United States: Final Rule Implementing ACA Wellness Program Requirements Increases Financial Incentives To Participate And Allows Financial Penalties

Last Updated: July 15 2013

Article by Eric Klein and Florence Wang

On June 3, 2013, the Departments of Health and Human Services (HHS), Labor (DOL), and the Treasury (collectively, the Departments) published joint final regulations in the Federal Register implementing the Affordable Care Act (ACA) requirements for wellness programs. More specifically, the final rule applies to group health plans that offer wellness programs with a financial reward component to employees for improving their health or impose financial penalties for not participating in wellness programs or for choosing to smoke. The final regulations will be effective August 2, 2013, and will apply to group health plans for plan years beginning on or after January 1, 2014.

The federal government believes wellness programs can promote health and prevent disease, cut U.S. healthcare costs in general and decrease the cost of employer-sponsored health insurance. The recently-issued final regulations promote wellness programs by increasing the maximum permissible reward under certain wellness programs from 20% to 30% of the total cost of coverage and increasing the maximum permissible reward to 50% of the total cost of coverage for wellness programs designed to stop or reduce tobacco use.

Another major piece of the final regulations addresses the issue of employee discrimination based upon employee health status to ensure that the wellness programs are not "subterfuge for discrimination based on a health factor."1 The Departments seek to clarify the ACA requirements for wellness programs to meet the "reasonable design" and "reasonable alternatives" standards. The regulations set forth criteria that group plans and employers can comply with in order to defend against a claim of discrimination by an employee based on their health status.

The overall intent of the regulations is to prevent discrimination through the requirements for particular types of wellness programs, detailed below. The Departments attempt to achieve this intent while maintaining "an easy standard to satisfy" so that all employees can participate2.The final regulations are intended to provide plans "flexibility and encourage innovation" in the design of wellness programs.3

Another key point the final regulations highlight is that in using the term "rewards," the Departments refer not only to premium discounts, rebates, additional health benefits or other financial incentives, but also to avoiding a penalty, surcharge or other financial disincentive. Such a definition is in line with certain wellness programs that made headlines recently, including CVS Pharmacy and Florida's Broward County's programs, that assess a penalty against employees for non-participation in lieu of offering financial incentives.4

Overview Regarding Types of Wellness Programs

The final regulations continue to utilize the same classifications of wellness programs delineated in HIPAA and the ACA. The two broad categories of wellness programs are: participatory wellness programs and health-contingent wellness programs.

Participatory wellness programs constitute a majority of wellness programs.5 They either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual's health status. Examples of participatory wellness programs include programs that reimburse employees for all or part of the cost of a fitness center membership, rewards for participating in a diagnostic testing program that does not base any part of the reward on the results, and a program that rewards employees for attending a monthly, no-cost health education seminar.

The other broad category of wellness programs is the health-contingent wellness program. Unlike participatory wellness programs, health-contingent wellness programs do require individuals to satisfy a standard related to a health factor in order to obtain a reward or avoid a penalty. This standard may require completing an activity related to a health factor, (termed an activity-only program) or attaining and maintaining a specific health outcome (termed an outcome-based program.) An example of an activity-only wellness program is an exercise program for which performing or completing the program is the only requirement to satisfy the standard for the financial reward. In contrast, outcome-based wellness programs, require an individual to attain or maintain a specific health outcome to obtain a reward. An example of an outcome-based wellness program is an anti-smoking program that rewards individuals who do not smoke.

Both types of health-contingent wellness programs must satisfy specific requirements, detailed below, to not be deemed discriminatory under the ACA wellness program anti-discrimination provisions. The risk of non-compliance includes enforcement of requirements via a civil action brought by regulators and/or a lawsuit brought by individual employees.

Health-Contingent Wellness Program Requirements (Activity-only and Outcome-based)

The five requirements for health-contingent wellness programs to be in compliance with the ACA wellness exception to nondiscrimination are:

  • Individuals eligible for the wellness program must be given the opportunity to qualify for the reward at least once per year;
  • The total reward (or absence of a penalty surcharge) offered to an individual under all health-contingent wellness programs cannot exceed 30% of the total cost of employee-only coverage, or 50% of total cost of employee-only coverage for programs preventing or reducing tobacco use;
  • The wellness program must be "reasonably designed" to promote health or prevent disease;
  • The reward must be available to all "similarly situated individuals," by providing a "reasonable alternative standard" or waiver of the original applicable standard for any individual for whom it is unreasonably difficult to meet standards due to a medical condition; and
  • The wellness program must disclose the availability of other means for qualifying for the reward ("reasonable alternative standard") or the waiver.

A key point to note is that a physician may provide verification of the medical condition that makes it unreasonable for an individual to meet the original standard in an activity-only wellness program. In contrast, under the outcome-based wellness program, a reasonable alternative standard must be provided to all individuals who do not meet the initial standard, and no physician verification can be required to provide this alternative.

Participatory Wellness Programs Requirements

Since participatory wellness programs do not provide rewards or base conditions for obtaining rewards on any health factor, the final rule deems them to be in compliance with the nondiscrimination requirements of the ACA. In other words, as long as participation in the program is available to all similarly situated individuals, regardless of health status, participatory wellness programs do not need to meet the rule requirements for health-contingent wellness programs.

Calculating Rewards or Penalty Amounts

To clarify how the new maximum permissible reward of the final rule is calculated, take this example from the regulations:

Facts: The annual premium for employee-only coverage is $6,000, of which the employer pays $4,500 per year and the employee pays $1,500 per year. The employer plan offers employees a health-contingent wellness program focused on decreasing or maintaining a healthy blood sugar level, weight, cholesterol level and blood pressure. The reward for compliance is an annual premium rebate of $600.

The plan also imposes an additional $2,000 surcharge or penalty for employees who have used tobacco in the last 12 months and who are not enrolled in the plan's reasonably alternative standard smoking cessation program. Those who participate in the smoking cessation program are not penalized with the $2,000 surcharge.

Calculation: The $600 rebate reward for meeting the non-tobacco related health-contingent wellness program does not exceed the final rule's 30% permissible reward maximum of the total annual cost of $6000 (30% of $6000 = $1800).

Additionally, the reward of avoiding the $2000 penalty surcharge for participating in the tobacco health-contingent wellness program does not exceed the 50% permissible reward maximum of the total annual cost of $6000 (50% of $6000 = $3000).

When total rewards are taken together, $600 + $2000, the $2600 sum of rewards does not exceed the maximum 50% permissible reward of $3000. Under the ACA wellness program requirements, this plan design would be in compliance.

Looking Ahead

Employers and issuers have until January 1, 2014, to ensure that their wellness programs comply with the final rule. The rule applies to plan years beginning on or after the first of the new year, and includes grandfathered plans.

Whether the increased permissible rewards from the final rule increases employee participation in wellness programs and has the desired cost-cutting effects remains to be seen. Workplace wellness programs have achieved a high penetration in the United States. A 2009 RAND survey sponsored by the DOL and HHS reports that 92% of employers with 200 or more employees offered wellness programs.6 However, a 2010 survey suggested that fewer than 20% of eligible employees participated in wellness programs.7Yet with the final rule's increase in both potential rewards and penalties, employers may see an uptick in both demand for wellness programs and employee participation.

Footnotes

1.78 FR 33157 (June 3, 2013).

2.See 71 FR 75018 (December 13, 2006).

3.78 FR 33157 (June 3, 2013).

4.For more details see Seff v. Broward County, No 11-12217 (Eleventh Circuit, August 20, 2012).

5.78 FR 33157 (June 3, 2013).

6.See Mattke, S., Schnyer, C., Van Busum, K., "A Review of the U.S. Workplace Wellness Market" RAND Health (July 2012); available at http://www.dol.gov/ebsa/pdf/workplacewellnessmarketreview2012.pdf

7.Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
16 Nov 2018, Other, Los Angeles, United States

Sheppard Mullin partner Jonathan Aronie will speak on “Careers in White Collar Practice and Corporate Compliance” panel at Duke Law.

3 Dec 2018, Other, Los Angeles, United States

National Contract Management Association’s Government Contract Management Symposium

20 Feb 2019, Seminar, Orange, United States

The annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

Similar Articles
Relevancy Powered by MondaqAI
Brown Smith Wallace
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Brown Smith Wallace
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions