[authors: Amy M. Gordon and Susan M. Nash]
New proposed employer wellness program regulations have been released under the Patient Protection and Affordable Care Act.
On November 20, 2012, the U.S. Departments of the Treasury, Labor (DOL) and Health and Human Services (HHS) (collectively, the Regulators) released proposed regulations addressing the employer wellness program provisions of the Patient Protection and Affordable Care Act (PPACA). The proposed regulations apply to both grandfathered and non-grandfathered plans in both the insured and self-insured markets, and are effective for plan years beginning on or after January 1, 2014.
The proposed regulations did not deviate extensively from the previous wellness program guidance published in 2006. The 2006 wellness program guidance describes two types of wellness programs: one where the reward is not conditioned on the individual satisfying a standard relating to a health factor (non-contingent reward), and one where the reward is conditioned on the individual satisfying a standard relating to a health factor (health contingent reward). The non-contingent wellness programs remain the same, however the wellness programs that contain health contingent rewards have changed under the new guidance.
If a wellness program conditions the reward on a participant’s outcome, for example, all employees who lower their cholesterol to 200 or below will receive a reduction in the cost of their health plan premiums, it is considered a health contingent reward program, and must comply with five requirements. Though the number of requirements has not changed, details of the requirements have changed in certain circumstances. The chart below compares the 2006 requirements with the new proposed regulation’s five requirements.
2006 Wellness Program Rules
2012 Proposed Wellness Program Rules
1. The reward may not exceed 20 percent of the cost of coverage. The cost of coverage is based on the employee and employer portion of the cost of coverage, and can be based on the cost of coverage to employees and their dependents if the wellness program allows dependents to participate. If dependents are not permitted to participate, the reward can only be calculated on the basis of 20 percent of the cost of employee-only coverage. The reward can be in the form of a discount, rebate of premium or contribution, waiver of all or part of a cost-sharing mechanism (i.e., deductibles, copayment or coinsurance), absence of a surcharge, or the value of an additional benefit that would otherwise not be provided under the plan. The amount is cumulative for all contingent reward programs.
1. The reward may not exceed 30 percent (50 percent in the case of a program designed to reduce or prevent tobacco use) of the cost of coverage. The cost of coverage is based on the employee and employer portion of the cost of coverage, and can be based on the cost of coverage to employees and their dependents if the wellness program allows dependents to participate. If dependents are not permitted to participate, the reward can only be calculated on the basis of 30 percent (or 50 percent for tobacco prevention programs) of the cost of employee-only coverage. No change as to the form of the reward, and the amount of the reward is still cumulative for all contingent reward programs.
2. The program must be reasonably designed to promote health or prevent disease. The program must have a reasonable chance of improving the health of or preventing disease in participating individuals. In addition it cannot be overly burdensome. It cannot be a subterfuge for discriminating based on a health status factor, nor can it utilize highly suspect methods for promoting health or preventing disease. For example, participation in a course of aromatherapy is considered reasonable, whereas bizarre, extreme or illegal requirements are not.
2. No change as to the design of the program. However, the regulations, as a point of clarification, provide that a health status-related factor includes an individual’s health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, disability or other health status-related factor determined appropriate by the Secretaries.
3. The program must give eligible individuals the opportunity to qualify for the reward at least once a year.
3. No change.
4. The reward must be made available to all similarly situated individuals (including making available a reasonable alternative standard to qualify for the reward if it is unreasonably difficult for an individual to satisfy the otherwise applicable standard because of a medical condition or if it is medically inadvisable for an individual to attempt to satisfy the standard). A reasonable alternative standard does not need to be established before the program commences. The reasonable alternative standard may be determined once the participant informs the program that it is unreasonably difficult or medically inadvisable for him to attempt to achieve the standard.
4. The reward must be made available to all similarly situated individuals (including making available a reasonable alternative standard to qualify for the reward if it is unreasonably difficult for an individual to satisfy the otherwise applicable standard because of a medical condition or if it is medically inadvisable for an individual to attempt to satisfy the standard). In lieu of providing a reasonable alternative standard, a plan or issuer may always waive the otherwise applicable standard and provide the reward to an entire class of individuals or may do so on an individual-by-individual basis based on the facts and circumstances presented. All the facts and circumstances would be taken into account in determining whether a plan or issuer has provided a reasonable alternative standard, including but not limited to the following proposed factors:
If the reasonable alternative standard is a diet program, the plan or issuer is not required to pay for the cost of food, but must pay any membership or participation fee.
If the reasonable alternative standard is compliance with the recommendations of a medical professional who is an employee or agent of the plan or issuer, and an individual’s personal physician states that the medical professional’s recommendations are not medically appropriate for that individual, the plan or issuer must provide a reasonable alternative standard that accommodates the recommendations of the individual’s physician with regard to medical appropriateness. Plans and issuers may impose standard cost sharing under the plan or coverage for medical items and services furnished in accordance with the physician’s recommendations.
5. The plan must disclose the availability of a reasonable alternative standard (or the possibility of waiver of the otherwise applicable standard) in all plan materials that describe the terms of the program. Disclosure of all reasonable alternative standards are not required, instead it is sufficient to state that some reasonable alternative standards will be made available. However, if the program states the general standard required, then it would need to state the reasonable alternative standard. If the program merely mentions (and does not describe the general standard), disclosure of the availability of a reasonable alternative standard is not required.
5. The plan or issuer must disclose in all plan materials describing the terms of the program the availability of other means of qualifying for the reward or the possibility of waiver of the otherwise applicable standard. If plan materials merely mention a program is available, without describing its terms, this disclosure is not required. The following language, or substantially similar language, can be used to satisfy the notice requirement of this paragraph (5): “Your health plan is committed to helping you achieve your best health status. Rewards for participating in a wellness program are available to all employees. If you think you 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 to find a wellness program with the same reward that is right for you in light of your health status.” Additional sample language is provided in the examples, for example, “If your cholesterol count is under 200, you will receive the reward. If not, you will still have an opportunity to qualify for the reward. We will work with you to find a Health Smart program that is right for you.”
The 2006 wellness regulations provide that it is permissible for a plan or issuer to seek verification, such as a statement from the 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 otherwise applicable standard. The proposed regulations amend that requirement to provide that physician verification may be required by a plan or issuer “if reasonable under the circumstances.” The proposed regulations further provide that "it would not be reasonable for a plan or issuer to seek verification of a claim that is obviously valid based on the nature of the individual’s medical condition that is known to the plan or issuer. Plans and issuers are permitted under the proposed regulations to seek verification of claims that require the use of medical judgment to evaluate." The Regulators are seeking further comment on this new requirement, which, given the vague nature of the statement, will likely generate a few comments.
Plan sponsors and issuers should review their current wellness programs in light of the above and, once the final regulations are published, make any necessary changes to comply with the new regulations. If you have comments, contact your regular McDermott Will & Emery lawyer or an author for assistance in drafting and submitting them on your behalf. Alternatively, you may submit comments online at the federal eRulemaking portal or mail or hand deliver them to the Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Ave. NW, Washington, DC 20210, Attention: Wellness Programs.