On May 29, 2013, the Departments of Treasury, Labor and Health and Human Services (the "Departments"), released final regulations on incentives for nondiscriminatory wellness programs in group health plans ("Final Regulations") as provided for under the Patient Protection and Affordable Care Act of 2010 ("PPACA"). The Final Regulations apply to both grandfathered and non-grandfathered group health plans for plan years beginning on or after January 1, 2014.
PPACA codified the 2006 final wellness program regulations under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). (See our January 2007 issue for a summary of those final regulations). In November 2012, the Departments released proposed regulations for wellness programs under PPACA (the "Proposed Regulations"). (See our December 2012 issue for a summary of those proposed regulations.)
The Final Regulations adopt many of the provisions of the Proposed Regulations. The bulk of the changes come from the subdivision of health-contingent wellness programs into two groups:
- Activity-only (e.g., exercise with no specific outcome required)
- Outcome-based (e.g., maintaining a certain healthy weight)
Throughout this article, new features of the Final Regulations are prefaced with the term "NEW."
HIPAA generally prohibits group health plans (and health insurance issuers) from discriminating against participants in eligibility, benefits or premiums based on a health factor. Health factors include (but are not limited to) health status, medical condition, genetic information, claims experience and disability.
For example, a plan cannot simply charge a higher premium to participants with unhealthy cholesterol levels and charge a lower premium to participants with healthy cholesterol levels. However, a plan with an associated wellness program that complies with the HIPAA nondiscrimination rules is allowed under HIPAA to provide certain rewards (e.g., a premium discount or the absence of a premium surcharge) to participants who meet the standards of the wellness program. Under the Final Regulations, a wellness program is defined as a "program of health promotion and disease prevention."
In the Preamble to the Final Regulations (the "Preamble"), the Departments state that it is their intention "that regardless of the type of wellness program, every individual participating in the program should be able to receive the full amount of any reward or incentive, regardless of any health factor." There are two broad types of wellness programs: health-contingent and participatory. The HIPAA nondiscrimination requirements that a wellness program must satisfy varies with the type of wellness program offered.
Health-Contingent Wellness Programs in General
A health-contingent wellness program requires an individual to satisfy a standard related to a health factor in order to receive a reward. Health contingent wellness programs are now subdivided into two groups: activity-only and outcome-based.
NEW: Activity-Only Wellness Programs
An activity-only wellness program requires an individual to complete an activity related to a health factor in order to obtain a reward, but does not require a specific health outcome from completing such activity. Examples include walking, diet, or exercise programs. The fact that an individual’s health does not actually improve as a result of completing the specified activity is irrelevant with respect to the individual’s eligibility for the reward.
NEW: Outcome-Based Wellness Programs
An outcome-based wellness program requires an individual to reach or maintain a specific health outcome in order to obtain a reward. Programs which provide a reward only if the individual attains a healthy weight, refrains from smoking or attains a certain biometric test result (e.g., healthy blood pressure rate or glucose level) are examples of outcome-based wellness programs.
HIPAA Nondiscrimination Requirements for Health-Contingent Wellness Programs
The Final Regulations further clarify the five requirements that a health-contingent wellness program must satisfy in order to be nondiscriminatory under HIPAA. Often, the requirements vary depending on whether the health-contingent program is activity-only or outcome-based.
To be nondiscriminatory under HIPAA, a health-contingent wellness program must meet all five requirements described below.
Size of Reward
The total reward must not exceed 30% of the cost of coverage under the related group health plan. If the wellness program is designed to prevent or reduce tobacco use, then the total reward must not exceed 50% of the cost of coverage. These limits remain unchanged from the Proposed Regulations.
In the Preamble, the Departments further explained that they were declining to set forth detailed rules governing apportionment (or division) of the reward among covered family members under a health-contingent wellness program that allows dependents as well as employees to participate. Instead, the Departments merely require that a plan’s chosen method of dividing the reward among family members be reasonable.
The Final Regulations retain the requirement that the program must be reasonably designed to promote health or prevent disease. A program meets this standard if it:
- has a reasonable chance of improving health or preventing disease;
- 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 or prevent disease.
The determination of reasonable design is based on all the relevant facts and circumstances.
NEW:The Final Regulations also clarify that in order for an outcome-basedwellness program to be reasonably designed, it must provide a reasonable alternative standard to qualify for the reward for all individuals who do not meet the initial standard based on a measurement, test or screening that is related to a health factor, as explained in Uniform Availability & Reasonable Alternative Standards, below.
In the Preamble, the Departments emphasized the importance of providing plans flexibility and encouraging innovation. Thus the Departments declined to:
- adopt a rigid set of pre-approved wellness program structures or guidelines;
- require program accreditation; or
- require that programs be based on particular evidence-based clinical standards.
Uniform Availability & Reasonable Alternative Standards
The Final Regulations retain the requirement that rewards must be offered to all similarly situated individuals. For example, employees, enrollees in a particular benefit option (e.g., HMO or PPO), spouses, and dependent children each constitute a separate group of similarly situated individuals. In addition, a health-contingent wellness program must allow a reasonable alternative standard (or waiver of the standard) that certain individuals may meet to obtain the reward.
NEW: Individuals Eligible for a Reasonable Alternative Standard
An activity-only program must allow a reasonable alternative standard (or waiver of the standard) to obtain the reward for individuals for whom:
- it is unreasonably difficult to meet the standard because of a medical condition; or
- it is medically inadvisable to attempt to satisfy the standard.
An outcome-based program must allow a reasonable alternative standard (or waiver of the standard) to obtain the reward for any individual who does not meet the initial standard based on a measurement, test or screening that is related to a health factor.
- There is no requirement that the standard be unreasonably difficult to meet because of a medical condition, nor a requirement that it is medically inadvisable for an individual to attempt to satisfy the standard.
- Failure to meet the initial standard warrants a reasonable alternative standard.
NEW: Requirements of a Reasonable Alternative Standard
If the reasonable alternative standard is an activity-only program, this alternative program must allow an additional reasonable alternative standard (or waiver of the standard) to obtain the reward if medically appropriate. For example:
- The initial standard for an activity-only program is to run a certain number of miles per week.
- If it is unreasonably difficult for an individual to run those miles because of a medical condition, then the program may provide the individual with the alternative standard of walking a number of miles per week.
- Because this second standard (walking) is also an activity-only program, the individual may have to be offered a third standard if walking is also unreasonably difficult to meet because of a medical condition.
If the reasonable alternative standard is an outcome-based program involving meeting a standard based on a measurement, test or screening that is related to a health factor, this alternative program must allow an additional reasonable alternative standard (or waiver of the standard) to obtain the reward if the individual fails to meet the standard of the alternative program. For example:
- The initial standard for an outcome-based program is to attain a certain cholesterol level.
- If an individual fails to attain the specified cholesterol level, then the program may provide the individual with the alternative standard of attaining a certain blood pressure rate.
- Because this second standard (attaining a certain blood pressure rate) is also an outcome-based program involving meeting a standard based on a measurement, test or screening that is related to a health factor, the individual may have to be offered a third standard if he/she fails to attain the specified blood pressure rate.
- Additional Special Rules if the Alternative is Also an Outcome-Based Program.
If the reasonable alternative standard to an outcome-based program is, itself, another outcome-based program, the following two special rules also apply:
- The alternative outcome-based program cannot be a requirement to meet a different level of the same standard without extra time to comply, considering the individual’s circumstances. For example, if the initial standard is to achieve a body mass index (BMI) less than 30, the alternative outcome-based program cannot be to achieve a BMI less than 31 on that same date.
- The plan must give an individual the opportunity to comply with the recommendations of the individual’s personal physician as a second reasonable alternative standard in lieu of the plan’s default reasonable alternative standard, but only if the physician joins in the request. The individual can make such a request at any time, and the physician can adjust recommendations at any time, consistent with medical appropriateness.
NEW: Verification for Request of a Reasonable Alternative Standard
- For an activity-only program, the Final Regulations provide that, if reasonable under the circumstances, a plan may seek verification from an individual’s personal physician that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the standard of that activity-only program.
- For an outcome-based program, under the Final Regulations, it is not reasonable to seek such verification (i.e., unreasonably difficult or medically inadvisable) as a condition of providing a reasonable alternative standard to the initial standard.
- If the reasonable alternative standard to the initial standard of an outcome-based program is an activity-only program, such as running, then a plan may seek verification from an individual’s personal physician that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the standard of the alternative activity-only program.
NEW: Payment of the Reward and Timing
In the Preamble, the Departments clarify that the same, full reward must be available under a health-contingent wellness program (whether activity-only or outcome-based) to individuals who qualify by satisfying a reasonable alternative standard as is provided to individuals who qualify by satisfying the program’s default or initial standard. This may result in a retroactive payment of the reward.
Notice of Availability of Alternative Standards
The Final Regulations retain the requirement that the plan must disclose in all plan materials describing the terms of a health-contingent wellness program the availability of the reasonable alternative standard for obtaining the reward (or the possibility of waiver of the standard). If plan materials merely mention that a program is available, without describing its terms, this disclosure is not required.
NEW: In addition, the Final Regulations require that the disclosure statement include the following:
- Contact information for obtaining a reasonable alternative standard
- A statement that recommendations of an individual’s personal physician will be accommodated
NEW: For outcome-based wellness programs, the disclosure statement must also be included in any communication to an individual that he/she did not satisfy an initial outcome-based standard.
NEW: The Final Regulations provide new model disclosure language that may be used for any health-contingent wellness program:
- Your health plan is committed to helping you achieve your best health. Rewards for participating in a wellness program are available to all employees. If you think yur healtou might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert contact information] and we will work with you (and, if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status.
Frequency of Opportunity to Qualify
The Final Regulations retain the requirement that all individuals who are eligible for a health-contingent wellness program must be provided an opportunity to qualify for the program’s reward at least once per year.
Participatory Wellness Programs
The Final Regulations generally leave intact the prior guidance applicable to participatory wellness programs. A participatory wellness program does not condition eligibility for a reward upon a participant’s ability to meet a health standard. Examples of participatory programs include:
- Reimbursement of health club memberships
- Reimbursements for smoking-cessation programs (regardless of outcome)
- A program that rewards employees for attending a monthly, no-cost health education seminar
This type of wellness program satisfies the HIPAA nondiscrimination rules if participation in the program is available to all similarly situated individuals. The examples of groups of similarly situated individuals described above under health-contingent wellness programs also apply here. HIPAA does not impose any limits on the size of the rewards offered through a participatory wellness program, nor does HIPAA require the provision of reasonable alternative standards.
The applicability date, January 1, 2014, is fast approaching. Employers should carefully review their wellness programs to determine whether they comply with the Final Regulations, which generally provide more flexibility to participants (especially with respect to obtaining full rewards) but require more complexity in program administration. In addition, employers should review their wellness programs to determine whether they comply with other applicable laws, such as the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, the Consolidated Omnibus Budget Reconciliation Act, and HIPAA privacy and security requirements.