Final wellness regulations were issued by the Departments of Treasury, Labor, and Health and Human Services (the “Departments”) on June 3, 2013 and apply to employer-sponsored group health plans for plan years beginning on or after January 1, 2014. The final regulations made some significant changes to the existing requirements, so employers who sponsor wellness programs should familiarize themselves with the new requirements and make any necessary changes to their wellness programs in time for open enrollment.
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) generally prohibits group health plans from discriminating against an individual with respect to eligibility, benefits and premiums based on a health factor. An exception exists for wellness programs, provided that they meet certain requirements identified in wellness regulations issued in 2006.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively referred to as the “Affordable Care Act”) amended HIPAA’s nondiscrimination and wellness provisions and increased the limits of rewards that could be provided under health-contingent wellness programs. The final regulations incorporate the changes required by the Affordable Care Act and also make additional changes to the existing wellness requirements. The final regulations reflect the Departments’ intent that wellness programs be reasonably designed to promote health and prevent disease and not a subterfuge for discriminating against individuals based on a health factor. In the preamble to the final regulations, the Departments state that, regardless of the type of the wellness program, every individual participating in the program should be able to receive the full reward or incentive, regardless of any health factor. Plan sponsor should keep that goal in mind when designing or revising their wellness programs.
Types of Wellness Programs
The final regulations identify two types of wellness programs—participatory and health-contingent wellness programs, and further divide health-contingent wellness programs into two subcategories—activity-only wellness programs and outcome-based wellness programs.
- Participatory wellness programs are 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. An example includes receiving a reward for completing a health risk assessment or having a biometric screening performed regardless of the outcome or results.
Health-contingent wellness programs are programs that require an individual to satisfy a standard related to a health factor to obtain the reward.
- Activity-only wellness programs require that an individual perform or complete an activity related to a health factor to obtain a reward. Examples of activity-only wellness programs include walking, diet or exercise programs, where participation in such programs adjusts benefits or premiums under a group health plan.
- Outcome-based wellness programs require that an individual attain or maintain a specific health outcome to obtain a reward. Examples of outcome-based wellness programs include programs that provide rewards for not using tobacco products or testing within a normal range under a biometric screening.
Requirements for Participatory Wellness Programs
The final regulations did not change the requirements for participatory wellness programs. These programs must be made available to all similarly situated individuals regardless of health status. If factors other than health status (such as scheduling conflicts) limit an individual’s ability to take part in a program, the plan has not violated the general rule prohibiting discrimination based on a health factor.
Requirements for Health-Contingent Wellness Programs
The final regulations generally retain the existing five requirements for health-contingent wellness programs along with the changes identified in regulations proposed in November 2012. However, as mentioned above, the final regulations further divide health-contingent wellness programs into two categories (i.e., activity-only wellness programs and outcome-based wellness programs) and clarify how the requirements apply to each category.
- Opportunity to qualify. The final regulations retain the existing requirement that all health-contingent wellness programs give individuals the opportunity to qualify for the reward at least once per year.
- Size of reward. The final regulations increase the amount of the award in accordance with the Affordable Care Act.
- Non-tobacco programs. The total reward offered to an employee under all health-contingent wellness programs that do not address tobacco use with respect to a plan cannot exceed 30% of the total cost of employee-only coverage under the plan, taking into account both employer and employee contributions.
- Tobacco programs. The total reward offered to an employee under all health-contingent wellness programs designed to prevent or reduce tobacco use with respect to a plan cannot exceed 50% of the total cost of employee-only coverage, taking into account both employer and employee contributions.
- Tobacco and non-tobacco programs. If a health-contingent wellness program combines tobacco and non-tobacco programs, the non-tobacco program reward cannot exceed 30% of the total cost of employee-only coverage and the non-tobacco and tobacco reward, combined, cannot exceed 50% of the total cost of employee-only coverage. For example, a program that provides a 10% reward for the results of a biometric screening and a 40% reward for non-tobacco use satisfies the requirement, but a program that provides a 40% reward for the results of a biometric screening and a 10% reward for non-tobacco use would not.
If dependents may also participate in the health-contingent wellness program, the reward cannot exceed the applicable percentage (i.e., 30% or 50%) of the total cost of the coverage in which the employee and dependents are enrolled.
The final regulations provide that grandfathered plans may increase the maximum permissible reward under a health-contingent wellness program from 20% to 30% of the cost of coverage (or as much as 50% for programs designed to prevent or reduce tobacco) without losing grandfathered status. However, the final regulations do not specifically address whether a plan that does not currently maintain a wellness program can add a wellness program without impacting grandfathered plan status.
However, proposed regulations issued by the Internal Revenue Service in May 2013 provide that affordability and minimum value of employer-sponsored coverage will be determined assuming that the employee has failed to satisfy the requirements of a non-tobacco wellness program. In contrast, affordability and minimum value can be determined assuming that the employee has satisfied the requirements of a tobacco wellness program. Transition rules apply for 2014.
- Reasonable design. The final regulations continue to require that health-contingent wellness programs be reasonably designed to promote health or prevent disease, whether activity-only or outcome-based. A wellness program is reasonably designed if: (1) it has a reasonable chance of improving the health or preventing disease in participating individuals; (2) it is not overly burdensome; (3) it is not a subterfuge for discrimination based on a health factor; and (4) is not highly suspect in the method chosen to promote health or prevent disease. The determination of whether a wellness program satisfies these requirements is based on all relevant facts and circumstances.
In addition, to ensure that an outcome-based wellness program is reasonably designed and is not intended as a subterfuge for underwriting or reducing benefits based on a health factor, a reasonable alternative standard to qualify for the reward must be provided to any individual who does not meet the initial standard based on a measurement, test or screening related to a health factor (as explained in more detail under “Uniform availability and reasonable alternative standards”).
In the preamble, the Departments rejected a suggestion that all wellness programs be based on evidence-based clinical guidelines and national standards established by bodies such as the Centers for Disease Control and Prevention, Centers for Medicare & Medicaid Services or the National Institutes of Health. Instead, the Departments indicated that while wellness programs are not required to be accredited or based on particular evidence-based clinical standards (such as those provided in the CDC’s Guide to Community Preventive Services), plan sponsors are encouraged to look to those standards as a best practice as they may increase the likelihood of the wellness program’s success.
- Uniform availability and reasonable alternative standards. The final regulations significantly revise and also provide important clarifications regarding the requirement that the full reward under a health-contingent wellness program must be made available to all similarly situated individuals.
Who qualifies for an alternative?
- For activity-based wellness programs, the program must provide a reasonable alternative standard (or waive the otherwise applicable standard) for any individual for whom it is unreasonably difficult due to a medical condition to satisfy the standard or medically inadvisable to attempt to satisfy the standard. If reasonable, the plan may seek verification from the individual’s personal physician (e.g., because medical judgment is necessary to evaluate the validity of the request for an alternative standard).
- For outcome-based wellness programs, the program must provide a reasonable alternative standard (or waive the standard) for any individual who does not meet the initial standard based on the measurement, test or screening. The plan may not seek verification from the individual’s physician.
- When must alternatives be developed? Plans are not required to determine a particular reasonable alternative standard in advance. A reasonable alternative must be offered upon the individual’s request, or the condition for obtaining the reward must be waived.
Specific factors that must be met to be considered reasonable:
- If the alternative is an education program, the plan must make the program available or assist in finding the program and pay for the cost.
- The time commitment required must be reasonable.
- If the alternative is a diet program, the plan must pay for the cost of any membership or participation fee, but not food.
- If an individual’s physician states that the plan’s standard is not medically appropriate for the individual, the plan must provide an alternative that accommodates the recommendations of the individual’s physician.
- Full reward must be made available even if the alternative is satisfied later in the year. For example, if a calendar year plan offers a health-contingent wellness program with a premium discount and an individual who qualifies for a reasonable alternative satisfies the alternative’s requirements on April 1, the plan must provide the discount for January, February and March to the individual. Plan sponsors have flexibility to determine how to provide the portion of the retroactive reward (e.g., lump sum or pro rata over the remainder of the year). If the individual does not satisfy the alternative until the end of the year, the plan may provide a retroactive payment of the reward for that year within a reasonable time after the end of the year, but may not provide pro rata payments over the following year.
Requirements for the reasonable alternatives:
- If the alternative is an activity-only wellness program, it must comply with the requirements for universal availability and a reasonable alternative standard summarized above. For example, if a plan provides a walking program as a reasonable alternative to a running program, individuals for whom it is unreasonably difficult due to a medical condition or medically inadvisable to attempt to complete the walking program, must be provided with a reasonable alternative to the walking program.
- If the alternative is an outcome-based wellness program, it must comply with the requirements for universal availability and a reasonable alternative standard summarized above, subject to two special rules. The preamble indicates that the special rules are intended to prevent a never-ending cycle of reasonable alternative standards being required to be provided, while also ensuring that the alternative is, in fact, reasonable in light of the individual’s actual circumstances and determined to be medically appropriate in the judgment of the individual’s personal physician.
First, the alternative cannot be a requirement to meet a different level of the same standard without additional time to comply that takes into account the individual’s circumstances. For example, if the initial standard is to have a BMI less than 30, the alternative cannot be to have a BMI less than 31 on that same date. A reasonable alternative could be to reduce the individual’s BMI by a small amount or percentage over a realistic period of time, such as within a year.
Second, an individual must be given the opportunity to comply with the recommendations of the individual’s personal physician as a second reasonable alternative standard, but only if the physician joins in the request.
- Notice of availability of reasonable alternative standard. The final regulations continue to require that plans disclose the availability of a reasonable alternative standard in all plan materials describing the terms of a health-contingent wellness program (both activity-only and outcome-based programs). The final regulations also clarify that the disclosure must include: (1) contact information for obtaining the alternative; and (2) a statement that recommendations of an individual’s physician will be accommodated. For outcome-based wellness programs, the notice regarding physician recommendations must also be included in any notice that an individual did not satisfy an initial outcome-based standard.
If plan materials merely mention that a wellness program is available, without describing its terms, the disclosure is not required. For example, a Summary of Benefits and Coverage (required by the Affordable Care Act) that indicates that cost sharing may vary based on participation in a wellness program, without describing the standards of the program, would not trigger the disclosure. However, if plan materials indicate that a premium differential is available based on tobacco use or the results of a biometric screening, it must include the disclosure.
The final regulations provide new sample disclosure language and alternative examples.
Employers that sponsor wellness programs should review these new requirements that apply to plan years beginning on or after January 1, 2014 to determine whether any changes need to be made to their existing wellness programs to remain in compliance.