Are you considering adding a wellness program this year, or expanding your wellness offerings for employees? Have you considered whether your program is designed to comply with federal law?
The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor may be able to help.A new EBSA checklist is designed to help companies determine whether a health promotion or disease prevention program complies with the wellness program exceptions under the Health Insurance Portability and Accountability Act (HIPAA) nondiscrimination rules. Although HIPAA generally prohibits group health plans and health insurance issuers from basing eligibility or premiums on health factors, the Act's nondiscrimination rules include an exception for wellness programs that meet certain requirements. You may have heard these programs previously referred to as "bona fide wellness programs."
The HIPAA final regulations, which generally took effect for calendar year plans on January 1, 2008, describe how to design a wellness program to ensure that it is not treated as discriminating on the basis of a health factor. In the wake of that effective date, the EBSA received many common questions regarding what types of programs must comply with the new rules. As a result, the new checklist is designed to identify which programs must comply with the wellness program criteria to satisfy HIPAA's nondiscrimination provisions and how to apply those standards to various commonly offered wellness programs.
The easily-accessible checklist asks a series of yes/no questions, designed to identify wellness programs that are part of a group health plan covered under the Employee Retirement Income Security Act (ERISA) and therefore, subject to the HIPAA requirements. For those plans, the checklist identifies two compliance issues employers must address. First, if the wellness plan provides different levels of benefits based upon an individual meeting a standard relating to a health factor, then the program must be designed to meet the wellness program rules. Second, if the program varies the required employee premiums or contributions based upon an individual satisfying a standard relating to a health factor, then the program also must be designed to meet the wellness program criteria. Otherwise, in either case, failure to properly design the program will result in a wellness program that is impermissibly discriminatory and in violation of HIPAA.
If the wellness plan fails to comply with HIPAA's final regulations, generally the employer can be assessed excise taxes of up to $100 per day for each day the plan does not comply, for each individual participant in the plan to whom the failure relates. So, for example, for a plan with 100 participants who are affected by the failure, the employer could be subject to a potential excise tax of $10,000 per day for each day of noncompliance. This tax may be excused for reasonable cause and is capped at the lesser of 10 percent of the aggregate amount the employer paid for the group health plan during the preceding year, or $500,000. If, however, the noncompliance occurs before the IRS notifies the employer of its intent to audit the plan and if the failure continues during the period being examined, the IRS will not excuse taxes below a certain minimum amount, even if the failure resulted from reasonable cause and was not due to willful neglect.
Faced with the potential for these excise taxes, companies that offer wellness programs should consult the checklist when addressing their compliance issues and be aware of certain hidden pitfalls confronting them as they work through this checklist. For example, one question requires the employer to determine whether the wellness program is part of a group health plan, which requires a determination of whether the program is subject to Part 7 of ERISA. The guidance offered in the checklist may not be sufficient for employers to correctly make this determination in every case. Another question asks the employer to determine whether the program, though discriminatory, is "saved by benign discrimination." This concept permits employers to design wellness plans that allow discrimination in favor of an individual due to a health factor. Examples offered shed some light on what the EBSA means by "benign discrimination," but will require an employer to apply this concept on a case-by-case basis to determine whether the program may avoid compliance with the wellness program standards.