Legal View: Wellness programs increase financial incentive, but more guidance is needed

Katherine Georger, The Daily Record Newswire

On June 3, the Internal Revenue Service, Department of Health and Human Services, and Department of Labor published final regulations implementing the Affordable Care Act requirements for wellness programs integrated with employer-sponsored health plans.

The final rule is effective for plan years beginning on or after Jan. 1, 2014, and applies to wellness programs offered under both insured and self-insured, as well as grandfathered and non-grandfathered plans.
Since 2006, the Health Insurance Portability and Accountability Act has prohibited employer-sponsored health plans from discriminating in eligibility, benefits or contributions based on an individual’s health status. These nondiscrimination rules provide that an employer-sponsored plan may not adopt different eligibility criteria or different employee contribution levels based upon an employee’s medical condition, medical history or any other factor linked to the employee’s health.

Nevertheless, Congress created an exception to HIPAA’s general nondiscrimination rules that allowed employers to offer premium discounts, rebates or modifications to employee cost sharing (including copayments, deductibles, or coinsurance) in return for employee participation in wellness programs designed to promote health and prevent disease. The purpose behind the exception was to give employers additional tools to encourage healthier lifestyles with the aim of reducing the cost of employer-sponsored health insurance and curbing skyrocketing health care costs in the United States.

With the adoption of the Patient Protection and Affordable Care Act in 2010, Congress expanded HIPAA’s wellness program exception, allowing employers to offer employees enhanced financial incentives in the form of premium discounts, waivers of cost-sharing requirements and the absence of premium surcharges for successfully attaining specific health targets. The recently published final regulations increase the maximum permissible incentives under outcome-based wellness programs from 20 percent to 30 percent of the total cost of employee-only coverage and rewards up to 50 percent of the total cost of employee-only coverage for tobacco cessation.

Notably, the regulations distinguish between two broad categories of programs: participatory wellness programs and health-contingent wellness programs. Most employer-sponsored plans contain a participatory wellness program that either does not provide a reward or does not condition obtaining a reward on some health status standard, e.g. lowering blood pressure or cholesterol.

Some common participatory wellness programs reward employees for attending a free monthly health education seminar, reimburse employees for all or part of the cost of a fitness membership, or reward employees for participating in diagnostic testing (e.g. cholesterol, blood pressure).

By contrast, health-contingent based wellness programs require an individual achieve a health-related standard to obtain a reward or avoid a penalty. There are two general categories of health-contingent wellness programs: activity-only programs and outcome-based programs. Activity-only programs require that participating individuals complete an activity like an exercise program. Performing the activity (e.g. completing the exercise program) is the only requirement to satisfy the standard and obtain the reward.

Outcome-based programs require the individual achieve or maintain a specific health outcome to obtain a reward.

The new regulations make clear that employer-sponsored programs that contain health-contingent wellness programs must satisfy additional requirements under the ACA’s antidiscrimination wellness program provisions. These requirements include making program rewards available to all employees, offering a different, reasonable means of qualifying for a reward if an individual cannot meet a standard, disclosing in plan materials the availability of alternative means of qualifying for a reward and providing “reasonable alternatives” to any individual who cannot perform or achieve the standard due to a medical condition to ensure that the outcome-based initial standard is not mere subterfuge for discrimination or underwriting based on a health factor. Failure to satisfy these requirements may result in the imposition of civil action brought by regulators or a lawsuit brought by individual employees.

The final joint regulations are titled Incentives for Nondiscriminatory Wellness Programs in Group Health Plans. However, there are inconsistencies between the wellness program regulations and certain provisions of the ACA and other statutes, including the Americans with Disabilities Act Amendments Act and Genetic Information Nondisclosure Act, designed to eliminate workplace discrimination based on health status. For example, the wellness program provisions of the ACA allow employers to charge different premium rates for healthier individuals. Yet, rate differentials tied to health status is a practice that the ACA has expressly sought to eliminate with the prohibition on rating based on pre-existing conditions and the adoption of guaranteed issue provisions.

Further, employer wellness programs may charge smokers more for coverage, but must offer employees a reasonable alternative for those unable to quit. This means that an employee may participate in a smoking cessation program, but does not need to actually stop smoking to qualify for the program incentive. Instead of opening themselves to the potential risk that a tobacco cessation program fails to meet the “reasonable alternative standard” requirement, some may simply elect to adopt tobacco-free hiring practices. Federal law does not currently recognize smokers as a protected class. Although 29 states and the District of Columbia have passed smoker-protection laws, Idaho has not adopted any such statute. Thus, the wellness program regulations for tobacco cessation programs may have the unintended consequence of pushing some employers toward selective hiring practices.

Moreover, the wellness program rules provide the reasonable alternative standard option to individuals who cannot achieve a given standard based on a medical condition. However, in the case of activity-only wellness programs, employers can require that an employee submit documentation from a physician to verify that the employee suffers from a medical condition that makes it unreasonable for an employee to meet the original standard. This raises potential privacy concerns and may well put the employer at risk for lawsuits.

Compounding the problem is the fact that the Equal Employment Opportunity Commission, which regulates the employment discrimination statutes, has not yet issued regulations or clarified its position on wellness programs. According to the EEOC’s prior guidance, employers are prohibited under the ADA from making any medical inquiries unless they are “voluntary” and part of an employer health plan. The EEOC has defined “voluntary” to mean that the employer can neither compel participation nor penalize those employees who elect not to participate. It begs the question whether a wellness program can be truly voluntary when the cost of not participating renders coverage unaffordable for many employees.

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Katherine Georger is an attorney in the Boise office of Holland & Hart LLP, practicing in the areas of health care, employment and business law. Georger can be contacted at 208-342-5000 or by email at klgeorger@hollandhart.com.

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