Final Regulations Issued on Wellness Programs

• Date: 01 November 2013
• Published date: 01 November 2013
• DOI: http://doi.org/10.1002/jcaf.21913
• Author: Shirley Dennis‐Escoffier

IRS

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© 2013 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.21913

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Final Regulations Issued on Wellness

Programs

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.

BACKGROUND

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