Category Archives: Wellness Programs

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

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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.

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* 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

Proposed EEOC Rules Further Complicate Wellness Program Design

On April 20, 2015, the Equal Employment Opportunity Commission (EEOC) published proposed regulations and interpretive guidance (collectively, “rules”) under Title I of the Americans with Disabilities Act (ADA) applicable to incentive-based wellness programs commonly offered in connection with group health plans.  The new rules add to existing wellness regulations under HIPAA and the ACA, which are published and enforced by the Departments of Treasury, Labor, and Health and Human Services (the “Departments”).

The new guidance primarily impacts wellness programs that condition large financial incentives (or penalties) on employees undergoing biometric testing and/or completing health risk assessments (HRAs).  However it has broader implications – and complications – for all wellness program designs.  Below we explain why certain wellness program designs fall under the ADA, how the EEOC’s proposed rules, if finalized in their current form, would limit design options for these programs, and what employers might consider doing in the meantime.

Wellness Programs Subject to the ADA

As mentioned, the EEOC rules primarily impact wellness programs that provide a high financial reward for merely undergoing biometric testing and/or completing an HRA, or that impose a penalty on employees who choose not to participate in such testing.

This specific plan design is permitted under existing HIPAA/ACA wellness regulations, which aim to prevent discrimination on one or more “health factors,” including a disability, illness, claims experience or medical history.  As we have discussed in an earlier post, those regulations permit employers to tie any size financial incentive or penalty to a wellness program that requires mere participation (“participation-only”), and restrict the incentive (and impose other design criteria) only when the incentive is conditioned on physical activity or attainment of a specific health outcome (“health-contingent”).

The Departments consistently have maintained, however, that satisfaction of HIPAA/ACA requirements does not equal satisfaction of other laws governing wellness programs, including the ADA.  They most recently reiterated this position in ACA FAQ XXV, published on April 16, 2015.  And the EEOC in past guidance has identified biometric testing as a workplace medical examination, and HRAs as containing “disability-related inquiries,” such that participation must be “voluntary” on the part of the employee.   EEOC Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the ADA, Q&A 22. (July 27, 2000).   That guidance clarified that a wellness program is “voluntary” as long as an employer neither requires participation nor penalizes employees who do not participate.  Even since, the EEOC requirement of voluntary participation has been on a collision course with the unlimited financial incentives that HIPAA and the ACA permit under “participation-only” wellness plans.

What was not clear, until publication of the new rules, was the point at which a financial wellness incentive crossed the border from voluntary to coercive, in the eyes of the EEOC.   Employer uncertainty on this point reached a crescendo in the latter part of 2014, when the EEOC brought three separate enforcement actions against employers whose “participation only” wellness programs included biometric testing and HRAs, but met applicable HIPAA/ACA design guidelines for same.  In the third and most prominent action, against Honeywell, the wellness program imposed a potential annual surcharge of up to $4,000 on employees who refused, along with their spouse, to undergo biometric testing including a blood draw, performed by a third party vendor.  The federal court rejected the EEOC’s attempt to stop Honeywell’s use of the program, but the case had a “chilling effect” on employers whose wellness programs followed similar designs.

Proposed Design Restrictions

Under the proposed EEOC rules, an incentive or reward under a wellness program that includes biometric testing and/or an HRA crosses the line from voluntary to coercive when it exceeds a dollar amount equal to 30% of the total cost of employee-only health coverage (employer and employee contributions, combined).  An additional incentive or penalty of up to 20% may be imposed in exchange for the employee disclosing whether or not they use tobacco, but not in exchange for blood testing for nicotine or cotinine.  Most significant, this cap on incentives applies to biometric testing and HRAs (or to other forms of medical examination or disability-related inquiries under a wellness program) even when the program is “participation-only” under HIPAA/ACA rules.  Note that only employers with 15 or more employees are subject to Title I of the ADA; smaller employers are outside the EEOC’s jurisdiction.

By contrast, the HIPAA/ACA rules apply these limits only to health-contingent wellness programs, and also permit the maximum percentage limits to apply to the cost of dependent coverage when the wellness program allows participation by dependents.  The EEOC rules do not address dependent participation, most probably because their jurisdiction is limited to the employer-employee relationship.  Nor do they address whether participation by spouses in biometric testing/HRAs triggers concerns under the Genetic Information Nondisclosure Act, or “GINA.” The EEOC did take this position in the Honeywell case, however, and in the new guidance reserves the topic for future comment.

In addition to the cap on incentives, the EEOC rules would also impose other criteria for “voluntariness” on wellness programs that include biometric testing/HRAs, including that:

  • the employer may not require participation in the wellness program;
  • the employer may not deny access to health coverage (other than through imposition of the permitted reward/penalty percentage) to those who do not participate; and
  • the employer may not take adverse employment action or otherwise retaliate against employees who do not participate, or who participate but do not attain a desired health outcome.

Additionally, for all wellness programs that are used in conjunction with a group health plan, whether or not they include biometric testing/HRAs, employers must provide a written notice explaining what medical information will be obtained under the wellness program, how it will be used, and the restrictions on disclosure that apply, including HIPAA privacy and security rules.  Note that this is in addition to the notification of reasonable alternative methods of attaining a wellness reward that the HIPAA/ACA rules require be included in all health-contingent wellness program materials.

The EEOC rules also impose confidentiality requirements on all wellness programs, not just that include biometric testing/HRAs, and further require that wellness programs be “reasonably designed to promote health or prevent disease.”  The EEOC confidentiality and reasonable design rules are quite similar to existing requirements under HIPAA/ACA regulations, with the following modifications:

  • The EEOC confidentiality rules require that medical information be disclosed to employers only in aggregate form, except as is necessary to administer the health plan.
  • The EEOC reasonable design rules would apply to participation-only wellness programs; under HIPAA/ACA regulations they only apply to health-contingent programs.
  • The EEOC reasonable design rules would require that a wellness program that collects medical information (such as through biometric testing) provide follow-up information or advice with regard to health issues.
  • The EEOC reasonable design rules would prohibit wellness programs that require an overly burdensome investment of time in order to attain an incentive, involve unreasonably intrusive procedures, or act primarily to shift health costs onto employees.

Finally, the EEOC rules require that all wellness programs satisfy reasonable accommodation requirements under the ADA.  Under existing HIPAA/ACA regulations, accommodation (in the form of an offer of alternative ways to attain a reward) is only expressly required for health-contingent wellness programs.  The example given is provision of a sign language interpreter to allow a hearing-impaired employee to attain a reward by taking part in nutrition classes.

What to Do Now  

It is likely that the EEOC will receive a large number of public comments on the proposed regulations and guidance.  They have asked for comments on a number of points in addition to the proposed guidance, including whether wellness incentive limits should link to the ACA concept of “affordable” coverage.

Public comments are due on June 19, 2015 and it may take some time for the EEOC to incorporate them into final regulations and guidance.  Although compliance with the proposed rules is optional in the meantime, the standards they outline likely will function as a “safe harbor” from challenge on ADA grounds, such that risk-averse employers may want to take steps to comply with them proactively.    In the interim, employers can also expect business lobbies to challenge the dual standard the EEOC rules would impose on several aspects of participation-only wellness programs. (A House bill that would insulate ACA/HIPAA compliant wellness incentives from attack under GINA or the ADA was proposed before the EEOC rules were published.)  All employers maintaining wellness programs should consider distributing the notice re: wellness program data collection, use and privacy, and should work with their wellness vendors and benefit advisors to craft the appropriate language.   Pending further guidance on whether participation by family members triggers GINA concerns, it seems premature to eliminate, or modify wellness incentives for participation by spouses and dependents.

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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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ACA Implementation for Small to Mid-Sized Employers: A Short Podcast

Recently, Mark Weiss of the Advisory Law Group interviewed me on Affordable Care Act compliance issues for small to mid-sized employers. You can listen to the resulting podcast on Mark’s Wisdom.Applied blog by clicking here.   Topics covered include preparing for pay or play, employee interaction with the exchanges, exchange readiness (or un-readiness), and the viability of wellness programs in a small employer setting.  Thank you, Mark, for giving me the opportunity to share my views with your audience.

Mark’s practice focuses on medical groups, physicians and other healthcare providers, and I hope to soon interview him on the ACA as seen from the provider perspective, including how it is changing – in several different aspects – the ways in which healthcare is delivered in the U.S.     The law is not much more popular among healthcare providers, than it is among employers, but for different reasons Mark will ably explain.  Check back soon for more good information along those lines.

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New Rules Defined for “Results Based” Wellness Programs

Proposed regulations issued by the IRS, DOL and HHS (the “Agencies”) on November 20, 2012 increase, for plan years beginning on or after January 1, 2014, the maximum permitted reward that “health-contingent wellness programs” (i.e., “results-based” programs) may offer, from 20% of the total health insurance premium applicable to individual coverage, to 30%, with an additional 20% incentive permitted only in connection with programs to reduce or eliminate tobacco use.  The proposed regulations, which amend final regulations from 2006 on HIPAA’s nondiscrimination provisions, make other changes to the five “consumer-protection conditions” that such programs must satisfy.[1]  Below, I highlight key changes under the new regulations:

Financial Incentives

  • As mentioned, the maximum financial incentive that a results-based wellness program may offer in 2014 is an amount equal to 30% 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.)
  • 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.
    • An example in the regulations describes a wellness program that offers an annual premium rebate of $600 to employees who attain goals under a program for reducing weight, blood sugar and other biometric measurements, and also imposes an annual $2,000 surcharge on employees who have used tobacco in the last 12 months and who are not enrolled in the plan’s tobacco cessation program.  The annual individual premium under the related group health plan is $6,000, of which the employer pays $4,500.  This program design meets the maximum incentive thresholds because the total of all rewards (including not imposing the tobacco use surcharge) is $2,600 ($600 + $2,000) which does not exceed 50% of the total cost of individual coverage, which is $3,000 ($6,000/2).  Also, tested separately, the $600 reward for the non-tobacco wellness program does not exceed 30% of the total annual cost of individual coverage, which is $1,800) ($6,000 x 30%).
    • The regulations make clear that rewards for participation-only wellness program components do not need to be factored in to the maximum reward calculation, even if the participation-only component (such as completion of a health risk assessment) is teamed with a results-based component (such as required smoking cessation).
    • The regulations reassert that permitted financial rewards may take the form of a premium rebate or contribution, a waiver of all or part of a cost-sharing mechanism (such as deductibles, co-insurance, or co-payments), the absence of a surcharge, the value of a benefit that would not otherwise be provided under the plan, or other financial or nonfinancial incentives or disincentives.
      • Compliance Note:  All wellness programs must be “voluntary” in order to meet the requirements of the Americans with Disabilities Act.  The Equal Employment Opportunity Commission (EEOC), which administers the ADA, has not clearly defined what makes a wellness program “voluntary” or not voluntary.  This remains a compliance grey area for employers.
    • The new rules apply to non-grandfathered and grandfathered plans under the Affordable Care Act (ACA), and to insured and self-funded group health plans, whether “small” or “large” plans.  They do not yet apply to individual insurance policies.  The uniformity among group plans will permit consistent coordination between the 50% wellness incentive that includes smoking cessation measures, and the tobacco use surcharge (up to 50% of the applicable premium).  That premium surcharge is set forth in proposed regulations on guaranteed availability and premium rating that HSS issued on the same day as the wellness regulations.[2]   (The HHS regulations cover other insurance market reform provisions under the ACA and will be the topic of a future post at http://www.EforERISA.com.)

Offers of Reasonable Alternative Standards

The regulations provide substantial new information on how employers and insurers may comply with the requirement of offering a “reasonable alternative standard” – or waiver of the otherwise applicable standard – to employees who cannot attain the results-based goals due to medical reasons.  (The specific criteria are that the goal either is “unreasonably difficult” to attain “due to a medical condition,” or that it is “medically inadvisable” for the employee to attempt to reach the goal.)  References below to “employers” apply equally to group insurance carriers where applicable.

  • First, the regulations provide two examples of new model language notifying employees of the reasonable alternative standard concept.  The new language replaces the prior, more opaque notice, which may have a chilling effect on some employees.  The standard model language, and a permitted variation, both are repeated below:

 “Your health plan is committed to helping you achieve your best status.  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 to find a wellness program with the same reward that is right for you in light of your health status.”

“Fitness is Easy! Start Walking!  Your health plan cares about your health.  If you are overweight, our Start Walking program will help you lose weight and feel better.  We will help you enroll. (**If your doctor says that walking isn’t right for you, that’s okay too.  We will develop a wellness program that is.)”

  • The notice of a reasonable alternative standard must be set forth in all written materials that describe the wellness program but does not need to be added 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).
  • Employers do not need to “pre-design” reasonable alternative standards but instead may design them once an employee requests alternative standards.  As provided in the 2006 regulations, and in comparable language under the ACA, however, employers may design alternative standards for specific sub-populations, such as cholesterol reduction programs tailored to employees whose high cholesterol readings make it unreasonably difficult or medically inadvisable for them to attempt to attain lowered readings.
  • If the reasonable alternative standard is completion of an educational program, the employer must make the educational program available, instead of requiring the employee to locate one, and may not require the employee to pay for the program.
  • 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 is compliance with the recommendations of a medical professional, and the medical professional is hired or employed by the employer, the employer must offer a reasonable alternative standard if the employee’s own physician determines that recommendations made by the employer’s physician are not medically advisable for that employee.  Regular insurance co-pays or costs will apply to medical items and services furnished in accordance with the physician’s recommendations.
  • The new regulations provide that, only where it is “reasonable under the circumstances,” employers may request a written statement from an employee’s personal physician that the standard wellness goal presents unreasonable difficulties to the employee or that it is medically inadvisable for the employee to attempt to attain it.  When the medical problem or health status that is at issue is clearly apparent, for instance confinement to a wheelchair, the employer does not have a reasonable basis for requesting the physician’s note.
  • An example in the regulation illustrates that “stacking” of reasonable alternative methods of attaining financial rewards may be necessary.  For instance if the wellness goal is reducing body mass index (BMI) to 26 or lower, a reasonable alternative method of attaining the same reward may be a program of walking 150 minutes a week.  An employee who cannot walk that much for health reasons could still attain the same financial reward by following recommendations set by his or her own physician.
  • Finally, the preamble to the new regulations indicates that employers may not stop offering a reasonable alternative method simply because employees fail to attain the alternative goal, particularly where addictive behavior is involved.  Noting (as did the prior wellness regulations) the “cycle of failure and renewed effort” that addicts experience, the preamble states that employers must continue to offer the alternative standard despite a low success rate, or must offer a new reasonable alternative standard such as a different weight loss program or nicotine replacement therapy.

Developing Issues

The Agencies invited public comments on a number of topics that are on their radar screens but not yet defined enough to regulate, including the following:

  • How to apportion financial rewards among family members where the health goal may not be applicable to all of them (for instance smoking cessation).
  • How best to define “tobacco use” (comments on this topic actually are requested in the insurance market reform regulations issued by HHS).
  • How the percentage limits apply to a financial reward whose amount may not be known initially (such as waiver of copayments, which will vary depending on the employee’s health during the course of the plan year).
  • Whether evidence- or practice-based standards are needed to ensure that wellness programs are reasonably designed to promote health or prevent disease, and best practices regarding use of these strategies.
  • Other suggestions for avoiding a “one size fits all” wellness program design.

Limited as they are to results-based programs, the regulations are not of pressing importance to employers and advisors who work with “participation-only” wellness programs, under which no health-related goal or result must be achieved in order to receive the financial reward.  To comply with HIPAA, these plans must only offer participation to all “similarly situated individuals,” with differences permitted among “bona fide employment-based classifications” such as work location, union versus non-union, etc.  (The “similarly situated” rule equally applies to results-based programs.)  Surveys cited in the preamble to the regulations indicate that participation-only programs comprise the vast majority of wellness programs, with the most prevalent design offering a three to 11% premium discount or other cash reward to employees who complete a health risk assessment.  However, the trend towards results-based wellness programs – particularly those for smoking cessation – likely will increase in tandem with rising premium costs for group HMO, PPO and even high-deductible insurance policies.  This trend is anticipated to continue through implementation in 2014 of the state exchanges, the individual mandate, and the employer shared responsibility rules (pay or play) under the ACA.  For that reason, employers and benefits advisors cannot afford to ignore rules governing results-based wellness programs.


[1] The five criteria are:  (a) that employees be able to qualify for the reward at least annually; (b) that the financial reward not exceed the percentage thresholds outlined above, 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 that a waiver of the health goal or a reasonable alternative means of attaining the health goal be offered to employees whose 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 the 2006 HIPAA final regulations as well as in Section 2705(j) of the Public Health Service Act, which was incorporated into the Affordable Care Act (ACA § 1201(4)).

[2] The HHS proposed regulations would permit the tobacco use surcharge in the small group market only in connection with a wellness program that meets HIPAA nondiscrimination standards.

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Thanksgiving Feast of Benefits Regulations Issued

On Tuesday, November 20, 2012 over 300 pages of proposed regulations were issued on the following key benefits topics: (1)  the definitions of “essential health benefits” and “actuarial value” applied to insurance products offered on the health exchanges; (2) nondiscriminatory incentives for wellness programs; and (3) a bundle of ACA insurance market reforms including guaranteed availability, restrictions on insurance premium rating differences, risk pools and catastrophic plans.

I will be reading and digesting these new regulations in the coming days and will have updates for you soon after, so stay tuned.

It is likely that the current guidance has been ready to go for some time but was held back to avoid any potential controversy prior to the November 6 presidential election. However, employers and advisers should ready themselves for a steady stream of ACA regulations and other guidance to be issued through the end of the year and throughout 2013.

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