Proposed Affordable Care Act Regulations are Designed

by Poyner Spruill LLP

With the conclusion of the 2012 elections, federal agencies now are releasing proposed regulations crucial to the implementation of the Patient Protection and Affordable Care Act (the Affordable Care Act). On Tuesday, November 20, 2012, the Department of Labor, the Department of Health and Human Services, and the Treasury Department issued proposed regulations that deal with incentives for nondiscriminatory wellness programs in group health plans. These proposed regulations were published in the November 26, 2012, issue of the Federal Register, which can be found here.

Wellness programs have been on the rise around the country for quite some time. Mercer, the world’s largest human resource consulting firm, reportedly has observed that wellness initiatives currently are employers’ top long term strategy for controlling health spending by encouraging employees to maintain better health. Mercer’s recent annual survey found a sharp increase in the use of incentives and/or penalties to encourage employee participation in wellness programs. Recognizing that the implementation and expansion of employer wellness programs may offer the opportunity to not only improve the health of Americans but also help control spending, the Obama administration’s proposals are designed to further encourage employers to offer such programs to their employees.

The proposed regulations implement changes in the Affordable Care Act that codify the existing HIPAA rules allowing employee wellness programs to offer an incentive for achieving a health standard, the most common incentive being a reduction in the employee’s premium contribution. The proposed regulations increase the maximum allowable amount of the incentive from the 20% currently allowed by the HIPAA rules to 30% of the cost of employee-only coverage under the plan, and up to 50% for wellness programs designed to prevent or reduce tobacco use. It is important to emphasize, however, that these increased reward limits do not take effect until plan years beginning on or after January 1, 2014 (which will be even later for a non-calendar-year plan).

The proposed regulations also include other clarifications and enhancements to existing law. They address both recognized categories of wellness programs – “participatory wellness programs” and “health-contingent wellness programs.” “Participatory wellness programs,” which constitute the majority of wellness programs, generally are available to all employees regardless of their health status, and they either do not provide an award or they do not include any conditions for obtaining the award that are based on an individual satisfying a standard that is related to a health factor. Examples of participatory wellness programs include those where the reward is reimbursement for fitness center memberships, or a participatory award to employees who attend health-related seminars or complete a health risk assessment (without requiring them to take further action). Participatory programs are not required to meet the requirements applicable to health-contingent wellness programs.

In contrast, “health-contingent wellness programs” provide rewards to employees who meet a specific health-related standard. Examples of health-contingent wellness programs are a program that imposes a premium surcharge based on tobacco use and a program that uses a biometric screening or a health risk assessment to identify employees with specified medical conditions or risk factors (such as high cholesterol, high blood pressure, abnormal body mass index or high glucose level) and provides a reward to employees identified as within a normal or healthy range (or at low risk for certain medical conditions), while requiring employees who are identified as outside the normal or healthy range (or at risk) to take additional steps (such as meeting with a health coach, taking a health or fitness course, adhering to a health improvement action plan, or complying with a health care provider’s plan of care) to obtain the same reward.

The “health-contingent wellness programs” are the more problematic of the two types of programs, as they must offer reasonable alternatives for obtaining the reward to any individual for whom it is either unreasonably difficult due to a medical condition to meet the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard. In other words, the same, full reward must be available to individuals who qualify by satisfying a reasonable alternative standard as is provided to individuals who qualify by satisfying the program’s otherwise applicable standard.

As discussed in a fact sheet issued by the Department of Health and Human Services on November 20, 2012 (available here), the proposed regulations set forth the following stipulations for health-contingent wellness programs:

  • Wellness programs must be reasonably designed to promote health or prevent disease and have a reasonable chance of improving health or preventing disease; further, they must not be overly burdensome for individuals. In addition, a program must offer a different, reasonable means of qualifying for the reward to any individual who does not meet the standard based on the measurement, test or screening.
  • Wellness programs must be reasonably designed to be available to all similarly situated individuals. Employers must offer a reasonable alternative means of qualifying for the reward to individuals whose medical conditions make it unreasonably difficult to meet the wellness goal, or for whom attaining the goal would be medically inadvisable.
  • Employees must be notified of the alternative means of qualifying for the wellness incentive, and the proposed regulations include sample notice language.

It bears noting that one particularly glaring omission from the proposed regulations is any mention of whether penalties for non-participation in a wellness program are permissible (as opposed to incentives to participate in a wellness program).

Although the Obama administration clearly desires to encourage more employers to offer and more employees to participate in wellness programs, and while the proposed regulations offer some clarification and examples of what would constitute a reasonably designed health-contingent wellness program, the regulations do not specify the types of wellness programs an employer may safely offer to its employees and avoid allegations of discrimination. The proposed regulations do seek comment, however, on a number of issues, including (1) possible definitions of “tobacco use,” (2) whether additional guidance is needed to help assess a wellness program’s reasonable alternative standard and (3) whether additional consumer protections are needed to ensure that wellness programs are reasonably designed to promote health or prevent disease. Comments are due by January 25, 2013, the specifications for which are set forth in the November 26, 2012, issue of the Federal Register (cited above).

Even though the Affordable Care Act encourages the use of wellness programs by employers, strict compliance with the new regulations once issued will be required. Unfortunately, the proposed regulations do not address many of the legal issues that employers have faced with regard to wellness programs, including issues of potential discrimination under the Americans with Disabilities Act, the Age Discrimination in Employment Act, and other federal and state laws, as well as federal benefits issues. Many unanswered questions remain. Given the continued uncertainty and questions that remain with respect to wellness programs, employers would be well served to have even the most seemingly simple program reviewed by legal counsel for compliance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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