According to a recent study commissioned by the Departments of Labor and Treasury, 63% of all employers who offer health benefits to employees also offer at least one wellness program. The study found that approximately 73% of employers who offer wellness programs stated that the programs had improved employee health and 52% believed the programs had reduced cost. As employers continue to grapple with the increasing costs associated with the Affordable Care Act, more employers are likely to implement wellness programs as a way to control costs and those employers who already have programs may well expand them.
Yesterday, the Departments of Health and Human Services, Treasury and Labor issued final regulations regarding wellness programs under the Affordable Care Act. This post will provide you with a general summary of the requirements set forth in the final regulations. The regulations and accompanying explanatory material fill well over 100 pages, so if you have specific questions about your current wellness plan or are considering implementing a new plan, you should consult with legal counsel to ensure compliance. The final regulations also make clear that regardless of whether your plan complies with these regulations, you are still subject to the requirements of the Americans with Disabilities Act (“ADA”) and other applicable employment laws when designing and implementing a wellness program.
Generally, a wellness program is a program of health promotion or disease prevention that provides the opportunity to employees to obtain a type of reward associated with their participation in the plan or achievement of certain goals. These final regulations, as did the proposed regulations issued in December 2012, categorize wellness programs to determine the requirements for each particular type of plan. For regulatory purposes, wellness plans are broken into two broad categories: (a) participatory wellness programs and (b) health-contingent wellness programs. Each type, described in more detail below, has its own benefits and costs. Participatory wellness program are less regulated and are less likely to raise problems for employers under other employment laws, such as the ADA or ERISA. However, they also provide the employer no control over any outcomes achieved by the employee. Meanwhile, health-contingent wellness programs offer substantially more control for employers over outcomes, but are also more regulated and more likely to bring about issues under the ADA and other laws. Determining the right types of plans for your company will be a business decision made in consultation with counsel.
Participatory wellness programs are programs in which none of the conditions for obtaining a reward under the program is based on an individual satisfying a standard that is related to a health factor. Examples of participatory wellness programs provided in the regulations are: a program that reimburses employees for all or part of the cost of membership in a fitness center; a diagnostic testing program that provides a reward for participation in that program and does not base any part of the reward on the outcomes of the program; or, a program that reimburses employees for the costs of participating, or that otherwise provides a reward for participating, in a smoking cessation program without regard to whether the employee quits smoking. A participatory wellness program is in compliance with the final regulations if participation in the program is made available to all similarly situated individuals, regardless of health status.
Health-contingent wellness programs are programs that require an individual to satisfy a standard related to a health factor to obtain a reward or require an individual to undertake more than a similarly situated individual based on a health factor in order to obtain the same reward. For regulatory purposes, health-contingent wellness programs are subcategorized as either: (a) activity-only wellness programs or (b) outcome-based wellness programs. Each is required to meet five requirements to comply with the final regulations.
Activity-only wellness programs are health-contingent wellness programs that require individuals to perform or complete an activity related to a health factor in order to obtain a reward, but do not require the individual to attain or maintain a specific health outcome. Examples of activity-only wellness programs include diet or exercise programs. An activity-only wellness program must meet the following five requirements to comply with the regulations:
1. Frequency of opportunity to qualify: The program must give individuals eligible for the program the opportunity to qualify for the reward under the program at least once per year.
2. Size of reward: Generally, up to 30% of the total cost of employee-only coverage under the plan may be awarded based on participation in health-contingent wellness programs and up to 50% of the total cost of employee-only coverage under the plan may be awarded for participation in a health-contingent wellness program designed to prevent or reduce tobacco use. If, in addition to employees, any class of dependents may participate in the health-contingent wellness programs, the reward must not exceed the allowable percentage (30% or 50% as applicable) of the total cost of coverage in which the employee and any dependents are enrolled.
3. Reasonable design: The program must be reasonably designed to promote health or prevent disease. A program will satisfy this standard if “it has a reasonable chance of improving the health of, or preventing disease in, participating individuals and it is not overly burdensome, is not a subterfuge for discriminating based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease.” Although the regulations state that this determination will be made on “all of the relevant facts and circumstances”, and the preamble notes that programs are not required to be accredited or based on particular evidence-based clinical standards, the preamble suggests that companies may wish to review the CDC’s Guide to Community Preventive Services in designing a plan (www.thecommunityguide.org/index.html).
4. Uniform availability and reasonable alternative standards: The full reward must be available to all similarly situated individuals. This provision requires that the program allow a reasonable alternative standard (or a waiver of the otherwise applicable standard) for obtaining the reward for any individual for whom it is unreasonably difficult due to a medical condition to satisfy the standard or for whom it is medically inadvisable to attempt to satisfy the standard. Much like a reasonable accommodation under the ADA, the reasonable alternative standard need only be provided upon the request of an individual. The regulations allow that when “reasonable under the circumstances” you may request a statement from an employee’s personal physician regarding the employee’s qualification for a reasonable alternative standard.
5. Notice of availability or reasonable alternative standard: All plan materials that describe the terms of the program must include a statement regarding the availability of a reasonable alternative standard to qualify for the reward, including contact information for obtaining a reasonable alternative standard and a statement that recommendations of an individual’s personal physician will be accommodated.
Outcome-based wellness programs are programs that require an individual to attain or maintain a specific health outcome in order to obtain a reward. Outcome-based wellness programs will typically contain two tiers: (1) the initial health outcome required and then (2) for individuals who do not attain or maintain the specific health outcome, an alternative to achieve the same reward. An example is a program that tests individuals for specific risk factors and provides a reward to individuals identified in the “healthy” range, but then requires individuals who test outside the healthy range to take additional steps. An outcome-based wellness program must meet the same five requirements as an activity-only wellness program to comply with the regulations. The first two and last requirements are met in exactly the same way as for activity-only wellness programs: frequency of opportunity to qualify, size of reward, and notice of availability of reasonable alternative standard. The other two are met slightly differently as described below:Reasonable design: To be reasonably designed in compliance with the regulations, an outcome-based wellness program must provide a reasonable alternative standard to qualify for the reward to any individual who does not meet the standard based on the measurement, test, or screening that is related to a health factor. Uniform availability and reasonable alternative standards: The full reward must be available to all similarly situated individuals. This provision requires that the program allow a reasonable alternative standard for obtaining the reward for any individual who does not meet the initial standard based on the measurement, test, or screening used in the program. You may not request a statement from an employee’s personal physician regarding the employee’s need for a reasonable alternative standard if the employee does not meet the initial standard. Instead, the reasonable alternative standard must be provided to all employees who do not meet the initial standard. Depending on the reasonable alternative standard offered, additional requirements may apply.
The regulations provide many examples of ways to comply with each of these provisions for each type of program. Wellness programs are increasing in popularity and can be a great way to improve employee health, morale, and lower costs. But you should be mindful of the many regulations and laws at play when designing and implementing a plan.