On November 20, the federal agencies which oversee the health care reform law (the Patient Protection and Affordable Care Act, now called the “ACA” by regulators) issued three proposed regulations and an “actuarial value calculator” to be used by insurers and employers. Much of the guidance is important for insurers and states as they establish “Exchanges.” However, other pieces of guidance will be helpful to employers. For example, the new wellness regulations increase the maximum discount from 20 percent of the health plan’s cost to 30 percent, or even 50 percent in some situations.
Background on Wellness Rules. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) generally allows an employer to establish a “wellness plan” to promote the health of employees and family members. Wellness plans have always been subject to some rules, such as a rule that the maximum discount under certain wellness plans was capped at 20 percent of the cost of coverage.
New Regulations Generally Track Prior Regulations. The new, proposed regulations closely track the prior wellness plan regulations. A wellness plan can continue to provide a reward to an individual simply because the individual participates in the plan — even if the individual’s health does not actually improve. This type of “participatory wellness program” remains an option for employers.
Many employers choose to go beyond providing a reward simply for participation. These employers can continue to use a “health-contingent wellness program” (a new term that the Internal Revenue Service (“IRS”), Department of Labor (“DOL”) and Department of Health and Human Services (“HHS”) have begun to use). Under a health-contingent wellness program, the employer provides a reward only if an individual satisfies certain conditions relating to the individual’s health. Employers often condition rewards upon cessation of tobacco use or satisfaction of certain biometric scores (such as low cholesterol levels).
The general structure of these rules remains the same. However, the regulations increase the maximum allowable award from 20 percent of the cost of coverage to 30 percent of the cost of coverage. In addition, an employer can increase the discount to 50 percent if the extra 20 percentage points are used as an incentive to prevent or reduce tobacco use. Note that the term “tobacco use” is not yet defined, but the agencies have requested comments on how the term should be defined.
Regulations Provide Some Clarifications. The regulations provide some guidance to questions that have lingered for several years under HIPAA. Under the regulations:
- If the plan provides an educational program as a “reasonable alternative standard” to an employee (for example, for an employee who has difficulty stopping the use of tobacco), the plan must arrange for the educational program; the plan cannot force an employee to seek out the program or pay the cost of the program.
- If the reasonable alternative standard is a diet program, the plan does not need to pay for the cost of food but must pay for any membership or participation fees.
- The plan generally must defer to an employee's personal physician about whether the plan's proposed alternative standard is medically appropriate for the employee.
New Sample Language
. The regulations provide new sample language, which can be used to inform individuals of the reasonable alternative standards available under the plan. In addition, the examples in the regulations provide other language, which may also be helpful for employers.
ADA Remains Open Issue. Somewhat frustratingly (but perhaps not surprisingly), the regulations are silent on whether wellness plans with rewards are acceptable under the Americans with Disabilities Act (“ADA”). The Equal Employment Opportunity Commission (“EEOC”), which enforces the ADA, is not among the agencies that provided the new regulations. Thus, even though three federal agencies — the IRS, DOL and HHS — have once again strongly approved of wellness programs with significant monetary rewards, the EEOC’s position on the matter continues to be unclear.
How Other Rules Apply to Wellness Programs. In several situations, the agencies note that wellness programs can be subject to various other requirements, such as the summary of benefits and coverage (“SBC”) rules and claims procedure rules, such as the requirement to offer external review. Employers should carefully consider whether their wellness plans are subject to such requirements.
Application to Grandfathered Plans. Although the ACA changes for health contingent wellness programs do not specifically apply to “grandfathered” health plans, the agencies propose to apply the same rules to both grandfathered and nongrandfathered plans.
Effective Date. It is proposed that the regulations would apply for plan years beginning on or after January 1, 2014. In the meantime, employers with wellness plans may want to use these regulations to resolve ambiguities which exist today (or which are encountered in 2013).
Regulations Relating to Essential Health Benefits, Actuarial Value and Rate Reviews. In a separate proposed regulation, HHS issued guidance on how certain plans can determine whether they provide “essential health benefits” and provide an acceptable, minimum actuarial value. Much of the guidance relates to coverage that is offered by an insurer through an Exchange (or, in some situations, by an insurer outside an Exchange). Such guidance is very important for insurers but less important for employers. However, employers should consider these points:
- For a small, fully insured health plan, an employer’s contribution to a health savings account (“HSA”) or health reimbursement arrangement (“HRA”) can sometimes “count” in verifying that the plan provides minimum actuarial value. This may require some coordination and discussion between the employer and insurer, since the insurer would not always know what contributions an employer makes to an HSA or HRA.
- Coverage offered through an Exchange often must have a maximum deductible of $2,000 for single coverage and $4,000 for family coverage. There was some concern that these maximum deductibles would also apply outside of the Exchange (e.g., to self-funded health plans). The preamble to the regulations indicates that the agencies have taken the opposite position. This is welcome news for employers, as it allows employers who provide coverage outside of an Exchange greater flexibility to design high-deductible health plans, such as plans with maximum deductibles in excess of these dollar limits.
In addition to these changes, HHS also stated that an employer-sponsored plan can use several methods to determine whether it provides “minimum value.” (In order to avoid any “Pay or Play Rule” risk, an employer must satisfy several requirements, including offering a health plan which provides minimum value. Click here for a copy of the Quarles & Brady Pay or Play Guide, which discusses the Pay or Play Rule in more depth.) HHS, along with the IRS, has provided a new, Excel-based “calculator” an employer can use to determine if the employer’s plan provides minimum value. In addition, future guidance will apparently provide an additional “safe harbor” or “checklist” method employers can use. If neither of these methods is appropriate, an employer may use an actuary to make this determination.
Other Changes for Insurers. HHS also issued some guidance relating to how insurers set premium rates. This guidance will have a significant impact on insurers. However, it is unclear if it will have a direct impact on employers.
Effective Date of Guidance. These latter two proposed regulations do not contain a specific effective date but are likely to be effective January 1, 2014.
Link to Guidance. The proposed wellness plan regulations are available here. The essential health benefits and actuarial value regulations are available here, while the related calculator is available here. The rate review regulations are available here.