In compliance with the Affordable Care Act ("ACA"), the U.S. Departments of Labor, Health and Human Services, and Treasury (the "Departments") issued a final rule on June 3, 2013, that changes the requirements for employment-based wellness programs. The changes take effect January 1, 2014, and will apply to both group and individual health plans and to grandfathered and non-grandfathered plans.
Employment-based wellness programs are an exception to the Health Insurance Portability and Accountability Act’s (HIPAA) requirement that health insurance issuers not discriminate against individuals in eligibility or coverage because of a health factor. Surveys indicate that nearly two-thirds of employers now offer some form of wellness program, with more expected to do so in the future. HIPPA categorizes these wellness programs as either (1) participatory or (2) health-contingent, and the final rule continues to recognize that distinction.
Participatory programs are programs that do not require an individual to meet a health standard to obtain a reward. Examples include: a program that reimburses employees for the cost of a fitness center membership or a program that provides an employee a reward for completing a health risk assessment. In contrast, health-contingent programs require an individual to meet a standard to obtain a reward, such as: a program that provides a reward for smoking cessation or losing weight. This article focuses on changes the new rule makes to health-contingent programs.
Current Health-Contingent Program Requirements
Currently, health-contingent programs must satisfy five requirements:
- Frequency – Employees must be given an opportunity to qualify for a reward at least once per year.
- Reward Size – The reward must not exceed 20% of the total-cost (both employer and employee) of single coverage, unless the employer allows a class of dependents to also participate in the program, in which case the reward cannot exceed 20% of the total cost of coverage for the plan in which the employee is actually enrolled.
- Design - The program must be reasonably designed to promote health or prevent disease as opposed to being a pretext for discrimination.
- Availability - The program must be made available to all similarly situated individuals. To satisfy this requirement, a reasonable alternative standard or waiver, and the same full reward, must be made available to all individuals.
- Notice – The plan must disclose, in all plan materials describing a health-contingent wellness program’s terms, the availability of a reasonable alternative standard or the possibility of obtaining a waiver.
Changes and Clarifications in the Final Rule
The new rule divides health-contingent wellness programs into two groups: (1) activity-only and (2) outcome-based. Activity-only programs are those in which an employee has to only complete an activity related to a health factor to receive an award, whereas an outcome-based program requires an employee to meet a certain health factor measurement or test to obtain a reward. For activity-based programs, an employer can seek physician verification that a health factor makes it unreasonably difficult to satisfy a health standard. In contrast, for outcome-based programs, an employer cannot require physician verification that a health factor makes it unreasonably difficult for an employee to satisfy the standard. Therefore, for outcome-based programs, an employer must provide a reasonable alternative standard or waiver for any individual that does not meet the initial standard.
The final rule also increases the maximum permissible financial reward under a health-contingent wellness program. Under current law, the maximum reward an employer can offer under a wellness program is 20% of the total cost of coverage. In the final rule the Departments, pursuant to authority under the ACA, have increased the percentage to 30% of the cost of coverage, or 50% if the program is designed to reduce or prevent tobacco use. Going forward, the ACA allows the Departments to increase the reward for all programs to 50%, but so far they have elected not to do so.
What Should An Employer Do?
It is important that employers planning to offer wellness programs in 2014 review their program to ensure they are in compliance with the current regulations.