On May 29, 2013, the Departments of the Treasury, Labor and Health and Human Services issued final regulations on wellness programs based on statutory changes made by The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, the Affordable Care Act). These final rules are effective for plan years beginning on or after January 1, 2014.
Prior to the Affordable Care Act, the Health Insurance Portability and Accountability Act (HIPAA) prohibited group health plans from discriminating against participants and beneficiaries in eligibility, benefits, or premiums based on eight health factors. Certain programs of health promotion and disease prevention, referred to as "wellness programs", were exempt from HIPAA's nondiscrimination requirements. In 2006, final regulations implemented the exception for certain wellness programs. The Affordable Care Act amended HIPAA's nondiscrimination rules to incorporate many of the requirements of the 2006 regulations.
The final regulations issued in May 2013 provide comprehensive guidance on the general requirements for wellness programs in grandfathered and non-grandfathered group health plans. The 2013 regulations replace the wellness program provisions contained in 2006 regulations and are applicable to both grandfathered and non-grandfathered group health plans for plan years beginning on or after January 1, 2014.
These final regulations are not intended to establish requirements for all types of wellness programs, but rather set forth criteria for an affirmative defense that can be used by group health plans in response to a claim that a wellness program violates the HIPAA nondiscrimination provisions.
Like the 2006 regulations, the final regulations categorize wellness programs as either Participatory Wellness Programs or Health-Contingent Wellness Programs.
A Participatory Wellness Program is a program in which a reward is provided to an individual for participation in the program and the individual is not required to satisfy any standard related to a health factor. Examples of participatory wellness programs include reimbursement for a fitness center membership or a diagnostic testing program that does not base any part of the reward on the outcome of the testing.
A Health-Contingent Wellness Program is a program that conditions a reward on an individual satisfying a standard that is related to a health factor. Examples of health-contingent wellness programs include a program that imposes a premium surcharge based on tobacco use or a program that provides a premium discount to employees who are identified as having a normal body mass index ("BMI").
A "reward" in either type of wellness program is defined as a financial incentive (such as a discount or rebate of a premium) or the avoidance of a financial disincentive (such as the absence of a premium surcharge).
Health-Contingent Wellness Programs must satisfy each of the following five requirements:
(1) Frequency of Opportunity to Qualify – The program must provide an opportunity to qualify for a reward at least once per year.
(2) Size of Reward – The program must limit the reward, when considered together with all rewards for Health-Contingent Wellness Programs offered by the plan, to an amount that does not exceed 30% (50% for a program designed to prevent or reduce tobacco use) (the "applicable percentage") of the total cost of employee-only coverage under the plan. Previously, the reward was limited to 20% and there was no additional percentage for tobacco prevention programs. If dependents participate in the wellness program, the reward must not exceed the applicable percentage of the total cost of the coverage in which an employee and dependents are enrolled. The total cost of coverage includes both the employer and employee contributions made toward the benefit package under which the employee is (or the employee and any dependents are) receiving coverage.
K&S INSIGHT: The applicable percentage limit applies only to Health-Contingent Wellness Programs, so any rewards offered by a Participatory Wellness Program are not included when determining the applicable percentage limit. If the Health-Contingent Wellness Program provides incentives to reduce tobacco use as well as other incentives, the higher percentage applies to the sum of the rewards under both Health-Contingent Wellness Programs.
(3) Reasonable Design – The program must be reasonably designed to promote health or prevent disease. A program satisfies this standard if, based on relevant facts and circumstances, it has a reasonable chance of improving the health of or preventing disease in individuals, is not overly burdensome, is not a subterfuge for discriminating based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease.
(4) Uniform availability and Reasonable Alternative Standards – The programs must be available to all similarly situated individuals.
(5) Notice of Availability of Reasonable Alternative Standard - If communication materials describe the terms of the program, the materials also must disclose the availability of a reasonable alternative standard (or waiver of such standard) to qualify for the reward, must include contact information for obtaining a reasonable alternative standard and a statement that the recommendations of an individual's personal physician will be accommodated. Sample language for the disclosure is included in the final regulations. If the communication materials simply mention the program generally and do not describe the terms of the program, disclosure is not required under these rules.
Uniform Availability and Reasonable Alternative Standard
Whether a wellness program is available to all similarly situated individuals depends on whether the program is an Activity-Only Wellness Program or an Outcome-Based Wellness Program.
Activity-Only Wellness Program
An Activity-Only Wellness Program is a program that requires an individual to perform an activity but does not require a specific outcome to obtain a reward. Examples include walking, diet, or an exercise program.
An Activity-Only Wellness Program is not available to all similarly situated individuals for a particular period unless it provides for a reasonable alternative standard (or waiver of the otherwise applicable standard) for obtaining the reward for any individual for whom, for that period, the otherwise applicable standard is (A) unreasonably difficult to satisfy due to a medical condition; or (B) medically inadvisable to attempt to satisfy. If it is reasonable under the circumstances, a plan may seek verification that a health factor makes it unreasonably difficult or medically inadvisable for an individual to satisfy the otherwise applicable standard.
To the extent an alternative standard is an Activity-Only Wellness Program, it must comply with all the requirements of an Activity-Only Wellness Program. For example, if a walking program is a reasonable alternative to a running program, individuals for whom it is unreasonably difficult to complete the walking program must be provided with a reasonable alternative to the walking program;
Outcome-Based Wellness Program
An Outcome-Based Wellness Program is a program that requires an individual to attain or maintain a specific health outcome. Examples include cessation of smoking or obtaining certain results in biometric screenings.
An Outcome-Based Wellness Program must also provide for a reasonable alternative standard (or waiver of the otherwise applicable standard) for obtaining the reward for any individual who does not meet the initial standard.
If the alternative standard is an outcome-based standard it:
cannot simply require an individual to meet a different level of the same standard (for example, a BMI of 31 or less instead of a BMI of 30 or less) without also giving the individual additional time to comply with the standard that takes into account the individual's circumstances and
must give the individual the opportunity to comply with the recommendations of the individual's personal physician if the physician joins in the request for the alternative standard.
K&S INSIGHT: The reasonable alternative standard for an Outcome-Based Wellness Program must be available to "any individual" who does not meet the initial standard, but the reasonable alternative standard for the Activity-Based Wellness Program must be made available only to individuals for which the initial standard is unreasonably difficult or medically inadvisable to satisfy. Additionally, a group health plan may not request verification of the individual's inability to satisfy the outcome-based standard.
The alternative standard does not have to be disclosed to participants in advance, but must be disclosed upon the individual's request or the condition for obtaining the reward must be waived. Whether a group health plan has furnished a reasonable alternative standard depends on the facts and circumstances, including the following:
If the reasonable alternative standard is completion of an educational program, the group health plan must make the educational program available or assist the individual in finding such a program and may not require the individual to pay for the program;
The time commitment required must be reasonable; requiring attendance nightly at a one-hour class would be unreasonable;
If the reasonable alternative standard is a diet program, the group health plan must pay for any membership or participation fee (but not for food); and
If an individual's personal physician states that a program standard is not medically appropriate for that individual, the group health plan must provide a reasonable alternative standard that accommodates the recommendations of the physician. Plans may impose cost sharing for medical items and services furnished pursuant to the physician's recommendations.
Employers whose wellness programs operate on a calendar year basis should consider the final regulations while preparing open enrollment materials for 2014.