Workplace Wellness: Health Care Reform Program Incentives
Workplace wellness programs often incorporate incentives or rewards to promote healthy lifestyle choices and discourage behaviors that are detrimental to employees’ good health. A workplace wellness program that relates to a group health plan or is linked to a health factor must comply with HIPAA’s nondiscrimination rules. These rules allow employers to provide incentives or rewards as part of a health-contingent wellness program, provided the program follows certain guidelines.
In addition, the Affordable Care Act (ACA) includes provisions to encourage the use of wellness programs. Effective for plan years beginning on or after Jan. 1, 2014, the ACA adopts the existing HIPAA nondiscrimination requirements for health-contingent wellness programs with some modifications, while also increasing the maximum reward that can be offered under these programs. Employers with wellness programs will need to consider the impact of the ACA’s wellness rules on their programs and decide whether to increase the maximum incentive or reward available under the program.
This Legislative Brief provides an overview of the types of workplace wellness programs and the ACA’s rules on the incentives or rewards that can be offered under the programs.
FINAL WELLNESS REGULATIONS
On May 29, 2013, the Departments of Labor, Health and Human Services and the Treasury released final regulations that implement the ACA’s nondiscrimination requirements for wellness programs. The final regulations are intended to ensure that every individual participating in a wellness program can receive the full amount of any reward or incentive, regardless of any health factor.
CATEGORIES OF WELLNESS PROGRAMS
Under the ACA, workplace wellness programs can be divided into two general categories: participatory wellness programs and health-contingent wellness programs. This distinction is important because participatory wellness programs are not subject to the same restrictions on incentives or rewards that apply to health-contingent wellness programs.
Participatory Wellness Programs
Participatory wellness programs either do not require an individual to meet a health-related standard to obtain a reward or do not offer a reward at all. Also, these programs generally do not require an individual to complete a
For example, participatory wellness programs include:
Reimbursement for the cost of smoking cessation programs (not based on whether the employee quits smoking);
Subsidized fitness center memberships;
Reward for participating in diagnostic testing, such as biometric screenings (not based on outcomes); and
Reward for completing a health risk assessment (not based on outcomes).
Participatory wellness programs comply with the nondiscrimination requirements without having to satisfy any additional standards, as long as participation in the program is made available to all similarly-situated individuals, regardless of health status. There is no limit on financial incentives or rewards for participatory wellness programs.
Health-contingent Wellness Programs
Health-contingent wellness programs require individuals to satisfy a standard related to a health factor in order to obtain a reward.
Types of Health-contingent wellness programs
Activity-only wellness programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward (for example, walking, diet or exercise programs). Activity-only wellness programs do not require an individual to attain or maintain a specific health outcome.
Outcome-based wellness programs require an individual to attain or maintain a certain health outcome in order to obtain a reward (for example, not smoking, attaining certain results on biometric screenings or meeting exercise targets). Generally, these programs have two tiers: (1) a measurement, test or screening as part of an initial standard; and (2) a larger program that then targets individuals who do not meet the initial standard with wellness activities.
To protect consumers from unfair practices, health-contingent wellness programs are required to follow certain standards related to nondiscrimination, including a standard that limits the maximum reward that can be offered.
The total reward offered to an individual under an employer’s health-contingent wellness programs (both activity-only and outcome-based) cannot exceed a specified percentage of the total cost of employee-only coverage under the plan. The total cost includes both employer and employee contributions towards the cost of coverage. If, in addition to employees, any class of dependents (such as spouses and dependent children) may participate in the health contingent wellness program, the reward cannot exceed the specified percentage of the total cost of the coverage in which the employee and any dependents are enrolled (such as family coverage or employee-plus-one coverage).
Effective for 2014 plan years, the ACA increases the maximum permissible reward from 20 percent to 30 percent of the cost of health coverage for health-contingent wellness programs. In addition, the final regulations increase the maximum permissible reward to 50 percent of the cost of health coverage for health-contingent wellness programs designed to prevent or reduce tobacco use.
Rewards offered under participatory wellness programs do not count toward the limit for health-contingent wellness programs. Thus, any rewards provided for participatory programs, such as attending health education seminars or taking a health risk assessment, would not be included in the applicable percentage for health-contingent programs.
In addition to HIPAA and the ACA, other federal and state laws may impact the design of an employer’s wellness program. For example, the federal Americans with Disabilities Act (ADA), the Genetic Information Nondiscrimination Act (GINA) and the HIPAA Privacy Rules should be considered when designing a wellness program. To avoid noncompliance, employers should consult with their legal counsel before making design changes to an existing wellness program or implementing a new program.