The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") prohibits group health plans from discriminating against individuals with respect to eligibility, benefits, premiums or contributions based on any "health status-related factor" (i.e., health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability and disability). On December 13, 2006, the Department of the Treasury, Department of Labor and Department of Health and Human Services issued final regulations (the "Final Regulations"), effective for plan years beginning on or after July 1, 2007, which provide, among other things, that a group health plan may, without violating HIPAA's nondiscrimination requirements, vary benefits, premiums and contributions for similarly-situated individuals where the group health plan utilizes a wellness program that satisfies the requirements of the Final Regulations.

In general, wellness programs are designed to promote health or prevent disease by providing individuals with "rewards," including a discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism (e.g., deductibles, copayments or coinsurance), and the absence of a surcharge or the value of a benefit that would not otherwise be payable under the group health plan.

Wellness Programs That Do Not Condition Reward on Satisfaction of a Standard Related to a Health Factor

If the wellness program does not provide a reward, or condition the receipt of a reward based on the individual satisfying a standard that is related to a health factor, the wellness program will not violate HIPAA's nondiscrimination rules if participation in the wellness program is made available to all similarly situated individuals. The following are types of wellness programs that are deemed to satisfy the nondiscrimination requirements:

  • Programs that reimburse all or part of the cost for membership in a fitness center.
  • Diagnostic testing programs that provide a reward for participation and do not base any part of the award on the outcomes.
  • Programs that encourage preventive care through the waiver of the copayment or deductible requirement under a group health plan for the costs of, for example, prenatal care or well-baby visits.
  • Programs that reimburse employees for the costs of smoking cessation programs without regard to whether the employee quits smoking.
  • Programs that provide a reward to employees for attending a monthly health education seminar.

Wellness Programs That Condition Reward on Satisfaction of a Standard Related to a Health Factor

If the ability to obtain a reward under a wellness program is conditioned on an individual's satisfaction of a standard which is related to a health factor, the wellness program must meet the following requirements in order to satisfy the non-discrimination rules:

1. Reward Limitations. The total value of all rewards available to any employee under all wellness programs may not be greater than 20 percent of the cost of employee-only coverage under the group health plan or 20 percent of the cost of coverage in which the employee and dependants are enrolled if the dependants (e.g., spouses and dependent children) may participate in the wellness program.

2. Reasonably Designed to Promote Health or Prevent Disease. The wellness program must be reasonably designed to promote health or prevent disease. A program will satisfy this standard if it has a reasonable chance of improving the health of, or preventing disease in, participating individuals and is not overly burdensome, is not a pretense for discriminating based on a health factor and is not highly suspect in the method chosen to promote health or prevent disease. The preamble to the Final Regulations indicate that this requirement is intended to be an easy standard to satisfy and notes that, for example, a plan could satisfy this requirement by providing rewards to individuals who participated in a course of aromatherapy. In addition, the program must give eligible individuals the opportunity to qualify for the reward at least once a year.

3. Available to All Similarly Situated Individuals and Reasonable Alternative Standard. Rewards must be available to all similarly situated individuals and the program must provide a reasonable alternative standard (or waiver of the general standard) for obtaining the reward for any individual for whom it is either unreasonably difficult or medically inadvisable to attempt to satisfy the general standard (e.g., if the reward requires an individual to walk a certain number of steps in a day, a reasonable alternative must be made available for people who are unable to complete the required number of steps). The alternative standard does not need to be established before the program begins and may instead be established once an individual advises the plan that it is unreasonably difficult for the individual to satisfy the general standard. The plan is permitted to seek verification (e.g., a doctor's note) that a health factor makes it unreasonably difficult or medically inadvisable for the individual to satisfy or attempt to satisfy the general standard.

4. Disclosure of Alternative Standards. The plan must disclose in all materials describing the terms of the wellness program the availability of a reasonable alternative standard (or the possibility of waiver of the general standard). The Final Regulations include model language to satisfy this requirement.

The Final Regulations also clarify that compliance with HIPAA's nondiscrimination requirements does not ensure compliance with other state or federal laws (e.g., the Americans with Disabilities Act of 1990).

As always, White & Case would be pleased to assist you in discussing the affect of the Final Regulations on your wellness programs.