Health-contingent Wellness Programs See Changes with Proposed Regulations

Last November, the departments of Health and Human Services, Labor and Treasury released proposed regulations addressing the provisions regarding employer-sponsored wellness programs under the Patient Protection and Affordable Care Act. The proposed regulations are effective for plan years beginning on or after Jan. 1, 2014, and apply to both grandfathered and nongrandfathered group health plans providing wellness program benefits.

The Health Insurance Portability and Accountability Act of 1996 prohibits group health plans from discriminating with regard to eligibility, premiums or contributions on the basis of specified “health-status-related factors,” such as medical condition, claims experience, receipt of health care, medical history and disability. However, wellness programs that adhere to specific requirements under HIPAA are an exception to this general rule.

Under HIPAA, there are two types of wellness programs: participatory wellness programs and health-contingent wellness programs. Participatory wellness programs do not provide a reward to an individual based on his or her satisfaction of a standard related to a health factor. Under HIPAA, participatory wellness programs are only required to be made available to all similarly situated individuals.

Health-contingent wellness programs, meanwhile, require an individual to satisfy a standard related to a health factor to obtain a reward. For example, a program that imposes a surcharge on tobacco use would be considered a health-contingent wellness program. HIPAA requires that these wellness programs meet the following requirements:

• Individuals must have the opportunity to qualify for the reward at least once per year.
• The total reward offered under a health-contingent wellness program cannot exceed a specified percentage of the total cost of employee-only coverage under the plan.
• The reward must be available to all similarly situated individuals. In addition, a “reasonable alternative standard” for obtaining the reward must be provided for any individual for whom it is either unreasonably difficult, due to a medical condition, to meet the standard or for whom it is medically inadvisable to attempt to satisfy the standard.
• Health-contingent wellness programs must be reasonably designed to promote health or prevent disease, not be overly burdensome, not be a subterfuge for discrimination based on a health factor, and not be highly suspect in the method chosen to promote health or prevent disease.
• All plan materials describing the terms of a health-contingent wellness program must disclose the availability of other means of qualifying for the reward or the possibility of waiver of the standard.

The proposed regulations generally maintain these requirements for health-contingent wellness programs, with one significant change. Under the proposed regulations, the maximum permissible reward is increased from 20% to 30% of the total cost of employee-only coverage under the plan. The proposed regulations also permit an increase of an additional 20% (up to 50%) for health-contingent wellness programs designed to prevent or reduce tobacco use.

The proposed regulations also provide several clarifications regarding the “reasonable alternative standard” requirement for health-contingent wellness programs, including:

• Plans are not required to determine a particular alternative standard in advance of an individual’s request for one. However, a reasonable alternative standard must be furnished by the plan upon the individual’s request or the condition for obtaining the reward must be waived.
• To determine whether a plan has provided a reasonable alternative standard, the proposed regulations provide several factors to be considered. For example, if the reasonable alternative standard is a diet program, plans are not required to pay for the cost of food but must pay any membership or participation fee.
• If reasonable, a plan may seek verification that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the standard.

With regard to the notice requirement for health-contingent wellness programs under HIPAA, the proposed regulations provide model language for plans to use to disclose the availability of other means of qualifying for the reward, or the possibility of waiver of the otherwise applicable standard.