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Further Guidance on Permissible Wellness Programs

One of the many aspects of the Affordable Care Act (“ACA”) is an emphasis on wellness. The goal is to encourage employers to implement wellness programs for their employees (and in some cases, their dependents), thereby slowing the growth in health care costs. Late last month, the agencies charged with implementing the ACA proposed a new round of regulations governing such programs. Although these latest regulations generally reaffirm the approach taken in regulations proposed in 2006, they also modify the 20% cap on wellness program rewards, offer further guidance on the “reasonableness” of any alternative standard for obtaining a reward, and clarify both the annual-eligibility and disclosure obligations.

Types of Wellness Programs

As under the 2006 regulations, wellness programs are divided into “participatory” and “health-contingent” categories. The rules governing participatory wellness programs are unaffected by these latest proposals; all of the changes apply to health-contingent programs.

The regulations continue to define a “participatory” wellness program as one that does not condition any monetary reward on an individual satisfying a standard related to a health factor. Examples of participatory wellness programs include fitness club memberships, diagnostic testing programs (that do not condition a reward on the outcome of those tests), waivers of copayments or deductibles for prenatal care or well-baby visits, educational programs, and rewards for completing health risk assessments (again, without regard to the results of any HRA).

To pass muster under the ACA, a participatory wellness program must merely be made available to all similarly situated individuals. These programs need not comply with the five “consumer-protection conditions” to which health-contingent programs are subject (as described below).

A “health-contingent” wellness program is one that does condition a reward on an individual satisfying a health-related standard (or that penalizes an individual for not satisfying such a standard). Examples of health-contingent wellness programs include premium differentials for such things as tobacco use, high cholesterol, high blood pressure, unhealthy body mass index, or a high glucose level.

As was true under the 2006 proposed regulations (and as explained in our January 2007 article concerning those regulations), any health-contingent wellness program must satisfy the following five conditions:

  • Any reward (or penalty) must not exceed a specified percentage of the total cost of employee-only coverage. Under the 2006 regulations, this cap was set at 20%, measured by reference to the total of any employer and employee premiums.

  • The program must be reasonably designed to promote health or to prevent disease.

  • Eligible individuals must have the opportunity to qualify for the reward at least annually.

  • Any reward must be made available to all similarly situated individuals. In order to satisfy this condition, any individual for whom it is unreasonably difficult to satisfy the otherwise applicable health standard because of a medical condition, or for whom it is medically inadvisable to attempt to satisfy that standard, must be offered a reasonable alternative standard to qualify for the reward.

  • The plan to which the wellness program relates must disclose the availability of the reasonable alternative standard in all plan materials describing the terms of the wellness program.

The recent regulations revise or clarify these conditions in the following respects.

Maximum Reward or Penalty

The regulations specifically implement an ACA provision increasing the maximum reward (or penalty) under a health-contingent wellness program from 20% of the total premium to 30% of that premium. As under the 2006 regulations, this cap is applied by considering all of the health-contingent wellness programs for which an individual is eligible. However, any reward provided under a participatory program may be disregarded.

The ACA also authorized the agencies to increase the 30% cap to 50%. In these recent regulations, the agencies have exercised that authority – but only for wellness programs designed to prevent or reduce the use of tobacco. The agencies justify the 50% figure for such tobacco-related programs by pointing to other ACA provisions allowing insurers in the individual and small-group markets to charge tobacco users up to 150% of the premium charged to non-tobacco users who are otherwise similarly situated. (At the same time, other regulations make clear that insurers in these individual and small-group markets must offer a wellness program of the type described in these regulations in order to assess this 50% premium surcharge for tobacco use.)

As enacted, the wellness program provisions of the ACA would not apply to “grandfathered” plans or insurance policies. In these regulations, however, the agencies have chosen to give grandfathered plans the same opportunity to offer these larger rewards. The goal is to arrive at a uniform set of standards for wellness programs throughout the entire health-care market.

Reasonable Alternative Standard

Of the five consumer-protection conditions listed above, the one prompting the most questions has been the requirement that a “reasonable alternative standard” be made available for obtaining a wellness program reward if a medical condition makes it either unreasonably difficult or medically inadvisable to attempt to satisfy an otherwise applicable health standard. The recent regulations provide substantial additional guidance on this point.

For instance, they make clear that, rather than offering an alternative standard, a plan or insurer may simply waive any penalty (or provide the reward). Moreover, this may be done either for an entire class of individuals, or on an individual-by-individual basis.

The regulations also emphasize that a reasonable alternative standard must be offered each year that an individual’s medical condition makes it either unreasonably difficult or medically inadvisable to attempt to satisfy the program’s basic standard. The alternative standard may be the same from year to year, or the program may incorporate a “step-therapy” approach.

A question that was not directly answered in the 2006 regulations was whether a participant could be forced to pay the costs of any alternative standard. For instance, could a smoker be required to pay for a smoking cessation program, or to purchase a nicotine patch? These recent regulations answer that question in the negative. In general, a participant who qualifies for an alternative standard must be able to obtain the same reward (net of any additional costs) as other wellness program participants.

Along these lines, the regulations provide specific guidance in the following three contexts:

  • If the reasonable alternative is the completion of an educational program, the plan must make the program available to eligible participants (rather than forcing participants to find a program), and it must pay the full cost of the program.

  • If the reasonable alternative is a diet program, the plan must pay any membership or participation fee for that program (although an individual may be required to purchase any food).

  • If the reasonable alternative involves compliance with the recommendations of a medical professional retained by the plan, and an individual’s personal physician states that the plan professional’s recommendations are not medically appropriate for that individual, the plan must provide a reasonable alternative standard that accommodates the recommendations made by the individual’s physician. To the extent that this physician’s recommendations impose any additional costs, however, the plan may impose its standard cost-sharing provisions for coverage of medical items and services.

Physician’s Statement

The 2006 regulations authorized a plan to require verification – such as a statement from an individual’s personal physician – that a health factor actually makes it unreasonably difficult or medically inadvisable for the individual to attempt to satisfy a health standard. The ACA limited this provision, however, so that such physician verification may be required only “if reasonable under the circumstances.”

The recent regulations provide that it would not be reasonable for a plan to seek verification of an individual’s entitlement to an alternative standard if that claim is obviously valid, based on the nature of the individual’s medical condition that is already known to the plan. In response to the 2006 regulations, many plans modified their wellness programs so as to make physician-verification a mandatory condition for any alternative standard. Those plans will want to revisit their procedures to ensure that they comply with this ACA restriction.

Disclosure Requirements

Although the recent regulations retain the disclosure requirement set forth in the 2006 regulations, the agencies have clarified an important point. A plan must disclose the availability of alternative means of qualifying for a wellness program reward only in plan materials describing the terms of a health-contingent wellness program. This disclosure obligation does not apply to plan materials that merely mention the availability of a wellness program, without describing its terms. Thus, for instance, a summary of benefits and coverage (“SBC”) need not mention the availability of an alternative standard if the SBC merely notes that cost-sharing provisions may vary, based on participation in a health-contingent wellness program.

The 2006 regulations included model language that plan sponsors and insurers could include in communication materials as a way of satisfying their obligation to disclose the availability of alternative standards for obtaining a reward or avoiding a penalty. The recent regulations include entirely new model language. This is designed to be easier for individuals to understand, thereby increasing the likelihood that those who qualify for an alternative standard will actually contact the plan or insurer to request it. This new model language reads as follows:

Your health plan is committed to helping you achieve your best health status. Rewards for participating in a wellness program are available to all employees. If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the reward by different means. Contact us at [insert contact information] and we will work with you to find a wellness program with the same reward that is right for you in light of your health status.

Examples in the recent regulations include other disclosure language that is better suited to specific types of programs. Plan sponsors will want to consider substituting some or all of this new language for their existing disclosures.

Conclusion and Recommendations

Recent years have seen a definite shift away from participatory wellness programs in favor of health-contingent programs. These regulations therefore come at an excellent time. The revisions they would make to the existing wellness program rules are to apply to plan or policy years beginning on or after January 1, 2014. Plan sponsors and insurers that rely on health-contingent wellness programs will want to take this guidance into account as a way of avoiding the substantial penalties that might otherwise be assessed for any ACA violation.