Keeping Up to Date With Wellness Regulations

Copyright 2014- Not to be reproduced without express permission of Benefit Express Services, LLC


Compliance Issues under

Wellness Programs

By

Larry Grudzien

Attorney at Law

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Agenda

• Review requirements under HIPAA

• Review requirements under GINA

• Review requirements ADA

• Developments

• Take your questions

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Wellness Program

Requirements Under

HIPAA


Guidance through the years

• Interim final nondiscrimination regulations published in 2001 along with

proposed wellness regulations.

• Final nondiscrimination rules and wellness program rules published

12/13/2006.

• final regulations effective for plan years beginning on and after 7/1/2007.

• New proposed regulations were released in November 2012.

• New final regulations were released in June 2013, which are effective in

2014.

• Rules are a joint effort of Treasury, Labor & HHS

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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.

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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.

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Wellness Programs In General

• 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).

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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.

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What is a Wellness Program?

• 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.”

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• 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.

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• 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.

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Health Risk Assessments (HRAs)

• 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.

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Health Risk Assessments (HRAs)

• 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.

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Participation-Only Programs

• 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.

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Health-Contingent-Based

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).

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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).

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Programs

• Each health-contingent program must meet five requirements to be exempt

from HIPAA nondiscrimination provisions.

The Reward Must Be No More Than 20% (30% in 2014) 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.

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Programs

• The Reward Must Be No More Than 20% (30% in 2014) 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 20% (30% in 2014) 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.

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Programs

• The Reward Must Be No More Than 20% (30% in 2014) 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 20% (30% in 2014) of the cost of employee-only coverage.

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Programs

• 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.

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Programs

• 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.

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Programs

• 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.

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Programs

• 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).

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Programs

• The Reward Must Be Available to All Similarly Situated Individuals.

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.

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Programs

• The Reward Must Be Available to All Similarly Situated Individuals.

Activity-only programs: The 2014 final regulations related to reasonable

alternative standards offered by activity-only programs essentially follow the 2006

Rules, but now limit those rules to activity only programs.

Under these rules, 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.

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Programs


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.

The 2014 final regulations specify that it would be reasonable to require such

verification if medical judgment is required to evaluate the validity of a request for

a reasonable alternative standard.

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Programs


Outcome-based programs: The 2014 final regulations related to reasonable

alternative standards offered by outcome based programs are significantly

changed from the 2006 Rules.

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.

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Programs


For outcome-based program, 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.

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Programs


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.

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Programs


The determination of whether a plan has provided a reasonable alternative standard is

based on the facts and circumstances.

The 2014 final regulations provide that 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.

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Programs


To the extent that a reasonable alternative standard is, itself, a health-contingent

wellness program, it must satisfy the requirements in the 2014 final regulations

for either activity only or outcome-based programs.

For health-contingent alternatives, plans must continue to offer a reasonable

alternative standard, whether it is the same or different, and cannot limit the

number of times a reasonable alternative standard is offered.

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Programs


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.

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Programs


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.

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Programs

• 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.

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Programs

• 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

Sample language to satisfy the notice requirement is provided in the 2014 final

regulations

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.

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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.

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Wellness Programs and ERISA

• 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.

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GINA & Wellness Programs

• 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.

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• 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.

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• 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.

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What should employers do to

comply?

• Employers should review their group health plans to ensure that eligibility to

enroll in a plan and the benefits provided under a plan are not dependent

on genetic testing or genetic information.

• Employers should also watch for upcoming regulations from the EEOC with

respect to the employment nondiscrimination requirements, and from the

DOL, Treasury, and HHS with respect to the health insurance provisions.

• Employers should prepare to review and act on that guidance when it is

issued.

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Health Risk Assessments & ADA

• The Americans with Disabilities Act (ADA) prohibits employers from asking

disability-related questions in a health risk assessment that employees are

required to complete as prerequisite to receiving monies from an employer-

funded health reimbursement arrangement, according to an informal

discussion letter released by the US Equal Employment Opportunity

Commission (EEOC) on October 6, 2009.

• In a letter dated August 10, 2009, the EEOC indicated that an employer's

requirement that employees complete a health risk assessment in order to

receive medical expense reimbursements from the employer's health

reimbursement arrangement (HRA) violated the ADA.

• In addition to the ADA violation, the letter mentioned in a footnote that, as of

November 21, 2009, the employer's health risk assessment will likely also

violate GINA if it continued to ask about an employee's family medical

history (since family medical history is genetic information).

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• EEOC noted that Title I of the ADA prohibits all disability-related inquiries

before a job offer is extended.

• However, after a conditional offer is made, employers may ask disability-

related questions and require medical exams provided it does so for all

entering employees in the same job category.

• After employment commences, an employer may make disability-related

inquiries and require medical exams only when they are job-related and

consistent with business necessity.

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• Disability-related inquiries and medical exams are also permissible when

they follow up on a request for reasonable accommodation, or when the

exam or other monitoring, is conducted under particular circumstances,

such as periodic medical exams that are required of employees performing

jobs that affect public safety.

• Lastly, disability-related inquiries and medical exams are permitted as part

of a voluntary wellness program.

• "A wellness program is voluntary if employees are neither required to

participate nor penalized for non-participation.”

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Developments

• 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.

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Developments

• Employer Mandate:

To avoid the employer mandate penalty, premiums for coverage may not exceed

9.5% of the employee’s household income in 2015.

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.

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Developments

• Litigation:

The EEOC has sued two employers over their wellness programs, which the

commission claims violate the ADA.

The agency’s position seems to be that, while employers are free to sponsor

voluntary wellness programs, the programs must be truly voluntary.

Employers may not impose penalties such as shifting 100% of premium cost to

employees who decline to participate in a wellness program.

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Developments

• Litigation:

The Equal Employment Opportunity Commission (EEOC) has sued two

employers over their wellness programs, which the commission claims violate the

Americans with Disabilities Act (ADA).

The first lawsuit is against an employer that required employees to submit to

medical exams and inquiries that were not voluntary, job-related or consistent

with business necessity, according to the EEOC, and then dismissed an

employee who objected to the program.

The EEOC also filed a second lawsuit against a manufacturing company that

allegedly required employees to submit to medical testing and a health risk

assessment (HRA) as part of a wellness program or else face what the EEOC

called “dire consequences.”

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Developments

• Litigation:

The first lawsuit is the EEOC’s first legal challenge to a wellness program under

the ADA.

According to the EEOC, the company established a wellness program that

required medical examinations and asked disability-related questions on an HRA.

When an employee declined to participate, the company first shifted the entire

cost of the health insurance premium to the employee and then fired her soon

after.

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Developments

• Litigation:

In the second lawsuit, a company required employees to submit to medical

testing and an HRA under a wellness program.

Employees who refused to comply faced unspecified “disciplinary action” and a

requirement to pay the full health insurance premium.

This case arose because the employer required an employee to participate in the

wellness program and he was unable to do so, because he was being treated for

congestive heart failure and was not present when the test was offered.

According to the EEOC, the testing and the HRA were “disability-related inquiries

and medical examinations” that were neither job-related nor consistent with

business necessity.

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Developments

• Litigation:

The EEOC’s position seems to be that, while employers are free to sponsor

voluntary wellness programs, the programs must be truly voluntary.

That means employers may not impose penalties such as shifting 100% of

premium cost to those who decline to participate or, as is claimed in the first

lawsuit, terminating their employment altogether based on the failure to comply

with a wellness program.

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Developments

• Litigation:

The EEOC’s primary concern seems to be how wellness program incentives will

impact people with disabilities and whether the wellness program affects people

within particular protected classes under the ADA.

If a wellness program neither asks for an employee’s medical information nor

requires medical exams, it seems relatively clear that the ADA is unlikely to be

implicated and the EEOC would have no reason to challenge the wellness

program under that law.

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Developments

• Litigation:

However, the EEOC’s complaints leave employers with a number of unanswered

questions, including whether an employer-imposed penalty of less than 100% of

health insurance premiums for failure to participate in a wellness program (such

as the 30% or 50% penalties permitted under HIPAA) violates the ADA.

While there is detailed guidance under HIPAA, the EEOC has yet to issue

guidance, leaving employers that design their wellness programs specifically to

comply with HIPAA wondering how the EEOC would view those same wellness

programs under the terms of the ADA.

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Developments

• Litigation:

In addition to the two cases described herein, the EEOC has pursued legal action

against another employer wellness program, which the agency has characterized

as potentially “discriminatory,” and it is uncertain whether the EEOC will file more

enforcement actions against other employer-sponsored wellness programs in the

coming months.

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Developments

• Litigation:

Until the EEOC issues formal guidance on wellness programs, employers should

carefully consider how to structure wellness programs to minimize the risk of a

claim that the program violates the ADA because it is not voluntary.

At a minimum, employers should advise their employees that participation in the

wellness program is voluntary.

If the employer wishes to impose a financial penalty on employees for

noncompliance, that penalty should not exceed 30% of the employee’s health

insurance premiums (or 50% for tobacco-related programs), in compliance with

HIPAA and the PPACA.

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Developments

• Possible issues:

Structure wellness as a reward.

Do not penalize employees who do not participate in the wellness program by

withholding participation in one or ore medical plans.

Do not collect family history.

Any health information collected should be held by the wellness vendor only and

not shared with employer.

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Questions?


Contact Information

• Larry Grudzien:

Phone: 708-717-9638

Email: [email protected]

Website: www. larrygrudzien.com

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mailto:[email protected]

Recruiting & HR

Keeping Up to Date With Wellness Regulations