Last Wednesday, the United States issued a final rule that will impact employer wellness programs starting January 1, 2014. This rule [pdf] issued by the U.S. Department of Health and Human Services, Labor, and the Treasury (collectively, the “Departments”), provides additional flexibility to employers with respect to the financial rewards that can be offered for achieving health-based standards in employer wellness programs, but it also includes new restrictions to prevent discrimination through health-contingent wellness programs.
Employers generally may reward or penalize employees, for example through reduced or increased premiums, for meeting specific health-based standards such as maintaining a certain body-mass index or not using tobacco. Since 2006, the maximum financial reward allowed has been 20% of the total cost of coverage. The Affordable Care Act, signed into law in 2010, contains a higher threshold, and as a result, the new rule raises the maximum incentive to 30% with a further increase to 50% for wellness programs aimed at preventing or reducing tobacco use. (This rule further authorizes the Departments to boost the overall maximum in the future to 50% should the Departments determine that such an increase is appropriate.)
The Affordable Health Care Act also requires that wellness programs not serve as “a subterfuge for discriminating based on a health status factor.” To achieve this goal, the new rule requires employers to provide a “reasonable alternative” to employees who cannot meet health-based standards so these employees can still obtain the reward. For example, although an employer may provide a reward to employees for not smoking, they are now required to offer a reasonable alternative to employees unable to quit smoking. A “reasonable alternative” in this example could consist of attending a smoking cessation program with the employee obtaining the financial reward regardless of whether the individual quits smoking.
Additionally, the new rule allows an employee to involve his or her physician to show that a standard is not medically appropriate for that employee, in which case a reasonable alternative standard must be provided that accommodates the physician’s recommendations. Further, the Departments clarified that compliance with this rule does not ensure compliance with the Americans with Disabilities Act (ADA), Genetic Information Nondiscrimination Act (GINA), or other nondiscrimination law. Accordingly, employers do not necessarily meet their duty to “reasonably accommodate” disabled employees under the ADA when complying with this new rule.
According to the implementing Departments, the final rules “support workplace health promotion and prevention . . . while ensuring that individuals are protected from unfair underwriting practices that could otherwise reduce benefits based on health status.” It remains uncertain, however, whether the Equal Employment Opportunity Commission (EEOC) will agree. The EEOC held a meeting in May regarding the need for guidance for employer wellness plans to avoid discrimination, particularly under the ADA and GINA. Until such guidance is provided, uncertainty remains regarding the EEOC’s position on wellness plans.
Also of interest is the Rand Corporation’s study of employer wellness programs, which was mandated by the 2010 Affordable Care Act and released last week simultaneously with the final rule. This study “represents the most comprehensive analysis of worksite wellness programs to date.” The study notes that “our estimates of wellness program effects on health care cost are lower than most results reported,” but also cautions that this result may reflect its specific research approach, further noting “there is reason to believe that a reduction in direct medical costs would materialize if employees continued to participate in a wellness program.” This study gives employers further food for thought in weighing the potential benefits of wellness programs.
What do these developments mean for employers? These changes, which impact group health plans for “plan years” beginning on or after January 1, 2014, broadly mean that employers:
- may increase the financial incentives – either rewards or penalties – provided as part of their wellness plans;
- should ensure that reasonable alternatives, or a waiver, are provided to employees who are unable to meet health-based standards;
- will need to appropriately respond to an employee’s personal physician’s statement that a certain health-based standard is not medically appropriate for that specific employee;
- should keep an eye out for EEOC guidance on the interplay between wellness programs and antidiscrimination laws; and
- may want to review the Rand Corporation study when considering the impact of employer wellness programs on health care costs.