Jointly issued rules from the U.S. Departments of Health and Human Services, Labor, and the Treasury seek to provide guidance to employers offering workplace wellness programs that incentivize employees to improve their health.

While praising the value of wellness programs – which the Departments said can promote health and prevent disease – the regulations set forth changes like increased rewards and alternatives to allow all employees a chance to receive rewards in outcome-based plans.

“The final regulations also reorganize the presentation of the steps a plan or issuer must take to ensure a wellness program: is reasonably designed to promote health or prevent disease; has a reasonable chance of improving the health of, or preventing disease in, participating individuals; is not overly burdensome; is not a subterfuge for discriminating based on a health factor; and is not highly suspect in the method chosen to promote health or prevent disease,” according to the regulations.

Specifically, the regulations allow employers to offer larger rewards to employees who achieve success under the program. Regulations issued in 2006 pursuant to the Health Insurance Portability and Accountability Act limited the size of a reward to 20 percent of the cost of employee-only coverage under the plan. The new regulations increase the maximum possible reward to 30 percent, and smoking-related wellness programs were raised to 50 percent.

But employers must also offer “reasonable alternative standards” for outcome-based programs under the new regulations. Outcome-based or health-contingent wellness programs offer a reward to employees who reach a specified target, such as achieving a certain blood pressure goal or body-mass index. Under the old regulations, an employee who did not reach the target did not receive the reward.

Employees must now be rewarded for completing an alternative, the departments said. For example, if a program offers a reward for tobacco-free employees, the program must recognize “a cycle of failure and renewed effort.” For plans with an outcome-based standard, this might mean offering an educational seminar for smokers in year one and implementing a new nicotine replacement therapy in year two, the regulations suggested. The alternatives are intended to ensure that the program truly seeks to improve employees’ health and not operate as a means to reduce benefits based on health status, the Departments noted.

“The intention of the Departments in these final regulations is that, regardless of the type of wellness program, every individual participating in the program should be able to receive the full amount of any reward or incentive, regardless of any health factor.

”A similar system should be used for other outcome-based standards, the Departments said, including weight management. So if a plan provides a walking program as a reasonable alternative standard to a running program but it is not medically advisable for an individual to complete the walking program, the plan should provide a reasonable alternative standard to the walking program, the Departments said.

To read the new regulations, click here.

Why it matters: Employers who utilize outcome-based wellness programs as part of their health plans should carefully review the new regulations to ensure compliance before the regulations take effect for plan years beginning on or after Jan. 1, 2014. However, an open question remains for employers: Do wellness programs run afoul of federal statutes like the Americans with Disabilities Act (which has a general prohibition on asking disability-related questions unrelated to a job) and the Genetic Information Non-Disclosure Act (under which employers are forbidden from asking about an employee’s family medical history)? Because the Equal Employment Opportunity Commission didn’t participate in the Departments’ regulations, the question remains unanswered.