Final regulations for wellness programs have been issued to help employers encourage healthier behaviors among their employees.
Large employers are much more likely to offer a variety of wellness incentives to their employees. That said, estimates are that half of the employers in the United States already offer such incentives. The potential payoffs include savings in health care costs, decreased absenteeism and increased productivity. For example, free in-office flu vaccines result in fewer sick days, smoker cessation programs mean fewer trips outside for smoke breaks and healthy eating tips could help curb the epidemic of obesity and diabetes.
Applicability of the Final Regulations
The Department of Health and Human Services (HHS), Department of Labor (DOL) and the Treasury Department issued the final regulations regarding wellness programs under the Patient Protection and Affordable Care Act ("ACA") on May 29, 2013. While the ACA prohibits discrimination against health plan participants and beneficiaries in eligibility, benefits or premiums based on the participant's health, it provides an exception for wellness programs, allowing employers to offer cash rewards and premium discounts or rebates in return for employees' adherence to health promotion and disease prevention programs.
The final regulations provide the ACA compliance standards for group health plans with plan years beginning January 1, 2014. Employers who offer wellness programs should review the final regulations carefully to ensure compliance by January 1, 2014.
Participatory Wellness Programs
The final regulations designate two types of wellness programs: participatory wellness programs and health-contingent wellness programs. Participatory wellness programs do not provide a reward or do not include any conditions for obtaining a reward other than participation in the program. Most wellness programs offered by employers are participatory.
Examples of participatory wellness programs identified in the final regulations include: (1) reimbursement of the membership cost at a fitness center; (2) a reward for attending a diagnostic testing program or health risk assessment; and (3) a premium reduction for attending a free health education seminar.
Consistent with the 2006 HIPAA regulations, the final regulations mandate that employers offer participatory wellness programs to all similarly situated individuals, regardless of health issues.
Health-Contingent Wellness Programs
Health-contingent wellness programs require individuals to satisfy a standard related to a health factor to obtain a reward. Health-contingent wellness programs include activity-only wellness programs and outcome-based wellness programs.
Activity-only wellness programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward like a cash payment, but do not require an individual to attain or maintain a specific health outcome. Examples of activity-only wellness programs include walking or diet programs. Outcome-based wellness programs require employees to attain or maintain a specific health outcome in order to obtain a reward. For example, an outcome-based wellness program may offer a cash payment to an employee who stops using tobacco products or attains cholesterol, blood pressure or body mass index (BMI) reductions at regular screenings. These programs generally have an initial measurement or testing phase. Individuals who do not meet the initial standard can then be required to participate in one or more wellness activities to receive the award.
To comply with the final regulations, health-contingent wellness programs must: (1) give individuals eligible for the program the opportunity to qualify for the reward at least once per year; (2) not reward more than the applicable percentage (see below) of the total cost of employee-only coverage under the plan; (3) be reasonably designed to promote health or prevent disease; (4) be uniformly available, with a reasonable alternative standard for individuals who are unable to participate due to a medical condition; and (5) disclose the availability of a reasonable alternative standard in all plan materials describing the terms of the program.
The requirements for a "reasonable alternative standard" regardless of health status are explained at length in the regulations. In activity-only wellness programs, a reasonable alternative standard for obtaining a reward must be provided for any individual for whom it is unreasonably difficult due to a medical condition to meet the applicable standard, or for whom it is medically inadvisable to attempt to satisfy the applicable standard. Those who cannot participate because of a disability or a predisposition to high cholesterol or diabetes might be given the option to attend a seminar on healthy eating. In outcome-based wellness programs, a reasonable alternative standard must be provided to all individuals who do not meet the initial standard.
Wellness programs are unlawful if they are a subterfuge for discriminating or underwriting based on a health condition or factor. Compliance with the final regulations does not assure compliance with any other applicable federal or state law, such as the Americans With Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA), which may impose additional requirements on wellness programs.
Health-Contingent Wellness Program's Maximum Reward is Increased
The government's 2006 HIPAA regulations required that rewards for a health-contingent wellness program could not exceed 20 percent of the total cost of employee-only health insurance coverage. The final regulations increased the maximum "applicable percentage" from 20 to 30 percent, with an increase from 30 to 50 percent for wellness programs designed to prevent or reduce smoking. The regulations provide examples that illustrate how to calculate the applicable percentage.
HHS, DOL and Treasury anticipate that they will promulgate future guidance, such as frequently asked questions and answers, to further clarify the law on wellness programs. Meanwhile, employers continue to come up with creative wellness models designed to lower medical costs, improve employee health and maximize their wellness investments.