Employers increasingly are looking to promote lifestyles that can help employees avoid higher health care costs, reduce absenteeism, and raise productivity in the workplace. Wellness programs can be part of this strategy. To encourage participation in wellness initiatives, an employer might consider offering an incentive, such as a premium reduction. In offering incentives, however, an employer must remain cognizant of the nondiscrimination rules under the Health Insurance Portability and Accountability Act (HIPAA), which prohibit health plans from charging similarly situated individuals different premiums or contributions or imposing different deductibles, copayments, or other cost-sharing requirements based on a health factor.
HIPAA carves out an exception that allows plans to offer wellness programs. Previously, the exception was for “bona fide” wellness programs. Recent final regulations issued by the federal agencies responsible for HIPAA oversight abandon this term, and instead spell out five requirements that wellness programs must follow. These requirements are:
The total reward for all of the plan’s wellness programs that require satisfaction of a standard related to health must be limited to no more than 20% of the cost of employee-only coverage under the plan (cost encompasses both employer and employee contributions). If dependents may participate in the program, the reward cannot exceed 20% of the cost of the coverage in which the employee and dependents are enrolled. The reward can be in the form of a discount or rebate of a premium or contribution, a waiver of all or part of a copayment, deductible or coinsurance, the absence of a surcharge, or the value of a benefit that would otherwise not be provided under the plan.
The program must be reasonably designed to promote health and prevent disease. The agencies state that they intend for this requirement to be an easy standard to satisfy, but do clarify that the program cannot be overly burdensome or a subterfuge for health-based discrimination.
The program must give individuals eligible to participate the opportunity to qualify for the reward at least once per year.
The program must include a reasonable alternative standard for obtaining the reward for individuals for whom it is medically unadvisable or unreasonably difficult to meet the regular requirement of the program. The plan may seek verification (for example, from the employee’s physician) that is it unreasonably difficult or medically unadvisable for the employee to satisfy the plan’s regular requirement.
The plan must disclose, in all materials that describe the program, that there are alternative ways to obtain the program reward. The agency guidance suggests standard language that can be used to meet this requirement.
It is important to note that these requirements are for wellness programs that base a reward on the employee satisfying a standard related to a health factor. If satisfaction of a standard related to a health factor is not required — for example, if employees earn the reward simply by participating in the wellness program — the program is not subject to these five requirements. The guidance gives these examples of specific programs not subject to the five requirements:
- Reimbursing employees for all or part of the cost of membership in a fitness center.
- Providing a reward for participation rather than for outcomes.
- Encouraging preventive care by waiving the copayment or deductible for the cost of services, such as prenatal care or well-baby visits.
- Reimbursing employees for the cost of a smoking cessation program without regard to whether the employee actually quits smoking.
- Providing a reward to employees for attending a monthly health education seminar.
These new rules apply to plan years beginning on or after July 1, 2007. In the preamble to the final rules, the agencies note that in the past (before this final guidance was issued) they had not taken enforcement action against plans that simply were acting in good faith in designing their wellness initiatives. Now, with the publication of final guidance, “the nonenforcement policy ends” with the effective date of the final rules. Thus, this is a good time to review any wellness programs for compliance.