In recent years, Wellness programs have become a popular way for employers to encourage healthy lifestyles and disease prevention among their employees. Along with the rest of the healthcare environment, the rules governing these programs are changing under The Affordable Care Act.
Find out how your program fits into the new requirements.
Is Your Program Subject to ERISA?
What kinds of wellness programs are subject to ERISA? It depends what the program does and whether it is an employer plan. For example, a program through which the employer pays directly for health coaching or biometric screening is probably subject to ERISA, as is a program that provides free flu shots. On the other hand, a program that provides only a generalized health education (like a group class or webinar), or a program that merely provides or subsidizes gym memberships, would not be subject to ERISA.
Some wellness programs are considered part of a group health plan; others function as a standalone program. Standalone wellness programs are subject to ERISA compliance requirements—such as the requirement to distribute a summary plan description (SPD) that describes the plan, provides an explanation of the appeals process, includes information about eligibility, and summarizes the benefits. If the wellness program is part of the group health plan and if it is subject to ERISA, the wellness should be described in the group health plan documents.
HIPAA Non-discrimination Rule
All wellness programs, whether part of a group health plan or standalone, are also subject to HIPAA’s nondiscrimination rules.
Even before enactment of the Affordable Care Act (ACA), HIPAA prohibited group health plans from treating participants differently on the basis of “health factors.” For example, it is generally forbidden to charge a different premium rate based on a person’s blood pressure, weight, or whether or not they have diabetes. This is referred to as HIPAA’s “nondiscrimination rule.” The ACA changed the requirements for wellness programs so that all of these programs are at least subject to the requirement that they are available to all similarly situated individuals.
Some types of wellness programs technically violate the nondiscrimination rule because they only offer rewards in exchange for certain health outcomes. An exception was created to the nondiscrimination rule so that wellness programs can continue to exist, as long as they meet certain requirements.
Types of Wellness Programs
The first step in determining if your company’s program meets the HIPAA requirements is identifying what type of program it is.
There are three types of wellness programs, including:
- Participatory programs,
- Activity-only programs and
- Outcome-based programs.
Activity-only and outcome-based programs are both considered “health contingent” and, therefore a potential violation of the HIPAA nondiscrimination rules.
Participatory Wellness Programs
To qualify for a reward in a participatory wellness program, an individual only needs to participate in the program. No specific outcome is required. These programs do not violate the nondiscrimination rule as long as they are available to “all similarly situated individuals.”
Examples of participatory programs include:
- Gym membership
- Premium discount for participating in health screening
- Reimbursements for attending a health seminar
Health Contingent Wellness Programs
Activity-only and outcome-based programs – the two types of “health contingent programs – require more than mere participation. Participants must also complete certain activities or achieve certain outcomes in order to be eligible for any rewards.
Examples of health contingent programs include:
- Walking plan where employees have to walk a certain number of steps per day (activity-only)
- Smoking cessation plan (outcome-based)
- Plan that requires employees to have a BMI below 28 to qualify for a reward (outcome-based)
As long as your plan is offered as part of a group health plan and it meets the five requirements described here, it will be in compliance with the HIPAA nondiscrimination rules.
Stand alone wellness plans (those that are not part of a group health plan) that are health contingent, however, will be in violation of HIPAA non-discrimination rules and an employer offering these plans will be subject to applicable penalties.
Employer-sponsored plans that include a health-contingent wellness program—whether it is “activity-only” or “outcome based”—must comply with these five requirements in order to avoid unlawful discrimination based on health-related factors:
- Annual opportunities to qualify.The program must give potential participants the opportunity to qualify for the reward at least once per year.
- Amount of reward. Beginning in 2014, the permitted amount of the reward has increased from 20 percent of the cost of coverage to 30 percent for most plans, and up to 50 percent for programs designed to prevent or reduce tobacco use.Cost of coverage is the total premium, including both employer and employee contributions.
- Reasonable design. The program must have a reasonable chance of improving health or preventing disease. It cannot create an undue burden, and it cannot be a backdoor attempt to discriminate on the basis of health factors.
- Uniform availability. The full reward must be available to all “similarly situated individuals.” That means the program must provide a reasonable alternative standard for those who cannot qualify under normal standards, or it must waive the requirement.
The requirements for reasonable alternative standards vary based on the type of health-contingent wellness program:
- For activity-only programs, anyone who, for verifiable medical reasons, cannot meet the general standard for qualification must be permitted to qualify through a “reasonable alternative standard.” Or, the qualification standard can be waived altogether. Employers are permitted to request a physician note to qualify for an alternative.
- For outcome-based programs, such asthose using screenings, measurements, or tests and having specific goals that must be met, the reasonable alternative standard (or waiver) must be available to anyone who does not satisfy the initial standard. The program cannot require proof from a physician, and the existence of a health condition cannot be required. If a participant requests an alternative method of qualifying for the reward, the employer must either allow an alternative or waive the requirement for that individual.
- Notice.All plan materials describing the terms of the program must disclose the fact that a reasonable alternative standard for qualification (or waiver) is available.
For example, such a notice could state:
Rewards for participating in a wellness program are available to all employees. If you think you might be unable to meet a requirement for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert contact information] and we will work with you (and, if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status.
Non-Compliance Will Cost You
The penalty amount charged for non-compliance depends on whether or not the employer intentionally violated the HIPAA rules. In any case, the financial implications could be costly.
If an employer did not know of the violation, possible penalties range from $100 to $50,000 per violation, up to $1.5 million per year.
If the noncompliance was due to “reasonable cause but not willful neglect,” the range increases to $1,000–$50,000 per violation.
If the employer knew of the violation and intentionally disregarded the rule, the penalty could be $10,000–$50,000 per violation. If the violation is not corrected, the minimum penalty increases to $50,000 per violation. There are additional penalties applicable to repeat offenders.
The IRS may also impose an excise tax of $100 per day per violation, and the employer could also be exposed to lawsuits from injured individuals.
How Will These Rules Affect Your Wellness Program?
Will your company make changes to your Wellness Program based on these new rules? What will you change? Leave us a comment to let us know.
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This article refers to all regulations issued through March 26, 2014. It is intended to be a summary of important issues and should not be considered legal or tax advice.
© Bell Associates and “Ask the Professionals,” 2014. Unauthorized use and/or duplication of this material without express and written permission from Bell Associates is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Bell Associates and “Ask the Professionals” with appropriate and specific direction to the original content.