With little time to spare before employers finalize their plan designs for 2014, we now have the final rules for wellness programs. The Agencies officially released the final rules on June 3, 2013, which apply to group health plans for plan years beginning on or after January 1, 2014 (even if the plan is grandfathered under the Affordable Care Act).

The Agencies re-designed, some would say dramatically re-designed, the final rules from what was proposed late last year. Under the final rules, wellness programs are divided and sub-divided into three general categories (as explained below). The Agencies even say that there may be wellness programs hiding within other wellness programs – requiring employers and plan sponsors to examine the rules at even a more granular level than ever before. With all the differentiation in wellness programs and the hyper-analysis that is now required, all of this leads employers and plan sponsors to what is now becoming a familiar tune for wellness programs. That is, if you have seen one wellness program, you have only seen one wellness program.

For a wellness program to be exempt from the HIPAA nondiscrimination rule, the wellness program must meet certain requirements. The requirements vary depending on whether the wellness program is participatory or health-contingent and also depending on whether the health-contingent program is “activity-only” or “outcome-based”. Examples of a participatory program include reimbursements for the cost of a fitness center, rewards for completing a voluntary health risk assessment or biometric screening and rewards for attending a no-cost health education seminar. Examples of health-contingent programs include premium surcharges for smokers and requiring employees to have a certain cholesterol or body mass index level.

Participatory Wellness Programs

A participatory wellness program (which either does not provide a reward or does not include any conditions for obtaining the reward that are based on a health factor) is permissible under the HIPAA nondiscrimination rules, as long as it is made available to all similarly situated individuals, regardless of health status. These types of programs are excluded when an employer or plan sponsor is calculating the 30% or 50% financial limits (as explained below).

Health-Contingent Wellness Programs

The 2012 proposed rules provided five requirements for health-contingent programs, and these five requirements continue to apply. However, the final rules subdivide health-contingent programs into two separate types – activity-only and outcome-based programs.

An activity-only program refers to those programs where an individual is required to perform an activity related to a health factor to obtain a reward (such as walking or diet programs), but no specific outcome is required. An outcome-based program is one where an individual must actually attain or maintain a particular health outcome to obtain the reward (such as not smoking or attaining specific biometric results). If a measurement or screening is used as part of an initial standard and only those who meet the standard obtain the reward without any further action, the program is outcome-based. As explained in the final rules, if a program tests for high cholesterol and provides a reward to those within a normal or healthy range but requires others to take additional steps, such as meeting with a health coach or participating in a walking program, the program is outcome-based (even though the additional program does not require the attainment of any specific goal).

The requirements that apply to health-contingent programs are:  

  • Individuals must be eligible to qualify for the reward at least annually.
  • The total reward for all health-contingent programs under a plan cannot exceed the “applicable percentage” of the total cost of employee-only coverage. If dependents can participate in the wellness program, the total cost is determined based on the coverage in which the employee and dependents are enrolled (such as the total cost of family coverage). The applicable percentage is 30%, with an additional 20% solely for programs designed to reduce or prevent tobacco use. If a plan has both a tobacco cessation program and another wellness program, special rules apply for how to calculate the 30% and 50% financial limits.
  • The program must be reasonably designed to promote health or prevent disease without being overly burdensome, a subterfuge for discrimination or highly suspect in the method chosen to achieve the goal.
  • The full reward must be available to all similarly situated individuals.
    • For an activity-based program, this requires that a reasonable alternative standard (or waiver) be provided for those for whom it is unreasonably difficult due to a medical condition to satisfy the standard and for whom it is medically inadvisable to attempt to satisfy the standard. If reasonable, a plan may seek verification from a physician. For an activity-based program, the reasonable alternative standard does not need to be provided in advance, and the plan can require the individual to first request an alternative.
    • For an outcome-based program, this requires that a reasonable alternative standard (or waiver) be provided to any individual who does not meet the initial standard based on a measurement, test, or screening that is related to a health factor.
    • Whether a standard is reasonable will depend on facts and circumstances. The final rules do provide a few guidelines about reasonable alternatives. One of the guidelines requires that if an individual's personal physician believes that the standards are not medically appropriate for that individual, the plan must provide another reasonable alternative that accommodates the personal physician's recommendations. This applies to both activity-based and outcome-based programs.
  • The plan must disclose the availability of a reasonable alternative standard to qualify for the reward in all plan materials describing the terms of the program, including contact information for obtaining the alternative and must include a statement that recommendations of an individual’s physician will be accommodated. This disclosure must also be included in communications relating to an outcome-based program notifying an individual that s/he did not satisfy the initial standard. This disclosure is not required if the materials only mention that the program is available but does not describe its terms.

Americans with Disabilities Act

The final rules explain at great lengths that these rules only cover the applicable tax, ERISA and health plan requirements. If a wellness program satisfies these rules, it does not mean that the program will satisfy any other applicable laws.

The Americans with Disabilities Act (ADA) prohibits covered employers from requiring medical examinations or from making disability-related inquiries of an employee, unless such examination or inquiry is "shown to be job-related and consistent with business necessity." The Equal Employment Opportunity Commission (EEOC) has issued guidance defining "disability-related inquiry" as a question or series of questions that are likely to elicit information about a disability. It has also defined "medical examination" to include procedures or tests that seek information about an individual's physical or mental health or impairments, such as vision tests, genetic tests, blood pressure screening and biometric tests.

Exceptions exist for voluntary wellness arrangements and arrangements involving “underwriting.” However, the EEOC has not been very forthcoming as to what types of wellness arrangements satisfy the ADA exception. In fact, informally, the EEOC has indicated that arrangements that satisfy the HIPAA wellness rules may not even satisfy the ADA wellness exception. This lack of guidance has led to one lawsuit that has reached the United States District Court level (Seff v. Broward County). While this lawsuit was favorable to employers, the lack of EEOC guidance along with the EEOC’s more stringent approach to wellness programs likely means more lawsuits in the future.