On November 26, 2012, the IRS and Departments of Labor and Health and Human Services published in the Federal Register proposed regulations that would permit group health plans to provide greater incentives for participation in wellness programs.  The proposed regulations include a welcome implementation of statutory changes that were made by the Affordable Care Act, but they leave unanswered important questions about compliance with the Genetic Information Nondiscrimination Act of 2008, as amended (GINA) and the Americans with Disabilities Act, as amended (ADA).  Employers putting wellness programs in place should be mindful of the possibility that a program might comply with the proposed regulations but still violate a requirement of GINA or the ADA.

If finalized, the proposed regulations will be effective for plan years beginning in 2014 or later–the same effective date as the changes to the statute.  Until then, existing regulations that were issued in 2006 continue to apply.  Comments on the proposed regulations are due by January 25, 2012.

Background.  In general, the Health Insurance Portability and Accountability Act of 1996, as amended (HIPAA) prohibits group health plans from discriminating on the basis of a health factor, such as health status, a medical condition, or genetic information.  Among other things, this nondiscrimination rule prohibits charging more for coverage based on a health factor.  Absent a special rule, many wellness programs would violate this nondiscrimination rule.

Regulations issued in 2006 provide that a wellness program will not violate the nondiscrimination rule if the program is designed to promote health or prevent disease and it qualifies as either a “participatory” wellness program or a “health-contingent” wellness program.

  • A participatory wellness program is a wellness program that either (i) does not offer a reward for participation or (ii) does not condition any reward on meeting a health-based standard to receive a reward.  For example, a program that reimburses the cost of a gym membership is a participatory program.  If a group health plan offers a participatory wellness program to one individual, the same program must be offered to all others who are similarly situated.
  • A health-contingent wellness program is a wellness program that conditions any reward on meeting a health-based standard.  Rewards might include, for example, a premium reduction, a waiver of cost-sharing, absence of a surcharge, or a cash prize.  For example, a wellness program that provides a reward for not smoking is a health-contingent wellness program.  To comply with the 2006 regulations, a health-contingent wellness program must meet the following conditions:
    • The total reward for the program must not exceed 20% of the total cost of health coverage.
    • Eligible individuals must be permitted to qualify for the reward annually.
    • The same reward must be available to all similarly situated individuals.
    • A reasonable alternative standard (or waiver of the health-based standard) must be available for anyone (i) who cannot satisfy the regular health-based standard due to a medical condition or (ii) for whom it is medically inadvisable to satisfy the regular standard.
    • The availability of a reasonable alternative standard (or the opportunity to obtain a waiver of the health-based standard) must be disclosed in all materials describing the terms of the program.

Highlights of the New Proposed Rules.

The proposed rules would make the following changes to the existing rules:

  • The maximum total reward for health-contingent wellness programs (other than programs designed to prevent or reduce tobacco use) is increased from 20% to 30% of the total cost of health coverage.  This implements a change made by the Affordable Care Act.  Although the statute left open the question of whether the increase would apply for grandfathered plans, the regulations confirm that it will.
  • For wellness programs designed to prevent or reduce tobacco use, the maximum total reward is increased from 20% to 50% of the total cost of health coverage.  This change aligns with an Affordable Care Act rule that will allow insurers in the individual and small group markets to impose up to a 50% premium surcharge on tobacco users.
  • Model language for notice of a reasonable alternative standard (described above) has been simplified.

The proposed regulations also would elaborate on several aspects of the existing regulations:

  • A “reward” under a health-contingent wellness program includes avoiding a penalty, such as a premium surcharge.
  • If a reward is conditioned upon the results of a medical test or screening, an alternative reasonable means of obtaining the reward must be made available to individuals who do not “pass” the test.
  • In lieu of providing a reasonable alternative standard, a health-contingent wellness program may waive the applicable health-based standard.  The waiver may apply for a class of individuals or on an individual-by-individual basis.
  • A reasonable alternative standard need not be determined in advance, as long as it is provided upon request by an eligible individual.  Unless the program wishes to waive the health-based standard, the program must offer a reasonable alternative even if the individual has failed to attain the same alternative standard in the past.
  • All facts and circumstances, including the following, are taken into account in determining whether a health-contingent wellness program offers a reasonable alternative standard:
    • If the alternative is completion of an educational program, the  specific educational program must be made available (rather than requiring the individual to find one) at no cost.
    • If the alternative is a diet program, the wellness program must cover any participation fee (but not the cost of food).
    • If the alternative is compliance with the advice of a program’s doctor, the alternative must be revised to the extent the individual’s own doctor states that the alternative is not medically appropriate for the individual.  Standard cost-sharing may be applied for medical expenses relating to the individual’s doctor’s recommendations.
  • A health-contingent wellness program may not request verification that a health factor makes it unreasonably difficult or medically inadvisable to satisfy an applicable health standard if the validity of the individual’s request is apparent from the nature of the individual’s medical condition.  A program may seek verification, however, of situations that require a medical judgment.

Comments.  As noted above, the comment period is open until January 25, 2013.  Although comments can be made on any aspect of the proposed rule, the Departments have requested comments on several specific issues, including:

  • The apportionment of rewards to family members.  For example, if a health-contingent wellness program allows dependents to participate, the regulations do not specify the portion of a reward (if any) that should be attributable to each participating dependent or whether the reward should be prorated if some, but not all, family members qualify for it.
  • The definition of “tobacco use” for purposes of determining the permitted award amount.
  • Whether rules or examples would be helpful to demonstrate compliance with the limitation on the size of the reward when the amount cannot be determined at the outset (e.g., waiving copayments for outpatient office visits).
  • The model language advising of the availability of a reasonable alternative standard.
  • Suggestions for rules on how to comply with the reasonable alternative standards or to ensure that a wellness program is reasonably designed to promote health.