On May 29, 2013, final regulations were issued that implement the Affordable Care Act (ACA) nondiscrimination requirements for wellness programs. The final regulations clarify and reorganize the rules outlined in previous proposed regulations and are intended to ensure that, regardless of the type of wellness program, every individual participating in the program should be able to receive the full amount of any reward or incentive, regardless of any health factor. Specifically, the final regulations:
- continue the maximum reward/penalty amounts established in previous proposed regulations (30%, plus an additional 20% for tobacco cessation/reduction programs),
- distinguish between “activity-only” and “outcome-based” health-contingent wellness programs and impose additional limitations on “outcome-based” wellness programs,
- revise the standard language for a Notice of Reasonable Alternative Standard.
The Affordable Care Act (ACA) includes wellness provisions to encourage appropriately designed, consumer-protective wellness programs in group health coverage. There are two types of wellness programs:
- Participatory Wellness Programs
- Health-Contingent Wellness Programs
Participatory Wellness Programs are generally available to participants regardless of an individual’s health status. Health-Contingent Wellness Programs, by contrast, require individuals to satisfy a standard related to a health factor in order to obtain a reward or avoid a penalty or surcharge.
Rewards can take many forms, such as premium discounts or absence of a surcharge, reduced cost sharing, enhanced benefits, gift cards or deposits to Health Savings Accounts or Health Reimbursement Accounts. Rewards must be available at least once per year for all similarly situated individuals. An example of an allowable reward program is included at the end of this article.
Prior HIPAA regulations outline nondiscrimination rules that must be followed when offering a Health Contingent Wellness Program. The focus of these rules is to prevent discrimination based on health status. Specific criteria must be satisfied in order for the plan to qualify for an exception to the prohibition on discrimination.
The regulations on wellness provisions apply to both grandfathered and non-grandfathered, insured and self-insured, group health plans for plan years beginning on or after Jan. 1, 2014.
KEY HIGHLIGHTS OF FINAL RULE
The ACA essentially codifies the existing HIPAA nondiscrimination requirements for health-contingent wellness programs, while also increasing the maximum reward that can be offered under these programs. Significant provisions in the final rules include:
Increasing the maximum permissible reward under a health-contingent wellness program, from 20% to 30% of the total cost of coverage under the employer’s group health plan; further increasing the maximum permissible reward for wellness programs designed to prevent or reduce tobacco use, from 20% to 50% of the cost of coverage; and Clarifications regarding the reasonable design of health-contingent wellness programs and the reasonable alternatives they must offer in order to avoid prohibited discrimination.
PARTICIPATORY WELLNESS PROGRAMS
The final rules continue to support prior regulations on participatory wellness programs, which are programs that either do not provide rewards or do not include any conditions for obtaining rewards that are based on an individual satisfying a standard related to a health factor. There is no limit on financial incentives for participatory wellness programs. Examples include programs that reimburse for the cost of membership in a fitness center, that provide a reward to employees for attending a monthly, no-cost health education seminar, or that reward employees who complete a health risk assessment, without requiring them to take further action.
Participatory wellness programs 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, regardless of health status.
HEALTH-CONTINGENT WELLNESS PROGRAMS
The final rule directs most of its attention to provisions related to health-contingent wellness programs, which require individuals to satisfy a standard related to a health factor in order to obtain a reward or avoid a surcharge. The reward (or absence of penalty amount) is calculated as a percentage of the total cost of employee-only coverage under the employer’s group health plan. If family members also can participate in the wellness program, the reward or penalty can be a percentage of the total cost of family coverage under the plan. Examples of health-contingent wellness programs include those that:
- provide a reward to those who do not use, or decrease their use of, tobacco,
- reward those who achieve a specified health-related goal, such as a specified cholesterol level, weight, or body mass index, or
- reward those who do not meet such goals but take certain other healthy actions.
The final regulations distinguish between health-contingent wellness programs that are “activity-only” wellness programs and “outcome-based” wellness programs.
Activity-only wellness programs
- Require an individual to perform or complete an activity related to a health factor.
- A specific result is not required, for example: completing a program such as a walking, diet or exercise program
- A physician may provide verification that a medical condition makes it unreasonably difficult or medically inadvisable for a person to perform the activity.
- A reasonable alternative for obtaining the reward must be provided if it is unreasonably difficult due to a medical condition or medically inadvisable for an individual to attempt to complete the activity.
Outcome-based wellness programs
- Require an individual to attain or maintain a certain health outcome
- Example: refraining from smoking or attaining certain results on biometric screenings such as a specific blood pressure or BMI level
- A plan cannot require physician verification that a medical condition makes it unreasonably difficult or medically inadvisable for a person to meet the standard
- A reasonable alternative must be provided to all individuals who do not meet the initial standard (no physician verification can be required).
Regulators may impose on the sponsoring employer an excise tax penalty of $100 per affected individual for each day of noncompliance . Separately, regulators are actively auditing plans for compliance and could bring a civil action against an employer to enforce these requirements. Finally, a participant could file a lawsuit with a claim that a wellness program impermissibly discriminates against people based on health status.
Note: This summary addresses compliance with wellness under the ACA. Please keep in mind there are additional health benefits rules (not discussed here) that address a wellness program’s compliance with other laws such as the HIPAA privacy and security laws or the ADA.
EXAMPLE FROM PROPOSED REGULATIONS
The following example from the proposed regulations is intended to help 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.
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.)
In this Example, 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, which is 50% of the $6,000 total annual premium for employee-only coverage); 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.