By Frank Alvarez, Esq. and Joseph Lazzarotti, Esq. of Jackson Lewis LLP
In the latest round in the debate over employment-based wellness programs, the U.S. Departments of Health and Human Services (HSS), Labor and the Treasury have issued final regulations on the treatment of such programs under the Affordable Care Act (ACA). While the new regulations raise the maximum permissible reward that may be offered in connection with certain wellness programs, they make clear that outcome-based financial incentives must be widely available to program participants. All employers who have incorporated outcome-based wellness program as part of their group health plan should review the new regulations carefully to ensure their programs are in compliance before the regulations take effect.
Increase in Maximum Permissible Reward under HIPAA
The Health Insurance Portability and Accountability Act (HIPAA) generally prohibits group health plan sponsors from using a health factor as a basis for discriminating with regard to enrollment eligibility or premium contributions. Final HIPAA regulations issued in 2006 created certain exceptions for wellness programs that base eligibility or receipt of a reward, such as a premium discount under a group health plan, on satisfaction of a health factor. Under the 2006 regulations, wellness programs subject to HIPAA’s nondiscrimination standards, among other things, must limit the size of the reward to 20 percent of the cost of employee-only coverage under the plan. The new regulations raise the maximum permissible reward offered in connection with a health-contingent wellness program to 30 percent. This amount is raised to 50 percent for programs that seek to reduce tobacco use.
Changes to Outcome-Based Wellness Programs
Essentially adopting the position taken in the proposed regulations, the final regulations lay out specific rules for outcome-based wellness programs that reward employees for meeting certain goals, such as lowering their body mass index or cholesterol, or taking steps to meet goals, that will make it more difficult for employers to implement such programs. Perhaps most significantly, the regulations require that a reasonable alternative standard be provided for all individuals who do not meet the initial standard, to ensure that the program is reasonably designed to improve health and is not a subterfuge for underwriting or reducing benefits based on health status. This new requirement differs from what is required for activity-only wellness programs (where an individual is required to perform or complete an activity related to a health factor in order to obtain a reward). Activity-only programs require that a reasonable alternative standard for obtaining the reward be provided to individuals for whom it would be unreasonably difficult due to a medical condition or medically inadvisable to meet the existing standard. According to the preamble to the regulations, “[t]he intention of the Departments in these final regulations is that, regardless of the type of wellness program, every individual participating in the program should be able to receive the full amount of any reward or incentive, regardless of any health factor.”
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The final regulations take effect 60 days from publication in the Federal Register and generally apply for plan years beginning on or after January 1, 2014.
The new regulations come on the heels of the EEOC’s May 8th meeting regarding the treatment of employer-sponsored wellness programs under federal equal employment opportunity laws, such as the Americans with Disabilities Act (ADA), the Genetic Information Non-Discrimination Act of 2008, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the Equal Pay Act. Testimony from the EEOC’s meeting emphasized that employers would like the EEOC to clarify its position on when a wellness program is voluntary under the ADA. No guidance on that issue appears to be forthcoming. Even if the EEOC releases guidance on this question, wellness programs still may face resistance from advocacy groups looking to challenge these programs under other EEO laws. For additional information about the EEOC’s meeting, please see our article EEOC to Take Closer Look at Employer Wellness Programs.
We will provide further analysis of the Obama Administration’s final regulations and continue to keep you apprised of the latest developments in the legal treatment of wellness programs. For additional information, please contact Frank Alvarez, AlvarezF@jacksonlewis.com, or Joseph Lazzarotti, LazzaroJ@jacksonlewis.com, who lead the Firm’s efforts to assist employers in the design and implementation of wellness programs that comply with federal and state laws.
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