The Departments of Health and Human Services, Labor, and Treasury issued final wellness program regulations. These final rules are applicable to both grandfathered and non-grandfathered group health plans for plan years beginning on or after January 1, 2014. Consistent with the proposed regulations issued late last year, these final rules increase the maximum permissible reward under a health-contingent wellness program from 20 percent to 30 percent of the cost of coverage. Also consistent with the proposed regulations, the maximum permissible reward is further increased to 50 percent for wellness programs designed to prevent or reduce tobacco use. However, the final regulations restructure the analysis of participatory and health-contingent wellness programs by subdividing health-contingent wellness programs into activity-only wellness programs and out-come-based wellness programs. As described below, this reorganization is significant because it affects how the reasonable alternative standard is applied and communicated.
Consistent with prior guidance, these final regulations continue to divide wellness programs into two main categories: participatory wellness programs and health-contingent wellness programs. Participatory wellness programs are defined as programs that either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor. Examples of participatory wellness programs include a program that reimburses employees for the cost of membership in a fitness center or a diagnostic testing program that provides a reward for participation and does not base any part of the reward on outcomes. As long as a participatory wellness program is made available to all similarly situated individuals, the program will comply with HIPAA’s nondiscrimination rules without having to satisfy any additional standards.
In contrast, health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. Health-contingent wellness programs must meet five requirements:
- Individuals must be given the opportunity to qualify at least once per year.
- The maximum reward cannot exceed a specific percentage of the annual cost of coverage.
- The program must allow for a reasonable alternative standard (or waive the otherwise applicable standard) for obtaining a reward for any individual for whom it is either unreasonably difficult due to a medical condition or medically inadvisable to attempt to meet the otherwise-applicable standard.
- The program must be reasonably designed to promote health or prevent disease.
- All plan materials that describe the terms of the program must disclose the availability of other means of qualifying for the reward or the possibility of a waiver of the otherwise applicable standard.
Activity-only wellness programs are a new subcategory of health-contingent wellness programs. Under an activity-only wellness program, an individual is required to perform an activity related to a health factor in order to obtain a reward. Activity-only wellness programs do not require an individual to attain a specific health outcome. Examples of activity-only wellness programs include walking, diet, or exercise programs. Some individuals participating in an activity-only wellness program may be unable to participate in the program’s prescribed activity due to a health factor. For example, an individual may be unable to participate in a walking program due to a recent surgery. To avoid violating HIPAA non-discrimination rules, an activity-only wellness program must meet the five requirements outlined above.
Outcome-based wellness programs are the other subcategory of health-contingent wellness programs. Under an outcome-based wellness program, an individual must attain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) in order to obtain a reward. An outcome-based wellness program typically has two tiers. That is, for individuals who do not attain the specific health outcome (tier 1), compliance with an educational program or an activity (tier 2) may be offered as an alternative to achieve the same reward. This alternative pathway, however, does not mean that the overall program, which has an outcome-based component, is not an outcome-based wellness program. That is, if a measurement, test, or screening is used as part of an initial standard, and individuals who meet the standard are granted the reward, the program is considered an outcome-based wellness program.
Like the activity-only wellness program, the outcome-based wellness program is required to meet the five additional requirements. However, the reasonable alternative standard requirement is applied differently to the first tier of the outcome-based programs. Under an activity-only health-contingent wellness program, the alternative standard must be available only for individuals for whom the activity is medically inadvisable and the program may request physician verification. In contrast, an outcome-based program must make the alternative standard available to any individual who does not meet the initial standard (the first tier) regardless of whether it is medically inadvisable, and the program may not require physician verification.
Employers who sponsor wellness programs should review them to ensure that the programs comply with these new regulations before they become effective next year. However, employers should be aware that compliance with the wellness program final regulations is not determinative of compliance with the many other laws that regulate wellness programs, including the Americans with Disabilities Act, Title VII of the Civil Rights Act, the Genetic Information Nondiscrimination Act, the Family and Medical Leave Act, ERISA’s fiduciary provisions, Internal Revenue Code, and state law.