The Departments of Labor, Treasury, and Health and Human Services recently issued final regulations on incentive-based wellness programs under the HIPAA nondiscrimination rules. The HIPAA nondiscrimination rules generally prohibit group health plans from discriminating against participants based on their health. The new regulations, which are effective for plan years beginning on or after January 1, 2014, supersede regulations issued in 2006 and set out a safe harbor under which plans may discriminate based on health-related factors (such as medical conditions, claims experience, and the receipt of health care) in order to promote health and prevent disease.

Participatory Wellness Programs

There are two types of wellness programs: participatory programs and health-contingent programs. Participatory wellness programs either do not provide a reward or do not include any conditions for obtaining a reward that are based on satisfying a health-related requirement. Examples of participatory wellness programs include reimbursing employees for gym memberships, free diagnostic testing programs with a reward for mere participation (and with no outcome-based rewards), and education programs with rewards for attendance. Participatory wellness programs are not required to meet the standards set forth under the final regulations because they do not discriminate based on a health status factor, and thus do not need special protection from the otherwise applicable HIPAA nondiscrimination rules. They must simply be offered to all similarly situated individuals.

Health-Contingent Wellness Programs

In contrast, health-contingent wellness programs, which require individuals to satisfy a standard related to a health factor in order to receive a reward, must meet certain criteria to avoid being deemed discriminatory under HIPAA. Specifically, the program must satisfy five requirements.

  1. Individuals must be offered the opportunity to qualify for the reward at least once per year.
  2. The maximum reward that can be offered is limited to 30% (up from 20% under the 2006 regulations) of the total cost of coverage under the plan (with up to an additional 20% reward permissible for programs designed to prevent or reduce tobacco use).
  3. The program must be reasonably designed to promote health or prevent disease.
  4. The program must offer a “reasonable alternative standard” to obtain the reward.
  5. The availability of a “reasonable alternative” to qualify for the reward must be disclosed in all plan materials describing the wellness program.

Reasonable Alternative Standard

Aside from the increase in the maximum permissible reward, the biggest change to the rules regarding health-contingent wellness programs relates to the requirement to provide a “reasonable alternative standard” to obtain the reward. Specifically, the final regulations create two new subcategories of health-contingent wellness programs: activity-only programs and outcome-based programs.

Activity-only programs require an individual to perform or complete an activity related to a health factor in order to qualify for a reward. Activity-only wellness programs do not, however, require an individual to attain or maintain a specific health outcome. Examples of activity-only programs include walking challenges or diet programs. Alternatively, outcome-based programs are programs that require an individual to meet or maintain a specific health outcome to earn a reward. Examples of outcome-based programs include programs that reward individuals for meeting a certain BMI or not using tobacco products.

As noted above, health-contingent programs are generally required to offer a reasonable alternative standard in order to qualify for a reward. Activity-only programs are required to offer a reasonable alternative to only those individuals who request such an accommodation and are able to demonstrate that it is unreasonably difficult or medically inadvisable for them to satisfy or attempt to satisfy the activity generally required to receive the reward. Thus, for example, if a walking program requires employees to walk 30 minutes a day in order to receive a reward, and an employee is unable to walk due to an injury, then the plan must provide a reasonable alternative by which the employee can attain the reward. For instance, the alternative might be attending a health and fitness educational program; or, if the injury is temporary in nature (such as a broken leg), the plan may waive the standard until the injury is healed.

In the case of outcome-based programs, reasonable alternatives must be offered to any individual who requests an accommodation (regardless of whether they can show it would be unreasonably difficult or medically inadvisable to meet the program's otherwise applicable criteria). For example, if an outcome-based weight loss program requires that employees maintain or achieve a BMI of less than 30 to qualify for a reward and an employee does not wish to or cannot achieve that BMI, then a reasonable alternative might be walking 150 minutes a week. Of course, this alternative would need to comply with the activity-based rules.

Moreover, the following special rules (among others) apply to reasonable alternatives.

  1. If the reasonable alternative is an educational program, the plan must help the individual locate an appropriate program and may not require the individual to pay the cost of the program.
  2. The time commitment associated with any reasonable alternative must be reasonable.
  3. If the reasonable alternative is a diet program the individual cannot be required to pay a membership or registration fee (but can be charged the cost of food).
  4. If an individual’s physician says a particular plan standard is not medically appropriate for the individual, the plan most provide a reasonable alternative that is deemed medically appropriate by the individual’s physician.

Preparing for 2014

Now is a good time to review and re-evaluate your current wellness programs and prepare them for any changes required in 2014. In addition to the HIPAA rules discussed above, there are also other laws that may apply to both your participatory and health-contingent wellness programs, including ERISA and the ADA.