The document discusses regulations around wellness programs under the Affordable Care Act. It summarizes that there are two categories of wellness programs - participatory programs that don't require health standards and health-contingent programs that do. For 2014, the maximum reward for health-contingent programs is 30% of health plan costs or 50% if related to tobacco cessation. Employers have leeway in establishing reasonable alternatives. The document recommends employers consider using wellness rewards to fund health flexible spending accounts or health reimbursement arrangements to increase the value for employees and comply with nondiscrimination rules.

1. Improve the Health of Your Wellness Programs
Under the Patient Protection and Affordable Care Act (ACA), wellness programs received a
boost of sorts. The ACA adopts many of the provisions in the 2006 HIPAA nondiscrimination
regulations for wellness programs and provides employers with a higher limit of group health
plan incentives. The ACA provisions are effective for plan years starting on or after January 1,
2014. They apply to grandfathered and non-grandfathered plans as well as fully insured and selfinsured plans.
In a nutshell, the wellness program regulations issues in the Novmeber 26, 2012, Federal Register
provide for the following:
Reward Categories
There continue to be two reward categories:
• Participatory wellness programs exclude any conditions for obtaining a
reward based on satisfying a standard related to a health factor; for example,
a fitness center discount and completion of a health risk assessment.
• Health-contingent wellness programs require achievement of a standard
related to a health factor to obtain the reward; for example, a tobacco use
surcharge and a body mass index reward.
Reward Limits
For plan years starting in 2014, the maximum reward for health-contingent wellness
programs will increase to 30 percent of the total cost of group health plan coverage.
If the reward provides an incentive for the prevention or reduction of tobacco use,
it can be up to 50 percent of the total cost. Whether the rewards are measured
separately or added together, the reward may not exceed the 30 percent and the
50 percent limits.
Reasonable Alternative Standard
New model language describes how to communicate a reasonable alternative
standard for a health-contingent reward. The regulations give employers a good
amount of leeway in establishing reasonable alternative standards, including
communication with an employee’s physician where appropriate.
After reading the 24 pages of regulations, the natural question is: Where do we begin? Many
employers will focus on adjusting major medical plan premiums, which makes sense. After all, this
premium usually is an employee’s largest voluntary deduction from take-home pay.
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2. While this is a good idea, employers should also consider health flexible spending accounts
and health reimbursement arrangements.
Two good reasons exist for involving these flexible benefits:
• Visibility. A $20 monthly reward is barely noticeable if you apply it to the major medical
plan premium that many employees are paying hundreds of dollars a month for already.
• Bang for the buck. Putting a little extra in a health FSA or HRA means more money
readily available to spend on out-of-pocket medical items, many of which occur after
the annual balance is exhausted.
Wellness programs provide real potential for reducing major medical plan costs. Review your
workforce to determine major health risk factors: tobacco use, obesity, preventable diabetes,
high blood pressure, lack of exercise or simply insufficient health awareness and nutrition. Once
you determine what health risk factors to focus on, devise a multi-year plan for addressing
them and measuring progress. A good wellness program has both partcipatory and health
contingent types of rewards.
In all reality, your workforce will probably not get moving until and unless there is money
involved. Providing cash or a cash equivalent reward will be viewed as taxable income, and
some employees may not spend them on health purchases.
Consider putting part of the money into flexible benefits. Fund the Health FSA with a wellness
reward, not allowing the choice of receiving cash or a taxable benefit, and the wellness reward
will not count toward the ACA salary reduction contribution limit, which is $2,500 for plan
years starting in 2014. HRAs are not subject to any such limits.
When linking your wellness rewards to a health FSA or HRA, you must be mindful of
four sets of nondiscrimination rules.
ACA/HIPAA
In addition to the rules related to the size of the reward, employees must be able to qualify at
least once per year. The reward must be uniformly available and offer a published alternative
standard if it is unreasonably hard for an employee to satisfy their health-contingent standard
because of a medical condition. The reasonable alternative must be at no cost to the employee,
unless it is a diet program, in which the employee would still have to pay for the food. Finally,
the program must be reasonably designed to promote health or prevent disease. It cannot be
a maneuver for health factor discrimination.
Americans with Disabilities Act
In its ADA Title I Technical Assistance Manual, the Equal Employment Opportunity Commission
(EEOC) stated that wellness programs must be voluntary. However, the EEOC has not clarified
what makes a wellness program voluntary. This has not changed since it was originally
published in January 1992! When the American Bar Association asked about this issue in 2012,
EEOC responded as follows:
The EEOC has taken no position as to whether a financial incentive provided as part of a
wellness program that makes disability-related injuries and/or requires medical examinations
(such as examinations for the purpose of determining whether an employee has met certain
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3. health standards) would render the program involuntary.
Any obtained information must meet ADA confidentiality requirements and cannot be used to
discriminate against a person with a disability.
Cafeteria Plans
Cafeteria plan nondiscrimination rules include three tests. A health FSA is a qualified benefit
under a cafeteria plan, but an HRA is not. A wellness reward contribution to a health FSA
would cause problems under the key employee concentration test, which limits cafeteria plan
benefits to a key employee to no more than 25 percent of benefits to all employees. It is
important to examine the wellness reward and how close it is to the limit.
Self-insured Plans
The concern is the second of the two nondiscrimination tests, the benefits test. Assume an
employer puts $100 into the health FSA or HRA of every eligible employee who meets established
wellness standards. What if some highly compensated employees achieve the standard and
other non-HCEs don’t? The nondiscrimination regulations do not directly address this issue.
However, they do allow for optional benefits if all eligible participants may elect the option and
there is either no contribution or the employee contribution is the same for everyone.
On the positive side, if you struggle to satisfy the eligibility test, a wellness reward contribution
can increase participation in a health FSA, acting as a seed contribution to employees who
would not normally elect the health FSA benefit.
Wellness programs can enhance the usefulness of flexible benefits, which in turn can bolster
participation in the wellness program, a healthy and wise choice for all.
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