On June 3, 2013, the United States Department of Labor, Department of Health and Human Services, Internal Revenue Service, Employee Benefits Security Administration and Department of the Treasury (collectively "the Departments") published in the Federal Registerfinal guidance regarding nondiscriminatory wellness programs under employer-sponsored group health plans. This final guidance was issued in the form of much-anticipated joint final regulations on such wellness programs (the "Final Regulations"). It is important to note that the Final Regulations will apply to wellness programs offered under all group health plans [regardless of whether the plan is "grandfathered" under the Patient Protection and Affordable Care Act (the "Affordable Care Act")]. Moreover, these Final Regulations will be effective for plan years beginning on or after January 1, 2014.
The Final Regulations largely mirror the prior rules on nondiscriminatory wellness programs published by the Departments in 2006 and 2012. In addition to clarifying and modifying some aspects of these prior rules, the Final Regulations are designed to implement the Affordable Care Act requirement to increase the permissible reward available to a participant under a discriminatory wellness program to 30 percent of the cost of employee-only coverage. As a result, the Final Regulations increase the maximum reward available under a health-contingent wellness program to 30 percent of the cost of employee-only coverage and up to 50 percent of the cost of employee-only coverage if the wellness program is designed to prevent or reduce tobacco use.
The remainder of the provisions of the Final Regulations, however, do not differ dramatically from the 2006 and 2012 rules for nondiscriminatory wellness programs under group health plans. Like those prior rules, wellness programs are still divided into two groups for purposes of compliance with the nondiscrimination provisions of the Health Insurance Portability and Accountability Act (HIPAA): participatory wellness programs and health-contingent wellness programs. However, the Final Regulations add a key distinction between health-contingent wellness programs that are activity-based as opposed to outcome-based and include new model reasonable-alternative-standard disclosure language for health-contingent wellness programs.
Participatory Wellness Program
Under a participatory wellness program, a participant is required to engage in an activity (with no specific outcome required) to receive a reward under the wellness program. A reward is defined as a premium discount or the avoidance of a surcharge for engaging in an activity. All references in the Final Regulations to a plan providing a reward include both providing a reward (such as a discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism, an additional benefit, or any financial or other incentive) and imposing a penalty (such as a surcharge or other financial or nonfinancial disincentive). A participatory wellness program is nondiscriminatory under the Final Regulations without satisfying any further requirement, but it still must comply with other applicable laws—including the Genetic Information Nondiscrimination Act (GINA) and the Americans with Disabilities Act (ADA).
Examples of participatory wellness programs include programs that require an individual to participate without any requirement of a specific outcome, such as providing a reward or reimbursement for attendance at a smoking cessation program or at other no-cost seminar programs designed to promote a healthier lifestyle among participants; or providing for the waiver of a co-payment or deductible for a preventive care visit where no result is required, to encourage a participant to engage in preventive care visits. It is important to note that this last example would be applicable only to a plan that is grandfathered under the Affordable Care Act, as non-grandfathered plans are required to provide preventive care without any cost-sharing requirement for the participant.
Health Contingent Wellness Program
A health contingent wellness program requires a participant to satisfy or achieve a certain criterion called a "health standard" in order to obtain a reward (typically a premium discount or avoidance of a premium surcharge) under the program. The Final Regulations provide for two types of health contingent wellness programs: activity-based wellness programs and outcome-based wellness programs.
An activity-based wellness program requires an individual to complete or to perform an activity related to a health factor to obtain the offered reward, but it does not require the individual to attain any specific health outcome to receive the reward. Examples of such programs include those which require an individual to engage in a physical activity such as exercising or dieting, but with no required outcome to receive the reward.
As the name suggests, an outcome-based wellness program requires that an individual actually achieves a specific result or outcome to qualify for the reward. Examples of such programs include providing a reward only if an individual achieves a certain healthy goal weight, achieves smoking cessation or attains certain biometric testing results.
A health contingent wellness program (whether it is activity-based or outcome-based) must satisfy five criteria under the Final Regulations to be deemed nondiscriminatory under HIPAA. The requirements differ slightly depending upon whether the program is an activity-based program or an outcome-based program (as noted below).
- Individuals must be provided with the opportunity to qualify for the reward under the program at least once per year.
- The program must be reasonably designed to promote health or prevent disease. With respect to the "reasonable design" requirement, the Final Regulations allow plans to design wellness programs that are limited to targeted groups of individuals with adverse health factors and, therefore, do not prevent the establishment of more favorable rules for eligibility or premium rates for individuals with an adverse health factor than for individuals without the adverse health factor.
- The amount of the reward available if a health standard is satisfied by a participant cannot exceed more than 30 percent of the cost of employee-only coverage or more than 50 percent of the cost of employee-only coverage if the program is a tobacco wellness program.
- The program must permit individuals to achieve the reward through a reasonable alternative standard.
Activity-Based Wellness Program
An activity-based program must provide an alternative to achieve the reward to individuals for whom it is unreasonably difficult to satisfy the standard due to a medical condition or for whom it is medically inadvisable to attempt to satisfy the standard. The wellness program sponsor need not determine the reasonable alternative standard in advance, and can do so upon request by an individual for an alternative standard. Moreover, a program sponsor can waive achievement of an alternative standard all together and provide the reward to those for whom it is unreasonably difficult or medically inadvisable to meet the standard.
The Final Regulations added the following additional requirements that must apply to this reasonable alternative standard: If a time commitment is required to engage in the alternative standard, it must be a reasonable time commitment; if the alternative standard is attending a wellness program, the wellness program must make the program available or assist the individual in locating the program and must pay the cost of the program; if a diet program is required, then the wellness program must pay for the cost of the program and for any food required as a part of the program; and if an individual?s physician advises that the alternative standard is not medically appropriate for the individual, a standard that accommodates the physician?s recommendations must be provided.
In addition, the Final Regulations provide that the wellness program may seek verification from an individual's physician that a health factor makes it medically inadvisable or unreasonably difficult to satisfy the activity-based program.
Outcome-Based Wellness Program
Unlike prior guidance, the Final Regulations provide that a plan must offer a reasonable alternative standard for all individuals who do not meet the designated initial standard, regardless of whether the individual has a medical condition that contributed to the failure. The Final Regulations also clarify that an outcome-based wellness program includes a program where an individual must take an alternative pathway to receive a reward based on failure to achieve an initial health standard. For example, if a program requires that participants undergo biometric testing to receive a reward, but requires those who fail the testing to take additional steps, such as attending a health education class, to receive the same reward, then the program is an outcome-based wellness program.
- The program must provide notice of availability of a reasonable alternative standard or of a waiver of that requirement in all plan materials describing the wellness program. This notice must also include plan contact information and a statement that the recommendation of an individual's personal physician will be accommodated. The Final Regulations include model language for this notice (which has been modified from prior guidance).
Recent EEOC Guidance
The EEOC clarified during its public hearing last month that employers should not assume that HIPAA-compliant wellness programs automatically comply with the federal laws enforced by the Commission. Although the ADA, for example, permits disability-related inquiries and medical examinations that are part of a "voluntary" wellness program, the EEOC has not yet issued clear guidance on when a wellness program is deemed "voluntary." Indeed, the EEOC has said only that a wellness program is "voluntary" under the ADA "as long as an employer neither requires participation nor penalizes employees who do not participate." The EEOC has not, however, taken a position on the key issue of whether and to what extent offering a reward under a wellness program amounts to a requirement to participate and, therefore, renders the program involuntary under the ADA.
Several panelists testifying at the EEOC's hearing last month encouraged Commissioners to adopt HIPAA's 30-percent standard for purposes of determining whether a reward under a wellness program is permissible under the ADA; the EEOC, however, gave no plain indication of whether it would adopt such a standard (or issue any guidance, for that matter). Similarly, the EEOC gave no indication of whether an employer's application of HIPAA's "reasonable alternative" standard would satisfy its obligation under the ADA to provide a reasonable accommodation to an employee who cannot, for example, meet a particular health objective because of the employee's disability.
Under the ADA, even if a wellness program is involuntary, it still may be lawful if it falls under the ADA's safe harbor for bona fide benefit plans. Although one federal appellate court previously held that an employer's wellness program, which was part of a group health plan, fell within the ADA's safe harbor for bona fide benefit plans, the EEOC may decide not to take that same position, and regardless, not all state laws prohibiting disability discrimination contain a safe harbor provision the same as or similar to the ADA's safe harbor. Further, ERISA will not necessarily preempt the state law. Accordingly, in addition to proceeding with caution due to the current absence of plain guidance from the EEOC on the ADA's impact on wellness programs, employers should also consider applicable state law when evaluating their wellness programs for legal compliance.
There are still other legal considerations that employers should consider. By way of example only, employers should consider in designing their program how to minimize the risk that the program will have an adverse impact on a protected group. For example, it may be harder for older employees than younger employees to reduce their BMI.
What This Means for Employers
For employers that currently maintain or desire to implement wellness programs to encourage healthy employee behavior or control plans costs, the time to start planning is now. Employers that currently maintain wellness programs should consider reviewing their programs offered in conjunction to ensure compliance with the Final Regulations, while employers looking to implement wellness programs may want to design such programs in compliance with the Final Regulations. In addition, an employer may wish to verify the wellness program's continued compliance with other applicable laws, such as HIPAA privacy and security requirements, GINA and the ADA.