Category Archives: GINA/Genetic Privacy

Does Your Retirement Plan Incorporate State Law Into the Plan?  Check Your Spousal Benefit Obligations!

jordan-mcdonald-766295-unsplashRetirement plan documents are contracts and generally they contain a “choice of law” provision.  The choice of law provision dictates what laws will govern interpretation of the contract, for instance in the event of a dispute over the contract’s application.  A recent, unpublished Ninth Circuit court opinion held that the Plan’s choice of California law required the plan to provide spousal survivor rights to registered domestic partners, because California law affords registered domestic partners the same legal status as spouses, and because doing so did not conflict with any provision of the plan document, ERISA or the Internal Revenue Code.  In light of the opinion, plan sponsors should examine their plan documents to determine whether or not choice of law provisions carry state domestic partner rights into their plan document, and if this is the case, should consult with counsel as to how that might impact their plan distribution and plan loan approval procedures, and QDRO procedures as well.

In Reed v. KRON/IBEW Local 45 Pension Plan, No. 4:16-cv-04471-JSW (9th Cir. May 16, 2019), plaintiff David Reed entered into a long-term relationship with Donald Gardner in 1998.  Gardner was an employee at KRON-TV and a participant in the KRON/IBEW Local 45 Pension Plan, a union-management sponsored defined benefit pension plan.  In addition to a choice of law provision that invoked California law, to the extent consistent with ERISA and the Internal Revenue Code, the KRON plan document did not limit the term “spouse” or “married” to opposite-sex spouses.

In 2004, Reed and Gardner registered as domestic partners under California law.  Registered domestic partners have had the same status under California law as legally married spouses since the California Domestic Partnership Rights and Responsibilities Act of 2003 went into effect on January 1, 2005.[1]

Gardner retired in 2009 and began receiving pension benefits under the plan.  Prior to retiring he attended meetings with KRON-TV’s human resources department together with Reed.  Although HR knew that the couple were registered domestic partners (Reed, for example, received benefits under the group health plan), the HR personnel did not mention the availability of a joint-and-survivor form of benefit under the Plan.  Gardner accordingly elected a single life annuity form of benefit.  He also designated Reed as his beneficiary under the Plan.

Gardner and Reed married in May 2014, five days before Gardner passed away.  Reed submitted a claim for survivor’s benefits under the plan.  Although the Pension Committee of the Plan never formally responded to Reed’s claim, Reed was deemed to have exhausted his administrative remedies and filed suit in federal court against the Plan, the Pension Committee, and the parent company of KRON-TV.  The federal trial court granted the Plan Committee’s motion for judgment on the pleadings, finding that it did not abuse its discretion in denying Reed’s benefit claim.

On appeal, a three-judge panel of the Ninth Circuit reversed the trial court and remanded the case with instructions to determine the payments owed to Reed.  The panel stated:

“The Committee abused its discretion by denying benefits to Reed. During either time the Committee evaluated the Plan’s benefits in this case—in 2009 or in 2016—California law afforded domestic partners the same rights, protections, and benefits as those granted to spouses. See Cal. Fam. Code § 297.5(a); see also Koebke v. Bernardo Heights Country Club, 36 Cal. 4th 824, 837-89 (2005). Neither ERISA nor the Code provided binding guidance inconsistent with applying this interpretation of spouse to the Plan. See United States v. Windsor, 570 U.S. 744 (2013) (striking down the Defense of Marriage Act’s definitions of “spouse” and “marriage” as unconstitutional); cf.26 C.F.R. § 301.7701-18(c) (as of September 2, 2016, the Code excludes registered domestic partners from the definition of “spouse, husband, and wife”). Therefore, because Reed and Gardner were domestic partners at the time of Gardner’s retirement, the Committee should have awarded Reed spousal benefits in accordance with California law, as was required by the Plan’s choice-of-law provision.”

Despite the fact that the Internal Revenue Code does not recognize domestic partners as equivalent to spouses, this did not limit the terms of the plan document; in this regard Reed successfully argued that federal law established a floor, but not a ceiling, for drafting the terms of the plan.  This case is of particular relevance to plan sponsors in California and Hawaii, as both states fall within the Ninth Circuit, and both states grant domestic partners the same rights as married couples.[2]  As mentioned, if domestic partner rights are imported into the plan document, they may be implicated even in the absence of joint and survivor annuity provisions.  For instance, if the plan document expressly requires spousal consent for a loan or hardship withdrawal, domestic partner approval in such instances may be required, and QDRO procedures may have to be expanded.

For this to be the case, the plan’s choice of law provision must invoke the law of a state which grants to domestic partners rights equal to those of spouses, and the plan must also not define “spouse” in a more limiting way, for instance by limiting the term to legally married couples. These factors are more likely to be present in individually drafted retirement plans, whether in a “Taft-Hartley” plan such as the KRON plan, or in a document drafted specifically for a unique single employer.

The situation posed in the Reed case is not as likely to occur under a pre-approved plan document.  Fidelity’s Volume Submitter Defined Contribution Plan (Basic Plan Document No. 17), for instance, defines “spouse” as “the person to whom an individual is married for purposes of Federal income taxes.”  This, then, would include same-sex and opposite-sex spouses, but would exclude domestic partners, irrespective of the Fidelity plan document’s choice of law provision (which invokes the laws of the Commonwealth of Massachusetts).

By contrast, the Empower basic plan document (formally, the Great-West Trust Company Defined Contribution Prototype Plan and Trust (Basic Plan Document #11)) allows the plan sponsor to define “spouse” in Appendix B to the Adoption Agreement.  If the plan sponsor fails to specify a definition, the basic plan document choice of law clause (Section 7.10(H)) defaults to the law of the state of the principal place of business of the employer, to that of the corporate trustee, if any, or to that of the insurer (for a fully insured plan).  Plan sponsors using an Empower prototype document may want to consult benefits counsel as to the consequences of the default language as applied to their specific factual circumstances.

The above information is provided for general informational purposes only and does not create an attorney-client relationship between the author and the reader.  Readers should not apply the information to any specific factual situation other than on the advice of an attorney engaged specifically for that or a related purpose.  © 2019 Christine P. Roberts, all rights reserved.






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Filed under 401(k) Plans, Benefit Plan Design, Defense of Marriage Act, ERISA, GINA/Genetic Privacy, Profit Sharing Plan, Qualified Domestic Relations Orders, Registered Domestic Partner Benefits, Same-Sex Marriage, Uncategorized

It’s (Summer) Time for Wellness Plan Re-Design


Now that summer is here, there are only a few more months until benefit plan open enrollment for 2019 gets underway. Employers who maintain a wellness program that includes biometric testing, health risk assessments (HRAs), or medical questionnaires need to think now about how they will design their plan in the new year, as changes to the rules governing these wellness features go into effect.  This post outlines the changes and discusses the new design landscape for 2019.

What are the Changes?

During 2017 and 2018, final regulations under the Americans with Disabilities Act (ADA) limit the financial incentive employers may offer in exchange for participating in biometric testing, HRAs or medical questionnaires, to an amount equal to 30% of the cost of individual coverage (both the employee and employer portions.) The same limit applies to surcharges or penalties for not taking part.  Companion regulations under Title II of the Genetic Information Nondiscrimination Act (GINA) apply the same cap to completion of an HRA or medical questionnaire by an employee’s spouse, because manifestation of a disease or disorder in a family member comprises genetic information on the employee.  The ADA regulations also disallow the 20% additional incentive tied to tobacco use, if the wellness program includes a blood test for nicotine or cotinine.  The ADA and Title II of GINA apply to employers with 15 or more employees.   We discussed the ADA and GINA rules in a prior post.

The American Association of Retired Persons (AARP) challenged the 30% incentive limit in court on the grounds that the Equal Employment Opportunity Commission (EEOC) failed to prove that this cap was necessary in order for participation in the biometric testing or health risk assessment (HRA) to be “voluntary” and not coercive, which is an ADA requirement.

A federal court agreed with the AARP, and vacated the 30% incentive cap effective January 1, 2019.  (Other provisions of the ADA regulations, including notification and confidentiality rules, remain in effect.)  The court also lifted a requirement that the EEOC publish new proposed regulations on the voluntary standard by August 31, 2018.   The EEOC may issue regulations in the future (and could appeal the court decision), but wellness program design for 2019 must get underway in the absence of clear guidance on the voluntariness standard.

2019 Design Landscape

The chart below illustrates the wellness rule landscape effective January 1, 2019 for employers that are subject to the ADA. Wellness regulations under HIPAA and the ACA will continue to apply, but they do not impose any limit on incentives (or penalties) for biometric testing or HRAs that are “participation only” i.e., that do not require physical activity, or specific health outcomes.

Despite the vacated EEOC standard, employers should exercise caution in setting financial incentives for biometric testing, HRAs or medical questionnaires.  Even prior to issuing regulations, the EEOC had challenged wellness programs in several court actions, ranging from a program that conditioned biometric testing and completion of an HRA on a $20 per paycheck surcharge, to one that conditioned 100% of the premium cost on taking part in an HRA. Although the cases generally were resolved in favor of the employer, they make clear that EEOC may view even modest incentives as failing the voluntary standard.

Employers should also make sure that their wellness program follows up after gathering health data through biometric testing, HRAs or medical questionnaires, with information, advice, or programs targeted at health risks.  A wellness program that fails to do so would not qualify as an employee health program under the ADA and the voluntary wellness program exceptions would not be available.

So what are some options for 2019? There are several design “safe harbors” that do not trigger the ADA voluntariness standard:

1) Eliminating biometric testing/HRAs/medical questionnaires altogether.

2) Keeping biometric testing/HRAs/medical questionnaires, but removing any financial incentive or penalty that applied to them.

3) Offering smoking cessation programs that request self-disclosure as a tobacco user (no blood test for nicotine, cotinine).

Limiting financial incentives/penalties for biometric testing/HRAs/medical questionnaires to an amount that does not exceed 10 – 15% of the individual premium is another option. This range is just high enough to encourage participation, but it is under 20%.  In AARP v. EEOC, the court’s August 2017 ruling on summary judgment cited a RAND study noting that “high powered” incentives of 20% or more may place a disproportionate burden on lower-paid employees.

What about different incentive levels for different groups of employees? First, this may be administratively impractical, and second, it might run afoul of the HIPAA/ACA requirement that the full wellness incentive or reward be made available to all “similarly situated” individuals.  Groupings of employees for this purpose must be based on bona fide, employment-based classifications that are consistent with the employer’s usual business practice, such as between full-time and part-time employees, hourly and salaried, different lengths of employment, or different geographic locations.   For many employers, these criteria may not always neatly overlap with different compensation levels.

In sum, employers who do not wish to eliminate biometric testing and HRAs/medical questionnaires from their wellness programs should anticipate living with some uncertainty about whether their financial incentives meet ADA standards.   Engaging in careful planning in the coming weeks, together with benefit advisors and legal counsel, can help keep the risk to a minimum.


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Filed under Affordable Care Act, Americans with Disabilities Act, Benefit Plan Design, GINA/Genetic Privacy, HIPAA and HITECH, PPACA, Uncategorized, Wellness Programs

Final Rules on Wellness Program Design: A Chart and FAQs

Recent months have seen a flurry of new guidance related to wellness programs:

  • On May 17, 2016 the EEOC published final regulations and interpretive guidance on wellness programs that include disability-related questions (such as a Health Risk Assessment or HRA) and/or medical examinations (such as biometric testing). The new rules and guidance fall under Title I of the Americans with Disabilities Act (ADA), which permits collection of medical information under an employer’s “voluntary” wellness program. They replace proposed rules and guidance which were published in April 2015. We addressed the proposed rules in an earlier post.
  • In addition, EEOC published in the same issue of the Federal Register final regulations on wellness program participation by employees’ spouses, under Title II of the Genetic Information Nondisclosure Act (GINA). For GINA purposes, health status or health history about a family member, including a spouse, constitutes genetic of the employee. The rule replaces proposed regulations issued in October 2015.
  • In connection with the final rules the EEOC also published a model confidentiality notice to be provided to wellness program participants.
  • Finally, the Internal Revenue Service issued guidance regarding taxation of cash rewards to participate in wellness programs, and reimbursement of premiums paid through cafeteria plan deductions.

Overview. The new ADA and GINA regulations supplement, and in some instances contradict, existing wellness regulations under HIPAA, as modified by the ACA. Most notably, the HIPAA/ACA rules do not impose any incentive limitation on wellness programs that are “participation only,” whereas the ADA and GINA rules do impose a maximum incentive limit if the “participation only” program includes an HRA or biometric testing. The ADA and GINA regulations apply to employers with 15 or more employees, and to wellness programs that are “self-standing” as well as those offered in connection with a group health plan. HIPAA/ACA rules apply only to wellness programs that themselves comprise a group health plan, or that are offered with group health plans.

Effective Dates. The ADA and GINA incentive limits and ADA notice requirement discussed below go into effect for plan years beginning on or after January 1, 2017 (in most cases this will be the year of the health plan to which the wellness program relates). Employers may choose to voluntarily comply with these rules prior to that time. The balance of the new guidance goes into effect immediately, as the EEOC has characterized it as clarification of existing law.

Compliance Chart. Below is a chart summarizing permissible dollar or in-kind incentives for wellness program participation, along with some other requirements under the new ADA and GINA regulations, followed by some frequently asked questions on the new wellness program guidance.


* If multiple health plans are offered, the 30% limit applies to the lowest cost major medical plan. If no plans are offered, the reference point is the premium paid for a 40 year old non-smoker enrolled in the second-lowest silver plan on the health exchange in the employer’s region.

Q.1:     What are reasonable design criteria for wellness programs under ADA regulations? 

A.1:      A wellness program is “reasonably designed to promote health or prevent disease” if it is (a) not highly suspect in the method chosen to promote health or prevent disease; (b) does not require an overly burdensome period of time to participate, involve unreasonably intrusive procedures or significant costs; (c) is not a subterfuge for violating the ADA or other legal requirements or a means to simply shift costs from employer to employees; and, (d) if medical information is collected, the program provides feedback or advice to participants about risk factors or uses aggregate medical data to design programs or treat specific conditions.

Q.2: How do these requirements differ from the requirements for wellness programs under HIPAA/ACA?

A.2: In addition to the differences in incentive limits noted in the chart above, the HIPAA/ACA test applies a reasonable design criteria only to health-contingent wellness programs, while the ADA rules apply to participation-only wellness programs that include HRAs and/or biometric testing.  In addition, the HIPAA/ACA rules require that participants have a chance to qualify for the full incentive at least annually, and must offer to waive incentive criteria, or offer a reasonable alternative standard, to permit equal participation by all similarly situated participants.  This is somewhat similar, but not identical, to the ADA reasonable accommodation requirement.  HIPAA/ACA also requires that notice of the waiver/reasonable alternative standard be provided.

Q.3: Do GINA wellness program regulations add any requirements?

A.3: Yes, if a spouse is requested to complete an HRA or undergo biometric testing, a separate incentive limit equal to 30% of the total cost of self-only coverage applies, and the spouse must sign a written, knowing and voluntary authorization to take part in the HRA or biometric testing.  The authorization must describe the genetic information being obtained (e.g. health history information in an HRA), how it will be used, and any restrictions on its disclosure.  Additionally, employers may not deny access to coverage or otherwise retaliate in the event a spouse refuses to provide HRA/biometric testing.

Q.4: What are the criteria of a “voluntary” wellness program under ADA regulations?

A.4: A wellness program is voluntary for ADA purposes if employees are not required to participate in the program, are not punished for not participating (e.g., not granted access to all health benefits or plan options), and are not subjected to adverse employment action, retaliation, coercion or other prohibited conduct in order to get them to participate, or to reach certain health goals. In addition, incentives are capped at the percentages shown in the chart, and participants are provided with a written notice re: collection and use of medical information.  The EEOC has provided a form of model notice.

Q.5: What does the model EEOC notice state, and is it mandatory or can we use our own version?

A.5: The notice, which should be provided prior to participation in an HRA or biometric exam, may be modified but must be written in language that recipients can understand, and must describe what medical information is collected, what measures will be used to protect its privacy and security, and must state that the information will not be sold, exchanged, transferred, or otherwise disclosed except as necessary and permitted under law in order to implement the wellness program.  Some of the provisions may repeat provisions of an existing HIPAA privacy notice.

Q.6: Can we email the ADA wellness program notice or must we distribute by hand?

A.6: You can email it so long as you are certain the email will reach the intended employees, e.g. through use of a current work email address, and so long as proper attention is brought to the nature of the notice (for instance, do not attach it to an email already containing a number of other, unrelated human resource forms or disclosures). You may also distribute in hard copy.  Your distribution method should take into account employee disabilities such as visual impairment, or learning disabilities.

Q.6: What confidentiality requirements apply under ADA regulations?

A.6: The employer must receive wellness data in aggregate form only, and may not require an employee to agree to the sale, exchange, sharing, transfer or other disclosure of medical information, or to waive ADA confidentiality protections, as a condition for participation.  Note that ADA confidentiality rules would apply to a wellness program not linked to a group health plan, and for a wellness program that is a health plan or is linked to one, HIPAA/ACA privacy, security and breach notification measures must also be followed.  These rules independently would prohibit the employer from viewing individualized health data.

Q.7: What is the impact of “de minimis” wellness incentives such as tee-shirts and water bottles?

A.7: The ADA regulations do not recognize a “de minimis” rule, thus the approximate dollar value of all “in-kind” incentives should be counted towards the 30% incentive limit.  By contrast, for federal income tax purposes, the IRS allows small items such as tee-shirts and water bottles to be excluded from participants’ taxable income as de minimis fringe benefits under Internal Revenue Code (“Code”) Section 132(e).  See IRS Memo 2016-22031, discussed below.

Q.8: How does the IRS treat cash incentives to participate in a wellness program treated under the Internal Revenue Code?

A.8: In IRS Memo 2016-22031 the IRS concluded that cash incentives to take part in a wellness program, or amounts paid or reimbursed for more than de minimis items that do not qualify as Code Section 213(d) medical expenses (such as gym memberships) are included in employees’ taxable income.  The same is true when an employer uses a wellness program to reimburse employees for premium or other coverage amounts withheld from their salary under a Section 125 cafeteria plan.

Q.9: What is the ADA’s  “insurance safe harbor” or “bona fide benefit plan” safe harbor, and can employers use it to justify a wellness program that does not meet the new ADA wellness program criteria?

A.9: The insurance safe harbor or “bona fide benefit plan” safe harbor permits the gathering of health data from employees so long as it is for underwriting or risk classification purposes, e.g., in order to determine insurability or establish premiums and other costs of coverage.   The safe harbor typically would apply to an insurance carrier but also could apply to a self-insured health plan.  In the past several years, a few employers have successfully used the safe harbor to prevail over EEOC federal court challenges to wellness programs that conditioned very high financial incentives on completion of an HRA or biometric testing; see, e.g., Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012); EEOC v. Flambeau, Inc., 131 F. Supp. 3d 849 (W.D.Wis. 2015).  The ADA regulations expressly make the insurance safe harbor unavailable to employers sponsoring wellness programs, but this does not resolve how the issue will be determined in federal courts.

Q.10: Are there other GINA regulations that impact wellness programs?

A.10: Yes, Title I of GINA applies to health insurance issuers and group health plans (including self-insured health plans), and prohibits requiring an individual to provide genetic information (including through answering a family history question on an HRA) prior to or in connection with plan enrollment, or at any time in connection with “underwriting purposes,” which broadly refers to any provision of a reward or incentive.  As a result of GINA Title I, a plan may use an HRA that requests family medical history only if it is requested to be completed after plan enrollment and is unrelated to enrollment, and if there is no premium reduction or any other reward offered.

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Filed under Affordable Care Act, Americans with Disabilities Act, Benefit Plan Design, Cafeteria Plans, Flex Plans, Fringe Benefits, GINA/Genetic Privacy, Health Care Reform, HIPAA and HITECH, PPACA, Wellness Programs

Agency FAQs Address a Variety of Preventive Care Questions

On May 11, 2015, the Departments of Labor, Treasury, and Health and Human Services issued the 26th in a series of Frequently Asked Questions on implementation of the Affordable Care Act.  The FAQs provide needed clarification on several aspects of no-cost preventive health services required to be provided under the Act.  Key points are summarized below.

Expanded BRCA Genetic Testing and Counseling

  • The FAQ extends BRCA genetic testing and counseling without cost sharing to women who do not have a family history of the specified cancers, but who themselves have had breast, ovarian, or other cancer that was not diagnosed as BRCA-related. Medical studies cited in the FAQ found that these women show an increased risk of gene mutation, even in the absence of a family history of cancer, such that genetic testing could identify and prevent later disease. No-cost genetic testing and counseling for these women, even when asymptomatic and cancer free, is thus a logical extension of current preventive care guidelines triggered by family disease history.

Dependent Access to Well-woman Preventive Care

  • Dependent children may receive recommended preventive care services without cost sharing under non-grandfathered group health plans and individual policies; the ACA defines “dependent” as children up to age 26. Accordingly, female dependents may receive well-woman preventive services through age 25, including preconception care and prenatal care, where those services are determined to be age- and developmentally appropriate. Dependent coverage need not be extended to the child of a child receiving dependent coverage.

Access to Sex-Specific Preventive Care

  • Sex-specific preventive care and screening must be provided at no cost whenever an individual’s attending provider determines that it is medically appropriate, irrespective of the individual’s sex assigned at birth, gender identity, or recorded gender. In the example given, a transgender man with residual breast tissue would qualify for a mammogram with no cost sharing if other criteria for the preventive service, and for coverage, are met.
    • Note: “attending provider” includes licensed individual healthcare providers to the patient in question, and does not include plans, issuers, hospitals or HMOs.

Clarification re: No-Cost Coverage of Contraceptive Methods

  • Group health plans and issuers must cover, without cost sharing, at least one form of each of the 18 methods of birth control methods for women that are identified in, among other sources, the current version of the FDA Birth Control Guide. The no-cost coverage of the contraception method must also include related clinical services, such as patient education and counseling.
  • This rule takes effect for plan or policy years beginning on or after July 10, 2015; the delayed effective date allows time for changes to be made by plans and issuers who reasonably interpreted prior guidance as not requiring that at least one form of contraception in each of the 18 methods be offered without cost sharing.  Based on this principle, it is not permitted to cover oral contraceptives with no cost sharing, while imposing cost sharing on other FDA-identified hormonal contraceptive methods such as emergency contraception or the contraceptive patch.
  • Within each of the 18 methods of contraception, plans and issuers may use reasonable medical management techniques and impose cost sharing to encourage use of specific services or FDA-approved items within that method. For instance, a plan could provide generic birth control pills at no cost and impose cost sharing for brand name pills. However, the plan would need to make exceptions, and waive cost sharing for name brand drugs, for women for whom it was medically inadvisable to take the generic version.
  • When multiple medically appropriate services and FDA-approved items exist within a given contraceptive method, plans and issuers may use reasonable medical management techniques to encourage use of some services and methods over others. However, if a woman’s attending provider recommends a specific service or item based on medical necessity, the plan or issuer must cover the service or item without cost sharing.
    • “Medical necessity” in this context may take into account the severity of side effects, differences in permanence and reversibility of contraceptives, and the ability to adhere to the appropriate use of the item or service, as determined by the attending provider.
  • In either instance (exception to medical management technique, or recommendation of specific service or item) the process for obtaining coverage must be efficient, transparent, easily accessible and not unduly burdensome to the patient, her attending provider, or other authorized representative, and the plan or issuer must defer to the determination of the attending provider regarding medical necessity. In addition, the plan or issuer must determine the claim within the time periods, and in the manner, applicable to a pre-service, post-service, or urgent care claim, as is appropriate under the circumstances. (Requests that involve urgent care must be resolved as soon as possible, but no later than 72 hours after receipt.)
  • Note that group health plans established by or maintained by religious employers (generally limited to “steeple” churches or other houses of worship) are exempt from the requirement to cover contraceptive services, and accommodations are available to group health plans maintained by certain nonprofit organizations founded on religious principle.  Guidance related to the religious exemption is summarized here.

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Filed under Affordable Care Act, GINA/Genetic Privacy, Health Care Reform, PPACA, Preventive Care

Final Wellness Regulations Expand Employer Compliance Duties

On June 3, 2013, the departments of the Treasury, Health and Human Services, and Labor (the “Agencies” or “Departments”) published final regulations defining how wellness programs may comply with the Affordable Care Act’s prohibition against discrimination based on one or more “health factors,” a term that includes an individual’s health status, medical condition, disability, and claims experience. The final regulations make some significant changes to proposed wellness regulations published in November 2012, which were the subject of an earlier post on this blog.  I outline the key changes, which take effect for plan or policy years[1] beginning on or after January 1, 2014, in the following Frequently Asked Questions list.

Q. 1.       What is the most significant change the final regulations make to wellness program compliance duties?

A.1.     The final regulations treat certain wellness programs that formerly were classed as “participatory-only” programs as “health contingent” programs that must meet five criteria designed to permit individuals with health limitations to still qualify for the wellness reward.  Examples include walking programs or other programs that do not require that employees attain a specific result, but that do require their physical participation or other activity that may be ruled out by health issues.

Q. 2.       How do the final regulations change the terminology of wellness programs?

A. 2.    As referenced above, wellness programs generally were classed in two categories: “participatory” or “participation only” programs that merely required the employee to take part in wellness programs and activities in order to attain the related reward, and “results-based” programs that conditioned a reward on the employee meeting a standard or criteria that is related to a health factor, such as actually reducing Body Mass Index (BMI) or blood pressure readings.  The proposed regulations introduced the term “health-contingent wellness programs” to replace “results-based” programs (which was never an official regulatory term to begin with), but did not change the definition of participatory plans.  The final regulations retain the participatory category, but break the “health contingent” category down into two sub-categories:  “activity-only” health-contingent wellness programs – many of which formerly met the “participatory-only” category, and “outcome-based” health-contingent wellness programs, as follows:

Q. 3.       How do the final regulations define “activity-only” health-contingent wellness programs?

A. 3.    An activity-only health contingent wellness program requires an individual to perform or complete an activity related to a health factor in order to obtain a reward, but does not require the individual to attain or maintain a specific health outcome.  Examples include walking, diet or exercise programs, which some individuals may be unable to participate in or complete, or have difficulty in doing so, due to health factors such as asthma, pregnancy, or recent surgery.

Q. 4.       How do the final regulations define “outcome based” health-contingent wellness programs?

A. 4.    An outcome-based health-contingent wellness program requires an individual to attain or maintain a specific health outcome, such as smoking cessation, or reducing BMI or blood pressure below a set threshold, in order to obtain a reward.  As the regulations explain, however, such programs usually contain an “activity-only” subcomponent for individuals who do not attain the desired health outcome.  For instance, if the program provides a reward to employees who reduce their BMI or blood pressure by a set amount, employees who, for health reasons, cannot or should not attempt to attain those results may receive the same reward by participating in a walking program or by attending healthy cooking classes.  As a consequence, the special rules for activity-only health-contingent wellness programs generally will apply to that subcomponent of outcome-based health-contingent wellness programs.

Q. 5.       When is a participation-only or “participatory” wellness program nondiscriminatory under the final regulations?

A. 5.    A participatory wellness program – such as a program that provides a 10% reduction in premiums to employees who take part in biometric testing, without any required result – is nondiscriminatory provided that it is made available to all similarly situated individuals, regardless of health status.  The “similarly situated” rule permits differences among “bona fide employment-based classifications” such as work location, union versus non-union, etc.   There is no dollar or percentage limit on financial rewards for taking part in a participatory-only wellness program.

Q. 6.       When is a “health-contingent” wellness program nondiscriminatory under the final regulations?

A. 6.    All health-contingent wellness programs – whether activity-only or outcome-based, must meet five separate requirements designed to make wellness rewards attainable regardless of health factors such as disabilities or medical conditions.   The five criteria are: (a) that employees be able to qualify for the reward at least annually; (b) that the financial reward not exceed certain thresholds, as applied to the total premium cost for individual coverage; (c) that the wellness program be reasonably designed to promote health or prevent disease; (d) that the wellness program be made available to all similarly situated individuals, including through waiver of the health goal or offer of a reasonable alternative means of attaining the reward when health factors present an obstacle; and (e) that all written plan materials disclose the availability of other means of qualifying for the reward. These criteria are found in final nondiscrimination regulations under HIPAA from 2006 as well as in Section 2705(j) of the Public Health Service Act, which was incorporated into the Affordable Care Act (ACA § 1201(4)).  Most of the changes in the final regulations involve criteria (d), which is referred to below as the “universal availability/reasonable alternative standard” requirement.

Q. 7.       What is the maximum financial reward that a health-contingent wellness program may provide?

A. 7.    Under current law the maximum financial reward is an amount equal to 20% of the total premium cost (employer and employee portions) for individual coverage under a group health insurance policy or self-funded plan. (The percentage may be based on family or self plus one coverage costs only to the extent that the added spouse/dependents may participate in the results-based wellness program.[2])   For plan or policy years beginning on or after January 1, 2014, the final regulations increase the maximum to 30% of the total premium cost.  An additional 20% incentive is allowed (for a total incentive of 50%) but only if it is offered in connection with a program that reduces or stops tobacco use.  Employers must be sure that their results-based wellness program incentives do not exceed the 30% and 50% thresholds either separately or when added together.  Examples are described in my earlier post on the proposed regulations.

Q. 8.       What special requirements apply to activity-only, health-contingent wellness programs?

A. 8.    The five criteria listed above all apply, but special rules apply under the universal availability/reasonable alternative means requirement, as follows:  The program must either waive the activity requirement, or offer a reasonable alternative standard for obtaining the reward, for any individual for whom it is either (a) unreasonably difficult due to a medical condition to participate in the activity or (b) medically inadvisable to attempt to do so.  For example, for individuals recovering from hip replacement surgery, a requirement to participate in a walking program would need to either be waived, or a substitute offered.  The following additional rules apply:

  • Employers do not need to “pre-design” reasonable alternative standards but instead  may design them once an employee requests alternative standards.
  • If the reasonable alternative standard is completion of an educational program, the employer must make the educational program available or assist the employee in finding such a program, and may not require the individual to pay for the program.
  • The time commitment must be reasonable.  The regulations state that requiring attendance at a nightly one-hour class would not be reasonable.
  • If the reasonable alternative standard is a diet program, the employer does not need to pay for the cost of food but must pay any membership or participation fee.
  • If the reasonable alternative standard that is offered meets the definition of an activity-only wellness program, it must independently comply with the five requirements, including the universal availability/reasonable alternative standard criteria, as if it were a self-standing program.
  • If the reasonable alternative standard that is offered meets the definition of an outcome-based wellness program, it must independently satisfy the five requirements, including the universal availability/reasonable alternative standard criteria, as if it were a self-standing program.

Q. 9.       What special requirements apply to outcome-based, health-contingent wellness programs?

A. 9.    The five criteria listed in response to Q. 5 all apply, but special rules apply under the universal availability/reasonable alternative means requirement, as follows:  The program must either waive the required health outcome, or offer a reasonable alternative standard for obtaining the reward, for any individual for whom it is either (a) unreasonably difficult due to a medical condition to attain the health outcome or (b) medically inadvisable to attempt to do so.  For example, a requirement to lower blood pressure below a certain threshold would need to either be waived, or a substitute offered, to individuals with chronic hypertension.  The following additional rules apply:

  • Employers do not need to “pre-design” reasonable alternative standards but instead may design them once an employee requests alternative standards.
  • If the reasonable alternative standard is completion of an educational program, the employer must make the educational program available or assist the employee in finding such a program, and may not require the individual to pay for the program.
  • The time commitment must be reasonable.  The regulations state that requiring attendance at a nightly one-hour class would not be reasonable.
  • If the reasonable alternative standard is a diet program, the employer does not need to pay for the cost of food but must pay any membership or participation fee.
  • The reasonable alternative standard cannot be a requirement to meet a different level of the same standard without additional time to comply that takes into account the individual’s circumstances.  The final regulations use an example of an initial standard of reducing BMI below 30, and state that a reasonable alternative standard cannot be to achieve a BMI less than 31 on the same date that the original standard was required.  Instead, reducing BMI by a small amount or percentage over a realistic period of time, such as a year, is a permitted alternative goal.
  • An individual must be given the opportunity to comply with the recommendations of the individual’s personal physician as a second reasonable alternative standard to meeting the reasonable alternative standard defined by the plan, but only if the physician joins in the request.  The individual can make a  request to involve a personal physician’s recommendations at any time and the personal physician can adjust his or her recommendations at any time, consistent with medical appropriateness.
  • If the reasonable alternative standard that is offered meets the definition of an activity-only wellness program, it must independently comply with the five requirements, including the universal availability/reasonable alternative standard criteria, as if it were a self-standing program.
  • If the reasonable alternative standard that is offered meets the definition of an outcome-based wellness program, it must independently satisfy the five requirements, including the universal availability/reasonable alternative standard criteria, as if it were a self-standing program.

Q. 10.    When may an employer request verification, from an employee’s medical provider, that health factors prevent the employee from earning a reward under a health-contingent wellness program?

A. 10.  Employers may request such verification only in connection with activity-only wellness programs (or in connection with activity-only subcomponents of outcome-based wellness programs).  The proposed regulations would have permitted employers to make such requests whenever it was “reasonable under the circumstances” to do so, but the final regulations conclude that it is never reasonable to require verification that an employee’s inability to attain, or attempt to attain, a specific health outcome is based on one of the enumerated health factors such as a medical condition or disability.  As mentioned, however, if an employee who cannot attempt to lower his or her blood pressure under an outcome-based program is offered the alternative of a walking program or other activity-only program, an employer may request verification that a health factor prevents the employee from taking part in the walking program, as it is an activity-only subcomponent of the outcome-based wellness program.  Under the final regulations, verification requests still must be “reasonable under the circumstances,” and further must be sought only when it is “reasonable to determine that medical judgment is required to evaluate the validity of the request” for a reasonable alternative standard.

Q. 11.    How do the final wellness regulations increase the role and authority of employees’ personal physicians?

A. 11.    The proposed regulations limited the role of an employee’s personal physician to that of rebutting the alternative compliance methods recommended, under a health-contingent wellness program, by a medical professional hired or employed by the employer.  The final regulations permit an employee’s personal physician to prescribe reasonable alternative standards for earning a wellness reward in any instance where original health-contingent program standards are deemed to be medically inappropriate for an employee, including, but not limited to, instances in which the plan or employer’s medical professional has recommended an alternative method.  As described above, outcome-based wellness programs also must include, as a second reasonable alternative standard (in place of the reasonable alternative standard proposed by the plan), the opportunity to comply with recommendations of the employee’s personal physician.  Employees in outcome-based programs also may request to involve a personal physician’s recommendation at any time, and if the physician agrees to participate he or she may adjust recommendations at any time consistent with medical appropriateness.
Regular insurance co-pays or costs will apply to medical items and services furnished in accordance with the physician’s recommendations.[3]

Q. 12.    Must health-contingent wellness programs provide a never-ending series of reasonable alternative standards?

A. 12.  No.  This was a possible interpretation of the preamble to the proposed regulations, which stated that employers must continue to offer alternative standards despite a low success rate, particularly where addictive behavior is involved, and which gave the example of offering different weight loss programs or different nicotine replacement therapies when predecessors failed to have an effect.  The final regulations make clear that employers need not get caught in an endless cycle of suggesting alternative standards, and introduce two new requirements for outcome-based programs designed to shortcut the reasonable alternative standard process.  These requirements are described more fully in Q&A 9, above; the first requirement is that a reasonable alternative standard cannot be a requirement to meet a different level of the same standard without additional time to comply that takes into account the individual’s circumstances, and the second is that the individual be given the opportunity to comply with the recommendations of the individual’s personal physician in lieu of meeting an alternative standard set by the program or a program physician.

Q. 13.    How do the final regulations change the notice requirements for wellness programs?

A. 13.  The proposed regulations contain several alternative model notices that reasonable alternative standard will be offered to individuals who cannot attain health-contingent program goals, and required that the notice be set forth in all written materials that describe a wellness program, but not to materials that simply make reference to the existence of the program. For instance, it need not be set forth in the Summary of Benefits and Coverage document (which is provided by carriers to employers with insured plans).  The final regulations maintain the notice requirement but add to the model notice language reference to the role that personal physicians may play in designing reasonable alternative standards, as follows:

“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, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status.”

Q. 14.    Do the final regulations expand on notice requirements for wellness programs?

A. 14.  Arguably, yes.  A footnote to the preamble provides that, if compliance with a wellness program affects premiums, cost sharing, or other benefits under the terms of a group health plan, then the wellness program terms (including the availability of any reasonable alternative standard) are generally required to be disclosed in governing plan documents as well as in the summary plan description (SPD).  This is not a new rule as much as it is a valid interpretation of the required contents of an SPD, including a description of employee contributions (which are impacted by wellness program participation).  However group health plan documents and SPDs – particularly for fully insured group plans – do not always integrate wellness program terms with the provisions for employee contributions and cost sharing.  As a result, many employers will need to revisit their group health plan documentation and revise as necessary to describe the impact of wellness program participation.

Q. 15.    Do the final regulations shed any light on when or whether a wellness program is “voluntary” as required under the Americans with Disabilities Act?

Q. 15.  No.  Clarification on this topic will have to come from the Equal Employment Opportunity Commission (“EEOC”), which regulates compliance with the Americans with Disabilities Act.  EEOC has not yet clearly defined what makes a wellness program “voluntary” or not, but did recently hold a meeting at which business and advocacy groups spoke to the issue and urged the Commission to provide guidance on this point without future delay.

Q. 16.    What can be done when smoking cessation/reduction rewards are provided to an employee who is later found to have lied about stopping or reducing smoking?

A.16.   The Affordable Care Act prohibits rescission of coverage under any group or individual plan other than instances of fraud or misrepresentation of a material fact.  With regard to small group and individual policies subject to the tobacco rating surcharge, insurance market reform regulations prohibit rescission on the basis of misrepresentation of smoker status, but permit the plan to seek recovery of premium amounts that would have been paid to the plan if the employee had provided accurate information about tobacco use.  It is possible that future guidance will address the rescission remedy in this context for large group and self-funded plans, but a footnote to the regulations states that the Departments view is that misrepresentation of this type would not be a “material” fact that would trigger rescission, because the lesser remedy of recouping premiums is available.  Please note that the right to recoup the surcharge would need to expressly be permitted in the governing health plan documentation and would otherwise need to be carried out in compliance with ERISA.  State wage and hour laws may prevent or limit the use of payroll deductions to recover the surcharge amounts.  In a related note, final insurance market reform regulations published in February 2013 propose a definition of “smoking” as use of tobacco on average of four or more times per week within a period no longer than the prior six months.

Q. 17.    Are all wellness programs subject to the final regulations?

A. 17.  The final regulations apply to wellness programs that are teamed with small and large group health plans, whether grandfathered or non-grandfathered, insured or self-funded.  They do not apply to wellness programs teamed with individual health insurance policies.  The 50% maximum wellness incentive that includes a smoking cessation or reduction program teams with the tobacco use surcharge (up to 50% of the applicable premium) that applies in the small group market beginning in 2014, such that tobacco users who participate in the cessation or reduction programs can cancel out the effect of the surcharge.  The surcharge would apply to large group plans only when such plans are offered on an exchange; in California this would pertain to plans with more than 50 participants and only in 2016 and subsequent (the California exchange is closed to groups of more than 50 in 2014 and 2015.)

[1] As wellness programs generally do not comprise self-standing group health plans, the applicable plan or policy year is that of the group health plan to which the wellness program relates.

[2] The regulations do not provide direct guidance on how to apportion the reward among employee family members when they are allowed to participate in wellness programs, but the Agencies will likely issue future “soft” guidance – for instance in the form of an FAQ – on that topic in the future.

[3] The final regulations do not directly address the privacy concerns under GINA, HIPAA and comparable state laws, raised by the personal physician’s increased role in wellness program design.

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Filed under Affordable Care Act, Benefit Plan Design, GINA/Genetic Privacy, HIPAA and HITECH, PPACA, Wellness Programs