Getting Healthy Pays: Wellness Programs Under the Affordable Care Act

On January 1, 2014, federal regulations pertaining to wellness programs took effect under the Patient Protection and Affordable Care Act (the "Affordable Care Act"). The regulations apply to group health insurance plans for policy years beginning on or after January 1, 2014. The regulations, issued by the Departments of Treasury, Labor and Health and Human Services, modify the existing anti-discrimination rules pertaining to wellness programs. 

Under the regulations, group health insurance plans may not discriminate against plan participants or beneficiaries with regard to eligibility, benefits or premiums based upon a "health factor" (i.e. health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and/or disability). As an exception, wellness programs may offer incentives such as premium, copayment, or deductible discounts or rebates in exchange for compliance with health-enhancing measures.

Rules Vary by Program

Wellness programs can be either participatory or health-contingent programs. The rules differ based upon the type of program.

In participatory wellness programs, the reward is not tied to satisfaction of a health factor related standard. An example is a reward earned by attending a free health seminar. The regulations make clear that a participatory wellness program is not "discriminatory" if the program is available to all similarly-situated individuals regardless of health status.

The rules for health-contingent wellness programs are more extensive. In health-contingent wellness programs, the reward is contingent on the satisfaction of a health factor related standard. These programs must meet the following requirements:

  1. The program must give eligible participants an opportunity to qualify for the reward at least once per year;
  2. The reward may not exceed 30% of the total cost (including employer and employee contributions) of coverage under the plan, or 50% if the program is designed to prevent or reduce tobacco use;
  3. The reward must be available to all similarly situated individuals and the plan must provide a possibility of obtaining a waiver (an alternative standard to obtain the reward);
  4. The program must be reasonably designed to promote health or prevent disease; and
  5. The plan materials must describe the terms of the program, other means for qualifying for the reward, and the possibility of obtaining a waiver.

Health-contingent wellness programs can be "activity-only" or "outcome-based." An activity-only program bases the reward on completion of an activity, such as a walking program. It does not require the participant to obtain a specific health outcome, such as a healthy body mass index. A physician's statement or other verification may be required to confirm that it would be unreasonably difficult or medically inadvisable for a participant to complete the activity. In such case, a reasonable alternative standard for obtaining the reward must be provided. Verification cannot be required if the reason the individual cannot participate is obvious, such as a broken leg.

An outcome-based program bases the reward on achievement of a specific health outcome, such as a healthy cholesterol level or not smoking. If a participant does not meet the initial standard, the participant must be given the opportunity to take an additional step (a reasonable alternative standard) to obtain the reward. For example, assume a reward is based on a participant not smoking. If a participant is unable to quit smoking, the participant fails to meet the specified outcome. However, the participant may still obtain the reward by completing a smoking cessation course.

Additional Consideration

A final consideration for employers offering wellness programs is the effect of a program on the affordability and minimum value calculations of an employee group health plan, for purposes of the pay-or-play provision. Proposed regulations issued May 3, 2013 stated that rewards, such as premium reductions, earned as part of a wellness plan are not considered in determining whether the plan is affordable and/or provides minimum value, unless the reward relates to not smoking. Final regulations, however, have not yet been issued.

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