Newly released FAQs provide welcome guidance for employers related to federal agency enforcement approaches for health-contingent wellness programs, which are programs that reward an employee if they satisfy a standard related to a health factor. The FAQs address certain HIPAA nondiscrimination and ACA workplace wellness plan rules addressed in recent litigation challenging the tobacco surcharges some employers add to premiums for their group health plans through workplace wellness programs.
HIPAA generally prohibits group health plans from discriminating based on a health factor but allows wellness program incentives that promote health or prevent disease if certain requirements are met. Generally, there are two categories of wellness programs – participatory and health-contingent wellness programs. Participatory programs do not require an individual to satisfy a health-related standard to receive a reward. Comparatively, health-contingent programs will require an individual to meet a certain health-related standard, such as refraining from tobacco use or completing a certain health-related activity or attaining certain biometric goals. Health-contingent wellness programs are also subject to additional rules. For example, under a health-contingent wellness program, participants must have an opportunity to qualify for a reward at least annually, the program must be reasonably designed to promote health or prevent disease, and rewards generally cannot exceed 30% of the cost of coverage (50% for tobacco cessation programs). Importantly, employers must also make the “full reward” available to all similarly situated individuals by offering a “reasonable alternative standard” (RAS) or waiver when meeting the initial standard is unreasonably difficult or medically inadvisable.
Recent litigation has focused on health-contingent wellness programs, particularly tobacco cessation and tobacco surcharge programs, and the uncertainty in applying current rules regarding what it means to provide the “full reward” to individuals who satisfy a RAS but do not meet the initial health standard. For example, recent lawsuits allege that certain wellness plans violate federal law because employees were not properly notified about a RAS to receive a reward and that the full reward was not provided for completing the RAS midway through the year and rather was applied only after the RAS was satisfied.
In a positive development for plan sponsors, the FAQs announce that until further guidance or regulations are issued, the regulators will not take enforcement action against health-contingent wellness programs that do not give employees a wellness program reward retroactively to the beginning of the plan year after the employee completes a RAS. Under the terms of the enforcement relief, plans only need to provide the reward prospectively, from the point where the employee completes the RAS, if retroactive rewards are not otherwise provided.
The FAQs also address when a health-contingent wellness program must disclose the availability of a RAS. Under the wellness program rules, materials describing the terms of a health-contingent wellness program generally must disclose the availability of a RAS or waiver, provide contact information for obtaining the alternative standard and inform participants that recommendations of their personal physician will be accommodated. For outcome-based wellness programs, these disclosures also must be included in notices provided to participants who fail to satisfy the initial standard. The FAQs clarify that if plan materials merely mention that a health-contingent wellness program is available, without describing its terms, the plan is not required to disclose the availability of a RAS to qualify for the reward under the wellness program. For example, the FAQs specifically note that a summary of benefits and coverage (SBC) that simply references that cost sharing may vary based on participation in a wellness program would generally not be required to include the RAS disclosure if it does not otherwise describe the program’s terms. But an open enrollment guide describing the terms of the wellness program and available rewards must fully disclose the availability of the RAS.
The enforcement relief does not alter the underlying requirements governing wellness programs. Employers offering health-contingent wellness programs should take this opportunity to confirm that both their administrative practices and participant communications remain aligned with current agency rules/guidance including ensuring that the program provides participants with a meaningful opportunity to qualify for available rewards. Plans should also monitor future regulatory developments, as the federal agencies indicated additional guidance or regulations may be issued on these issues
We will provide updates as any future guidance is issued. Should you have questions in the meantime, please contact your Conner Strong & Buckelew account representative. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.
