Specifically, the proposed regulations would increase the maximum reward from 20 percent to 30 percent of the total cost of coverage under the group health plan, and would further increase the maximum reward an additional 20 percent (to a total of 50 percent) for wellness programs designed to prevent or reduce tobacco use.
Two Types of Employment- Based Wellness Programs
Employment-based wellness programs can be divided into two general categories:
1 – Participatory Wellness Programs
2 – Health-Contingent Wellness Programs.
This distinction is important because participatory wellness programs need not meet the nondiscrimination standards. On the other hand, health-contingent wellness programs are required to meet the nondiscrimination standards.
Participatory Wellness Programs
Participatory Wellness Programs merely require or allow an individual to participate in the program. They do not require an individual to meet a standard or outcome related to a health factor in order to obtain a reward, and some do not offer a reward at all. Examples of participatory wellness programs include:
- A fitness center reimbursement program,
- A diagnostic testing program that does not base any reward on outcomes,
- A program that reimburses employees for the costs of smoking cessation programs, regardless of whether the employee quits smoking,
- A program that provides rewards for attending a free health education seminar
Participatory wellness programs automatically comply with the nondiscrimination requirements without having to satisfy any additional standards, as long as participation in the program is made available to all similarly situated individuals.
Additionally, there is no limit on financial incentives for participatory wellness programs.
Health-contingent Wellness Programs
Health-contingent Wellness Programs require individuals to satisfy a standard or attain a specific outcome or result related to a health factor in order to obtain a reward. Examples of Health-contingent Wellness Programs include those that require individuals to:
- Stop smoking,
- Attain certain results on biometric screenings or
- Meet specified exercise targets
To protect consumers from unfair practices, health-contingent wellness programs are required to follow certain standards related to nondiscrimination, including a standard that limits the maximum reward that can be offered.
Standards for Health-contingent Wellness Programs
HIPAA currently prohibits group health plans and group health insurance issuers from discriminating against individual participants and beneficiaries in eligibility, premiums or benefits based on a “health factor” (such as medical condition or disability).
An exception to this rule allows benefits (like cost sharing), premiums or contributions to vary between participants of the plan, based on their participation in a health-contingent wellness program. However, in order to qualify for the exception, the health contingent wellness program must meet five specific nondiscrimination standards.
1 – Frequency of opportunity to qualify
2 – Size of reward
3 – Uniform availability and reasonable alternative
4 – Reasonable design to promote health or prevent disease
5 – Notice of other means to qualify for the reward
These standards were in the existing HIPAA rule and are now incorporated as part of the ACA rules, with slight modifications and clarifications. Each standard is discussed below in more detail.
Standard #1 – Frequency of Opportunity to Qualify
Eligible individuals must be provided an opportunity to qualify for the reward at least once per year.
Standard #2 – Size of Reward
The total amount of the reward for health-contingent wellness programs is limited, whether offered alone or coupled with the reward for other health-contingent wellness programs. HIPAA rules limited the amount to 20 percent of the total cost of group health coverage, but the Affordable Care Act (ACA) allows the government to increase the maximum reward to 30 percent.
The proposed regulations would increase the maximum permissible reward from 20 percent to 30 percent of the total cost of health coverage. In addition, the regulations propose to increase the maximum permissible reward to 50 percent of the cost of health coverage for programs designed to prevent or reduce tobacco use.
Standard #3 – Uniform Availability and Reasonable Alternative
The reward must be uniformly available to all similarly situated individuals. For any individual for whom it is unreasonably difficult due to a medical condition to attain the desired standard or result of the health-contingent wellness program, the health plan or issuer must either:
- Offer a reasonable alternative standard to the individual, or
- Waive the plan’s applicable standard
The proposed regulations would clarify that plans and issuers are not required to establish an alternative standard in advanceof an individual’s specific request for one. However, a reasonable alternative standard would have to be provided upon an individual’s request. Employers generally determine what the alternative standard will be in advance of offering the wellness program. (E.g., if an individual cannot stop smoking due to a medical condition (being addicted to nicotine), the reasonable alternative standard is usually that the individual must attend and complete a specified smoking cessation program.)
Additionally, the new proposed regulations provide that plans and issuers cannot cease to provide a reasonable alternative standard merely because a participant was not successful with a prior alternative standard. The plan must continue to offer a reasonable alternative standard, whether it is the same standard (the alternative at which the participant previously did not succeed) or a new alternative standard (such as a new weight loss class or a new nicotine replacement therapy).
The proposed regulations also include factors for determining whether a plan or issuer has provided a reasonable alternative standard. Some examples:
If the reasonable alternative standard is completion of an educational program, the plan or issuer:
- Must make the alternative program available (instead of requiring an individual to find this type of program unassisted), and
- May not require an individual to pay for the program’s cost
- If the reasonable alternative standard is participation in a diet program, the plan or issuer:
- Must pay the membership or participation fee
- Need not pay the cost of food related to diet program
The proposed regulations also would clarify that, if reasonable under the circumstances, a plan or issuer may seek verification (such as a statement from an individual’s 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. However, 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 (e.g., if the individual is confined to a wheelchair).
Standard #4 – Reasonable Design
Health-contingent wellness programs must be reasonably designed to promote health or prevent disease. They may not be overly burdensome for individuals, and may not be a subterfuge for discrimination against certain individuals based on a health factor.
The proposed regulations would continue to give plans and issuers flexibility to consider innovative programs for encouraging wellness, and the plan need not have scientific proof that the method is a success. However, to be considered “reasonably designed to promote health or prevent disease,” the proposed regulations would require the wellness program to offer a different, reasonable means of qualifying for the reward to any individual who does not meet the standard based on a measurement, test or screening related to a health factor (such as a biometric examination or health risk assessment).
Standard #5 – Notice of Other Means of Qualifying for the Reward
Plans and issuers must disclose the availability of other ways to qualify for the wellness program reward in all plan materials describing the terms of the wellness program. However, this disclosure is not required in plan materials that merely mention the existence of a wellness program but do not describe its terms. For example, a summary of benefits and coverage (SBC) that notes that cost sharing may vary based on participation in a diabetes wellness program, without describing the standards of the program, would not trigger the disclosure.
In addition, the proposed regulations include the following sample language (to replace existing sample language), which is intended to be simpler for individuals to understand and to increase the likelihood that those who qualify for an alternative means of obtaining the reward will contact their plan or issuer:
Application to Grandfathered Plans
ACA’s nondiscrimination provisions for health-contingent wellness programs do not apply to grandfathered plans. However, these plans are required to comply with the 2006 HIPAA regulations, which essentially include the same requirements for wellness programs, but have a lower maximum reward.
However, because the Departments believe that the provisions of the proposed regulations would be authorized under either HIPAA or ACA, they propose to apply the same set of standards to both grandfathered and non-grandfathered plans. This approach is intended to avoid inconsistency across group health coverage and to provide grandfathered plans the same flexibility to promote health and prevent disease as non-grandfathered plans.
APPLICATION AND CALCULATION EXAMPLES
The following examples from the proposed regulations are helpful to clarify how the limitations on rewards work.
Facts: An employer sponsors a group health plan. The annual premium for employee-only coverage is $6,000 (of which the employer pays $4,500 per year and the employee pays $1,500 per year). The plan offers employees a health-contingent wellness program focused on exercise, blood sugar, weight, cholesterol, and blood pressure. The reward for compliance is an annual premium rebate of $600.
Conclusion: In this Example 1, the program satisfies the requirements of this paragraph because the reward for the wellness program, $600, does not exceed 30 percent of the total annual cost of employee-only coverage, $1,800. ($6,000 x 30% = $1,800.)
Facts: Same facts as Example 1, except the wellness program is exclusively a tobacco prevention program. Employees who have used tobacco in the last 12 months and who are not enrolled in the plan’s tobacco cessation program are charged a $1,000 premium surcharge (in addition to their employee contribution towards the coverage). (Those who participate in the plan’s tobacco cessation program are not assessed the $1,000 surcharge.)
Conclusion: In this Example 2, the program satisfies the requirements of this paragraph because the reward for the wellness program (absence of a $1,000 surcharge), does not exceed 50 percent of the total annual cost of employee-only coverage,$3,000. ($6,000 x 50% = $3,000.)
Facts: Same facts as Example 1, except that, in addition to the $600 reward for compliance with the health-contingent wellness program, the plan also imposes an additional $2,000 tobacco premium surcharge on employees who have used tobacco in the last 12 months and who are not enrolled in the plan’s tobacco cessation program. (Those who participate in the plan’s tobacco cessation program are not assessed the $2,000 surcharge.)
Conclusion: In this Example 3, the program satisfies the requirements of this paragraph because both: the total of all rewards (including absence of a surcharge for participating in the tobacco program) is $2,600 ($600 + $2,000 = $2,600), which does not exceed 50 percent of the total annual cost of employee-only coverage ($3,000); and, tested separately, the $600 reward for the wellness program unrelated to tobacco use does not exceed 30 percent of the total annual cost of employee-only coverage, $1,800.