Wellness Programs and the Affordable Care Act

As employers prepare for open enrollment, some may be implementing new wellness programs to encourage and reward employees for taking steps toward better health. Whether starting a new program, or continuing an existing program, employers need to be aware of recent regulatory changes under the Affordable Care Act (ACA) and evaluate whether their programs are designed appropriately to satisfy the new requirements.

Generally, the Health Insurance Portability and Accountability Act of 1996, otherwise known as HIPAA, provides that health plans may not discriminate against plan participants in eligibility, benefits, or premiums, based on a health factor, such as health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability.

However, HIPAA includes an exception that allows an employer to implement programs designed to promote health and disease prevention and management through cost-sharing incentives such as premium discounts, rebates, or modifications, or reduced copayments, deductibles, or coinsurance.

The U.S. Departments of Health and Human Services, Labor, and the Treasury issued final rules on employment-based wellness programs under ACA, which are effective for plan years beginning on or after Jan. 1, 2014. The final rules continue to support and encourage employer wellness programs by expanding the permissible incentives an employer may offer its employees, while imposing additional safeguards against possible discriminatory abuses.

Employer wellness programs are generally classified as either participatory or health-contingent programs. In a participatory wellness program, individuals do not have to meet a certain health-related standard to receive the reward. Examples of such programs include reimbursed or discounted fitness memberships, attending no-cost health education seminars, or biometric screenings, and health-risk assessments that do not require follow-up steps by participants.

Participatory wellness programs must be made available to all similarly situated employees, regardless of health status. Participatory programs are not required to meet the additional requirements applicable to health-contingent wellness programs under the final rule.

Health-contingent programs require individuals to satisfy a standard or metric related to a health factor in order to receive the reward. Health-contingent programs typically involve completing an activity or achieving a designated outcome. For example, an activity-based program might include a diet or exercise program such as a walking program. Outcome programs reward individuals who achieve a certain health-related metric, including, for example, those who quit smoking, achieve a certain cholesterol, glucose, or body mass index level, or satisfy follow-up criteria after a biometric screening or health-risk assessment.

The majority of the requirements in the final rule build upon the five requirements for health-contingent wellness programs originally established by the 2006 HIPAA regulations, and expand upon the provisions protecting employees from discriminatory practices associated with health-contingent wellness programs.

First, employers offering health-contingent wellness programs must provide employees with an opportunity to qualify for the program’s reward at least once a year.

Second, the maximum reward for participation may not exceed 30 percent of the total cost of coverage. The threshold was previously 20 percent. Programs designed to prevent or reduce tobacco use may allow a reward of up to 50 percent of the total cost of coverage.

Third, employers must “reasonably” design health-contingent wellness programs to promote health or prevent disease. The federal agencies consider a program to be reasonably designed if it has a reasonable chance of improving the health of participants, preventing disease in participants, is not overly burdensome, is not subterfuge for discriminating based on a health factor, or is not highly suspect in the method chosen to promote health and prevent disease.

Fourth, employers must design the program so that the full reward is uniformly available to all similarly situated individuals, and employers must offer a waiver, or reasonable alternatives for achieving the same reward, where it is unreasonably difficult or medically inadvisable for a participant to meet the requirements.

The departments will take into account all of the facts and circumstances when evaluating whether the program offered a reasonable alternative. However, the reasonable-alternative analysis will also differ depending on whether the wellness program is an activity-based program, or outcome-based.

For example, an activity-only program may request physician verification of the employee’s need for an alternative. Outcome-based programs may not, and must offer the alternative anytime an individual does not meet the program’s target metric. Occasionally, a second reasonable alternative may be required.

In general, employers will have flexibility in program design and may choose whether to provide the same alternative to those who request it, or provide alternatives on a case-by-case basis. Generally, the reasonable alternatives do not need to be determined in advance.

Finally, the wellness program must provide employees with notice of the availability of reasonable alternatives in all materials describing the program. The disclosure must include contact information and a statement that the program will accommodate an employee’s personal physician’s request for reasonable alternatives. The final rule includes model disclosure language that the program may use to satisfy the requirement.

Additional information on the wellness-program requirements under ACA can be found at https://www.federalregister.gov/articles/2013/06/03/2013-12916/incentives-for-nondiscriminatory-wellness-programs-in-group-health-plans.

The objective of a wellness program is to reduce the cost of health coverage by improving the overall health of the workplace population, though employees are not always receptive to such programs. In most cases, an employer implementing a new wellness program will not see significant cost savings in the first year, or even the first few years of the program. Reducing the coverage costs for those with chronic conditions taking steps toward improving their health is a slow process, but often one that is worthwhile for both employers and employees.

Amy Zell is a staff attorney and plan-benefit analyst at POMCO Group. Contact her at azell@pomcogroup.com or view her blog posts on health-care reform at go.pomcogroup.com/blog