A Wellness Program Checkup

By Mark Savit

New Affordable Care Act Regulations Create Hiccup for Outcome-Based Wellness Programs

 You may have noticed that a number of lawyers from the Patton Boggs Health and Safety Practice have moved to a new firm. My colleagues Henry Chajet, R. Brian Hendrix, Robert Horn, Avidan Meyerstein and Donna Vetrano Pryor all have joined Jackson Lewis with me. With 54 offices around the country, Jackson Lewis advises employers in every aspect of employment, labor, benefits and immigration law, including, of course, workplace safety and health.

“We had been searching for the right people to expand our group to include specialists in OSHA, MSHA and crisis management, and found the right match in this new team,” said Bradford T. Hammock, head of Jackson Lewis’ Workplace Safety and Health practice group, which he will co-chair with Henry Chajet and me.

The content below was adopted from a piece written by two of my new colleagues, Frank Alvarez and Joseph Lazzarotti, about wellness programs. As we move through the rest of the year, I hope to provide a wide range of articles addressing the stunning variety of legal developments that impact workplace management.

I recently attended a health and safety conference at Penn State. Among the presentations I found most interesting was a cost/benefit analysis of wellness programs.

The presenter made a compelling case that wellness programs provide a good return on investment, not just from a productivity standpoint, but also from a safety standpoint. I found myself wanting to jump right on the bandwagon. Little did I know, however, that jumping without proper preparation could be hazardous. Here is why.

In the latest salvo regarding employment-based wellness programs, the U.S. departments of health and human services (HSS), labor and the treasury have issued final regulations on the treatment of such programs under the Affordable Care Act (ACA).

The new regulations raise the maximum permissible reward that may be offered in connection with certain wellness programs, but make clear that outcome-based financial incentives must be widely available to program participants.

This means that if you have adopted outcome-based wellness program as part of your group health plan, you need to review the new regulations carefully to avoid any untoward result.

The Health Insurance Portability and Accountability Act (HIPAA) generally prohibits group health plan sponsors from using a health factor as a basis for discriminating with regard to enrollment eligibility or premium contributions, but there are certain exceptions for wellness programs that base eligibility or receipt of a reward, such as a premium discount under a group health plan, on satisfaction of a health factor.

Wellness programs subject to HIPAA’s nondiscrimination standards, among other things, must limit the size of the reward to 20 percent of the cost of employee-only coverage under the plan. The new regulations raise the maximum permissible reward offered in connection with a health-contingent wellness program to 30 percent.

This amount is raised to 50 percent for programs that seek to reduce tobacco use. But there are certain conditions that have to be met in order to implement those increases.

The new regulations lay out specific rules that will make it more difficult for employers to implement outcome-based wellness programs that reward employees for meeting certain goals, such as lowering their body mass index or cholesterol, or taking steps to meet goals. Perhaps the most significant hurdle the new regulations present is that a “reasonable alternative standard” be provided for all individuals who do not meet the initial standard to ensure that the program is not a subterfuge for underwriting or reducing benefits based on health status.

This new requirement differs from what is required for activity-only wellness programs (where an individual is required to perform or complete an activity related to a health factor in order to obtain a reward). Activity -only programs require a reasonable alternative standard for obtaining the reward be provided to individuals for whom it would be unreasonably difficult due to a medical condition or medically inadvisable to meet the existing standard. According to the preamble to the regulations, “[t]he intention of the departments in these final regulations is that, regardless of the type of wellness program, every individual participating in the program should be able to receive the full amount of any reward or incentive, regardless of any health factor.”

The final regulations took effect 60 days from June 3, when they were published in the Federal Register, and generally apply for plan years beginning on or after Jan. 1, 2014.

The new regulations come on the heels of the U.S. Equal Employment Opportunity Commission’s (EEOC) May 8 meeting regarding the treatment of employer-sponsored wellness programs under federal equal employment opportunity laws. Testimony from the EEOC’s meeting emphasized that employers would like the EEOC to clarify its position on when a wellness program is voluntary under the ADA. No guidance on that issue appears to be forthcoming, and, even if the EEOC releases guidance on this question, wellness programs still may face resistance from advocacy groups looking to challenge these programs under other EEO laws.

In other words, better check with your counsel before changing or establishing a wellness program. You may also want to consider giving your existing wellness program a checkup. 

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