Wellness Workout: Cardio for Your Compliance Review

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Wellness Workout: Cardio
for your Compliance Review
Larry Grudzien
Attorney at Law

About Larry
Larry Grudzien
ERISA Attorney
Lawrence (Larry) Grudzien, JD, LLM is an attorney
practicing exclusively in the field of employee
benefits. He has experience in dealing with qualified
plans, health and welfare, fringe benefits and
executive compensation areas. He has more than 35
years’ experience in employee benefit law.
Mr. Grudzien was also an adjunct faculty member of
John Marshall Law School’s LL.M. program in
Employee Benefits and at the Valparaiso University’s
School of Law. Mr. Grudzien has a B.A. degree in
history and political science from Indiana University,
J.D. degree from Valparaiso University School of Law
and LL.M. degree in tax from Boston University
School of Law. He is a member of Indiana and Illinois
Bars.

• Review requirements under HIPAA
• Review requirements under the Internal Revenue Code
• Review requirements under ERISA
• Review requirements under GINA
• Review requirements under ADA
• ACA
Agenda

Wellness Program Requirements Under
HIPAA

• 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
Fundamental Principles

• 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)
 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)
• 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.
What is a Wellness Program?

• 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)
• 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
• 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, combined with any other rewards for Health-Contingent based
programs provided under the same plan, must not exceed 30% of the cost of
coverage.
• When determining the maximum permissible reward, the full cost of the
relevant coverage, including both the employer and employee-paid portions
are counted.
• The 30% limit on health-based incentives is increased to 50% if related to
tobacco-use.
• 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 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
• 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.
• For activity based programs, a reward is not available to all similarly situated
individuals unless the program allows a reasonable alternative standard (or
waiver of the applicable standard) for any individual for whom it is either
unreasonably difficult due to a medical condition to satisfy the otherwise
applicable standard or medically inadvisable to attempt to satisfy the otherwise
applicable standard.

• For activity-only programs, it is permissible for a plan to require verification
(such as a statement from the individual’s personal physician) that the
individual has such a medical condition, but only if it is reasonable under the
circumstances.
• It is reasonable to require such verification if medical judgment is required to
evaluate the validity of a request for a reasonable alternative standard.
• 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 reward must be available to all similarly situated individuals
• 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.
• 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

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

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.

• Enrolled employees participating in a specified no-cost wellness activities
received cash payments from a fixed payment plan. Such payment exceed
their after tax contributions.
• Such payments are taxable.
• Employee also can make substantial pre-tax contributions in a wellness
program that qualified as an accident and health plan and offers no-cast
wellness activities.
• Those participating in wellness program also qualify for payments from a
fixed payment plan.
• Those payment may be in cash or flex credits.
• Payments can be taxable.
Taxation Issues – IRS Chief Counsel Advice 20171925

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.
Two other employer payments that are also excluded from taxable income but were not
addressed under Tax Memo 201622031 are:
• Group health plan premium reduction amounts paid as rewards for employees who
participate in or complete specified activities under the employer wellness program that
is connected to the group health plan.
• Employers’ H.S.A. contributions for employees who complete specified activities under
the employer wellness program, so long as they meet applicable comparability
requirements or cafeteria plan nondiscrimination rules.

• 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.
• 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.
Wellness Programs and GINA

• 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.
• In May 2016, EEOC released regulation how GINA affects wellness programs:
• Prior Authorization Required:
 An employer offering an incentive to an employee for the employee’s spouse to
complete an HRA or biometric screening must obtain a voluntary written
authorization from the spouse.
 The written authorization must describe the type of genetic information that will be
obtained, how it will be used, and the confidentiality protections on the sale, transfer,
and disclosure of the genetic information.

In May 2016, EEOC released regulation how GINA affects wellness programs:
• No gateway plans:
 A wellness program is required be voluntary and reasonably designed to promote
health and prevent disease.
 An employer is prohibited from restricting access to particular benefits based to an
employee or his or her family members based on a spouse’s refusal to provide
information about the manifestation of disease or disorder in an HRA or biometric
screening.
• Incentives for child participation prohibited:
 Inducements for information from children of employees are prohibited.
 The prohibition applies to both minor and adult children and to both biological and
adopted children.

In May 2016, EEOC released regulation how GINA affects wellness programs.
• Separate Incentives for Employees and Spouses:
 The EEOC does not consider a wellness program to meet the reasonable design
requirement if it penalizes an employee due to a spouse’s failure to participate or
achieve a particular health outcome.
 Plans with a spousal participation component must be designed in such a way that
an employee may still receive their own award independent of the spouse’s
participation in or results from an HRA or biometric screening.
• Incentives Limited to 30% of the Cost of Self-Only Coverage:
 An incentive provided to a spouse under the final rule is limited to 30% of the total
cost of self-only coverage under the group health plan in which the employee is
enrolled, if enrollment is a condition for participation in the wellness program.
 The GINA final rule provides three additional methods for calculating the maximum
permissible incentive in cases where an employer offers one or more group health
plans and enrollment is not a condition of participation in the wellness program, and
where an employer does not offer a group health plan.

The final regulations are effective prospectively as of the
first day of the first plan year beginning on or after January
1, 2017, for the health plan used to determine the wellness
program incentives.
The final regulations apply to wellness programs connected
to a group health plan and stand-alone wellness programs
with no connection to a group health plan.

In May 2016, EEOC released final regulations how ADA
impacts Wellness programs:
• No Gateway Plans:
 The EEOC made clear that the ADA prohibits “the outright denial of
access to a benefit available by virtue of employment” and
concluded that such plan designs discriminate against the
employee in violation of 42 U.S.C. 12112(d)(4).
 Employers that currently utilize gateway plans should prepare to
align their wellness program structure with the requirements of the
final rule.
Wellness and ADA

• There are two rules under the ADA that employers offering
wellness and disease-management programs should consider
carefully.
• First, the ADA generally prohibits employment discrimination
against disabled individuals.
• 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 violate this provision—even if HIPAA's nondiscrimination
requirements are satisfied.
Wellness and ADA

Second, the ADA limits the circumstances under which an employer may
require employees to undergo physical examinations or provide answers
to medical inquiries.
The prohibition on medical examinations or inquiries is subject to some
exceptions, including an exception that permits employers to conduct
voluntary medical examinations and inquiries as part of an employee
health program (e.g., a wellness or disease-management program that
offers medical screening for high blood pressure, weight control, or
cancer detection), provided that participation in the program is voluntary,
information obtained is maintained according to the confidentiality
requirements of the ADA, and the information is not used to discriminate
against an employee.
Wellness and ADA

In May 2016, EEOC released final regulations how ADA impacts Wellness
programs:
• New Notice Requirement:
 For a wellness program to be considered voluntary, employers must meet certain
conditions.
 One of these conditions is a new notice requirement.
 Employees participating in wellness programs that involve disability-related inquiries
or medical examinations must be given a notice that describes:
• the type of information to be collected
• the purpose for which the information will be used
• the restrictions on disclosure of the information
• any employer representatives or other parties with whom the information will
be shared
• the methods used to ensure the information will not be improperly disclosed
Wellness and ADA

In May 2016, EEOC released final regulations how ADA impacts wellness programs:
• Incentive Limitations – Not Tobacco Related:
 The final rule retains the 30% cap on incentives but clarifies how the limitation must
be calculated.
 The limitation is based on the cost of self-only coverage.
 The calculation methods in the final rule address four scenarios:
• incentives provided to employees when participation in the wellness program is
limited to employees enrolled in the plan
• incentives provided to employees when the employer offers only one group health
plan and participation in the wellness program is offered to all employees
regardless of enrollment
• incentives provided to employees when the employer offers more than one group
health plan and participation in the wellness program is offered to all employees
regardless of enrollment
• incentives provided to employees when the employer does not offer a group
health plan
Wellness and ADA

In May 2016, EEOC released final regulations how ADA impacts
Wellness programs:
• Incentive Limitations – Tobacco Related:
 Under the EEOC final rule, a program would be subject to a total incentive
cap of up to 30% of the cost of self-only coverage.
 This limitation applies if the program involves a medical examination, like a
cotinine test administered as part of a biometric screening or on a stand-
alone basis.
 A wellness program that merely asks an employee whether or not they use
tobacco is not subject to the lower 30% limitation.
Wellness and ADA

In May 2016, EEOC released final regulations how ADA impacts Wellness
programs:
• Confidentiality:
 The final rule reiterates the ADA’s confidentiality protections for medical records.
 Generally, wellness programs that are connected to a group health plan or wellness
programs that meet the definition of a group health plan are subject to HIPAA’s
privacy and security protections.
 The EEOC’s interpretive guidance states that it is likely wellness programs that must
comply with HIPAA’s Privacy Rule will also be compliant with the ADA’s confidentiality
protections.
 However, for wellness programs that are not subject the HIPAA, the EEOC’s final
rule clarifies the confidentiality protections that apply to such a program.
 Under these protections, employers offering wellness programs subject to this final
rule are only permitted to receive information collected as part of the wellness
program in aggregate form that does not disclose, and is not reasonably likely to
disclose, the identity of specific individuals except as necessary to administer the
plan or as permitted by the regulations.
Wellness and ADA

The final regulations are effective prospectively as of the
first day of the first plan year beginning on or after January
1, 2017, for the health plan used to determine the wellness
program incentives.
The final regulations apply to wellness programs connected
to a group health plan and stand-alone wellness programs
with no connection to a group health plan.
Wellness and ADA

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.
ACA

Employer Mandate:
• To avoid the employer mandate penalty, premiums for coverage may
not exceed 9.69% of the employee’s household income in 2017.
• 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.
ACA

Company Background - Services
Eligibility
Enrollment
Integration
Self Service
Communications
EE Call Center
Decision Support
Retiree H&W Admin.
COBRA
Direct Billing
Total Rewards
Reimbursements (HSA / FSA)
Commuter Benefits
Dependent Verifications
ACA & Other Compliance Svc.
We help participants understand and use
their benefits wisely so that they can be
accountable for their healthcare.
We enable you, as the plan sponsor, to
enable and deliver your benefits strategy.
benefit wise. relationship driven.

54
Company Background – Book of Business
Copyright 2017 – Not to be reproduced without express permission of Benefit Express Services, LLC
Clients & Services Supported
226
Administration Participants 1,500,000+
3,952Technology Clients
Reimbursement / COBRA clients 187
Average client size - participants 4,100
Mid/Large Administration clients
ACA 1095 Forms Generated 250,000
250 employees serving our clients from two services
center; Schaumburg, IL and Rancho Cordova, CA.

Some of Our Partners

Larry Grudzien
Attorney at Law
(708) 717-9638
larry@larrygrudzien.com
www.larrygrudzien.com
Copyright 2017 – Not to be reproduced without express permission of Benefit Express Services, LLC
Contact Information
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