Many of the wellness programs created by the Affordable Care Act (ACA) have yet to come into existence due to political gridlock and failure to appropriate funds. But preliminary regulations issued recently by the U.S. Departments of Treasury, Labor, and HHS do offer some clarification and guidance on the ACA's nondiscrimination laws pertaining to wellness programs and incentives.
Prior to the enactment of the ACA, the Health Insurance Portability and Accountability Act (HIPAA) established prohibitions on group health plans from discriminating against individuals in eligibility, benefits, or premiums based on a health factor.
However, an exception for wellness programs was created to allow premium discounts for individuals participating in a wellness program if the program adhered to certain requirements.
The "wellness exception" to the HIPAA nondiscrimination rules addressed two categories of wellness programs:
Participation-based programs, where incentives are made available to all individuals who participate.
Health-contingent wellness programs, where individuals are required to satisfy a health-related standard in order to obtain the reward. This latter category is also referred to as an "outcomes-based" or "standards-based" wellness program.
Examples of participatory wellness programs include:
- A biometric testing program that bases the reward on participation rather than test outcomes;
- A program that reimburses employees for the cost of smoking cessation programs regardless of whether the employee quits smoking; or
- A program that provides rewards for attending a free health education seminar
- There is no limit on the financial incentives that can be offered for participatory wellness programs, so long as rewards are made available to all similarly situated individuals who participate.
However, if the wellness program is outcomes-based and requires participants to achieve or maintain a certain health standard in order to obtain a reward – such as not smoking or attaining certain results on biometric screenings – then all of the following conditions apply:
- The participant's reward may not exceed 20 percent of the total cost of coverage under the plan;
- The program must be "reasonably designed" to promote health or prevent disease. In other words, it may not be overly burdensome, suspect in method, or act as a subterfuge for discrimination based on a health factor;
- Eligible individuals must be given an opportunity to qualify for the reward at least once per year;
- The reward must be available to all similarly situated individuals, and a reasonable alternative standard (or waiver of the standard) must be made available to any individual for whom it is unreasonably difficult – due to a medical condition – or medically inadvisable to satisfy the standard during that period; and
- The availability of a reasonable alternative standard (or the possibility of a waiver) is disclosed in all plan materials describing the program.
New Regulations In 2014 For Group Health Plans
The proposed new government regulations, which will apply to group health plan years beginning on or after January 1, 2014, make clarifications and amendments to the above rules governing health-contingent wellness programs. Namely, they:
Increase the maximum permissible reward for a standards-based wellness program offered in connection with a group health plan;
Clarify what constitutes a "reasonably designed" health-contingent wellness program; and
Identify reasonable alternatives that must be offered in order to avoid discrimination.
A few of the amendments are highlighted below.
Size of Reward
Beginning in 2014, the maximum permissible reward for participation in a health-contingent wellness program will increase from 20 percent to 30 percent. In addition, up to a 50-percent differential may be applied for outcomes-based programs designed to prevent or reduce tobacco use.
How will the maximum possible reward be calculated?
In short, the percentage will apply to the total cost of employee-only coverage under the plan, taking into account both employer and employee contributions towards the cost of coverage. Any participation-based rewards will be excluded from the calculation.
For example, if the total cost is $6,000 per year for an employee to participate in her employer's group health plan, the maximum annual reward (or penalty) the company could give the employee under an outcomes-based incentive structure would be $1,800 ($6,000 x 30% = $1,800), even if the employee is only responsible for, say, $1,500 of the total annual premium.
If, in addition to employees, spouses and/or dependent children may participate in the health-contingent wellness program, then the reward may not exceed the applicable percentage of the total cost of coverage in which the employee and any dependents are enrolled (such as family coverage or employee-plus-one coverage). More examples on how to calculate allowable incentives for outcomes-based programs are included in the proposed regulations.
Uniform Availability and Reasonable Alternative Standards
The regulations also make clear that employers are not required to establish a particular alternative standard until an individual specifically asks for one. On the other hand, plans and issuers will have to continue providing a reasonable alternative standard even if one was not successful before. They must, in fact, continue to offer a reasonable alternative standard, whether it is the same standard or a new standard. The regulations also offer examples of the factors that determine if a reasonable alternative standard has been provided.
Notice of Other Means of Qualifying for the Reward
The proposed regulations provide sample notice language that is simpler for individuals to understand. This is expected to increase the likelihood that those who qualify for a different means of obtaining a reward will contact the plan or issuer to request it. Program administrators are advised to add this language to their wellness program descriptions before the start of their next plan year.
The comment period for the proposed regulations has ended. Once final regulations are issued, the new rules will become binding on group health plans beginning Jan. 1, 2014. To read the full text of the proposed regulations, visit www.gpo.gov/fdsys/pkg/FR-2012-11-26/pdf/2012-28361.pdf
