of outcome-based wellness programs include programs that:

  • Impose a premium “surcharge” on an employee who uses tobacco, causing the employee to pay more for health coverage each month than employees who do not use tobacco.   
  • Award premium discounts to employees who score in the healthy ranges on various biometric screening tests (e.g., healthy cholesterol levels, blood pressure, and BMI).   
  • Provide an employee with lower deductibles and out-of-pocket maximum under a group health plan for maintaining a healthy weight.

 Q&B Key: Some wellness programs provide rewards in cash, gift cards, or other tangible goods, and do not connect their rewards with a group health plan. Such wellness programs may avoid regulation as an outcome-based wellness program, but should be reviewed by an attorney for compliance with other applicable laws.

Under the federal law HIPAA, outcome-based wellness programs must comply with several requirements, including:

  1. The outcome-based wellness program must give individuals the opportunity to qualify for the reward under the program at least once per year.

This requirement will be straightforward in many situations, but can get complicated if employees have the opportunity to earn discounts or rewards throughout the year or if one year’s behaviors and scores result in a discount or reward during the subsequent year.

  1. The amount of the reward must not exceed certain caps.

As a general rule, the reward cannot exceed 30% of the cost of self-only coverage under the group health plan (employee + employer portion), but an employer can go as high as 50% if the additional 20% is in connection with a tobacco use prevention or reduction program. Special rules apply in situations where an employees’ dependents are able to participate in the wellness program.

  1. The outcome-based wellness program must be reasonably designed.

The program must have a reasonable chance of improving the health of, or preventing disease in, participating individuals. In addition, the program cannot be overly burdensome, a subterfuge for discrimination based on a health factor, or highly suspect in the method chosen to promote health or prevent disease.

  1. A reasonable alternative standard (“RAS”) to qualify for the reward must be provided to any individual who does not meet the initial standard based on a health-related measurement, test, or screening. 

A RAS must be offered regardless of the reason someone failed to meet the initial standard. In addition, the RAS must meet the following requirements:

  • If the RAS is completion of an educational program, the plan must make the educational program available to the individual or assist the individual in finding such a program. The program must be free for the individual.  
  • The time commitment must be reasonable.  
  • If the RAS is a diet program, the employer must pay any membership or participation fee but is not required to pay for the cost of food.  
  • If an individual’s personal physician states that a plan standard is not medically appropriate for the individual, the plan must provide a RAS that accommodates the physician’s recommendations.  
  • If the RAS is another outcome-based wellness program, it must comply with the outcome-based wellness program rules.  
  • The RAS cannot be a requirement to meet a different level of the same standard without providing an individual with additional time to comply with the RAS.

 Q&B Key: Most employers will want to choose the plan’s RAS at the time that the wellness program is communicated to employees, but they are not required to do so.

  1. Notice of the RAS must be provided. 

Notice of the availability of a RAS must be provided in:

  • All plan materials describing the terms of an outcome-based wellness program.  
  • Any disclosure that an individual did not satisfy an initial outcome-based standard.

Example of a Non-Compliant Wellness Program

At open enrollment, group health plan participants are required to complete a health risk assessment. If a participant indicates on the assessment that he is a smoker, he is informed that he must pay a premium “surcharge.” The following statement is included in all plan materials describing the surcharge: “Stop smoking today! We can help! If you are a smoker, we offer a smoking cessation program. If you complete the program, you can avoid this surcharge.” 

The plan offers a free and reasonable smoking cessation program. If the participant completes the program, the participant can avoid the surcharge in the year of the program. However, if the participant continues to smoke after participating in the program, the plan provides no further RAS and imposes the surcharge in all subsequent years.

This program fails to comply with the HIPAA requirements because it does not provide a RAS as required. The plan cannot cease providing a RAS because the participant did not stop smoking, and the plan must continue to offer a RAS (or provide the award for simply completing the first RAS).

Example of a Compliant Wellness Program

The facts are the same as the example above, except that the participant can avoid the surcharge by completing the smoking cessation program each year. This program complies with the HIPAA requirements.

Q&B KeyEven if a participant continues to “fail” to meet the desired health outcome (e.g., smoking cessation, healthy cholesterol level, healthy BMI, etc.) year after year, the participant must be able to continue obtaining the reward, or avoiding any surcharge, by completing an appropriate RAS. 

Q&B KeyMore and more, we are seeing wellness program designs that offer participants a “menu” of options to obtain a specific health plan reward or avoid a surcharge. In these designs, some methods are outcome-based and some methods are participatory and/or activity-based. These designs often offer employees increased flexibility, but should be reviewed for HIPAA compliance.