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Health Care Reform: Agencies Issue Proposed Regulations on Wellness Programs Under the Affordable Care Act

January 7, 2013

On November 20, 2012, the Departments of Labor (DOL), Health and Human Services (DHHS) and Treasury (IRS) (collectively, the Agencies) issued proposed guidance for wellness programs under the Affordable Care Act (ACA). These proposed regulations are to be effective when finalized for plan years beginning on or after January 1, 2014. This guidance will apply to non-grandfathered plans.

Note that the Equal Employment Opportunity Commission (EEOC), which has authority for enforcement of the Genetic Information Nondiscrimination Act (GINA) and the Americans with Disabilities Act (ADA), is not one of the Agencies and thus, in addition to consulting this guidance, care must be taken when implementing wellness programs to consider how genetic information is being solicited or utilized, how specific medical conditions or disabilities may be affected, and any other limitations imposed by the EEOC on participation in wellness programs.

ACA Guidance Builds on Existing HIPAA Nondiscrimination Rules

In 2006, the Agencies issued regulations under the nondiscrimination provisions of the Health Insurance Portability and Accountability Act of 1996, as amended (HIPAA). These regulations carved out an exception to the prohibition of discrimination on the basis of health status-related factors for what were initially termed “bona fide wellness programs,” i.e., those wellness programs that met specific regulatory requirements.

The ACA built on the basic structure of the bona fidewellness program exception to the HIPAA nondiscrimination rules, but added a number of new wrinkles. The ACA guidance changed the terminology, but like the HIPAA rules, recognizes two distinct kinds of wellness programs.

Participatory Wellness Programs

Under the ACA, “participatory wellness programs” are designed so that they either (i) do not provide a reward or impose a penalty, or (ii) the reward can be obtained, or the penalty avoided, without the individual having to satisfy a standard related to a health-status factor. Examples of such “participatory wellness programs” are ones that:

  • Reimburse the employee for the costs of a gym or fitness center membership

  • Provide a reward for just participating in a health risk assessment or taking a biometric test, without regard to the outcome

  • Waive copays or deductibles for prenatal care and/or well-baby visits 

  • Reimburse the costs of participating in a smoking cessation program, even if the individual does not quit smoking

Because participatory wellness programs do not provide rewards or impose penalties based on health status-related factors, they automatically pass muster under these nondiscrimination rules. In order to be acceptable under the ACA guidance, participatory wellness programs must be made available to all “similarly situated” employees – i.e., those in the same geographical location or those in the same work classification (e.g., full time or part time, union or non-union, etc.).

Health-Contingent Wellness Programs

“Health-contingent wellness programs” are those where the reward or penalty is based on the individual meeting a criterion that involves a health status-related factor. An example of a health-contingent wellness program would be where a reward (e.g., a premium discount) is granted not just for taking a health risk assessment, but for having the assessment show that the individual had met one or more specific pre-set cholesterol, glucose, blood pressure or BMI numbers. The Agencies also consider the employer to be offering a health-contingent wellness program where an individual with, for example, unacceptable cholesterol levels or BMI numbers may still earn the reward, but only if they take additional steps to bring those numbers down to normal ranges -- like completing a series of meetings with a health counselor or following a medically prescribed regimen for a set period of time, even if completing these additional steps does not in fact significantly reduce the applicable numbers.

A program that imposes a surcharge for using tobacco is also deemed a health-contingent wellness program, even where enrolling in a smoking cessation program would avoid the surcharge. This underscores the point that the Agencies deem either a financial reward or penalty based on meeting or failing to meet a health status-related factor is enough to bring the wellness program into the “health-contingent” category.

The significance of having a health contingent wellness program is that, unlike participatory wellness programs, they do not automatically comply with the HIPAA nondiscrimination rules. Indeed, health-contingent wellness programs inherently violate these rules, but if they are structured to meet five specific requirements, they will come within the safe harbor exception to this requirement and will pass muster.

The Five Requirements a Health-Contingent Wellness Program Must Meet to Comply with the Health Status-Related Factor Nondiscrimination Rules

  • Annual qualification - The program must give individuals the opportunity to qualify at least once a year. This does not represent a change from the existing HIPAA regulations.
  • Limits on financial incentives are increased -Under the existing HIPAA rules for wellness programs, the financial incentive or penalty was limited to 20% of the cost of single coverage (even if the employee had family coverage), counting both the employer’s and employee’s share of the coverage costs.
    Under the new ACA guidance, this limit is raised to 30%, and if dependents are eligible to participate in the wellness program, the limit is 30% of the cost for the coverage level in which the employee and his or her dependents are enrolled (e.g., family coverage or employee plus one coverage).
    This limit can be increased to 50% for programs that are designed to prevent or reduce tobacco use. The 50% limit only applies to whatever reward or penalty is attributable to the tobacco-use aspect of the health-contingent wellness program. Rewards or penalties for complying, or failing to comply with other criteria for wellness programs are limited to 30% of the cost of the applicable coverage. Finally, the combined reward/penalty limits for tobacco-use and other criteria cannot together be more than 50% of the relevant cost of coverage.
    Note – Under the ACA, smoking cessation benefits come within the range of preventive care coverage that must be offered without cost sharing, and such preventive care is considered to be part of any essential health benefit package. Many insurance policies either fail to cover smoking cessation benefits or cover them in a very vague manner, so it is not clear what the policy will pay for and what it will not pay for. Moreover, in contradiction to the ACA requirement that preventive care services must be provided with no cost sharing, some policies require cost sharing for all or some aspects of their smoking cessation benefit. Employers that insure their group health plan benefits should inspect their policies carefully to ensure that the coverage provided for smoking cessation complies with the ACA.
  • Uniform availability and reasonable alternative standards -As under the existing HIPAA rules, health-contingent the wellness program must be made available to similarly situated individuals and must provide a reasonable alternative to meeting the health status-related criteria for all individuals for whom it is unreasonably difficult or medically inadvisable to try to earn the reward or avoid the penalty. One reasonable alternative would be simply to waive the criteria either on a group or an individual-by-individual basis, though many employers might feel this alternative would defeat the purposes of the wellness program. The reasonable alternatives need not be set forth in advance, but must be provided upon request, and can be tailored to the individual’s specific circumstances. A plan cannot, however, cease to provide a reasonable alternative standard simply because the initial proposed standard failed to produce the desired result – for example, a smoker who took a smoking cessation course to earn the reward in year one, but still smokes, cannot be denied the opportunity to earn the reward in year two by taking another smoking cessation course.
    The ACA guidance indicates that whether a standard is reasonable will depend on a facts and circumstances analysis, but the regulations indicate that:
    • If the reasonable alternative is completion of an education program, (i) the plan must make the program available and not require the individual to find such a program, and (ii) the individual cannot be asked to pay for the program.
    • If the reasonable alternative is a diet program, the plan must pay for the program, but need not pay for any food or nutritional supplements that are part of the program.
    • If there is a difference of opinion about the medical appropriateness of a proposed alternative standard, between a medical professional engaged by the employer and an individual’s doctor, the plan must provide an alternative that meets the individual’s doctor’s recommendation, though the plan can impose its standard cost sharing requirements for any medical items and services required by the individual’s physician’s recommendation.
    • A plan may seek a physician’s verification that the standard is unreasonably difficult or medically unadvisable, only if it is “reasonable under the circumstances” to do so. The regulations state explicitly that it would not be reasonable for a plan to seek verification where the person’s condition is known and the claim is valid. This assumes, however, that plans have access to the necessary medical information to make such a judgment, and plans are often loathe to make decisions that could be seen as questioning the individual’s treating physician. Thus, this new rule could put plan administrators in something of a catch-22. 

    For non-grandfathered wellness programs, an adverse determination as to whether an individual is entitled to a reasonable alternative is deemed to be a claim involving a medical judgment that is eligible for federal external review under the ACA’s new claim and review procedures.

  • Reasonable design -Under the current regulations a health-contingent wellness program must be reasonably designed to promote health or prevent disease. It will meet this standard if it has a reasonable chance of improving health or preventing disease, is not overly burdensome, is not a subterfuge for discriminating on the basis of health status, and is not highly suspect in the methods chosen.

    Under the new ACA guidance, the reasonableness of a program’s design will be based on a review of all the relevant facts and circumstances. To the extent that a plan’s initial standard for obtaining a reward is based on the results of a measurement test or screening related to a health factor (such as a biometric test or health risk assessment), the plan must make available to any individual who does not meet the standard, a reasonable means of qualifying for the reward.

    Note - This alternative standard does not require that it be unreasonably difficult or medically inadvisable for the individual to obtain the reward. It is not clear whether this “reasonably designed” criteria was intended to require that a reasonable alternative be made available to all individuals in all circumstances, nor is it clear in what circumstances a plan may make available a reasonable alternative standard for earning the reward only to those individuals for whom it would be unreasonably difficult or medically inadvisable to try to earn the reward. This creates a significant area of uncertainty and there will likely need to be specific guidance in this area. Hopefully, this will be clarified when these proposed regulations become final.

  • Notice of alternative ways to qualify for the reward or avoid the penalty -The plan must disclose in all plan materials describing the health-contingent wellness program the availability of other means of qualifying for the reward, avoiding the penalty or the possibility of a waiver. If the plan materials merely mention the wellness program (e.g., the newly required statement of benefits and coverage), the availability of the alternative means to qualify need not be explained, but in basic plan documents such as the summary plan description (SPD), this would have to be explained. The new ACA guidance provides sample language for this purpose that is different and somewhat more readable than the language proposed under the prior HIPAA regulations.

Action Steps

Employers who currently sponsor wellness programs should review those programs in light of the new requirements and make whatever revisions are necessary. Employers who are contemplating initiating wellness programs should carefully consider the design criteria for both participatory and health-contingent wellness programs in light of their goals in establishing the program, and then design their program in a way that both meets those goals and is legally compliant.

If you have any questions about this new wellness program guidance, any other aspects about complying with the ACA, or any other employee benefit issues, please contact one of the Honigman attorneys.

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