Working Together Toward Employee Health: Federal Agencies Issue Final Regulations on Wellness Programs Under the Affordable Care Act (ACA)
Wellness programs have long been subject to myriad federal and state laws. Primary among these are laws involving discrimination rules. Wellness programs are required to satisfy certain criteria in order to be considered non-discriminatory under the Health Insurance Portability and Accountability Act (HIPAA).
Recently, the Departments of Labor, Treasury, and Health and Human Services published final regulations on wellness programs so that these rules are in compliance with the Affordable Care Act (ACA). Effective January 1, 2014, these regulations apply to grandfathered and non-grandfathered plans alike.
What Is a Wellness Program?
A wellness program educates employees about health issues, encourages healthy lifestyles and helps to control health care spending. An employer’s wellness program can simply be educational, or it may offer financial incentives. Examples of the former include health risk assessments, free blood pressure screenings and exercise classes on the premises. Examples of the latter include a reduction of the employee’s share of the health insurance premiums, reduced co-pays, or even cash or cash-equivalent payments such as a gift card.
Categories of Wellness Programs:
The new regulations divide wellness programs into two main categories:
Participatory wellness programs. In these programs, the health status of the individual is immaterial. Participatory programs comply with the HIPAA and ACA non-discrimination requirements so long as participation is available to all similarly situated individuals.
Typically, these programs provide a financial incentive. Examples include reimbursement for the cost of gym membership, and reward to employees for attending no-cost health education seminars, for participation in diagnostic testing program (without regard to outcome), or for participation in smoking cessation program (with award not dependent on whether the employee quits). Reward may also be given to employees who complete a health risk assessment without any further obligations. There is no limit on financial incentives.
Health-contingent wellness programs. There are two types of health-contingent wellness programs. An activity-only program requires individuals to perform or complete an activity (e.g., a diet or exercise program) that is related to a health factor but is not dependent on a specific outcome. An outcome-based program requires individuals to attain or maintain a specific health outcome (e.g., a healthy BMI or cholesterol level) to obtain a reward or avoid a penalty.
Activity-only and outcome-based wellness programs are subject to the following five criteria:
The individual must be able to qualify for the reward at least once per year.
The size of the reward is limited to 30% of the total cost of employee-only coverage, taking into account both employer and employee contributions. This percentage is increased up to 50% if the additional percentage involves a program designed to prevent or reduce tobacco use.
For example, consider a $6,000 annual premium for employee-only coverage, of which the employer pays $4,500 and the employee pays $1,500. Let’s assume that the health-contingent wellness program on weight, cholesterol and blood pressure has a $600 rebate reward for compliance and charges a $2,000 tobacco premium surcharge on employees who have used tobacco during the last 12 months and who do not enroll in the tobacco cessation program. In this case, the total reward ($2,600) does not exceed 50% of total cost of employee-only coverage ($3,000) and the portion of the reward unrelated to tobacco use ($600) does not exceed 30% of the total cost of employee-only coverage ($1,800).
The program must be “reasonably designed” to promote health or prevent disease. A reasonably designed program must not be overly burdensome or discriminate based on a health factor.
A reasonable alternative standard must be provided to those individuals who do not meet the initial health standard. This standard does not need to be identified in advance of a request. Once the alternative is satisfied, the full-plan-year reward must be given even if the alternative is completed in mid-year.
The plan materials describing the health-contingent program must disclose the availability of a reasonable alternative standard. The final regulations provide sample text for the notice.
Compliance with Other Laws
Compliance with the HIPAA/ACA wellness regulations does not ensure compliance with other federal or state laws. For instance, The Genetic Information Nondiscrimination Act (GINA) prohibits health insurance carriers and employers from discriminating based on genetic information. While health risk assessment forms often ask about family history, employees cannot be required to provide genetic information. Disclosure must be voluntary and the information must not be accessible to supervisors. If financial incentives are offered, the employees must be eligible to receive them regardless of whether questions on genetic information are answered.
Under the Americans with Disability Act (ADA) an employer cannot require an employee to answer disability questions or submit to a medical exam unless such steps are due to business necessary. GINA and ADA are enforced by the Equal Employment Opportunity Commission (EEOC).
In addition, many states have laws that prevent employers from discriminating against employees who use legal products. Generally, these laws are aimed at smoking programs. There is also at least one state with a law that prohibits discrimination based on an employee’s weight.
Penalties for Violations of Wellness Regulations
Under HIPAA, the IRS may assess an excise tax if there is discrimination on the basis of a health factor under a group health plan. Employers with more than 50 employees on a typical business day are subject to an excise tax in the amount of $100 per day for each affected individual.
The excise tax may be waived if the IRS determines that the plan sponsor was not aware of the violation. Also, the tax will not apply if the violation was due to reasonable cause and not willful neglect, and is corrected within 30 days of its discovery. The maximum excise tax for unintentional violations is the lesser of 10% of the employer’s health plan expenditures for the preceding tax year, or $500,000.
In addition, the DOL audits plans for compliance and could bring a civil action to enforce the rules.
The guidance provided in the final regulations will enable employers to keep their wellness programs in compliance with non-discrimination rules contained in HIPAA and the ACA. That said, legal uncertainty still exists due to the application of other federal and state laws. Consequently, wellness programs should be reviewed for compliance with all applicable laws.
The initial analysis should address the following questions:
Is the wellness program part of a group health plan?
Is the wellness reward dependent on meeting a requirement that is related to a health factor?
Is the requirement an activity-based or outcome-based requirement?