Proposed regulations issued by the IRS, DOL and HHS (the “Agencies”) on November 20, 2012 increase, for plan years beginning on or after January 1, 2014, the maximum permitted reward that “health-contingent wellness programs” (i.e., “results-based” programs) may offer, from 20% of the total health insurance premium applicable to individual coverage, to 30%, with an additional 20% incentive permitted only in connection with programs to reduce or eliminate tobacco use. The proposed regulations, which amend final regulations from 2006 on HIPAA’s nondiscrimination provisions, make other changes to the five “consumer-protection conditions” that such programs must satisfy. Below, I highlight key changes under the new regulations:
- As mentioned, the maximum financial incentive that a results-based wellness program may offer in 2014 is an amount equal to 30% of the total premium cost (employer and employee portions) for individual coverage under a group health insurance policy or self-funded plan. (The percentage may be based on family or self plus one coverage costs only to the extent that the added spouse/dependents may participate in the results-based wellness program.)
- An additional 20% incentive is allowed (for a total incentive of 50%) but only if it is offered in connection with a program that reduces or stops tobacco use.
- Employers must be sure that their results-based wellness program incentives do not exceed the 30% and 50% thresholds either separately or when added together.
- An example in the regulations describes a wellness program that offers an annual premium rebate of $600 to employees who attain goals under a program for reducing weight, blood sugar and other biometric measurements, and also imposes an annual $2,000 surcharge on employees who have used tobacco in the last 12 months and who are not enrolled in the plan’s tobacco cessation program. The annual individual premium under the related group health plan is $6,000, of which the employer pays $4,500. This program design meets the maximum incentive thresholds because the total of all rewards (including not imposing the tobacco use surcharge) is $2,600 ($600 + $2,000) which does not exceed 50% of the total cost of individual coverage, which is $3,000 ($6,000/2). Also, tested separately, the $600 reward for the non-tobacco wellness program does not exceed 30% of the total annual cost of individual coverage, which is $1,800) ($6,000 x 30%).
- The regulations make clear that rewards for participation-only wellness program components do not need to be factored in to the maximum reward calculation, even if the participation-only component (such as completion of a health risk assessment) is teamed with a results-based component (such as required smoking cessation).
- The regulations reassert that permitted financial rewards may take the form of a premium rebate or contribution, a waiver of all or part of a cost-sharing mechanism (such as deductibles, co-insurance, or co-payments), the absence of a surcharge, the value of a benefit that would not otherwise be provided under the plan, or other financial or nonfinancial incentives or disincentives.
- Compliance Note: All wellness programs must be “voluntary” in order to meet the requirements of the Americans with Disabilities Act. The Equal Employment Opportunity Commission (EEOC), which administers the ADA, has not clearly defined what makes a wellness program “voluntary” or not voluntary. This remains a compliance grey area for employers.
- The new rules apply to non-grandfathered and grandfathered plans under the Affordable Care Act (ACA), and to insured and self-funded group health plans, whether “small” or “large” plans. They do not yet apply to individual insurance policies. The uniformity among group plans will permit consistent coordination between the 50% wellness incentive that includes smoking cessation measures, and the tobacco use surcharge (up to 50% of the applicable premium). That premium surcharge is set forth in proposed regulations on guaranteed availability and premium rating that HSS issued on the same day as the wellness regulations. (The HHS regulations cover other insurance market reform provisions under the ACA and will be the topic of a future post at http://www.EforERISA.com.)
Offers of Reasonable Alternative Standards
The regulations provide substantial new information on how employers and insurers may comply with the requirement of offering a “reasonable alternative standard” – or waiver of the otherwise applicable standard – to employees who cannot attain the results-based goals due to medical reasons. (The specific criteria are that the goal either is “unreasonably difficult” to attain “due to a medical condition,” or that it is “medically inadvisable” for the employee to attempt to reach the goal.) References below to “employers” apply equally to group insurance carriers where applicable.
- First, the regulations provide two examples of new model language notifying employees of the reasonable alternative standard concept. The new language replaces the prior, more opaque notice, which may have a chilling effect on some employees. The standard model language, and a permitted variation, both are repeated below:
“Your health plan is committed to helping you achieve your best status. Rewards for participating in a wellness program are available to all employees. If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert contact information] and we will work with you to find a wellness program with the same reward that is right for you in light of your health status.”
“Fitness is Easy! Start Walking! Your health plan cares about your health. If you are overweight, our Start Walking program will help you lose weight and feel better. We will help you enroll. (**If your doctor says that walking isn’t right for you, that’s okay too. We will develop a wellness program that is.)”
- The notice of a reasonable alternative standard must be set forth in all written materials that describe the wellness program but does not need to be added to materials that simply make reference to the existence of the program. For instance, it need not be set forth in the Summary of Benefits and Coverage document (which is provided by carriers to employers with insured plans).
- Employers do not need to “pre-design” reasonable alternative standards but instead may design them once an employee requests alternative standards. As provided in the 2006 regulations, and in comparable language under the ACA, however, employers may design alternative standards for specific sub-populations, such as cholesterol reduction programs tailored to employees whose high cholesterol readings make it unreasonably difficult or medically inadvisable for them to attempt to attain lowered readings.
- If the reasonable alternative standard is completion of an educational program, the employer must make the educational program available, instead of requiring the employee to locate one, and may not require the employee to pay for the program.
- If the reasonable alternative standard is a diet program, the employer does not need to pay for the cost of food but must pay any membership or participation fee.
- If the reasonable alternative standard is compliance with the recommendations of a medical professional, and the medical professional is hired or employed by the employer, the employer must offer a reasonable alternative standard if the employee’s own physician determines that recommendations made by the employer’s physician are not medically advisable for that employee. Regular insurance co-pays or costs will apply to medical items and services furnished in accordance with the physician’s recommendations.
- The new regulations provide that, only where it is “reasonable under the circumstances,” employers may request a written statement from an employee’s personal physician that the standard wellness goal presents unreasonable difficulties to the employee or that it is medically inadvisable for the employee to attempt to attain it. When the medical problem or health status that is at issue is clearly apparent, for instance confinement to a wheelchair, the employer does not have a reasonable basis for requesting the physician’s note.
- An example in the regulation illustrates that “stacking” of reasonable alternative methods of attaining financial rewards may be necessary. For instance if the wellness goal is reducing body mass index (BMI) to 26 or lower, a reasonable alternative method of attaining the same reward may be a program of walking 150 minutes a week. An employee who cannot walk that much for health reasons could still attain the same financial reward by following recommendations set by his or her own physician.
- Finally, the preamble to the new regulations indicates that employers may not stop offering a reasonable alternative method simply because employees fail to attain the alternative goal, particularly where addictive behavior is involved. Noting (as did the prior wellness regulations) the “cycle of failure and renewed effort” that addicts experience, the preamble states that employers must continue to offer the alternative standard despite a low success rate, or must offer a new reasonable alternative standard such as a different weight loss program or nicotine replacement therapy.
The Agencies invited public comments on a number of topics that are on their radar screens but not yet defined enough to regulate, including the following:
- How to apportion financial rewards among family members where the health goal may not be applicable to all of them (for instance smoking cessation).
- How best to define “tobacco use” (comments on this topic actually are requested in the insurance market reform regulations issued by HHS).
- How the percentage limits apply to a financial reward whose amount may not be known initially (such as waiver of copayments, which will vary depending on the employee’s health during the course of the plan year).
- Whether evidence- or practice-based standards are needed to ensure that wellness programs are reasonably designed to promote health or prevent disease, and best practices regarding use of these strategies.
- Other suggestions for avoiding a “one size fits all” wellness program design.
Limited as they are to results-based programs, the regulations are not of pressing importance to employers and advisors who work with “participation-only” wellness programs, under which no health-related goal or result must be achieved in order to receive the financial reward. To comply with HIPAA, these plans must only offer participation to all “similarly situated individuals,” with differences permitted among “bona fide employment-based classifications” such as work location, union versus non-union, etc. (The “similarly situated” rule equally applies to results-based programs.) Surveys cited in the preamble to the regulations indicate that participation-only programs comprise the vast majority of wellness programs, with the most prevalent design offering a three to 11% premium discount or other cash reward to employees who complete a health risk assessment. However, the trend towards results-based wellness programs – particularly those for smoking cessation – likely will increase in tandem with rising premium costs for group HMO, PPO and even high-deductible insurance policies. This trend is anticipated to continue through implementation in 2014 of the state exchanges, the individual mandate, and the employer shared responsibility rules (pay or play) under the ACA. For that reason, employers and benefits advisors cannot afford to ignore rules governing results-based wellness programs.
 The five criteria are: (a) that employees be able to qualify for the reward at least annually; (b) that the financial reward not exceed the percentage thresholds outlined above, as applied to the total premium cost for individual coverage; (c) that the wellness program be reasonably designed to promote health or prevent disease; (d) that the wellness program be made available to all similarly situated individuals, including that a waiver of the health goal or a reasonable alternative means of attaining the health goal be offered to employees whose health factors present an obstacle; and (e) that all written plan materials disclose the availability of other means of qualifying for the reward. These criteria are found in the 2006 HIPAA final regulations as well as in Section 2705(j) of the Public Health Service Act, which was incorporated into the Affordable Care Act (ACA § 1201(4)).
 The HHS proposed regulations would permit the tobacco use surcharge in the small group market only in connection with a wellness program that meets HIPAA nondiscrimination standards.