Wellness Program FAQs: Agencies Offer Relief On Retroactive Rewards And Clarify Notice Requirements

Seyfarth Synopsis: In newly issued ACA Implementation FAQs (Part 74), the Departments of Labor, Health and Human Services, and Treasury provide welcome guidance for employers sponsoring health-contingent wellness programs. Most notably, the agencies announced temporary enforcement relief regarding the retroactive application of wellness program rewards when a participant satisfies a reasonable alternative standard mid-year and clarified when plans must provide notice of the availability of a reasonable alternative standard.

Background

HIPAA’ s nondiscrimination rules generally prohibit group health plans from varying eligibility, benefits, or premiums based on a health factor. An important exception permits employers to offer certain wellness program incentives, such as premium discounts, rebates, reduced cost-sharing, or the absence of a surcharge, when participants satisfy specified wellness-related conditions. The Affordable Care Act largely codified these rules and continued the distinction between participatory only wellness programs and health-contingent wellness programs.

For health-contingent wellness programs, the regulations require that the “full reward” be made available to all similarly situated individuals, including through a reasonable alternative standard for participants who cannot satisfy the initial health-related requirement. Examples include tobacco cessation programs, biometric screening programs, or programs tied to specific health outcomes.

Wellness Programs Continue to Face Scrutiny

The guidance also comes at a time when health-contingent wellness programs, particularly tobacco cessation and tobacco surcharge programs, continue to attract litigation. Plaintiffs have challenged whether certain tobacco-related wellness programs satisfy HIPAA’s nondiscrimination rules, including the requirement to offer participants a reasonable alternative standard for earning the reward or avoiding a surcharge. Against that backdrop, employers have sought additional clarity regarding the administration of tobacco cessation programs and the availability of wellness incentives. The Departments’ decision to provide enforcement relief and clarify notice obligations may help reduce some of the uncertainty that has surrounded the operation of these programs in recent years.

Retroactive Rewards: Enforcement Relief for Plans

Since the 2013 wellness program regulations were issued, plan administrators have questioned whether a participant who satisfies a reasonable alternative standard partway through the plan year must receive the wellness reward retroactively back to the beginning of the year or only prospectively from the date the alternative standard is satisfied. The uncertainty arose because the preamble to the 2013 regulations appeared to require retroactive rewards, while neither the regulatory text itself nor the statute clearly imposed that requirement.

In response, the Departments announced that, pending future guidance or regulations, they will not take enforcement action against a plan or issuer that provides the reward only for the period after the participant satisfies the reasonable alternative standard, provided the plan otherwise complies with the applicable wellness program requirements.

This enforcement approach provides employers with greater administrative flexibility. Rather than recalculating and refunding premium surcharges or other incentives retroactively to the first day of the plan year, plans may provide the reward prospectively once the participant completes the reasonable alternative standard.

Importantly, the Departments emphasized that this relief does not alter the underlying requirements governing wellness programs. Plans must still be reasonably designed to promote health or prevent disease, may not operate as a subterfuge for discrimination based on a health factor, and must continue to offer reasonable alternative standards that provide participants with a meaningful opportunity to earn the reward.

Clarification of Notice Requirements

The FAQs also address another recurring compliance question regarding when plans must disclose the availability of a reasonable alternative standard.

The Departments confirmed that the required notice must be included in all plan materials describing the terms of a health-contingent wellness program. In addition, for outcome-based wellness programs, the notice must appear in communications informing an individual that he or she did not satisfy the initial standard. The notice must include contact information for obtaining a reasonable alternative standard and indicate that recommendations from the participant’s physician will be accommodated.

At the same time, the agencies clarified that not every mention of a wellness program triggers the disclosure requirement. Materials that merely note the existence of a wellness program, without describing its terms, are not required to include the reasonable alternative standard notice. As an example, the FAQs explain that a Summary of Benefits and Coverage (SBCs) that simply notes that cost-sharing may vary based on participation in a wellness program generally would not require the disclosure if it does not describe the program’s specific requirements.

Takeaways for Plan Administrators

Plans offering health-contingent wellness programs, particularly tobacco surcharge programs, should review their wellness program administration and communications in light of the FAQs.

Key action items include:

• Evaluating whether current payroll and premium administration practices align with the agencies’ enforcement relief regarding mid-year completion of reasonable alternative standards.
• Confirming that wellness program notices are included in documents that describe program terms and participant requirements.
• Reviewing participant communications to ensure that required reasonable alternative standard language is provided where applicable.
• Monitoring future regulatory developments, as the Departments indicated additional guidance or regulations may be issued on these issues.

Conclusion

Although the FAQs do not change the underlying wellness program rules, they provide practical compliance relief and helpful clarification on two issues that have generated uncertainty for plan administrators for more than a decade, and have spawned a spate of recent litigation. Employers that utilize health-contingent wellness programs should take this opportunity to confirm that both their administrative practices and participant communications remain aligned with current agency guidance.