ACA Final Regulations for Incentives-based Wellness Programs

Final Regulations consistent with the Affordable Care Act (ACA), regarding nondiscriminatory wellness programs became effective August 2, 2013, and apply to group health plans, group health insurance issuers, and individual health insurance issuers for plan years beginning on or after January 1, 2014. Under the regulations, incentives-based wellness programs are divided into two categories (1) participatory wellness programs and (2) health-contingent wellness programs and both are required to be made available to all similarly situated individuals. The overall requirement of the final regulations is that wellness programs be designed to promote health and prevent disease, and not be a subterfuge for discrimination or underwriting based on a health factor.

Reward Defined (p.33160): References in the final regulations apply to both individuals obtaining a reward and to plans providing a reward and includes both obtaining a reward (such as a discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism (such as a deductible, copayment, or coinsurance), an additional benefit, or any financial or other incentive) and avoiding a penalty (such as the absence of a surcharge or other financial or nonfinancial disincentives).

Participatory Wellness Programs (p.33160), which are the majority of wellness programs, are defined by the final regulations as “programs that either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor.” Participatory wellness programs are required to be made available to all similarly situated individuals. They are not required to meet the requirements applicable to health-contingent wellness programs (p.33161).

Examples of Incentives-based Participatory Wellness Programs

  • Reimbursement for all or part of fitness membership costs
  • A reward for participating in a diagnostic testing program that does not base any part of the reward on outcomes
  • A reward to employees for attending a monthly, no-cost health education seminar
  • Waiver of co-payment or deductible requirement under a group health plan for preventive care (e.g. prenatal care, well-baby visits)
  • Reimbursement for costs for participating in a smoking cessation program, regardless of whether employee quits or not
  • Reward for completing a health risk assessment (HRA) without any further action required

Health-Contingent Wellness Programs (p.33161) are defined by the final regulations as programs that “require an individual to satisfy a standard related to a health factor to obtain a reward (or require an individual to undertake more than a similarly situated individual based on a health factor in order to obtain the same reward).” Health-contingent wellness programs are subdivided into two categories, both of which are permissible only if they comply with the regulatory requirements.

  1. Activity-only wellness programs: When an individual is required to perform or complete an activity related to a health factor in order to obtain a reward. They do not require an individual to attain or maintain a specific health outcome.Examples: Walking, diet or exercise programs
  2. Outcome-based wellness programs: When an individual must attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screening) in order to obtain a reward. This approach is intended to ensure that outcome-based programs are more than mere rewards in return for results in biometric screenings or responses to a health risk assessment and are instead part of a larger wellness program to promote health and prevent disease. These programs generally have two tiers.
    • Tier 1: A measurement or test or screening as part of an initial standard
    • Tier 2: A larger program that then targets individuals who do not meet the initial standard with wellness programs

    Examples: Program that tests individuals for specified medical conditions or risk factors (such as high cholesterol, high blood pressure, abnormal BMI, or high glucose level) and provides a reward to employees identified within normal or healthy range (or at low risk for certain medical conditions), while requiring employees who are identified as outside the normal or health range (or at risk) to take additional steps (such as meeting with a health coach, taking a health or fitness course, adhering to a health improvement action plan, or complying with a health care provider’s plan of care) to obtain the same reward.

Regulatory Requirements for Health Contingent Wellness Programs (p.33162): Applies to both activity-only and outcome-based wellness programs.

  1. Frequency of Opportunity to Qualify (p.33162): Eligible individuals are given the opportunity to qualify for the reward at least once per year
  2. Size of Reward (p.33162): The total amount of the reward, whether offered alone or coupled with rewards for other health-contingent wellness programs, with respect to a plan cannot exceed the applicable percentage of the total cost of employee-only coverage under the plan, taking into account both employer and employee contributions towards the cost of coverage for the benefit package under which the employee is (or the employee and any dependents are) receiving coverage. Plans and issuers have flexibility to determine apportionment of the reward among family members, as long as the method is reasonable.
    • Applicable Percentage (p.33166): The applicable percentage increases the reward from 20 percent to 30 percent, with an increase of an additional 20 percent to as much as 50 percent for health-contingent wellness programs designed to prevent or reduce tobacco use.
  3. Reasonable Design (p.33162): Wellness programs are considered reasonably designed if it has a reasonable chance of improving the health of, or preventing disease in participating individuals, and is not overly burdensome, is not a stratagem for discrimination based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease. Plans and issuers have flexibility and innovation is encouraged. Programs are not required to be accredited or based on particular evidence-based clinical standards; however, those that are may increase the likelihood for success and are encouraged as a best practice.Example: Programs based on CDC’s Guide to Preventive Services
  4. Uniform Availability and Alternative Standards* (p.33163-64): The full reward, whether activity-only or outcome-based, must be available to all similarly situated individuals. The same, full reward must be available to individuals who qualify by satisfying a reasonable alternative standard as is provided to individuals who qualify by satisfying the program’s otherwise applicable standard for that plan year. A plan or issuer may always waive the otherwise applicable standard and provide the reward. Plans and issuers have flexibility in designing reasonable alternative standards, determining how to provide the portion of the reward corresponding to the period before an alternative was satisfied (e.g., payment for the retroactive period or pro rata over the remainder of the year), and whether to provide the same reasonable alternative standard to an entire class of individuals or provide the standard on an individual-by-individual basis. All the facts and circumstances are taken into account in determining whether a plan or issuer has provided a reasonable alternative standard, including but limited to the following factors listed in the final regulations:
    • If the reasonable alternative standard is completion of an educational program, the plan or issuer must make the educational program available or assist the employee in finding such a program (instead of requiring an individual to find such a program unassisted) and may not require an individual to pay for the cost of the program.
    • The time commitment required is reasonable.
    • If the reasonable alternative standard is a diet program, the plan or issuer 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 a plan standard (including, if applicable, the recommendations of the plan’s medical professional) is not medically appropriate for that individual, the plan or issuer must provide a reasonable alternative standard that accommodates the recommendations of the individual’s personal physician with regard to medical appropriateness.

    *Requirement Applied Differently by Category (p.33164-66)

    • Under activity-only wellness programs, it is permissible to seek verification, such as a statement from the individual’s personal physician, that a health factor makes it unreasonably difficult to satisfy, or medically inadvisable to attempt to satisfy the applicable standard.
    • Under outcome-based wellness programs, it is not reasonable to require verification.
  5. Notice of Availability of Reasonable Alternative Standard (p.33166): Plans and issuers are required to disclose the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the possibility of waiver of the otherwise applicable standard) in all plan materials describing the terms of a health-contingent wellness program. Disclosure of the availability of a reasonable standard includes contact information for obtaining the alternative and a statement that recommendations from an individual’s personal physician be accommodated. This notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard.
    • Disclosure is not required when plan materials merely mention a program is available without describing terms.Example: A summary of benefits and coverage required under section 2715 of the PHS Act that notes that cost sharing may vary based on participation in a diabetes wellness program, without describing the standards of the program, would not require disclosure.
    • Disclosure is required when plan materials reference a premium differential based on tobacco use or is based on the results of a biometric exam.Example: A plan disclosure that references a premium differential based on tobacco use, or based on the results of a biometric exam, is a disclosure describing the terms of a health-contingent wellness program and, therefore, must include disclosure.

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