On May 29, 2013, the U. S. Departments of Labor, Health and Human Services and the Treasury (the Tri-Agencies) issued final regulations (the final rules) implementing the changes that the Patient Protection and Affordable Care Act (PPACA) made to wellness programs. The final rules apply to both grandfathered and non-grandfathered group health plans and are effective for plan years beginning on or after January 1, 2014.

The final rules do not change the basic distinction between "participatory" wellness programs and "health-contingent" wellness programs. The final rules, consistent with the proposed rules, focus largely on revisions to health-contingent wellness programs. The key PPACA changes to the 2006 wellness regulations include:

• Increases in the maximum allowable rewards under a health-contingent wellness program from 20% of the cost of coverage to 30% for non-smoking related programs and a 50% maximum for smoking related programs;

• Clarifications of what constitutes a "reasonably designed" health-contingent wellness program; and

• Additional guidance on reasonable alternatives that must be offered under any health-contingent wellness program so that the program remains non-discriminatory.

Participatory wellness programs are programs that either do not provide a reward or do not require an individual to meet a standard related to a health factor in order to obtain a reward. Participatory wellness programs are presumed to be nondiscriminatory if participation is made available to all similarly situated individuals, regardless of their health status. Examples include programs that reimburse employees for the cost of membership in a fitness center, or reward employees who complete a health risk assessment. These programs are easier to administer and not subject to the more exacting criteria that apply to health-contingent wellness programs.

Health-Contingent wellness programs require an individual to satisfy a health-related standard to obtain a reward. Examples include programs that provide a reward for smoking cessation, or programs that reward achievements for specified health-related goals, such as lowering cholesterol levels or losing weight. The final rules subdivide health-contingent wellness programs into two types: activity-only and outcome-based. An activity-only wellness program requires an individual to perform or complete an activity related to a health factor (e.g., a diet or exercise program), but it does not require the individual to reach or maintain a specific health result. In contrast, an outcome-based wellness program requires an individual to reach or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings).

Modification to Maximum Rewards

All health-contingent wellness programs must satisfy five requirements to ensure compliance with the HIPAA non-discrimination rules. The final rules, as noted above, increase the maximum rewards allowed under a health-contingent wellness program. The five requirements are listed below and reflect the PPACA increases in the maximum rewards:

1. The reward must be available to all similarly situated individuals;

2. The program must give eligible individuals the opportunity to qualify for the reward at least once a year;

3. The program must be reasonably designed to promote health and prevent disease;

4. The reward must not exceed 30% of the cost of coverage (or 50% for programs designed to prevent or reduce tobacco use); and

5. The program must provide a reasonable alternative standard to an individual who informs the plan that it is unreasonably difficult or medically inadvisable for him or her to achieve the standard for health reasons and therefore will not get the reward.

Clarifications to Reasonable Designs

Consistent with the 2006 regulations, the final rules continue to require that health-contingent wellness programs be reasonably designed to promote health or prevent disease. A program will meet this standard if it has a reasonable chance of improving health or preventing disease; is not overly burdensome; is not a subterfuge for discrimination based on a health factor; and is not highly suspect in the method chosen to promote health or prevent disease. The rules provide plan sponsors with a great deal of flexibility to design a wellness program.

Guidance on Reasonable Alternatives

The final rules modify the structure of the 2006 requirements with respect to providing reasonable alternatives for those individuals who are unable to attain the health-related goals of a health-contingent wellness program.

First, to satisfy the reasonable alternative requirement, the same full reward must be available to individuals who satisfy the reasonable alternative as is provided to individuals who are able to satisfy the standard program. As noted in the Preamble to the final rules, this means that the reasonable alternative must allow the individual a longer period to complete the program, and the reward earned must be the same as that given under the standard program.

The final rules do not require that the reasonable alternative be determined in advance and, consistent with past practice, allows the alternative to be set on an individual-by-individual basis. The final rules reiterate that, in lieu of providing a reasonable alternative, a plan or issuer may waive the otherwise applicable standard and simply provide the reward. Although in general a doctor's verification is not needed for an individual to qualify for the reasonable alternative, the final rules do permit a doctor's verification to be required under the activity-based reasonable alternative.