Agencies Issue Proposed Changes Impacting Wellness Programs in 2014

November 28, 2012

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:

  1. the reward does not exceed 20% of the total cost of coverage under the plan;
  2. 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”);
  3. individuals are provided an opportunity to qualify for the reward at least once per year;
  4. 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
  5. 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:

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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