Agencies Issue Proposed Changes Impacting Wellness Programs in 2014
This is part of our series of alerts intended to help guide employers and plan sponsors through their new obligations under the health care reform laws and related guidance.
The 2010 health care reform laws amended the wellness nondiscrimination provisions of the Health Insurance Portability and Accountability Act (“HIPAA”) that normally apply to group health plans. The key change made by the health care reform laws was to increase the maximum incentive for outcomes-based wellness programs from 20% to 30% beginning with plan years beginning on or after January 1, 2014, with the possibility that government agencies could choose to increase this limit to as much as 50% if they deemed appropriate.
Last week, the IRS, DOL and HHS jointly released proposed regulations implementing these health care reform changes. The proposed rules do not take effect until plan years beginning on or after January 1, 2014 and would increase the available incentives for outcomes-based wellness programs from 20% to 30%, with an additional 20% (maximum 50%) if the program is designed to prevent or reduce tobacco use. The proposed rules make other clarifying changes to the current final regulations issued in 2006.
The proposed rules apply to all group health plans (insured or self-insured). While grandfathered plans were originally exempted from the impact of these health care reform rules, the governmental agencies issuing the proposed rules specifically provided that the proposed rules will apply to grandfathered plans (thus, grandfathered plans will be able to take advantage of the increased limits for outcomes-based wellness programs, but will also be subject to the additional requirements described below). An advance copy of the proposed regulations may be viewed here.
What Are the Existing HIPAA Rules on Wellness?
HIPAA generally prohibits group health plans and group health insurance issuers from discriminating against individual participants and beneficiaries in eligibility, benefits or premiums based on a health factor (e.g. health status, medical condition or claims experience). The current HIPAA regulations provide an exception for incentives offered under wellness programs that meet certain requirements depending on whether the program is “participation based” or “outcomes based."
A participation-based program does not require an individual to meet a standard related to a health factor to earn an incentive and to satisfy the nondiscrimination requirements under HIPAA must be offered to all similarly situated employees. No additional standards apply. Examples include premium reductions for participating in a walking program, premium reductions for undergoing a diagnostic test or biometric screening, waiving cost sharing for prenatal or well-baby visits, and providing health education seminars to individuals.
Outcomes-based wellness programs condition eligibility for an incentive upon an individual meeting a standard related to a health factor, such as exercise goals, not smoking, or attaining certain results in a biometric screening (e.g. cholesterol of 200 or below). To satisfy the nondiscrimination requirements under the current HIPAA regulations, outcomes-based wellness programs must meet the following five requirements:
- the reward does not exceed 20% of the total cost of coverage under the plan;
- the program is reasonably designed to promote health or prevent disease and not be overly burdensome, a subterfuge for discriminating based on a health factor, or highly suspect in method (“reasonable design requirement”);
- individuals are provided an opportunity to qualify for the reward at least once per year;
- the reward is available to all similarly-situated individuals and a reasonable alternative standard (or waiver of the otherwise applicable standard) is made available to any individual for whom it is unreasonably difficult or medically inadvisable due to a medical condition to satisfy the otherwise applicable standard during that period (“uniform availability requirement”); and
- in all plan materials describing the terms of the program, the availability of a reasonable alternative standard is disclosed.
How Will My Wellness Program Be Impacted by the Proposed Changes?
In general, no changes are being proposed for participation-based wellness programs. The proposed guidance clarifies that participation-based wellness programs continue to not be required to meet the above five requirements, although they are required to be made available to all similarly-situated individuals.
If you offer an outcomes-based wellness program, the above five requirements continue to apply, but with following changes and clarifications proposed for 2014:
- Size of Reward: The maximum incentive is increased from 20% to 30% of the cost of coverage and may be increased by an additional 20% if offered as part of a program designed to prevent or reduce “tobacco use” (additional guidance is expected on how tobacco use will be defined for this purpose and public comments are requested). You may combine rewards for tobacco cessation or reduction with other incentives as long as the total incentive does not exceed 50% of the cost of coverage and the non-tobacco use-related incentives do not exceed 30% of the cost of coverage when tested separately. The total cost of coverage may take into account both employer and employee contributions, and coverage for dependents if any dependents may participate in the wellness program.
- Uniform Availability Requirement: The current uniform availability requirement is modified as follows:
- Alternative standards do not have to be designed in advance, but may be provided to individuals upon request. The reasonableness of the alternative standard will be determined based on all facts and circumstances, but the proposed rules continue to stress that flexibility and innovation are encouraged. Comments are sought on whether additional rules are needed for this determination.
- You may not deny an individual the opportunity to qualify under an alternative standard (whether the same standard or a new standard) because they previously failed to meet an alternative standard (e.g. failure to overcome an addiction after counseling or rehabilitation). It is unclear whether additional opportunities must be provided within the same plan or policy year. Further guidance would be welcome.
- You may require an individual to complete an educational program as an alternative standard, provided that you make the program available to the individual and pay the cost (rather than telling the individual to find and pay for a suitable program on his or her own).
- If the reasonable alternative standard is a diet program, you must pay any membership or participation fee, but are not required to buy the food.
- If an individual’s physician objects to a reasonable alternative standard designed by a medical professional in your employ as medically inappropriate, the alternative must be redesigned taking into account the individual’s physician’s recommendations.
- You are permitted to seek verification that it is unreasonably difficult or medically inappropriate for an individual to meet an applicable standard under your wellness program if such determination requires use of a medical judgment to evaluate. If a claim is obviously valid based on the nature of an individual’s known medical condition, you cannot require independent verification.
- Reasonable Design Requirement: A new requirement will apply in order for your wellness program to be considered “reasonably designed” to promote health or prevent disease. If your wellness program’s requirement for obtaining a reward (or portion of a reward) is based on the results of a measurement, test, or screening that is related to a health factor (e.g. cholesterol level of 200 or below), your program must offer any individual who does not achieve the results a different, reasonable means of qualifying for an incentive. The alternative standard must be offered even if it is not unreasonably difficult or medically inadvisable for the individual to meet the specified health standard. Examples of alternative standards meeting the reasonable design requirement in the proposed regulations include:
- For individuals who do not achieve a cholesterol count under 200 to qualify for an incentive, partnering with a nurse to design a program of diet and exercise, which is not unreasonably difficult or medically inadvisable for the individual to follow;
- For individuals who follow the alternative diet and exercise program, but do not achieve a cholesterol count under 200, requiring the individual to follow his doctor’s recommendations, which may include taking medications and submitting to periodic blood tests to monitor his health status;
- For individuals who do not have a body mass index that is 26 or lower to qualify for an incentive, offering the incentive for all who walk 150 minutes a week; provided that if walking 150 minutes a week is medically inadvisable for an individual, a different alternative is provided (e.g. a program based on recommendations of the individual’s physician); and
- For individuals who fail to qualify for an incentive based on tobacco use, paying for and facilitating enrollment in a smoking cessation program that requires participation at a time and place that are not unreasonably burdensome or impractical and the individual qualifies for the incentive whether or not he quits smoking.
- Notice of Alternative Standard: New sample language is provided for notifying individuals that reasonable alternative standards are available. This new language is intended to be easier to understand and increase the likelihood that individuals will seek to qualify for an incentive using an alternative standard.
- Premium Variations for Tobacco Use: While the proposed regulations do not address how to allocate incentives among family members when dependents are eligible to participate, proposed health insurance market rules issued simultaneously by HHS require insurers offering non-grandfathered policies in the individual and small group markets to allocate premium variations for tobacco use to the portion of the premium attributable to each family member. Thus, we expect that employers purchasing insurance in the small group market will have their wellness programs impacted by these limitations. At this point, there are no similar limitations that apply to large employers or self-insured plans, but the preamble to the proposed HIPAA regulations invites comments on apportioning rewards in outcomes-based wellness programs covering family members. Hopefully, final regulations will be issued soon clarifying this issue.
Additional information may be found on the Department of Labor’s website, which has been updated with the following wellness programs links:
Caution: Wellness programs can implicate a variety of federal and state laws in addition to HIPAA depending on how they are structured, and compliance with the HIPAA requirements described above does not ensure your wellness program will be in compliance with other applicable laws.
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