Final Regulations Issued on Wellness Programs

Date01 November 2013
Published date01 November 2013
AuthorShirley Dennis‐Escoffier
© 2013 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.21913
Final Regulations Issued on Wellness
Many employers who pro-
vide health insurance have intro-
duced wellness programs. The
purpose of these programs is to
encourage employees to make
healthier lifestyle choices in an
effort to control health care
costs. Wellness programs can
take a variety of different forms
that typically link discounts or
other rewards to certain healthy
lifestyles. Starting in 2014, these
programs will be able to offer
higher financial rewards to
participants achieving healthy
behaviors, such as quitting
smoking, but must follow a
strict set of rules to comply
with the standards prohibiting
discrimination against people
based on health factors. The
recently issued final regulations
clarify how wellness programs
must be structured to comply
with these requirements specifi-
cally focusing on the design of
health-contingent wellness pro-
grams and the alternatives they
must offer to satisfy the nondis-
crimination rules.
The Health Insurance Por-
tability and Accountability Act
of 1996 (HIPAA) added non-
discrimination rules for health
plans in Section 9802 of the
Internal Revenue Code. These
rules prohibit group health
plans from imposing different
copayments, deductibles, or
other cost-sharing provisions on
the basis of any health factor
(including health status, medi-
cal condition, claims experience,
receipt of health care, medical
history, genetic information, evi-
dence of insurability, or disabil-
ity). In addition, a group health
plan may not require that an
individual pay a higher premium
than another “similarly situ-
ated” participant, based on these
health-related factors. However,
HIPAA contains an exception
to this requirement for wellness
programs. This exception allows
benefits, premiums, and contri-
butions to vary depending on
the employee’s participation in
a wellness program, if that pro-
gram meets certain conditions.
In 2006, regulations were
issued on the nondiscrimina-
tion provisions of HIPAA
that provided a framework for
structuring wellness programs.
These regulations classified
wellness programs into two
basic types: (a) participatory
wellness programs and (b)
health-contingent wellness pro-
grams. Participatory wellness
programs provide incentives
based solely on participation
in a wellness program; also
included in this category are
programs that do not offer any
reward at all. These participa-
tory programs are considered
to comply with HIPAA non-
discrimination requirements
without having to satisfy any
additional requirements as long
as they are made available to all
similarly situated individuals.
Health-contingent wellness
programs are based on an indi-
vidual’s meeting a certain stan-
dard relating to a health factor,
such as not smoking, to obtain
a reward. These programs are
required to meet five require-
ments to comply with HIPAA:
1. Limited reward: The reward
offered by this wellness pro-
gram must not exceed 20%
of the cost for employee
coverage under the plan.
2. Reasonable design: The
program must be “reason-
ably designed to promote
health or prevent disease.”
This standard is satisfied if
the program has a reason-
able chance of improving
Shirley Dennis-Escoffier

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