Massachusetts recently enacted legislation that will give employers an annual tax credit of up to $10,000 for instituting wellness programs for their employees. The wellness program tax credit is part of a larger bill entitled “An Act Improving the Quality of Health Care and Reducing Costs through increased Transparency, Efficiency and Innovation” (the “Act”) aimed at reducing health care costs. The tax incentives provided in the new law will take effect on January 1, 2013.

One aspect of the Act of particular interest to employers is Section 56. This provision recognizes that wellness programs implemented by employers have reduced employer health insurance premiums and contributed to overall savings in health care costs. Some companies have been aware of this for years and already have wellness programs. In order to encourage more employers to implement wellness programs, Massachusetts is offering employers a tax credit of 25% of the costs associated with implementing a wellness program, up to $10,000 per year. If the employer’s costs exceed the cap, as they may during the first year of implementation, the excess costs can be carried forward and claimed in future years.

The Massachusetts Department of Public Health will issue regulations with details on how employers can ensure that their wellness program qualifies for the tax credit. Even with that guidance, employers will need to be aware of how their wellness program will interact with existing laws. To take one example, any personal health information gathered in connection with a wellness program (1) must be given voluntarily (to comply with the Americans with Disabilities Act), (2) must not be disseminated in violation of the Health Insurance Portability and Accountability Act, the Massachusetts Data Security Law or other privacy laws, and (3) must be kept away from certain decision-makers to avoid claims of illegal discrimination. Many of the other concerns surrounding wellness plans are addressed in more depth here.

The new tax credit offers Massachusetts employers a chance to cut costs while implementing a program that may reduce health care costs and improve employee health and morale. Because of the complicated interaction with other federal and state statutes, however, the implementation of a wellness program must be done very carefully.