The DOL issued final regulations in 2013 regarding employer‐sponsored wellness programs that include financial incentives for participation. These regulations clarified and expanded proposed regulations in light of health care reform. They went into effect for group health plans renewing on or after January 1, 2014.
Under long‐standing HIPAA nondiscrimination rules, group health plans cannot discriminate against employees with regard to a health factor. Therefore, employers and insurance carriers cannot charge participants higher medical plan contributions or reduce benefit levels based on an employee’s health status.
However, if the employer has a wellness program that meets HIPAA’s nondiscrimination rules, it can provide incentives that are tied to the group health plan. An incentive is defined as either a reward or penalty. For example, an employer can discount medical plan contributions for non‐smokers or add a surcharge to medical plan contributions for smokers, as long as the employer provides a wellness program that complies with HIPAA.
Under the final regulations, wellness programs are defined as either “participatory” or “health‐contingent”, as follows:
Participatory Wellness Programs
Participatory wellness programs either do not offer incentives, or the incentives are based on something other than satisfying a health‐related standard. Examples in the regulations include (1) reimbursement for all or part of the cost of a gym membership, (2) a reward for completing a health risk assessment, (3) reimbursement for the costs of participating in a smoking cessation program and (4) a reward for attending a monthly, no‐cost health education seminar.
The only requirement for a participatory wellness program is that it must be made available to all similarly‐situated individuals, regardless of health status.
Health‐Contingent Wellness Programs
Health‐contingent wellness programs require an employee to satisfy a standard related to a health factor, or meet an alternative standard, in order to obtain the incentive. In the final regulations, these health‐contingent programs are subdivided into:
Activity‐only based wellness programs. For employees to obtain incentives, they have to perform or complete an activity related to a health factor, but do not have to achieve any health outcome. Specific examples in the regulations include a walking, diet, or exercise program. If an employee cannot participate in the program due to a health issue (e.g., recent surgery or asthma), the program has to provide a reasonable alternative standard (or waiver of the standard) for the incentive. If appropriate, employers can ask for medical verification from the employee’s physician before offering the alternative standard.
Outcome‐based wellness programs. For employees to obtain incentives, they have to meet an initial standard related to a health factor. Employees who do not meet the initial standard must be offered a reasonable alternative standard to assist them with the health factor, such as an educational program or activity, to qualify for the same incentive.
An example of an outcome‐based wellness program is one that tests for specified medical conditions or risk factors (such as high cholesterol high blood pressure, abnormal BMI, or high glucose level). Employees in the normal range or considered low risk would receive the reward. Employees outside the normal range have to take additional steps (such as meeting with a health coach or complying with a health care provider’s plan of care) to get the same reward.
Requirements for Health‐Contingent Wellness Programs
Health‐contingent wellness programs must continue to meet HIPAA’s five requirements to be compliant under the nondiscrimination rules. The requirements are generally the same as the proposed regulations but are reorganized under the final regulations:
- Frequency of opportunity to qualify ‐ Individuals have to be given the opportunity to qualify for the incentive at least once a year.
- Size of reward ‐The incentives cannot exceed 30% of the total cost of single coverage under the group health plan, or 50% if the program is designed to prevent or reduce tobacco use. (The cost of two‐party or family coverage would be used if family members can participate).
- Reasonable design ‐ The program has to have a reasonable chance of improving health or preventing disease, cannot be overly burdensome, cannot be highly suspect in its methods, and is not a subterfuge for discrimination based on a health factor.
- Uniform availability and reasonable alternative standards ‐ The program has to be available to all similarly‐situated individuals and provide a reasonable alternative standard to meet (or waive the standard) in order to receive the incentive. The regulations give employers flexibility in designing the reasonable alternative standards. Specific guidance includes:
- If the completion of an educational program is required, the employer or health plan must find the program or assist the individual in finding it, and it must be free to the individual.
- The time commitment must be reasonable.
- If a diet program, the employer or health plan is required to pay for the membership fee but not the cost of food.
- If the plan’s initial standard is not medically appropriate per that individual’s physician, the reasonable alternative standard must accommodate the recommendations of the physician.
- Notice of Availability of Reasonable Alternative Standard – The following disclosure, or similar language, should be included with plan materials when the terms of the wellness program are described:
“Your health plan is committed to helping you achieve your best health. 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 (and, if you wish, your doctor) to find a wellness program with the same reward that is right for you in light of your health status.”
This disclosure is not required in plan materials that mention that a wellness program is available, but do not describe its terms.