The U.S. Department of Labor, the U.S. Department of the Treasury, and the U.S. Department of Health and Human Services have issued final Health Insurance Portability and Accountability Act of 1996 (HIPAA) and wellness program regulations. All group health plan sponsors, health plan administrators and health insurers should take note of the changes below.

These regulations make several substantive changes to the interim final and temporary HIPAA nondiscrimination regulations and the proposed regulations on bona fide wellness programs issued in January 2001. The new final regulations apply for plan years beginning on or after July 1, 2007.

HIPAA Nondiscrimination Requirements

Several clarifications and additions were made to the HIPAA nondiscrimination rules:

A new example was added indicating that a health reimbursement arrangement that permits carry-overs of unused amounts does not violate the HIPAA nondiscrimination rules by utilizing a variable annual reimbursement limit. Although the maximum reimbursement limit for similarly situated individuals may be different based on prior claims experience, this type of arrangement is permitted as long as employees who have participated in the plan for the same length of time are eligible for the same total benefit over that length of time.

The final regulations clarify that a group health plan may not deny benefits provided for treatment of injuries resulting from a medical condition, even if the medical condition is not diagnosed before the injury. For example, a suicide exclusion could not apply to injuries in connection with an attempted suicide caused by clinical depression, even if the individual had not been diagnosed with depression prior to the suicide attempt.

The HIPAA nondiscrimination rules prohibit "nonconfinement clauses"—restrictions that deny an individual benefits based on the individual’s confinement to a hospital or other health care institution at the time coverage would otherwise become effective. In some states, an insurance issuer must provide health benefits to an individual confined to a hospital beyond the termination date of the policy unless benefits are provided by a succeeding insurer. The final regulations acknowledge that the nonconfinement clause prohibition under HIPAA may have the effect of removing a prior insurance issuer’s obligation to provide benefits under state insurance law. Additionally, if the HIPAA nondiscrimination requirement has the effect of obligating both the prior insurer and the succeeding insurer to provide benefits, the final regulations clarify that any state coordination of benefits law that prevents more than 100 percent of reimbursement for benefits claims would continue to apply.

Wellness Programs

Wellness programs are designed to provide employees and, in some cases, employees’ covered dependents, with discounts, rebates or prizes as a reward for participating in programs designed to promote health or prevent disease. Although the HIPAA nondiscrimination provisions generally prohibit a group health plan from charging similarly situated individuals different premiums or contributions based on a health factor, there is an exception for premium discounts, varied deductible, co-payment or co-insurance amounts, or other cost-sharing rewards provided in connection with qualified wellness programs.

The final regulations clarify that there are two types of wellness programs—one where the reward is not conditioned on the individual satisfying a standard relating to a health factor, and one where the reward is conditioned on the individual satisfying a standard relating to a health factor.

Reward Not Conditioned on Achievement of Standard

Wellness programs that do not require an individual to satisfy a specific health-based standard, but still supply a reward, must be made available for all similarly situated individuals. Examples of this type of wellness program include:

  • A program that reimburses all or a portion of the cost of membership in a fitness center.
  • A diagnostic testing program that provides a reward based on participation rather than on the test results
  • A program that encourages preventative care based on the waiver of the plan’s co-payment or deductible (i.e., well-baby visits or prenatal care)
  • A program that reimburses employees for the costs of smoking-cessation programs without regard to whether the employee quits smoking
  • A program that provides a reward based on an employee attending a monthly health education seminar

Reward Conditioned on Achievement of Standard

If the wellness program conditions a reward on the satisfaction of a health factor standard (for example, all employees who achieve a count under 200 on an annual cholesterol test will receive a 20 percent reduction in the cost of their health plan premiums), the program must satisfy five additional requirements:

  • The reward may not exceed 20 percent of the cost of employee-only coverage under the group health plan. If the wellness program allows dependents to participate, the 20 percent reward limit may instead be based on the cost of employee and dependent coverage.
  • The program must be reasonably designed to promote health or prevent disease. Under the final regulations, this means that the wellness program must have a reasonable chance of improving the health of participants, may not be overly burdensome or a subterfuge for discriminating based on a health factor, and may not be highly suspect in the method chosen to promote health or prevent disease. The preamble to the final regulations indicates that this should be an easy standard to satisfy and is intended to allow experimentation in diverse ways of promoting wellness. For example, participation in a course of aromatherapy could be considered reasonable; however, bizarre, extreme or illegal requirements are prohibited.
  • The program must give eligible individuals the opportunity to qualify for the reward at least once per year.
  • The reward must be made available to all similarly situated individuals. This requires that the wellness program waive the standard or make available a reasonable alternative standard if it is unreasonably difficult for an individual to satisfy the otherwise applicable standard because of a medical condition or if it is medically inadvisable for an individual to attempt to satisfy the standard. An alternative standard does not need to be established before the program commences; it may be determined once the participant informs the plan that it is unreasonably difficult or medically inadvisable for him or her to attempt to achieve the standard. The final regulations clarify that the plan may seek a physician’s statement or other verification that a health factor makes it unreasonably difficult or medically inadvisable to satisfy or attempt to satisfy the applicable standard.
  • The group health plan must disclose the availability of a reasonable alternative standard (or the possibility of waiver of the standard) in all plan materials that describe the terms of the wellness program. Disclosure of all possible alternative standards are not required. The final regulations include sample language that would satisfy this requirement.