By: HUB’s EB Compliance Team

Wellness plans are an important tool employers have to help motivate employees and plan participants to think about their health and hopefully make good health related choices. However, there are many regulations around wellness programs that employers need to be aware of. Recent litigation centered around wellness programs requirements based on tobacco use serves as a reminder for employers of the importance of understanding their compliance obligations.

HIPAA and Wellness Programs

In a recent piece, Hub discussed how the Health Insurance Portability and Accountability Act (“HIPAA”) nondiscrimination rules prohibit employers from determining both benefits eligibility and premiums on the basis of health factors. This protection ensures that individuals are not charged higher rates, or are only eligible for certain benefits, based on their health factors.

The HIPAA wellness plan rules provide an exception to the nondiscrimination requirements that would otherwise apply. Specifically, these rules allow plans to offer rewards or incentives related to health factors when they are part of a wellness program. Wellness programs are divided into two separate categories, participatory programs and health contingent programs. The specific details of the program determine how the program is classified, and the classification determines the applicable compliance obligations.

Participatory programs are generally available without regard to the health status of the individual. Either they don’t offer an incentive, or if they do, earning the incentive is not based on a health factor. Examples of participatory programs include a lunch-and-learn program on the benefits of exercise, a gym reimbursement program, or a program where participants complete a health questionnaire, but are not required to satisfy any specific health standard.

Health contingent programs come in two varieties… activity only programs, or outcomes-based programs. Health contingent programs require individuals to satisfy a standard related to a health factor in order to obtain a reward. Activity only programs require individuals to complete a specific activity, such as a walking program or a tobacco cessation program. On the other hand, outcomes-based programs require individuals to achieve certain specific health outcomes, such has having a Body Mass Index (“BMI”) below a certain threshold.

Under the most recent final regulations, health contingent programs must meet the following five requirements.

  1. The program must give individuals eligible to participate the opportunity to qualify for the reward at least once per year.
  2. The total reward for all the plan’s wellness programs that require satisfaction of a standard related to a health factor is limited – generally, it must not exceed 30 percent (or 50 percent for programs designed to prevent or reduce tobacco use) of the cost of employee-only coverage under the plan. If dependents (such as spouses and/or dependent children) have the option of participating in the wellness program, the reward must not exceed 30 percent (or 50 percent) of the cost of the coverage in which an employee and any dependents are enrolled.
  3. The program must be reasonably designed to promote health and prevent disease.
  4. The full reward must be available to all similarly-situated individuals. This means the program must allow a reasonable alternative standard to completing the program as written (or a waiver of the otherwise applicable standard).
  5. The plan must disclose in all materials the terms of the program and the availability of a reasonable alternative standard (or the possibility of a waiver of the otherwise applicable standard).

The nuances of these requirements are beyond the scope of this piece. However, these play a role in the recent litigation.

Reasonable Alternative Standards and Recent Litigation

Wellness program litigation has focused on employers who allegedly failed to comply with one or more of the requirements specific to health-contingent wellness programs described above. Specifically, the litigation has focused on the availability of a Reasonable Alternative Standard (“RAS”), the communication of the RAS, and the availability of incentives related to completing the RAS. Plaintiffs alleged that the applicable employers did not use and/or offer an RAS properly when offering their health-continent wellness programs. 

An RAS is an alternative way for individuals to earn the wellness incentive. The specific requirements to qualify for an RAS depend on whether the plan is an activity-only plan, or outcomes-based plan. Activity-only programs must provide an RAS to any individual “for whom it is unreasonably difficult due to a medical condition to satisfy the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard.” An RAS must be offered under an outcomes-based program to “any individual who does not meet the initial standard based on the measurement, test or screening.”

Plans must make sure the availability of an RAS is disclosed in “in all materials describing the terms of the program.” Given that plans communicate with participants in many different ways, there are many potential opportunities for errors. For example, if an employer provides information related to their wellness program in a printed benefits guide, electronic benefits guide and, on their intranet (or benefits portal), each of these must describe the availability of the RAS.

Incentives also pose a particular challenge for employers as the full reward must be available to all similarly-situated individuals. Since an RAS often takes additional time to complete, as in the case of a tobacco cessation program, a portion of the incentive would need to be paid retroactively rather than merely going forward.

Wellness Program Example with an RAS

Imagine that the Reagle Beagle (“RB”) offers its employees health insurance coverage for $130 per month for employee only coverage. They also offer a wellness program with a tobacco based incentive. Those who meet the plan’s definition of not being a tobacco user can earn a monthly incentive of $30 per month, payable as a premium reduction. The net result is that tobacco users must pay $130 per month for coverage, while non-tobacco users pay only $100 per month.

Since this is an outcomes-based program, RB must offer an RAS to anyone who does not meet the initial standard (i.e., not using tobacco). The RAS is the completion of the cessation program, whether or not the individual actually stops using tobacco, following the completion of the program.

Jack is a current tobacco user at the beginning of RB’s plan year and therefore he is not eligible for the incentive. Jack pays $130 per month for health insurance coverage. Three months into the plan year, Jack decides to complete the tobacco cessation program, which takes a month to complete. Jack still continues to use tobacco despite completing the cessation program. Following the completion of the program, Jack earns the incentive and now pays $100 per month for coverage. Since the entire reward must be available to Jack, RB must ensure that Jack receives the $30 per month not only once he completed the program, but also for the four previous months in which he did not earn the incentive yet.

Janet is also a current tobacco user at the beginning of RB’s plan year. Janet completes the RAS nine months into the plan year. This means starting in month ten, Janet pays $100 per months for coverage. Janet also must receive the $30 per month incentive for the nine months prior to her completing the cessation program.

Finally, Chrissy is not a tobacco user at the beginning of RB’s plan year and therefore she pays $100 per month for coverage. Since Chrissy earns the incentive from the beginning of the plan year and does not need to complete an RAS, there is no question she receives the full incentive.

While Chrissy’s situation is straight forward, Jack’s and Janet’s are not. Both complete the RAS, which means they needed to be informed about the existence of the RAS. They both complete the RAS after the plan year has started, which means they are due the retroactive portion of the incentive they had not earned prior to completing the RAS. Additionally, Jack continues to use tobacco, which, although counterintuitive, has no bearing on the incentive. Each of these presents potential pitfalls for their employer to make mistakes.

Reminders for Employers

The recent litigation related to wellness programs provides an opportunity for employers with such programs to review their current processes to ensure their compliance with the requirements. Employers should consider the following:

  • Are individuals given the opportunity to earn wellness incentives each year?
  • Are the incentives compliant with the regulations limiting the value of the incentives?
  • Is an RAS available under the plan?
  • Is the availability of the RAS disclosed in all materials describing the terms of the program?
  • Is the full incentive available to all similarly situated individuals?
  • Does the plan have a process for ensuring any incentives required to be paid retroactively due to completing an RAS are accounted for?

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory. 

NOTICE OF DISCLAIMER 

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.