Proposed Regulations Address Discrimination in Wellness Programs

by Ballard Spahr LLP

[authors: Jean C. Hemphill, Edward I. Leeds]

The Departments of Treasury, Labor, and Health and Human Services have issued a revised set of proposed regulations for nondiscrimination in wellness programs. The regulations prohibit a wellness program offered as part of a health plan from discriminating against individuals on account of an adverse health factor. The revised rules are scheduled to apply in plan years beginning on and after January 1, 2014.

The new regulations modify existing nondiscrimination rules previously issued under the Health Insurance Portability and Accountability Act (HIPAA). They retain much of the existing guidance, but clarify various requirements, set forth new examples, and introduce certain changes to conform to provisions of the Affordable Care Act (ACA). Most significantly:

  • The new regulations continue to distinguish "health-contingent" programs from "participatory" programs. A health-contingent program rewards participants who achieve certain health standards, such as maintaining a particular cholesterol or blood pressure level. A participatory program does not do so. It may base a reward on activities, such as completing a health risk assessment or submitting to certain screening examinations, without regard to outcome, or it may not provide for any reward at all.
  • A participatory wellness program simply needs to be available to all similarly situated individuals to satisfy the nondiscrimination requirements. A health-contingent program must meet the following five additional criteria to be considered nondiscriminatory:
  1. Individuals must continue to have the opportunity to qualify for the reward at least once per year.
  2. The wellness program must continue to be reasonably designed to promote health and prevent disease.
  3. The potential size of the reward has been increased from 20 percent to 30 percent of the total cost of coverage. The reward may be increased to 50 percent of the total cost of coverage to the extent that the additional 20 percent is attributable to a program for the prevention or reduction of tobacco use. The total cost of coverage is determined by adding both employee and employer contributions toward the cost of single employee coverage. If family members may participate in the wellness program, the cost may be based on the applicable tier of family coverage.
  4. Wellness programs must continue to offer an alternative means of qualifying for the reward to those who, for medical reasons, find it unreasonably difficult to meet or inadvisable to attempt to meet the relevant health standard. But the new rules make various clarifications to this requirement. For example, if the alternative involves participation in an educational program, the employer must establish or arrange for such a program and pay for its cost. Additionally, a wellness program may require an individual's physician to verify that the individual cannot or should not attempt to meet a health standard due to medical reasons, but only where such verification is reasonable under the circumstances (and not obvious from the individual's condition).
  5. All materials that describe the wellness program must continue to provide notice of the availability of an alternative means of qualifying for the reward. The notice does not need to include details of the alternative. The regulations set forth a new, "less complicated and confusing" model notice. Employers may continue to design their own notices, however, and various examples in the new regulations make it clear that variations in the notice are expected.

By choosing to modify the existing HIPAA regulations and not issue a distinct set of ACA rules, the regulating agencies have harmonized the requirements of both laws and have made the same rules applicable to both grandfathered and non-grandfathered plans under ACA. Employers should, however, continue to be mindful of the separate nondiscrimination requirements that apply under the Genetic Information Nondiscrimination Act and the Americans with Disabilities Act.

As the federal health care reform effort gained steam, Ballard Spahr attorneys launched the Health Care Reform Initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting health care entities and employers in understanding the relevant changes and planning for the future. If you have questions regarding the modified nondiscrimination regulations or other implications of the Affordable Care Act, contact Edward I. Leeds at 215.864.8419 or, or Jean C. Hemphill at 215.864.8539 or

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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