Final Regs On Nondiscriminatory Wellness Programs Issued By IRS, HHS, EBSA

On May 29, 2013, the IRS, the Department of Health and Human Services (HHS), and the Employee Benefits Security Administration (EBSA) jointly issued final regulations (T.D. 9620) that clarify the reasonable design of health-contingent wellness programs, along with the reasonable alternatives they must offer in order to avoid prohibited discrimination. The regulations increase the maximum permissible reward under health-contingent wellness programs offered in connection with a group health plan (and any related health insurance coverage) from 20 percent to 30 percent of the cost of coverage.

Health-contingent wellness programs generally award the attainment of a specific health standard, and include such programs as those that offer rewards for reaching a specified cholesterol level or body weight. They also include programs that provide rewards to those who either do not use tobacco or decrease their use of it. The newly-issued regulations increase the maximum permissible reward for tobacco use cessation (or reduction) wellness programs to 50 percent.

At a May 29, 2013 news conference, by way of background, senior administration officials explained that the rule as proposed was simplified in the final version to create two subcategories of health-contingent wellness programs: (1) activity based and (2) outcome based.

Both types of health-contingent wellness programs must meet the following five requirements set forth in the final regulations:

1) Individuals eligible for the program must be given the opportunity to qualify for the reward at least once per year;

2) The total reward offered to an individual cannot exceed the applicable percentage (generally, 30 percent, or 50 percent for tobacco cessation programs) of the total cost of employee-only coverage under the plan. This takes into account both employer and employee contributions towards the cost of coverage for the benefit package under which the employee and/or any dependents are receiving coverage;

3) The programs must be reasonably designed to promote health or prevent disease;

4) They must offer uniform availability and reasonable alternative standards. However, activity-only wellness programs must offer a reasonable alternative standard for obtaining a reward for any individual for whom it is either unreasonably difficult or inadvisable, due to a medical condition, to attempt to satisfy the applicable standard. Outcome-based wellness programs, on the other hand, which provide rewards based on whether or not an individual has attained a certain health standard, must provide a reasonable alternative standard to all individuals who do not initially meet the targeted standard, to ensure that the program is reasonably designed to improve health, as opposed to being a subterfuge for underwriting or reducing benefits based on health status; and

5) A disclosure of a reasonable alternative standard to qualify for the reward must be placed in all plan materials, along with the possibility of a waiver of the standard, if applicable. This must include contact information for obtaining the alternative and a statement that recommendations of an individual’s personal physician will be accommodated. For outcome-based wellness programs, the notice must be included in any disclosure that an individual did not satisfy an initial outcome-based standard.

Administration officials stressed that, where a reasonable alternative standard is required for individuals who do not meet the initial standard related to a health factor, employees can consult with their physician regarding a reasonable alternative standard and employers may either let the employee’s physician structure the standard or propose another reasonable alternative. “The goal is to make sure people are moving toward health goals in a way that is reasonable for them,” according to administration officials speaking at the news conference.

In a press release issued on May 29, the HHS stated that the final rules also support participatory wellness programs, which, in contrast to health-contingent wellness programs, generally are those that reward mere participation. These include programs that reimburse for membership costs at a fitness center, those that offer rewards for obtaining diagnostic testing, and programs that provide rewards to employees for attendance at monthly, no-cost health education seminars.

Participatory wellness programs do not have to meet the five requirements listed above that are applicable to health-contingent wellness programs. However, the final regulations clarify that wellness programs that are solely “participatory” are permissible under the HIPAA nondiscrimination rules, as amended by the Patient Protection and Affordable Care Act (ACA) as long as they are available to all similarly situated individuals regardless of their health status. This availability, regardless of health status, ensures that the general prohibition against discrimination based on a health factor is not implicated, says the HHS.

The regulations do not affect other federal laws, administration officials noted; nor do they provide a safe harbor from compliance with other federal laws such as the ADA. They are scheduled to be published in the Federal Register on June 3, 2013.

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