Wellness Programs in Todays Regulatory Environment Larry Grudzien - - PowerPoint PPT Presentation

Larry Grudzien

Attorney at Law

How to Administer Wellness Programs in Today’s Regulatory Environment

AGENDA

• Review requirements under:
• HIPAA
• Internal Revenue Code
• ERISA
• GINA
• ADA
• ACA
• Take your questions

Wellness Program Requirements Under HIPAA

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.

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.

• 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);

• r
• 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).

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.

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

• r reduced.
• HHS has recommended that employers “consider

providing health promotion or wellness programs and disease management programs for employees as part

• f 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

• pportunities; newsletters; and discounts on co-pays for

required medications.

WHAT IS A WELLNESS PROGRAM?

• 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

HEALTH RISK ASSESSMENTS

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);

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.

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
• btaining a certain result on a biometric screening, or for maintaining a

certain body mass index (BMI).

HEALTH-CONTINGENT-BASED PROGRAMS

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; and
• The Plan Must Disclose That Alternative Health-Contingents (Or Waivers)

Are Available.

HEALTH-CONTINGENT-BASED PROGRAMS

The Reward Must Be No More Than 30% 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 30% of the cost of employee-only coverage.

HEALTH-CONTINGENT-BASED PROGRAMS

The Reward Must Be No More Than 30% of the Cost of Coverage –An Exception.

• The maximum reward increases from 30% to 50% for wellness programs that

are designed to prevent or reduce tobacco use.

• For a wellness program that is exclusively a tobacco-use prevention program,

the incentive could be as high as 50%.

• But if the wellness program has incentives for tobacco use and other health-

contingent factors (e.g., cholesterol levels), the incentives not related to tobacco use would have to be capped at 30%, and the total of all incentives (including the tobacco-related incentives) would be capped at 50%.

HEALTH-CONTINGENT-BASED 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
• r prevent disease.

HEALTH-CONTINGENT-BASED 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.

HEALTH-CONTINGENT-BASED PROGRAMS

HEALTH-CONTINGENT-BASED 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.

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).

HEALTH-CONTINGENT-BASED PROGRAMS

HEALTH-CONTINGENT-BASED PROGRAMS

The Reward Must Be Available to All Similarly Situated Individuals.

• A reward could be offered to a group of employees (but not retirees),
• r a group of employees from one location but not those from

another location.

• Similarly, a reward could be offered
• nly to employees and not to

spouses or dependent children,

• r only to employees and spouses

and not to dependent children.

The Reward Must Be Available to All Similarly Situated Individuals.

• 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

• ther health status, to ensure that outcome based initial standards are not

a subterfuge for discrimination or underwriting based on a health factor.

HEALTH-CONTINGENT-BASED PROGRAMS

The Reward Must Be Available to All Similarly Situated Individuals.

• 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.

HEALTH-CONTINGENT-BASED PROGRAMS

The Reward Must Be Available to All Similarly Situated Individuals.

• 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.

HEALTH-CONTINGENT-BASED PROGRAMS

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.

HEALTH-CONTINGENT-BASED PROGRAMS

The Reward Must Be Available to All Similarly Situated Individuals.

• 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.

HEALTH-CONTINGENT-BASED PROGRAMS

The Reward Must Be Available to All Similarly Situated Individuals.

• 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.

HEALTH-CONTINGENT-BASED PROGRAMS

The Reward Must Be Available to All Similarly Situated Individuals.

• 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.

HEALTH-CONTINGENT-BASED 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.

HEALTH-CONTINGENT-BASED 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.

• 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.

HEALTH-CONTINGENT-BASED PROGRAMS

Wellness Programs and Income Tax

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.

(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

(IRS Memo 2016-22031) 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.

TAXATION ISSUES

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.

WELLNESS PROGRAMS AND ERISA

Wellness Programs and GINA

• 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
• f such collection is neither for underwriting purposes nor prior to or in

connection with enrollment.

WELLNESS PROGRAMS AND GINA

• 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.

WELLNESS PROGRAMS AND GINA

• EEOC issued final regulations under GINA in May 2016 apply to

employers and clarify that offering limited incentives under an employee wellness program in exchange for information about a spouse’s manifested health conditions is permitted if specific conditions are met.

• The EEOC has issued a regulation removing the incentive provisions from

the EEOC’s final wellness regulations, effective January 1, 2019.

• A federal trial court had vacated the incentive provisions,

effective January 1, 2019, holding that the EEOC had not justified its conclusion that a 30% incentive level is a reasonable interpretation

• f the term “voluntary.”
• It is important to remember that the court order and the EEOC’s

regulation only affect the rules regarding an employer’s ability to provide incentives.

WELLNESS PROGRAMS AND GINA

Wellness Programs and ADA

• 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 be discriminatory under the ADA—even if HIPAA's nondiscrimination requirements are satisfied.

• Care should be taken in structuring wellness and disease-management

programs to ensure that qualified individuals with disabilities have equal access to program benefits, and that greater obligations are not imposed upon qualified individuals with disabilities to obtain equal benefits under such programs.

• This reasonable accommodation requirement applies to wellness

programs, regardless of whether they include disability-related questions

• r medical exams.

WELLNESS PROGRAMS AND ADA

• ADA prohibits disability-related medical examinations and inquiries,

subject to two exceptions.

• One exception permits medical examinations or inquiries if they are

“job-related and consistent with business necessity.”

• The other exception permits “voluntary medical examinations,

including medical histories, which are part of an employee health program” if the information obtained is maintained according to the confidentiality requirements of the ADA, and the information is not used to discriminate against the employee.

WELLNESS PROGRAMS AND ADA

• In May 2016, the EEOC issued final

regulations that address the extent to which an “employee health program” may

• ffer incentives for participation and still

qualify for the ADA exception for voluntary employee health programs.

• The precise boundaries of an “employee

health program” are uncertain because the term is not defined by the ADA or the 2016 Regulations, but it would seem to include most, if not all, wellness programs.

WELLNESS PROGRAMS AND ADA

• However, in December 2017, the court amended its prior decision and,

citing concern with the EEOC’s protracted timeline for addressing the court’s concerns, vacated the incentive provisions of the 2016 regulations effective January 1, 2019.

• The EEOC then removed the incentives section of the 2016 regulations

(29 CFR §1630.14(d)(3)), in accordance with the court order.

• Because the EEOC’s removal regulation did not address the status of

interpretive guidance included in the appendix to the wellness regulations, the status of two sections of the appendix—dealing with issues raised by the incentive limits—is uncertain.

WELLNESS PROGRAMS AND ADA

• In August 2017, a federal court ruled that the EEOC had not justified its

conclusion that a 30% incentive level (discussed below) is a reasonable interpretation of the term “voluntary” in the ADA and ordered the EEOC to reconsider the regulations.

• The court left the regulations in place during reconsideration, noting that

they had been applicable for eight months and that vacating them could cause widespread disruption and confusion.

WELLNESS PROGRAMS AND ADA

ACA

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.

WELLNESS PROGRAMS AND ADA

Employer Mandate:

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

exceed 9.86% of the employee’s household income in 2019.

• 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.

WELLNESS PROGRAMS AND ADA

QUESTIONS???

Larry Grudzien:

• Phone: 708-717-9638
• Email: larry@larrygrudzien.com
• Website: www. larrygrudzien.com

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