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Wellness FAQ

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Wellness 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 Participatory Wellness Program What is a Participatory wellness program? This type of wellness program either does not provide any reward or the offered reward is not related to any health factor or outcome. Examples of a “Participatory” program would be: 1) reimbursing employees for all or part of the cost of membership in a fitness center; 2) completion of a health assessment or biometric screening that does not base any part of the reward on the outcome of the assessment/screening; 3) completion of an annual physical, as long as no part of the reward is based upon the outcome of the physical. Health-Contingent Wellness Programs Activity-Only 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” program would be completion of: 1) a walking, diet/nutrition or exercise program; and 2) a targeted educational program (i.e. online or telephonic coaching) 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. Outcome-Based What is an Outcome-Based 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” program would be: 1) Reducing/maintaining Body Mass Index <30; 2) Reducing/maintaining total cholesterol <200; 3) Ceasing tobacco use; 4) Meeting/improving a health assessment score. A reasonable alternative standard must be offered to anyone who does not meet the initial measurement or screening standard that is related to a health factor.
  2. 2. 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? Answer 1: This is a common method that many -- perhaps the vast majority of -- wellness vendors advocate and how many of their wellness plans are set up. It makes the administration of the plans easier and more understandable, and this plan design is the method that most employers have used and will likely continue to use. Unfortunately, the actual regulations are silent on this point, and the Preamble to the final regulations threw a wrench into this type of wellness plan design, since the Preamble states that when a reward is attained based upon meeting a “reasonable alternative standard,” the individual must generally receive the full reward in the year in which the standard is attained; it is assumed that the same-year-in-which-earned rule would also apply when individuals meet the initial wellness standard. However, this is clearly NOT what most wellness programs offer, and it is unlikely that they will change their plan design in 2014. Employers should note that the Preamble is not regulatory law (as it is an introduction to the regulation), but it is a governmental explanation regarding the regulators’ rationale on a particular point. The Wellness Incentive final rule provides new terminology and introduces a timing requirement for Health-Contingent rewards, where no time limit had been outlined in prior guidance. Thus, like Health Care Reform, the wellness rule is an example of how fluid laws and regulations are, and the wellness rule is, at best, a moving target. Willis provides this explanation about the wellness incentive “timing” requirement in order to highlight that the final rule places limits on a plan sponsor’s administration of its wellness program’s reasonable alternative standard. The agencies noted in the Preamble that they will provide more guidance if they feel it is necessary. In other instances where an entire industry has taken a strong stance, the agencies have typically not sought to enforce a rule that is completely contradictory to industry standards. (Note, for example, the staff statement from the Equal Employment Opportunity Commission that would have made mandatory participation in health risk assessments or biometric screenings for participation in employer medical plans illegal as violations of the ADA. That rule would have overturned industry standards and has never been enforced. See Q/A-6, below.) With regard to Question 1 (and because of the wording within the Preamble), Willis believes it is important for plan sponsors to know that the wellness final rule may later be modified if the agencies feel that benefits are being offered in a way that they did not intend. Alternative Means of Providing Financial Incentives: Depending upon the plan sponsor’s plan design, there may be other ways to provide the same effect – such as funding a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA) 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. These options are not specified in the regulations or the guidance as being permitted or prohibited, so plan sponsors should obtain advice from legal counsel.
  3. 3. Question 2: If we decide to offer a wellness program which offers individuals the accumulation of Health-Contingent 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. Employers should also be aware that the DOL has been more active in conducting random audits over the last two or three years irrespective of any complaints or “red flags.” Willis’ Recommendation: While the wellness rule was published as a final rule, there are still some vague parts within the law, and the Preamble to the final rule notes that additional guidance will be announced by the agencies if they determine that the rules are not being interpreted as they desire. Therefore, Willis suggests that wellness plan sponsors work closely with legal counsel in order to chart a course that represents the plan sponsor’s wellness goals. 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. But, an even more conservative approach would be to consider the whole wellness plan as subject to the Health-Contingent plan wellness requirements. Willis’ Recommendation: Plan sponsors must consider each component of wellness programs and determine which requirements apply to each component. Or, the plan sponsor may apply the more stringent requirements to all aspects of the wellness plan. 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 screenings. 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?
  4. 4. 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 for Health-Contingent programs? 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. For example, if an employer offers a tobacco cessation program and the premium for employee-only coverage is $250 per month, then the reward/surcharge could be as much as $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 prevents or reduces tobacco usage). Requiring Health Risk Assessment or Biometric Screening Question 6: May a plan sponsor require an individual’s participation in a health risk assessment in order to receive any benefits under the plan? Answer 6: The most conservative 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 and 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. The Equal Employment Opportunities Commission (EEOC) informal guidance indicates that the EEOC would view that mandate as a 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, the EEOC informal guidance is not part of the formal EEOC guidance and has never been advanced beyond an informal “Q&A” format. Members of other departments have opined differently, and there is some thought 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.
  5. 5. Nevertheless, employers should be cautious before deciding to make the completion of the health risk assessment mandatory. Question 7: 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 7: 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 8: 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 8: 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 deductibles 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 on to the retirees, the costs associated with the health risk assessment and the biometric screening. Apportionment of Wellness Incentive Question 9: 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? Answer 9: 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 non-participating
  6. 6. spouses. Plan sponsors have freedom with regard to how to apportion the reward, but under a HealthContingent 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 10: If the reward for complying with the wellness program is a gift card or some other reward which does not affect the co-pay, coinsurance, deductible, premium, 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 10: No. This simply means that the plan sponsor would choose not to avail itself of the protections afforded by the HIPAA wellness rule (and the plan sponsor would therefore 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 11: A plan sponsor offers an extra vacation day to all employees who complete a biometric screening. Is this permissible? Answer 11: Yes, we believe that it is permissible to provide this reward; however, the same caution exists as was expressed in Q/A-6, above. Participation in the biometric screening must be voluntary or such a program risks compliance concerns under the ADA; the EEOC has not issued further guidance about what would violate the terms of the ADA, and therefore plan sponsors must be mindful that the ADA may begin enforcement action if it determines that an enticement (in this case, the vacation day) does not make participation in the biometric screening truly “voluntary”. Because the vacation day 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 day would not appear to trigger the application of the HIPAA wellness rules.
  7. 7. New Hires and Wellness Incentives Question 12: 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 12: 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 (hired mid-year) must receive the whole incentive award. Rather, Willis believes 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 13: When calculating the “affordability” of the medical plan for “Pay or Play” purposes, is the discounted premium contribution under the wellness plan used? Answer 13: 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 component (i.e. a tobacco surcharge), then the affordability of the plan is determined assuming that each employee MEETS the tobacco-free 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.

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