As we all know by now, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits group health plans from discriminating in eligibility, benefits, or premiums based on a health factor. An exception to the general rule is provided for certain wellness programs that discriminate in benefits and/or premiums based on a health factor.
The regulations generally divide wellness programs into two categories. First, programs that do not require an individual to meet a specific health standard in order to obtain a reward are not considered discriminatory, and therefore are not subject to the nondiscrimination rules (we will refer to these as "participation-based programs"). Examples include a fitness center reimbursement program, a biometric testing program that does not base rewards on test outcomes, a program that reimburses employees for the cost of smoking cessation aids regardless of whether the employee quits smoking, and a program that provides rewards simply for attending health education events.
The second category of wellness programs consists of those that require individuals to satisfy a set health standard in order to obtain a reward (these are called "health-contingent wellness programs"). Examples include requiring an individual to obtain or maintain a certain health outcome in order to obtain a reward (such as being a non-smoker, attaining certain results on biometric screenings, or exercising a certain amount). Although such a premium or benefit reward may discriminate based on a health factor, the program must adhere to the following five safeguards (known as the "HIPAA nondiscrimination rules"):
- The total reward for such wellness programs offered by a plan sponsor is limited to 20% of the total cost of employee-only coverage under the plan.
(However, if dependents can participate in the program, the limit on the reward is modified so that the 20% is calculated with respect to the total cost of coverage in which the employee and any dependents are enrolled.)
- The program must be reasonably designed to promote health or prevent disease.
For this purpose, it must: have a reasonable chance of improving health or preventing disease, not be overly burdensome, not be a subterfuge for discriminating based on a health factor, and not be highly suspect in method.
- The program must give eligible individuals an opportunity to qualify for the reward at least once per year.
- The reward must be available to all similarly situated individuals. To meet this requirement, a reasonable alternative standard (or waiver of the original standard) must be made available to individuals for whom it is unreasonably difficult due to a medical condition to satisfy the original standard during that period (or for whom a health factor makes it unreasonably difficult or medically inadvisable to try to satisfy the original standard).
- In all plan materials describing the terms of the program, the availability of a reasonable alternative standard (or waiver of the original standard) must be disclosed.
The Affordable Care Act of 2010 (ACA) increased the maximum reward that can be provided under a health-contingent wellness program in the future from 20% to 30%. This increase was originally set to become effective in 2014, but the federal agency implementing the ACA has declared an intent to use its regulatory authority to apply the change early (stay tuned for the revised effective date). The ACA also gave the federal agency the power to raise the maximum reward as high as 50% in future years.
If compliance with the HIPAA nondiscrimination rules seems daunting, remember that not all wellness programs are subject to these rules. A wellness program is subject to the HIPAA nondiscrimination rules only if it is offered as part of a group health plan. So employers may provide or subsidize healthier food choices in the employee cafeteria, provide pedometers to encourage employee walking and exercise, pay for gym memberships, or ban smoking on company premises facilities and campuses without worrying about the HIPAA nondiscrimination rules. While such employment policies implemented outside of the group health plan may be covered by other federal or state nondiscrimination laws, they are not subject to HIPAA.
Moreover, it is permissible for a group health plan to provide an annual premium discount of 50% or more to individuals who participate in a wellness program that is based on participation alone (not on achieving a particular health standard or exercise goal). The 20% limit only applies to programs that require satisfaction of a health related standard in order to qualify for the award.
One final note of encouragement. If a group health plan offers two different wellness programs and two separate rewards – one which is participation based and another that requires individuals to achieve a specific health standard (such as keeping their total cholesterol under 200) – it is permissible to offer both programs simultaneously even if the combined rewards exceed 20% of the cost of coverage. This is because the HIPAA nondiscrimination rules only apply to the portion of the program that is contingent on meeting a predetermined health standard.
For more information see: Health Insurance Portability and Accountability Act
