On May 29, the U.S. Departments of the Treasury, Labor (DOL) and Health and Human Services issued final regulations amending the 2006 HIPAA nondiscrimination wellness regulationsto implement the employer wellness program provisions of the Affordable Care Act.  The final rules retain the two categories of wellness programs – “participatory wellness programs” and “health-contingent wellness programs.” The final rules do not deviate extensively from the proposed regulations issued in November 2012, although the content has been reorganized to more clearly set forth the requirements for each type of wellness program. The participatory wellness program rules are basically unchanged from the current 2006 regulations – participatory wellness programs comply with the HIPAA nondiscrimination requirements as long as the participant does not have to satisfy any additional standards and participation in the program is made available to all similarly situated individuals, regardless of health status. However, the final rules update and expand on the requirements for health-contingent wellness programs, which condition a reward on a participant’s satisfaction of a standard related to a health factor.

Under the final rules, there are two types of health-contingent wellness programs – “activity-only” programs and “outcome-based” programs. An activity-based wellness program provides a reward if an individual performs or completes an activity related to a health factor, but it does not require the individual to satisfy any specific health outcome. Examples include walking or exercise progams in which a reward is provided just for participation, or rewards for taking a health risk assessment without requiring any further action. An outcome-based wellness program requires an individual to either attain or maintain a specific health outcome – for example, not smoking or achieving certain results in biometric screenings – in order to obtain a reward.

All health-contingent wellness programs must meet five requirements:

1. Eligible individuals must be given an opportunity to qualify for the reward at least once per year.
2. Generally, the reward may not exceed 30% of the total cost of employee-only coverage (including both the employee and employer portion of the cost of coverage). If dependents are permitted to participate, the reward can be calculated on the basis of 30% of the cost of coverage in which the employee and any dependents are enrolled. In the case of a program designed to reduce or prevent tobacco use, the maximum reward amount is 50% of the total cost of coverage. The reward limit is cumulative for all health-contingent wellness programs.
3. The program must be reasonably designed to promote health or prevent disease.
4. For an activity-based wellness program, the full reward must be available to all similarly situated individuals by offering a reasonable alternative standard for obtaining a reward if it is either unreasonably difficult due to a medical condition to satisfy or medically inadvisable to attempt to satsify the otherwise applicable standard. A wellness program can require verification from a physician that an individual’s health factor makes it unreasonably difficult or medically inadvisable to attempt to satisfy the regular standard.

For an outcome-based wellness program, the full reward must be available to anyone who does not meet the standard based on the initial measurement, test, or screening.  The alternative standard cannot be a requirement to meet a different level of the same standard without additional time to comply – for example, if the initial standard is to achieve a body mass index of less than 30, the reasonable alternative standard cannot be to achieve a BMI of less than 31 on that same date, but it might be reasonable to require the individual to reduce his or her BMI by a smaller amount over the course of a year or other realistic period of time.  If the individual’s physician joins in the individual’s request for an alternative standard, the physician can be involved in setting (and adjusting) a second alternative standard, consistent with medical appropriateness.

An alternative standard is not reasonable under either type of program unless the time commitment required to satisfy the standard is reasonable.  If the alternative standard requires completion of an educational or diet program, the employer must assist the individual in finding the program, and the individual cannot be required to pay for the cost of the program.  The alternative standard must accommodate the recommendations of an individual’s personal physician as to medical approriateness. 

5. The availability of a reasonable alternative standard to qualify for the reward must be disclosed in all materials describing the terms of the wellness program. For an outcome-based wellness program, a similar statement must be included in a notice that the individual did not satisfy the initial outcome-based standard.  Sample language is provide in the final rule.

The final rules apply to both grandfathered and non-grandfathered group health plans in both the insured and self-insured markets and are effective for plan years beginning on or after January 1, 2014.  Plan sponsors and issuers should review their current wellness programs and health plan communications in light of these final rules.