On May 29, 2013 the Departments of Labor, Treasury, and Health and Human Services issued final regulations on wellness programs for plan years beginning on or after January 1, 2014. The regulations apply to all group health plans, whether grandfathered or non‐grandfathered, insured or self‐funded. The following is a summary of the regulations.
The regulations allow plans to provide different levels of benefits (including premiums) as part of non‐discriminatory wellness programs. To be considered non‐discriminatory, wellness programs must meet various standards, depending on the type of program. The regulations differentiate between two types of wellness programs: participatory and health‐contingent.
Participatory Wellness Programs:
These programs either do not provide a financial reward or provide a reward that does not require the individual to satisfy a standard that is related to a health factor. Examples include reimbursing employees the cost of fitness club membership, diagnostic testing that does not require a particular outcome, participation in a smoking cessation program, and completion of a health risk assessment.
These programs require an individual to satisfy a standard related to a health factor in order to obtain a reward. The regulations identify two types of health-contingent wellness programs:
Activity‐only and outcome‐based
Activity‐only programs are those that require an individual to perform or complete an activity related to a health factor. Examples of activity‐only health‐contingent programs are walking, exercise, and diet programs.
Outcome‐based programs require an individual to attain a specific health outcome (such as quitting smoking or attaining certain results on a blood screening). Five special rules must be met for both types of health‐contingent wellness programs to be non‐discriminatory:
- Eligible individuals must be given the opportunity to qualify for the reward at least once per year.
- The reward may not exceed 30% of the total cost of employee‐only coverage (unless dependents are allowed to participate, then it must not exceed 30% of the level of coverage in which the employee is enrolled). Programs designed to prevent or reduce tobacco use may have rewards that are as great as 50% of the total cost of coverage.
- The program must be reasonably designed to promote health or prevent disease.
- The full reward must be made available to all similarly‐situated individuals. This means that the plan must allow individuals to qualify for the reward by means of a “reasonable alternative standard.” Reasonable alternatives can be designed on a case‐by‐case basis. This rule is applied differently for activity‐only and outcome‐based programs. For activity‐only programs, a reasonable alternative must be offered if it is “unreasonably difficult or medically inadvisable” for an individual to participate. Plans can require individuals to obtain verification from their physician that a wellness program is unreasonably difficult or medically inadvisable for them.For outcome‐based programs, the plan must offer a reasonable alternative to anyone who does not initially meet the program’s standard. The individual must be given a reasonable amount of time to complete the alternative standard, and if they do, must be provided the reward for the period of time prior to satisfaction of the alternative. For example, if an employer has a wellness program consisting of a higher premium for tobacco users, and an individual is a tobacco user (thus failing to satisfy the initial standard when the program is launched in January), completion of a tobacco cessation course might be a reasonable alternative. If the individual completes the course on March 31, then the employer must provide them with the reward for the entire year, including the months of January, February, and March.
- Notice of the availability of reasonable alternatives must be provided in all plan materials describing the terms of a health‐contingent wellness program.
On a related topic, please note that when determining if a plan is affordable for purposes of the shared responsibility provisions of PPACA, employers must use the higher premium associated with non‐compliance with a wellness program, unless the program is designed to prevent or reduce tobacco use, in which case the non‐tobacco premium may be used as the applicable premium.