How to Administer Wellness Programs in Today's Regulatory Environment

Larry Grudzien Attorney at Law
How to Administer
Wellness Programs in
Today’s Regulatory
Environment

AGENDA
• Review requirements under:
• HIPAA
• Internal Revenue Code
• ERISA
• GINA
• ADA
• ACA
• Take your questions
•

Wellness Program Requirements
Under HIPAA

FUNDAMENTAL PRINCIPLES
Group health plans and insurers cannot discriminate
against participants on the basis of any health factors.
Discrimination encompasses:
• Eligibility:
- Enrollment, effective date, waiting periods, benefits.
• Premiums or contributions:
- Including discounts, rebates or differential mechanisms.
But wellness plans are an exception.

FUNDAMENTAL PRINCIPLES
Violations of HIPAA nondiscrimination rules can result in:
• Code-based excise taxes of $100 per day per person per failure.
• DOL audit and civil action
to enforce rules.
• Private right of action under
ERISA §502 to enforce rules.

• Guidance is provided in the final regulations for evaluating
the permissibility of wellness programs under HIPAA’s
nondiscrimination requirements.
• Separate requirements apply under HIPAA depending upon whether the
wellness program is:
- a health-contingent program (it provides a reward that is contingent on
satisfaction of a health-contingent standard related to a health factor);
or
- a participation-only program (it simply rewards participation in the
program regardless of whether the individual satisfies a health-
contingent standard related to a health factor).
WELLNESS PROGRAMS IN GENERAL

• In a nutshell, if the program is health-
contingent-based, the final regulations require
the program to meet five specific conditions.
• If the program is participation-only, the final
regulations require only that the program be
available to all similarly situated individuals.
WELLNESS PROGRAMS IN GENERAL

• A wellness program can take many forms (and might
not even be called a wellness program), but its defining
feature is usually a reward to encourage healthier
lifestyles—reduced premiums or co-pays in exchange
for quitting smoking or reducing bad cholesterol levels,
for example.
• Employers and insurers hope that by encouraging
healthier lifestyles, health care costs can be contained
or reduced.
• HHS has recommended that employers “consider
providing health promotion or wellness programs and
disease management programs for employees as part
of their health benefits.”
WHAT IS A WELLNESS PROGRAM?

• Some wellness programs simply make their services available to those
who wish to use them, but others target individuals who have specific
medical conditions, such as asthma or diabetes, and make special help
available to them.
• For example, the program may provide case managers who will
help monitor compliance with medication protocols and schedule
appointments with physicians or therapists; special educational
opportunities; newsletters; and discounts on co-pays for
required medications.

• The rewards offered by wellness programs can vary greatly, from T-shirts or
water bottles to significant reductions in premiums, co-pays, or
deductibles.
• In addition, the health-contingents necessary to qualify for the reward can
vary greatly, from actually quitting smoking or lowering
cholesterol to merely attending a
smoking-cessation class or signing
a certification that weekly exercise
sessions have been completed.

HRAs
HEALTH RISK ASSESSMENTS
HRAs are often used by wellness programs to
identify the individuals who can benefit the most
from the wellness programs and who represent
the greatest opportunities for cost containment.
In addition, health risk assessments can be
used by plan participants and beneficiaries to
identify areas of possible concern and to set
health-related goals.

• HRAs can also be much more hands-on and
can range from basic screenings at the
employee’s worksite (e.g., blood pressure,
cholesterol, body mass index, blood sugar,
and bone density) to complete physical
examinations at a doctor’s office or a hospital.
• Often the initial HRA is used as a
baseline against which subsequent
assessments are measured to track
progress toward health-related goals.
• An employer cannot make taking HRAs
mandatory to receive coverage.
HEALTH RISK ASSESSMENTS (HRAS)

Wellness programs that do not condition eligibility for a reward upon a
participant’s ability to meet a health Health-Contingent are permissible if
participation in the programs is available to all similarly situated individuals.
• Examples of participation-only programs include:
- incentives to participate in a health fair or testing (regardless of outcome);
- waiver of co-payment/deductible for well-baby visits;
- reimbursement of health club membership;
- reimbursements for smoking cessation programs (regardless of outcome);
and
- a program that rewards employees who complete a health risk assessment,
without further action related to health issues identified as part of the
health risk assessment.
PARTICIPATION-ONLY PROGRAMS

• Health-contingent wellness programs require individuals to satisfy a
health-contingent standard related to a health factor as a condition
for obtaining a reward.
• A “reward” includes both an incentive in the form of a reward (e.g.,
premium discount, waiver of cost sharing amount, an additional
benefit or any financial or other incentive) and an incentive in the
form of avoiding a penalty (e.g., the absence of a premium
surcharge or other financial or nonfinancial disincentive).
HEALTH-CONTINGENT-BASED PROGRAMS

Health-contingent programs are further divided into activity-only
programs and outcome-based programs:
• Activity-only programs require individuals to complete an activity related
to a health factor to obtain the reward, but the activity need not result in a
specific health outcome.
- For example, the employer may provide a reward for a walking, diet, or
exercise program.
• Outcome-based programs require individuals to attain or maintain a
specific health outcome in order to obtain the reward.
- For example, an employer could provide a reward for not smoking, for
obtaining a certain result on a biometric screening, or for maintaining a
certain body mass index (BMI).

Each health-contingent program must meet five requirements to be
exempt from HIPAA nondiscrimination provisions.
• The Reward Must Be No More Than 30% of the Cost of Coverage;
• The Program Must Be Reasonably Designed to Promote
Health or Prevent Disease;
• The Program Must Give Individuals an Opportunity to Qualify for the
Reward at Least Once a Year;
• The Reward Must Be Available to All Similarly Situated Individuals; and
• The Plan Must Disclose That Alternative Health-Contingents (Or Waivers)
Are Available.

The Reward Must Be No More Than 30% of the Cost of Coverage.
• The reward can be in the form of a discount or rebate of a premium or
contribution, a waiver of all or part of a cost-sharing mechanism (such as a
deductible, co-payments, or co-insurance), the absence of a surcharge, or
the value of a benefit that would otherwise not be provided under the
plan.
• If only the employee may participate
in the wellness program, then the
reward must not exceed 30% of the
cost of employee-only coverage.

The Reward Must Be No More Than 30% of the Cost of Coverage –An
Exception.
• The maximum reward increases from 30% to 50% for wellness programs that
are designed to prevent or reduce tobacco use.
• For a wellness program that is exclusively a tobacco-use prevention program,
the incentive could be as high as 50%.
• But if the wellness program has incentives for tobacco use and other health-
contingent factors (e.g., cholesterol levels), the incentives not related to
tobacco use would have to be capped at 30%, and the total of all incentives
(including the tobacco-related incentives) would be capped at 50%.

The Program Must Be Reasonably Designed to
Promote Health or Prevent Disease.
A program meets this requirement if it:
• has a reasonable chance of improving the health of, or
preventing disease in, participating individuals;
• 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.

The Program Must Be Reasonably Designed to
Promote Health or Prevent Disease.
• There does not need to be a scientific record that the chosen method promotes wellness,
and this requirement is intended to be easy to satisfy and prohibits bizarre, extreme, or
illegal requirements in a wellness program.
• There are examples in in the final regulations that serve as safe harbors, so that an
employer can adopt a program identical to one described as satisfying the example and
be assured of satisfying the requirements in the regulations.
• Wellness programs similar to the examples also would satisfy the
reasonably designed requirement.
• Plans or issuers should not feel constrained by the relatively narrow range of programs
described by the examples but want plans and issuers to feel free to consider innovative
programs for motivating individuals to make efforts to improve their health.
• This determination must be based on all relevant facts and circumstances.

The Program Must Give Individuals an Opportunity to Qualify
for the Reward at Least Once a Year.
• This is a bright-line Health-Contingent that establishes
a minimum frequency of qualification opportunities.
• A program could offer more frequent
qualification opportunities, but not
less frequent opportunities.

The Reward Must Be Available to All Similarly Situated Individuals.
• It means that that both the general Health-Contingent for grouping
“similarly situated individuals” must be satisfied, and that a reasonable
alternative generally must be provided.
• Certain groups of individuals may be treated as distinct similarly situated
groups if the distinction is based on a bona fide employment classification
(such as full-time versus part-time status, current employees versus former
employees, and different geographic locations).

• A reward could be offered to a group of employees (but not retirees),
or a group of employees from one location but not those from
another location.
• Similarly, a reward could be offered
only to employees and not to
spouses or dependent children,
or only to employees and spouses
and not to dependent children.

• Outcome-based programs: If an individual does not meet a plan’s target
standards for out come based programs based on a measurement, test, or
screening related to a health factor, the individual must be provided with a
reasonable alternative standard, regardless of any medical condition or
other health status, to ensure that outcome based initial standards are not
a subterfuge for discrimination or underwriting based on a health factor.

• For outcome-based programs, the reasonable alternative standard
cannot be a requirement to meet a different level of the same standard
without additional time to comply that takes into account the
individual’s circumstances.
• An individual must be given the opportunity to comply with the
recommendations of the individual’s personal physician as a second
reasonable alternative standard to meeting the reasonable alternative
standard defined by the plan, but only if the physician joins in the request.

• Under outcome-based programs, it is not reasonable to require verification
that a health factor makes it unreasonably difficult or it is medically
inadvisable for the individual to satisfy the otherwise applicable standard.
• However, if the reasonable alternative standard to an outcome based
program is an activity-only program, then the plan may seek such
verification, if reasonable under the circumstances, with respect to the
activity-only portion of the program.

• The determination of whether a plan has provided a reasonable alternative
standard is based on the facts and circumstances.
• The following factors, among others, should be taken into account in
determining whether a plan has provided a reasonable alternative
standard:
• If the reasonable alternative standard is completion of an educational program, the
plan must make the educational program available or assist the employee in finding
such a program, and may not require an individual to pay for the cost of the
program.
• The time commitment required must be reasonable.

• If the reasonable alternative standard is a diet program, the plan is not
required to pay for the cost of food but must pay any membership or
participation fee.
• If an individual’s personal physician states that any
plan standard (including the recommendations of
the plan’s medical professional) is not medically
appropriate for that individual, the plan
must provide a reasonable alternative
standard that accommodates the
recommendations of the individual’s
personal physician with regard to
medical appropriateness.

• Plans may always waive the otherwise applicable standard instead of
providing a reasonable alternative standard.
• Additionally, plans do not need to establish a particular reasonable
alternative standard in advance of an individual’s specific request for one,
as long as one is provided upon request.
• Reasonable alternative standards may be provided for a class of
individuals or on an individual-by-individual basis.

• The full reward under either an activity-only or an outcome-based program
must be available to all similarly situated individuals.
• Individuals who qualify by satisfying a reasonable alternative standard
must be provided the same, full reward that is provided to individuals who
qualify by satisfying the otherwise applicable standard.
• This same, full reward must be provided even if an individual takes some
time to request, establish, and satisfy a reasonable alternative standard.

The Plan Must Disclose That Alternative Health-Contingents
(Or Waivers) Are Available.
• A health plan must disclose, in all plan materials describing the
health-contingent-based wellness program, that reasonable alternative
health-contingents (or the possibility of waiver of the otherwise applicable
health-contingent) are available.
• The disclosure must also include a statement that recommendations of an
individual’s personal physician will be accommodated.

The Plan Must Disclose That Alternative Health-Contingents
(Or Waivers) Are Available.
• For outcome-based wellness programs, a similar notice must be
included in any communication that any individual did not satisfy
an outcome-based standard.
• If the plan materials merely mention the availability of the wellness
program without describing its terms, then the reasonable alternatives
do not need to be described in the plan materials.

Wellness Programs and
Income Tax

TAXATION ISSUES
• A wellness benefit that does
not qualify either as an
“eligible medical expense”
under Code § 213(d) or a
“fringe benefit” under Code
§132 is taxable to the
employee.

(IRS Memo 2016-22031)
• Cash and non-cash incentives,
payments and rewards paid to an
employee are not excludable from an
employee’s taxable income merely
because they are paid under an
employer wellness program.
TAXATION ISSUES

(IRS Memo 2016-22031)
For purposes of income and employment taxes (e.g., FICA and FUTA), the
following items are included as taxable income/wages even if paid under an
employer wellness program:
• Cash payments (even small amounts such as $10 or $25) for participating
in a wellness program.
• Non-cash rewards, incentives or other benefits that are not medical care
as defined under Code section 213. E.g., payment of gym membership,
unless, based on the facts and circumstances, it would be a medical
expense under 213(d).
• Payment or “reimbursements” through a wellness program to reimburse
employees for all or a portion of the premiums the employees paid by
salary reduction.
TAXATION ISSUES

(IRS Memo 2016-22031)
The following items are excluded from taxable income, whether paid under a
wellness program or not:
• Benefits, services and non-cash rewards or incentives that are medical
care as defined under Code section 213. E.g., biometric screenings,
smoking cessation programs, health risk assessments.
• Rewards or incentives that qualify as “de minimis” fringe benefits under
Code section 132(e). These are defined as property or services whose
value is so small that accounting for them would be unreasonable or
administratively impracticable. An example would be tee shirts provided
under a wellness program.
TAXATION ISSUES

• It depends.
• To the extent that a wellness program provides medical benefits, it will
likely be treated as a group health plan subject to the special ERISA rules.
• In the DOL Information Letter to Joseph Dunn (November 17, 1993), the
DOL indicated that a wellness program will be considered providing
"medical care" if it provides programs that are diagnostic or preventive, or
that "coach" for certain identified health risks.
WELLNESS PROGRAMS AND ERISA

• Underwriting purposes include changing deductibles or other cost-sharing
mechanisms or providing discounts, rebates, payments in kind or other
premium differential mechanisms in return for activities such as
completing a health risk assessment (“HRA”) or participating in a wellness
program.
• Family history or other genetic information can be collected if the purpose
of such collection is neither for underwriting purposes nor prior to or in
connection with enrollment.
WELLNESS PROGRAMS AND GINA

• Genetic information includes the collection of
family medical history.
• Any wellness program that provides rewards for
completing HRAs that request genetic information,
including family medical history, violates the
prohibition against requesting genetic information
for underwriting purposes.
• This is the result even if rewards are not based on
the outcome of the assessment.

• Genetic information can be collected as long as no rewards
are provided (and if the request is not made prior to or in
connection with enrollment).
• A group health plan or health insurer can provide rewards
for completing a HRA as long as the HRA does not collect
genetic information.

• EEOC issued final regulations under GINA in May 2016 apply to
employers and clarify that offering limited incentives under an employee
wellness program in exchange for information about a spouse’s
manifested health conditions is permitted if specific conditions are met.
• The EEOC has issued a regulation removing the incentive provisions from
the EEOC’s final wellness regulations, effective January 1, 2019.
• A federal trial court had vacated the incentive provisions,
effective January 1, 2019, holding that the EEOC had not justified its
conclusion that a 30% incentive level is a reasonable interpretation
of the term “voluntary.”
• It is important to remember that the court order and the EEOC’s
regulation only affect the rules regarding an employer’s ability
to provide incentives.

• A wellness or disease-management program that requires disabled
individuals to participate in order to attain benefits equal to those offered
to nondisabled individuals might be found to be discriminatory under
the ADA—even if HIPAA's nondiscrimination requirements are satisfied.
• Care should be taken in structuring wellness and disease-management
programs to ensure that qualified individuals with disabilities have equal
access to program benefits, and that greater obligations are not imposed
upon qualified individuals with disabilities to obtain equal benefits under
such programs.
• This reasonable accommodation requirement applies to wellness
programs, regardless of whether they include disability-related questions
or medical exams.
WELLNESS PROGRAMS AND ADA

• ADA prohibits disability-related medical examinations and inquiries,
subject to two exceptions.
• One exception permits medical examinations or inquiries if they are
“job-related and consistent with business necessity.”
• The other exception permits “voluntary medical examinations,
including medical histories, which are part of an employee health
program” if the information obtained is maintained according to the
confidentiality requirements of the ADA, and the information is not used
to discriminate against the employee.

• In May 2016, the EEOC issued final
regulations that address the extent to
which an “employee health program” may
offer incentives for participation and still
qualify for the ADA exception for voluntary
employee health programs.
• The precise boundaries of an “employee
health program” are uncertain because the
term is not defined by the ADA or the 2016
Regulations, but it would seem to include most,
if not all, wellness programs.

• However, in December 2017, the court amended its prior decision and,
citing concern with the EEOC’s protracted timeline for addressing the
court’s concerns, vacated the incentive provisions of the 2016 regulations
effective January 1, 2019.
• The EEOC then removed the incentives section of the 2016 regulations
(29 CFR §1630.14(d)(3)), in accordance with the court order.
• Because the EEOC’s removal regulation did not address the status of
interpretive guidance included in the appendix to the wellness
regulations, the status of two sections of the appendix—dealing with
issues raised by the incentive limits—is uncertain.

• In August 2017, a federal court ruled that the EEOC had not justified its
conclusion that a 30% incentive level (discussed below) is a reasonable
interpretation of the term “voluntary” in the ADA and ordered the EEOC
to reconsider the regulations.
• The court left the regulations in place during reconsideration, noting that
they had been applicable for eight months and that vacating them could
cause widespread disruption and confusion.

Grandfathered status:
• The various federal agencies caution that penalties related to wellness
programs (such as cost-sharing surcharges) should be examined carefully
as they could jeopardize the plan's grandfather status-for example, by
decreasing the employer's contribution percentage by more than 5
percentage points below the contribution rate on March 23, 2010.

Employer Mandate:
• To avoid the employer mandate penalty, premiums for coverage may not
exceed 9.86% of the employee’s household income in 2019.
• The IRS has proposed that the affordability of an employer-sponsored
plan is determined by assuming that each employee fails to satisfy the
requirements of a wellness program, except the requirements of a
nondiscriminatory wellness program related to tobacco use.
• The affordability of a plan that charges a higher initial premium for
tobacco users will be determined based on the premium that is charged
to non-tobacco users, or tobacco users who complete the related
wellness program, such as attending smoking-cessation classes.

Larry Grudzien:
• Phone: 708-717-9638
• Email: larry@larrygrudzien.com
• Website: www. larrygrudzien.com
CONTACT INFO

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