The regulatory log-jam in Washington seems to finally be loosening up in the aftermath of the election, and the troika of agencies primarily responsible for overseeing implementation of the Patient Protection and Affordable Care Act of 2010 (the Affordable Care Act)—the IRS, U.S. Department of Labor, and U.S. Department of Health and Human Services—have recently issued proposed regulations that will be of interest to employers who are considering new wellness programs or changes to existing programs. The good news here is that the proposed regulations generally offer helpful clarification of existing requirements for wellness programs and expand the range of incentives (or penalties) that can be used by employers to encourage participation. The proposed regulations also offer further confirmation that the agencies recognize the value of wellness programs and expect to support their adoption and maintenance.
The final regulations will not be effective until January 1, 2014, at the earliest but will hopefully be finalized sufficiently far in advance so that employers can take advantage of them during the open enrollment season for 2014.
Before considering the proposed regulations, first, a little background. Among other things, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits group health plans and health insurers from discriminating against similarly-situated individuals based on their health status. For example, this prohibition prevents employers and insurers from charging higher premiums or co-payments, requiring larger contributions, imposing higher deductibles, and the like based on an individual’s health status, medical condition, past claims experience, medical history, or other similar health factor. Wellness programs that require employees (or their dependents) to complete health-related tests or assessments or to satisfy health-related standards to qualify for a premium discount or avoid a surcharge would run afoul of this general prohibition.
Since 2006, two regulatory exceptions have been available to permit wellness programs to operate without violating HIPAA’s nondiscrimination requirement. “Participation-only” programs that offer incentives to employees merely for participating are lightly regulated, mainly because no particular outcome is expected. Examples of this type of wellness program include health risk assessments, biometric screening, and tobacco-cessation programs under which an incentive (e.g., premium discount, gift card, etc.) is provided after an employee completes the program, regardless of the outcome.
In contrast, “standards-based” programs (referred to as “health-contingent wellness programs” by the proposed regulations) do expect an outcome, and as such, they are subject to greater regulatory requirements. In particular, under the 2006 regulations, standards-based programs must satisfy each of the following requirements:
- the total incentive (or penalty) cannot exceed 20 percent of the total cost of coverage under the plan;
- the program must be reasonably designed to promote health or prevent disease;
- employees (and dependents, if applicable) must be given an opportunity to qualify for the incentive (or avoid the penalty) at least annually;
- all similarly-situated individuals must be given an opportunity to qualify for the incentive (or avoid the penalty) and must have access to a reasonable alternative standard if appropriate; and
- all plan material describing the program must disclose that an alternative standard is available.
Wellness Programs—New and Improved
For the most part, the proposed regulations retain the general requirements applicable for both participation-based and standards-based wellness programs, including the five requirements outlined above.
Under the proposed regulations, a “participatory wellness program” includes any wellness program that is available to all similarly-situated individuals and does not require satisfaction of a health-related standard to qualify for an incentive; this category also includes programs that don’t provide an incentive at all. Examples provided by the proposed regulations include:
- reimbursement for the costs of membership in a fitness center;
- diagnostic testing (without regard for the outcome);
- waiver of co-payment or deductible requirements for preventive care;
- reimbursement for participation in a smoking cessation program;
- incentives to participate in no-cost health education seminars; or
- incentives to participate in a health risk assessment without a requirement to take further action.
Under the proposed regulations, existing participatory wellness programs are largely unaffected and can continue to operate as they have under the 2006 regulations. (The proposed regulations do highlight the fact that “non-grandfathered” health plans may be independently required to provide preventive care without cost sharing and that the collection of family medical histories as part of a health risk assessment can present issues under the Genetic Information Nondiscrimination Act of 2008.)
For health-contingent wellness programs, the proposed regulations include more substantial clarifications and changes:
- Increased Incentives—As provided by the Affordable Care Act, health-contingent programs can provide incentives (or impose penalties) of up to 30 percent of the total cost of plan coverage under the proposed regulations. For programs designed to reduce or prevent tobacco usage, incentives (or penalties) of up to 50 percent of the total cost of plan coverage are permitted. Incentives (or penalties) for wellness programs that cover both tobacco cessation and other health issues must be coordinated to ensure that aggregate incentives or penalties do not exceed 50 percent in total. A caveat: employers with grandfathered health plans should be careful when designing premium surcharges or other penalties under the new limits. We understand that the agencies’ internal views are that the new limits can be used by grandfathered plans without jeopardizing their status as such, but that view was not included in the proposed regulations. Until the agencies formalize their position, employers that maintain grandfathered plans should be cautious about taking full advantage of the new limits.
- Alternative Standards—The proposed regulations clarify that employers and insurers are not obliged to create alternative standards unless and until an individual makes a request. The proposed regulations also provide criteria for evaluating whether a particular alternative standard is “reasonable”: (1) if the standard involves an educational program, the plan must make the program available and pay its cost; (2) if the standard involves a diet program, the plan is not required to cover the costs of food but must pay any membership or participation fee; and (3) if the standard requires compliance with medical advice from an employee or agent of the plan, if the individual’s personal physician disagrees, the plan must make a separate standard available that is consistent with the individual’s personal physician. The proposed regulations indicate that a plan can verify the medical support for an alternative standard but specify that it is not reasonable for a plan to seek verification of an obviously-valid claim by the individual based on a medical condition that is known to the plan.
- Reasonable Design—As under the 2006 regulations, the proposed regulations require health-contingent programs to be reasonably designed to promote health or prevent disease. The proposed regulations clarify that a program satisfies this requirement if it has a reasonable chance of improving health or preventing disease and is not overly burdensome, is not a subterfuge for discrimination based on health factors, and does not use a highly suspect method for promoting health or preventing disease. This determination is made based on the relevant facts and circumstances—unfortunately, the proposed regulations do not supply any further guidance on this requirement.
- Safe Harbor Disclosure—The proposed regulations include model language that can be used to advise individuals about the availability of alternative standards for qualifying for a wellness incentive (or avoiding a penalty). Under the 2006 regulations, employers were left to their own devices when developing these communications.
As expected, the proposed regulations are evolutionary and incremental, but they still reveal a regulatory intent to advance the state of the art for wellness programs. The availability of larger incentives will offer employers more flexibility in designing meaningful wellness programs to encourage healthier lifestyles, and the various clarifications included in the proposed regulations offer welcome certainty to employers as they administer their wellness programs.