Permitted Wellness Incentives Clarified by the Feds

The U. S. Departments of the Treasury, Labor and Health and Human Services recently issued new rules to assist employers wishing to offer their employees incentives for living healthy lifestyles both on and off the job while at the same time avoiding claims of discrimination by a few employees based on a health factor. These final regulations took effect February 12, 2007 with the rules to become applicable to group health plans on or after July 1, 2007; this is following years of interim rulemaking that was both confusing and even contradictory.

Vermont employers should note that these rules apply to all group sizes, including those under 100 employees. In addition, these rules apply to self-funded health plans. No less than three major employer laws are addressed in this rulemaking – HIPAA (Health Insurance Portability and Accounta-bility Act of 1996) nondiscrimination provisions, ERISA (the Employee Retirement Income Security Act of 1974) and the Public Health Service Act enacted as a part of HIPAA.

While the HIPAA nondiscrimination rules generally prohibited a health plan from charging individuals with similar medical conditions different premiums or employee contributions based on a health factor, these same rules do permit a plan to establish premium discounts or rebates or to allow for the modification of co-payments or deductibles in return for the employee’s adherence to programs of health promotion and disease prevention. These “….final regulations treat all programs of health promotion or disease prevention as wellness programs and specify which of those wellness programs must satisfy additional standards to comply with the nondiscrimination requirements.”

Simple Wellness Programs Not Subject to Additional Standards

Employer-sponsored wellness programs that do not have to satisfy additional criteria “…are those under which none of the conditions for obtaining a reward is based on an individual satisfying a standard related to a health factor or under which no reward is offered.” Among the wide range of programs that are in the less restrictive category and thus exempt from having to comply with the nondiscrimination requirements are:

1. Programs that reimburse all or a part of the cost for memberships in a fitness center
   
   
2. Diagnostic testing programs that provide a reward for participation and do not base any part of the reward on outcomes
   
   
3. Programs that encourage preventive care through the waiver of the deductible or co-payment requirement under a group health plan for such services as pre-natal care or well-baby visits
   
   
4. Programs that reimburse employees for the costs of smoking secession programs without regard to whether the employee quits smoking
   
   
5. Programs that provide a reward for attending a monthly heath education seminar.
   
   

Wellness Programs Subject to Special Requirements

Conversely, programs which establish conditions “…for obtaining a reward that are based on an individual satisfying a standard related to a health factor must meet the five (5) additional requirements described below in order to comply with the nondiscrimination requirements.” The final regulations refer to this second category as “wellness programs subject to requirements”. The five conditions, all of which must be met, are:

1. Limit on the Reward. The final regulations provide that the monetary value of any reward or rebate shall not exceed twenty (20) percent of the cost of coverage (i.e. total contribution of employer and employee). If the family members of an employee are enrolled and are allowed to participate in the wellness program(s), then the up-to-20% reward can apply to two-person and family levels of coverage as well. As the final regulations state “The 20% limit on the size of the reward allows medical insurers and plan sponsors to maintain flexibility in their ability to design wellness programs, while avoiding rewards or penalties so large as to deny coverage or create too heavy a financial penalty on individuals who do not satisfy an initial wellness program standard that is related to a health factor.”
   
   
2. The Program Must Have Be Reasonably Designed. The wellness program must have a reasonable chance of improving the health of participants, and not be overly burdensome, is not a subterfuge for discriminating based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease. The standard is intended to allow for experimentation in diverse ways of promoting wellness, and as such there does not need to be a scientific record that the method does, in fact, promote wellness.
   
   
3. Qualify At Least Once-Per-Year Requirement. As a parallel standard to the program being reasonably designed, the three federal departments included the once-per-year qualification requirement as a reasonable target for determining the minimum frequency for promoting good health or preventing disease.
   
   
4. There Must Be a Reasonable Alternative Standard. Under both the prior rules written in 2001 and these final regulations, “a wellness program that provides a reward requiring satisfaction of a standard related to a health factor must provide a reasonable alternative standard for obtaining the reward for certain disadvantaged individuals. This alternative standard must be available for individuals for whom, for that period, it is unreasonably difficult due to a medical condition to satisfy the otherwise applicable standard, or for whom, for that period, it is medically inadvisable to attempt to establish the specific reasonable alternative standard before the program commences.” Under the final rules, it is permissible for a health plan to devise a reasonable alternative standard by lowering the threshold of the existing health-factor-related standard, substituting a different standard, or by waiving the standard all together.
   
   
5. Disclosure Requirements. All plan materials describing the terms of the wellness program must disclose the availability of a reasonable alternative standard. There are two clarifications to this last requirement: first, plan materials are not required to describe specific reasonable alternative standards, but merely to disclose that they will be made available; and second, any plan materials that describe the general standard would also have to disclose the availability of a reasonable alternative standard, so long as it is merely mentioned.
   
   

References

This summary is a compilation of over 40 pages of text which appeared in the Federal Register on December 13, 2006 (Rules and Regulations, pages 75013 to 75055) entitled “Nondiscrimination and Wellness Programs in Health Coverage in the Group Market.” Department references are: Department of the Treasury, Internal Revenue Service - 26 CFR Part 54; Department of Labor, Employee Benefits Security Administration – 29 CFR Part 2590; Department of Health and Human Services, Centers for Medicare & Medicaid Services – 45 CFR Part 146.