Employers continue to look for ways to manage the cost of employee health care coverage as they navigate the turbulent waters of healthcare reform, and wellness programs continue to be a popular strategy. However, adoption and expansion of these programs has been hampered somewhat by questions about their effectiveness, cost, and the risk of noncompliance with the uncoordinated web of laws and regulations governing these programs. While evidence seems to be emerging that at least some wellness program designs can be an effective means for cost control and long-term savings due to improved health, recently issued final regulations under the Health Insurance Portability and Accountability Act (HIPAA) effective beginning in 2014 only add additional burdens to employers’ compliance efforts.
HIPAA amended ERISA to generally prohibit discrimination against individual participants and beneficiaries in eligibility, benefits or premiums based on “health status-related factors,” including physical and mental illnesses, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability. However, under the wellness program exception to HIPAA group health plans may offer premium discounts, rebates, reduced co-payments and/or lower deductibles (generally referred to as ‘rewards’) to participants and beneficiaries who take part in “programs of health promotion and disease prevention.”
The final HIPAA nondiscrimination regulations, effective for plan years beginning after 2013, create two categories of programs under the wellness program exception: ‘participatory wellness programs’ and ‘health-contingent wellness programs.’
Participatory wellness programs either provide no reward or do not condition a reward on the achievement of a health standard. Examples of participatory wellness programs include:
- Reimbursing all or part of the cost of a fitness center membership;
- Reimbursing costs of participation or rewarding participation in a smoking cessation program regardless of whether the individual quits smoking; and
- Rewarding participation in a no-cost health education seminar, a health risk assessment, or a diagnostic testing program, regardless of outcomes and without requirement for further actions.
A participatory wellness program must be available to all similarly situated individuals regardless of health status, but otherwise is not required to comply with the more strenuous requirements applicable to health-contingent wellness programs.
Health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward or require an individual to undertake more than a similarly situated individual based on a health factor in order to receive the same reward. Health-contingent wellness programs are divided into two subcategories: ‘activity-only wellness programs’ and ‘outcome-based wellness programs.’
Activity-only wellness programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward, but do not require the individual to attain or maintain a specific health outcome. Examples of activity-only wellness programs include walking, diet, or exercise programs. If an individual cannot participate in the activity due to a health factor, then a reasonable alternative (or waiver of the otherwise applicable standard) must be provided in order to qualify for the reward.
Outcome-based wellness programs require an individual either to attain a specific health standard or complete an activity or other requirement related to the health factor in order to obtain a reward. These programs usually have two tiers: a measurement, test or screening, followed by a program that targets individuals who do not meet a pre-specified standard. Examples of outcome-based wellness programs include:
- Reward for non-tobacco use, or participate in a tobacco use cessation program; and
- Reward for cholesterol, blood pressure or body mass index below a specified level, or take additional steps, such as complying with a prescribed plan of care or participating in a exercise program.
An individual who does not meet the specified health standard must be provided a reasonable alternative (or waiver of the otherwise applicable standard) in order to qualify for the reward.
Both activity-only wellness programs and outcome-based wellness programs must satisfy the following five additional requirements:
- Individuals eligible for the program must be given the opportunity to qualify for the reward at least once per year.
- The size of the reward(s) under all health-contingent wellness programs is limited to a maximum of 30% (50% for tobacco nonuse/cessation programs) of the total cost of elected coverage.
- The program has a reasonable chance of improving the health of, or preventing disease in, participating individuals, is not overly burdensome, is not a subterfuge for discrimination based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease.
- The full reward must be available to all similarly situated individuals and, as previously discussed, a reasonable alternative must be provided for obtaining a reward. The plan is permitted to seek verification from the individual’s physician only that a health factor makes it unreasonably difficult or medically inadvisable for the individual to participate in an activity, and not whether the individual can satisfy a specified health standard. Alternatives do not have to be determined in advance but must be provided upon request within a reasonable time.
- Notice of the availability of a reasonable alternative must be provided in all plan materials that describe the terms of the health-contingent wellness program, and include contact information for obtaining the alternative and a statement that recommendations of an individual’s personal physician will be accommodated.
Add to these new rules the alphabet soup of other rules that impact wellness programs, including HIPAA privacy and security, GINA, ADA, ADEA, Title VII, FLSA, and COBRA, and it becomes clear that plan sponsors would be well-served to have even the most seemingly simple program reviewed by legal counsel for compliance.