The Departments of the Treasury, Labour and Health and Human Services recently published final regulations(1) setting out the criteria that group health plans with wellness programmes must satisfy in order to be considered non-discriminatory within the meaning of the Health Insurance Portability and Accountability Act 1996. Under that act, group health plans must not discriminate against individuals regarding plan eligibility, benefits or premiums based on a health factor.(2) The act provides an exception to this requirement when a group health plan provides premium discounts or reduced co-pays or other cost-sharing mechanisms (referred to as 'rewards') in return for an individual's adherence to certain programmes of health promotion and disease prevention ('wellness programmes'). The regulations under that act initially implementing this exception provided that the maximum reward could not exceed 20% of the total cost – both the employee and employer portions – of employee-only coverage under the plan. The Affordable Care Act(3) increased the maximum reward to 30% of the cost of employee-only coverage and authorised the departments to increase the maximum reward to 50% of the cost of coverage if they determine that such an increase is appropriate.
In regulations proposed in Autumn 2012 implementing the Affordable Care Act changes to the wellness programme exception to these non-discrimination rules,(4) the departments provided that such wellness programmes are divided into two broad categories: participatory wellness programmes and health-contingent wellness programmes. These final regulations clarify the rules that apply to health-contingent wellness programmes by dividing them into two sub-categories: activity-only wellness programmes and outcome-based wellness programmes. In addition, the departments exercised their authority under the Affordable Care Act to increase the maximum reward from 30% of the cost of employee-only coverage under a group health plan to 50%, to the extent that the reward is for the prevention or reduction of tobacco use. The final regulations apply to grandfathered plans and non-grandfathered plans(5) for plan years beginning on or after January 1 2014.
The preamble to the final regulations makes two important points about the effect of these regulations. First, the preamble states that the regulations provide an affirmative defence that can be used by plans and health insurance issuers to respond to a claim that the plan or the issuer violated the Health Insurance Portability and Accountability Act non-discrimination provisions, as amended by the Affordable Care Act. Second, compliance with the regulations is not determinative of compliance with other federal and state laws, including the Health Insurance Portability and Accountability Act privacy and security rules regarding the confidentiality of individually identifiable health information, the Americans with Disabilities Act 1990 and the Genetic Information Non-discrimination Act 2008.(6) Importantly, the final regulations do not address the federal income tax consequences of any rewards provided under a wellness programme, and it is expected that ordinary income tax principles apply to such rewards.
Some have questioned whether wellness programmes that qualify for the exception to the Health Insurance Portability and Accountability Act non-discrimination rules are permitted to penalise individuals for not participating in the wellness programme, or whether all incentives must provide some financial or other benefit to individuals. The final regulations confirm that the term 'reward' includes both positive incentives and penalties. Accordingly, wellness programme rewards can be either:
- discounts or rebates of a premium or contribution, waivers of a co-payment or other cost-sharing mechanism or any financial or other incentive; or
- the avoidance of a penalty, such as a premium surcharge or other disincentive.
Participatory wellness programmes are programmes that provide individuals with rewards that are not based on an individual's satisfaction of a standard related to a health factor. The only requirement that applies to participatory wellness programmes is that they be available to all similarly situated individuals,(7) regardless of their health status. The regulations give six examples of participatory wellness programmes:
- a programme that reimburses employees for all or a part of a membership to a fitness centre;
- a programme that rewards employees for merely taking a diagnostic testing programme;
- a programme that waives cost sharing for preventive care (non-grandfathered health plans must provide certain preventive health services with no cost sharing in any event);
- a programme that rewards employees for participating in a smoking cessation programme without regard to whether the employee quits smoking;
- a programme that rewards employees for attending a free monthly health education seminar; and
- a programme that rewards employees for completing a health risk assessment, provided that the employee is required to take no further action with regard to any health issue identified in the assessment.
A health-contingent wellness programme is a programme that requires individuals to satisfy a standard related to a health factor in order to obtain a reward. In addition, a wellness programme that requires an individual to undertake more than a similarly situated individual in order to obtain the same reward is a health-contingent wellness programme if the additional undertaking is based on a health factor. The two sub-categories of health-contingent wellness programmes provided for in the final regulations are described below.
Activity-only wellness programmes
An activity-only wellness programme is a programme that requires an individual to perform or complete an activity related to a health factor in order to obtain a reward, but does not require the individual to attain or maintain a specific health outcome. An activity-only wellness programme must satisfy the following five standards:
Frequency to qualify for reward
Individuals must be eligible to qualify for the reward at least once a year.
Size of reward
The reward for the activity-only wellness programme, together with the rewards under all other health-contingent wellness programmes under the plan, must not exceed 30% of the total cost of employee-only coverage under the plan, except that the percentage is increased to 50% to the extent that the additional percentage is in connection with a programme designed to prevent or reduce tobacco use.
The programme must have a reasonable chance of improving the health of, or preventing disease in, participating individuals. In addition, the programme must not be:
- overly burdensome;
- a subterfuge for discrimination based on a health factor; or
- highly suspect in the method chosen to promote health or prevent disease.
Whether an activity-only wellness programme satisfies this reasonable design standard is based on all relevant facts and circumstances.
Uniform availability and reasonable alternative standards
The reward must be available to all similarly situated individuals. A reward is considered to be available to all similarly situated individuals only if the programme allows a reasonable alternative standard, or waives the standard, for obtaining the reward for any individual for whom it is either:
- unreasonably difficult due to a medical condition to satisfy the standard; or
- medically inadvisable to attempt to satisfy the standard.
The plan is not required to determine a reasonable alternative standard in advance of an individual's request for an alternative standard.
Notice of availability of a reasonable alternative standard
The plan or health insurance issuer must disclose in all plan materials that describe the terms of an activity-only wellness programme the availability of a reasonable alternative standard to qualify for the reward and, if applicable, the possibility of a wavier of the standard. The notice must provide contact information for an individual to request a reasonable alternative standard and must state that the recommendations of an individual's personal physician will be accommodated. Sample language for the notice is provided in the regulations. If plan materials merely mention the availability of an activity-only wellness programme, the notice is not required to be included in the materials. The preamble to the regulations provides that a summary of benefits and coverage is an example of a plan material that is not required to include the notice.
Outcome-based wellness programmes
An outcome-based wellness programme requires an individual to attain or maintain a specific health outcome in order to obtain a reward. If an individual does not attain or maintain the specified health outcome, the outcome-based wellness programme must provide the individual with a reasonable alternative standard to obtain the same reward (eg, meeting with a health coach, taking a fitness course or complying with a healthcare provider's plan of care). An outcome-based wellness programme must satisfy the same five requirements described above that apply to activity-only wellness programmes, except as noted here. All outcome-based wellness programmes must provide a reasonable alternative standard, or a waiver of the standard, for individuals to obtain the reward if they do not satisfy the initial standard for attaining or maintaining a specific health outcome, whereas an activity-only wellness programme must provide a reasonable alternative standard to obtain a reward only if it is unreasonably difficult due to a medical condition, or it is medically inadvisable, for an individual to attempt to satisfy the otherwise applicable standard. In addition, outcome-based wellness programmes must accommodate an individual's physician's recommendations if the physician states that the standard is not medically appropriate for the individual. An additional notice requirement applies to outcome-based wellness programmes: when an individual is notified that he or she did not satisfy the initial outcome-based standard, he or she must again receive the notice of the availability of a reasonable alternative.
If the reasonable alternative standard under an outcome-based wellness programme is participation in an activity-only wellness programme, the alternative standard must comply with the requirements that apply to activity-only wellness programmes described above. If the reasonable alternative standard is another outcome-based wellness programme, two requirements apply.
First, the alternative standard cannot be a requirement to meet a different level of the same standard without allowing for additional time to satisfy the standard that takes into account the individual's circumstances. The following example illustrates what is meant by a "different level of the same standard". If the initial standard to qualify for a reward under an outcome-based wellness programme is to achieve a body mass index (BMI) of less than 30 by a specified date, the reasonable alternative standard cannot be to achieve a BMI of less than 31 by that same date. However, a reasonable alternative standard could require the individual to reduce his or her BMI by a small amount or a small percentage over a realistic period of time.
The second requirement is that the individual be given the opportunity to comply at any time during the year with the recommendations of his or her personal physician as a second reasonable alternative standard. Moreover, the physician must be allowed to adjust his or her recommendations at any time, consistent with medical appropriateness.
The final regulations provide a number of examples illustrating the requirements that apply to wellness programmes in order for them to satisfy the exception to the Health Insurance Portability and Accountability Act non-discrimination rules. One example of an outcome-based wellness programme clearly shows how the principles discussed above apply when an individual does not satisfy the initial standard. In that example, the plan provides a reward to participants who have a body mass index that is 26 or lower shortly before the beginning of the plan year. A participant who does not satisfy this initial standard will qualify for the same reward if the participant complies with an exercise programme requiring him or her to walk for 150 minutes a week. Any participant for whom this is unreasonably difficult due to a medical condition, or for whom it is medically inadvisable to comply with the walking programme, will qualify for the same reward if the participant satisfies a reasonable alternative standard taking into account his or her medical situation. The example states that all plan materials describing the terms of the wellness plan describe the BMI standard and the alternative walking programme. The materials also notify participants that if it is unreasonably difficult for them to comply with the walking programme, the employer will offer an alternative based on the recommendations of the participant's physician, and that the participant will receive the reward if he or she follows the physician's recommendations.
The example concludes that this is an outcome-based wellness programme because the initial standard for obtaining the reward requires a participant to attain or maintain a specific health outcome (a certain BMI level). The alternative standard for obtaining the reward is an activity-only standard (a walking programme). This alternative satisfies the requirement that activity-only wellness programmes provide a reasonable alternative standard for obtaining the reward if it is unreasonably difficult due to a medical condition or medically inadvisable for an individual to satisfy the standard because it provides that such individuals can receive the reward if they follow their physician's recommendations.
Another example illustrates how the maximum 50% reward applies to participation in a tobacco use cessation or reduction component of a wellness programme when there are also other components to the wellness programme. In this example, the annual premium for employee-only coverage is $6,000 (of which the employee pays $1,500), but there is a $2,000 surcharge on employees who have used tobacco in the last 12 months and have not enrolled in the plan's tobacco cessation programme. The employer offers a health-contingent wellness programme focused on exercise, blood sugar, weight, cholesterol and blood pressure. The reward for compliance with this health-contingent wellness programme is a premium rebate of $600. The example concludes that the total of all rewards ($600 + $2,000 = $2,600) does not exceed 50% of the total cost of employee-only coverage (50% x 6,000 = $3,000), and that the $600 reward tested separately does not exceed 30% of the total cost of employee-only coverage ($1,800).
There is also a useful example illustrating how the maximum 30% reward applies when a wellness programme has both a participatory component and a health-contingent component. In this example, the total cost of employee-only coverage is $5,000, and the plan provides a $250 reward to employees for completing a health risk assessment. The plan also offers a $1,500 reward for participation in a 'healthy heart' programme, which is a health-contingent wellness programme. The example concludes that although the total reward for all wellness programmes ($250 + $1,500 = $1,750) exceeds 30% of the cost of employee-only coverage ($5,000 x 30% = $1,500), only the reward for compliance with the health-contingent wellness programme is taken into account in determining whether the 30% maximum reward has been exceeded.
The final regulations addressing how the Health Insurance Portability and Accountability Act non-discrimination rules, as modified by the Affordable Care Act, apply to various types of wellness programme provide clear guidance and will be helpful in designing wellness programmes in the future as they may become more complex. A number of surveys referenced in the preamble to the final regulations have found that, to date, the usual reward percentages range from 3% to 11% – much less than the maximum 20% reward permitted under the previous final Health Insurance Portability and Accountability Act non-discrimination regulations. The departments observe in the preamble that they believe that few plans will expand the reward percentage as a result of the final regulations and many commentators agree. However, as health costs continue to rise, there may be more outcome-based wellness programmes, and these increased maximum rewards may lead to new plan designs that shift more costs to employees who do not participate in those programmes.
(2) The applicable health factors are health status, medical condition (including both physical and mental illnesses), claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence) and disability. See Treas Reg § 54.9802-1(a).
(3) The Patient Protection and Affordable Care Act, enacted on March 23 2010, and the Healthcare and Education Reconciliation Act, enacted on March 30 2010, are collectively known as the 'Affordable Care Act'.
(5) A 'grandfathered health plan' is a plan in which an individual was enrolled on March 23 2010 and has maintained its grandfathered status by not modifying its terms significantly. See the interim final regulations regarding grandfathered health plans published at 75 Fed Reg 34538 (June 17 2010).
(6) On May 8 2013 the US Equal Employment Opportunity Commission held a hearing at which it heard testimony from businesses, employee advocates and wellness programme providers regarding the importance of developing laws under the Americans with Disabilities Act and the Genetic Information Non-discrimination Act and other unaddressed issues related to wellness programmes.
(7) The term 'similarly situated individuals' has the same meaning as it has under the final Health Insurance Portability and Accountability Act non-discrimination regulations published before the enactment of the Affordable Care Act. See 71 Fed Reg 75014 (December 13 2006). Distinctions may be made among groups of similarly situated participants in a health plan based on bona fide employment-based classifications consistent with the employer's usual business practice. Also, a plan may distinguish among beneficiaries based on their relationship to the covered employee. See the preamble to the final regulations at 33159.
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