Final Wellness Regulation FAQ


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Final Wellness Regulation FAQ

  1. 1. Final Wellness Regulation Frequently Asked Questions The following FAQs address the final wellness rule. However, plan sponsors must remain mindful of other laws and compliance with those requirements – for instance ADA, ADEA, GINA, etc. Terminology What is a Participatory wellness program? This type of wellness program either does not provide a reward or does not include any conditions for obtaining a reward if those conditions are based on an individual satisfying a standard that is related to a health factor. Examples of a “Participatory” plan would be: 1) reimbursing employees for all of part of the cost of membership in a fitness center; 2) a health risk assessment or biometric screening that does not base any part of the reward on the outcome of the assessment/screening; 3) an annual physical, as long as no part of the reward is based upon the outcome of the physical. What is an Activity-Only wellness program? This is a type of a Health-Contingent wellness program (as is the Outcome-Based program described below). Under an Activity-Only wellness program, an individual is required to perform or complete an activity related to a health factor in order to obtain a reward. The individual is not required to attain or maintain a specific health outcome. Examples of an “Activity-Only” plan would be: 1) a walking, diet, or exercise program; and 2) a targeted educational program based upon health needs determined through a health risk assessment. A reasonable alternative standard must be offered if it is unreasonably difficult for the individual to satisfy or it is medically inadvisable for the individual to attempt to satisfy the applicable wellness standard. What is an Outcome-Based wellness program? This is the second type of Health-Contingent wellness program. Under an Outcome-Based wellness program, an individual must attain or maintain a specific health outcome in order to obtain a reward. Examples of an “Outcome-Based” plan would be: 1) smoking cessation program; 2) weight-loss program; 3) cholesterol-lowering program. A reasonable alternative standard must be offered to anyone who does not meet the initial standard based on a measurement test or screening that is related to a health factor. Timing of Incentive Awards Question 1: May a plan sponsor offer a Health-Contingent (“Activity-Only” or “Outcome-Based”) wellness program that allows individuals to earn/accumulate “wellness points” during one year and then “cash in” those points for a lower premium over the next plan year?
  2. 2. Answer 1: The regulations are silent on this point. However, the preamble to the final regulations specifically limits when a reward based upon meeting a “reasonable alternative standard” may be applied. The preamble says: First, in order to satisfy the requirement to provide a reasonable alternative standard, the same, full reward must be available under a Health-Contingent wellness program (whether an Activity-Only or Outcome-Based wellness program) to individuals who qualify by satisfying a reasonable alternative standard as is provided to individuals who qualify by satisfying the program’s otherwise applicable standard. Accordingly, while an individual may take some time to request, establish, and satisfy a reasonable alternative standard, the same, full reward must be provided to that individual as is provided to individuals who meet the initial standard for that plan year. (For example, if a calendar year plan offers a Health-Contingent wellness program with a premium discount and an individual who qualifies for a reasonable alternative standard satisfies that alternative on April 1, the plan or issuer must provide the premium discounts for January, February, and March to that individual.) Plans and issuers have flexibility to determine how to provide the portion of the reward corresponding to the period before an alternative was satisfied (e.g., payment for the retroactive period or pro rata over the remainder of the year) as long as the method is reasonable and the individual receives the full amount of the reward. In some circumstances, an individual may not satisfy the reasonable alternative standard until the end of the year. In such circumstances, the plan or issuer may provide a retroactive payment of the reward for that year within a reasonable time after the end of the year, but may not provide pro rata payments over the following year (a year after the year to which the reward corresponds). Though the preamble only addresses the timing of a reward based upon meeting the reasonable alternative standard, it is presumed that the same timing requirements apply to the initial HealthContingent wellness standard, since the reasonable alternative standard (which is offered after an individual cannot meet the initial wellness standard) would be the later of the initial standard and the reasonable alternative standard. Because of the manner in which the Departments of Labor, Treasury, and Health and Human Services described the limits of the final regulation, they indicated that they generally did not intend for individuals to receive a wellness reward in the year after credits were earned by virtue of the reasonable alternative standard, and in no case was the reward (earned the prior year) to be spread out over the whole following plan year. Willis’ Recommendation: Many wellness administrators are offering a points-based program that functions in opposition to the guidance within the preamble. Willis is recommending the most conservative approach – that the reward be granted generally within the year that it is earned (except to the extent that the individual meets the requirements at the end of the year, in which case the award is paid out as soon as possible after the beginning of the new year). We recognize that many/most wellness vendors are NOT administering their plans in this manner. Willis’ guidance is based upon the Preamble, which is not regulatory law, but rather an explanation (written by the IRS, Department of Labor, and HHS) regarding how they intended the regulations to apply. We believe that their comments within the
  3. 3. Preamble are important. If plan sponsors choose to take a more aggressive stance, or if wellness vendors offer only a more aggressive plan administration of wellness rewards, then the ultimate decision about how to proceed must rest with the plan sponsor. While the regulations and the preamble are silent with regard to when the reward for the initial wellness standard must be provided, we believe that it is best if the Health-Contingent wellness plan reward be paid within the plan year that it is earned. The silence within the preamble and the regulation with regard to Participatory wellness programs (for which a reasonable alternative standard is not offered) may also lead some plan sponsors to believe that the same “plan year” restrictions do not apply to a wellness reward for a Participatory wellness program, and that plan sponsors have much more freedom with regard to providing rewards under a Participatory program. Without further guidance on this point, Willis would not recommend this position. Finally, there may be other ways to provide the same effect – such as funding a Health Reimbursement Arrangement (“HRA”) with the wellness amount (subject to the nondiscrimination and PPACA mandates tied to HRAs) or crediting an amount to the employer cafeteria plan that is fully usable at the beginning of the year. The options are not specified in the regulations or the guidance as being permitted or prohibited, so obtaining advice from the plan sponsor’s counsel is necessary. Participatory Program Difference Note – Willis does not necessarily feel that the “reward within the same plan year” timing restriction applies to a Participatory wellness program. The preamble discusses the timing requirement in the section of the preamble that describes the Health-Contingent programs. So, if the wellness program is strictly a Participatory program (such as requiring a biometric screening during the year in order to receive a discount in premiums the following year), Willis believes that the reward can be spread out over the next year. An additional complication arises if the two types of wellness programs are combined (which is not uncommon). For example, obtaining the biometric screening permits a discount of 5% and then based on the outcome, there might be an additional discount. We believe that the wellness components could be part of the same wellness plan and that it would be possible to apply the applicable wellness rules to each separate component of the wellness plan (applying the Health-Contingent rules to the wellness components which are Health-Contingent, and applying the Participatory rule to the wellness components which are Participatory). An even more conservative standpoint would be to consider the whole wellness plan to be subject to the Health-Contingent plan wellness requirements. There is no specific guidance that would require one approach over the other. Question 2: If we decide to offer a wellness program which offers individuals the accumulation of points during one year and a wellness reward paid out through the following year, are we more likely to be audited? Answer 2: We are not currently aware of audits on this issue. Following this plan design will not necessarily trigger an audit. However, an employee complaint may trigger an audit. Moreover, the preamble does contain language that additional guidance will be promulgated by the agencies if they determine that the rules are not being interpreted as they desire.
  4. 4. Willis’ Recommendation: Plan sponsors should seek legal counsel when determining how to offer a wellness program. Wellness Plan Design Question 3: Is it possible for a wellness program to have components that are “Participatory” in addition to other components which are either “Activity-Only” or “Outcome-Based” plan designs? Answer 3: Yes. A wellness program may be made up of various components. Each component will be subject to the wellness regulations which apply to that type of wellness component. For instance, if an individual elects to go through biometric screening, then that screening will likely be a “Participatory” benefit which is not required to comply with the rules associated with Health-Contingent based wellness programs. If the plan sponsor’s wellness program also includes a smoking cessation program and a weight management program, then those programs will be subject to the requirements which apply to “HealthContingent” wellness programs. Willis’ Recommendation: Plan sponsors must consider each component of wellness programs and must identify the component and thus determine which requirements apply to that component. Question 4: At the beginning of the plan year, a plan sponsor announces an upcoming health risk assessment and biometric screening and says that a particular score must be achieved. Later in the year, the plan sponsor brings in a vendor to perform the health risk assessments and biometric screening. If an employee does not achieve the desired score, the employee will pay a penalty which does not exceed the wellness plan penalty limits. However, if the employee cannot meet the desired score, the plan will accept a doctor’s waiver, and the employee will receive the wellness incentive. Does this plan meet the wellness plan requirements? Answer 4: Yes. This is an Outcome-Based wellness plan design. The plan sponsor offers a reasonable alternative standard, and the full wellness reward is available to the employee once the reasonable alternative standard is satisfied Calculation of Wellness Incentive Question 5: How is the wellness reward (or surcharge) calculated? Answer 5: In 2014 the reward or surcharge must not be more than 30% (or 50% if the wellness program prevents or reduces tobacco usage). This wellness reward or surcharge is based upon the full cost of the employee-only coverage, not the employee’s portion of the coverage. If an employer offers a tobacco cessation program and the premium for employee-only coverage is $250 per month, then the
  5. 5. reward/surcharge could be as much $125 per month discount (or surcharge). However, if the wellness program is offered to family members enrolled in the plan, then the wellness discount/surcharge is applied against the full cost of the coverage within which the family members are covered. The wellness reward (or surcharge) can also impact cost sharing elements like copays, coinsurance, and deductibles. If these costs are decreased or raised as part of the wellness program, then the combination of all of the copay/coinsurance/deductible decreases or surcharges for Health-Contingent wellness plans cannot exceed 30% (or 50% if the wellness program includes a tobacco cessation program). Requiring Health Risk Assessment or Biometric Screening Question 6: May a plan sponsor require that individuals meet the requirements of the HealthContingent wellness plan by a particular point during the plan year (prior to the last day of the plan year) in order to receive the wellness incentive? Answer 6: No. Plan sponsors may not establish an arbitrary deadline (other than requiring individuals to comply with the terms of the wellness plan or the reasonable alternative standard) by the end of the year. It is permissible for an individual to meet the requirements of the plan by the end of the plan year and then receive a pay-out of the award within a reasonable time after the beginning of the next plan year. An employer may presumably offer wellness courses (for instance, a smoking cessation course) at several intervals during the year, and the employer could mandate that if an employee waits until the end of the year in order to satisfy the wellness standard, then the employee must complete the multi-meeting course by the end of the plan year, and therefore, it is likely that an employer could impose a time requirement on the employee that allows completion of the program by the end of the plan year. Willis’ Recommendation: A plan sponsor “best practice” would be for employees to be given the freedom to comply with the wellness plan design requirements at any time during the plan year as long as the requirements are met on/before the last day of the plan year. Plan sponsors should seek legal counsel in evaluating plan designs. Question 7: May a plan sponsor require an individual’s participation in a health risk assessment in order to receive any benefits under the plan? Answer 7: The best practice answer is “No.” Compliance with the HIPAA wellness requirements does not exempt the plan from compliance with other federal laws. Conditioning the provision of benefits on the completion of a health risk assessment removes the voluntary nature of a “Participatory” benefit may cause a violation of the Americans with Disabilities Act (ADA) because the reward (coverage under the plan) cannot be conditioned upon the health risk assessment. Staff of the Equal Employment Opportunities Commission (EEOC) has stated in informal guidance that they would view that mandate as a
  6. 6. violation of the ADA. If a health risk assessment is offered, the plan sponsor must be careful that it does not condition the incentive on the outcome of the health risk assessment. However, that informal guidance is not part of the formal guidance and has never been advanced beyond an informal “Q&A” format. Members of other departments have opined differently, and there is some opinion that the EEOC would not seek to enforce that provision of the ADA – particularly in light of the other formal guidance from the Employee Benefits Security Administration. Nevertheless, employers should be cautious before deciding to make the completion of the health risk assessment mandatory. Question 8: May a plan sponsor require an individual’s participation in a health risk assessment in order to receive BETTER benefits (for instance the “gold” benefits plan as opposed to the “bronze” benefits plan)? Answer 8: Maybe. This would be a Participatory wellness program, so the offer of better coverage must simply be available to all similarly-situated individuals. However, the plan sponsor cannot condition the provision of better benefits based upon the outcome of the health risk assessment. There is no official guidance on this issue, and the concern is compliance with the ADA. Whether the EEOC would see this plan design as impermissible under the ADA is unknown. This is a “gray” area of the law. Question 9: The plan sponsor requires that a health risk assessment and a biometric screening must be performed in order for the employee to receive a lower deductible. This same incentive is offered to retirees and to COBRA qualified beneficiaries. Is this permissible? Answer 9: Yes. The plan sponsor has the ability to offer wellness incentives to groups/individuals beyond those who are “similarly situated” individuals. Retirees would not be “similarly situated;” however, COBRA qualified beneficiaries (those receiving COBRA continuation coverage) would be “similarly situated” and should receive lower deductible if they comply with the wellness plan terms. The plan may choose to voluntarily treat retirees as “similarly situated” and therefore give them the ability to earn wellness incentives. If the plan chooses to extend wellness incentives to retirees, the plan is not required to pay for the retiree health screenings; instead, the plan could pass onto the retirees, the costs associated with the health risk assessment and the biometric screening. Apportionment of Wellness Incentive Question 10: If an employer sponsors a Health-Contingent plan design, and if both the employee and the employee’s spouse may participate in the wellness program, but the spouse chooses not to participate (or meet the reasonable alternative standard), may the plan withhold the incentive reward from the employee, who DOES meet the wellness requirements?
  7. 7. Answer 10: No. Health-Contingent plans must offer each eligible individual the opportunity to achieve the reward at least once per year. If the plan allows the employee’s spouse to negate the employee’s right to the wellness reward, then the employee has not been given the opportunity to qualify for the reward on an annual basis. The final rule notes that if the wellness plan design is a Health-Contingent plan, then the plan sponsor must fairly divide/”apportion” the reward between the participating and nonparticipating spouses. Plan sponsors have freedom with regard to how to apportion the reward, but under a Health-Contingent plan, one spouse may not negate the other spouse’s ability to receive a wellness reward. NOTE: This rule about reasonable apportionment between family members does not exist under a “Participatory” wellness plan design, so under such a plan, presumably, it is permissible to establish an “all-or-nothing” plan design. Wellness Incentive as Cash, Gift Cards, Goods Question 11: If the reward for complying with the wellness program is a gift card or some other reward which does not affect the co-pays, coinsurance, deductible, premiums, or employer contributions to an account-based plan (like a flexible spending account), then is the wellness program subject to the HIPAA wellness rule? Answer 11: No. This simply means that the plan sponsor would choose not to avail itself of the protections afforded by the HIPAA wellness rules (and the plan sponsor would not be subject to the additional requirements under the wellness rule). Additionally, from a tax perspective, cash or a gift card or goods awarded to a participant would be taxable to the participant. Question 12: A plan sponsor offers an extra vacation day to all employees who complete a biometric screening. Is this permissible? Answer 12: Yes, we believe that it is permissible to do this. However, because the reward does not affect the plan in any way (doesn’t reduce premiums or deductibles and doesn’t trigger a contribution to account-based benefits), the plan is not subject to the requirements under the HIPAA Wellness rules. This example of a plan issuing a vacation day as incentive is not addressed within the wellness rule, but the wellness rule seems to be limited to benefits which are subject to HIPAA. Since a vacation day is not subject to HIPAA, then the award of a vacation would not appear to trigger the application of the HIPAA wellness rules.
  8. 8. New Hires and Wellness Incentives Question 13: Must a plan sponsor award the whole Health-Contingent wellness incentive to a new hire (hired any time after the beginning of the year) who meets the wellness standard? Answer 13: The regulation is silent on this subject, but there is nothing within either the preamble or the final rule to indicate that a new hire must receive the whole incentive award. Rather, we believe that it is reasonable for the plan sponsor to award a pro rata portion of the full wellness incentive at the point that the new hire meets the wellness standard. For instance, if the employee is hired in the 10th month of the plan year, upon meeting the wellness standard, the new hire would be eligible for two months’ worth of the wellness incentive. Wellness Plans and “Pay or Play” Affordability Question 14: When calculating the “affordability” of the medical plan for “Pay or Play” purposes, is the discounted premium contribution under the wellness plan used? Answer 14: Generally, no. In most cases, the “affordability” of the plan is determined by assuming that each employee fails to satisfy the wellness requirements (and therefore each employee pays a higher premium). However, if the wellness program includes a tobacco cessation program, then the affordability of the plan is determined assuming that each employee MEETS the wellness requirements (and therefore each employee pays a lower premium). The information in this publication is not intended as legal or tax advice and has been prepared solely for informational purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.