New Employer Wellness Program Regulations Take Effect January 1, 2014

By Cindy Boyle Lande 

The Affordable Care Act (“ACA”) prohibits employers from discriminating between employees based on health status for purposes of eligibility, benefits, or premiums. In June, the Department of Treasury, Department of Labor, and Department of Health and Human Services issued final regulations regarding workplace wellness programs. The new regulations allow an employer to implement a workplace wellness program, notwithstanding the fact that the employer will provide certain benefits to employees who do participate in the wellness program but not to employees who do not participate -- so long as the program meets certain conditions.

The requirements that will apply to a wellness program depend on the type of the wellness program. The new regulations divide wellness programs in to three categories:

1. Participatory Wellness Programs: These programs reward participants for participating in a health-promoting activity such as joining a gym, completing a diagnostic testing or health coaching program, or scheduling regular preventative care appointments, without consideration of whether the participant meets any specific health-related standard.
2. Activity-Only Wellness Programs: These programs reward participants for engaging in activities related to a specific health standard, such as walking or exercising a certain number of times per month. Rewards under activity-only wellness programs are not based on the specific health outcome of such activities.
3. Outcome-Based Wellness Programs: These programs reward participants for achieving a specific health standard or outcome, such as losing thirty pounds or testing at a “normal” level on biometric tests such as blood pressure or BMI.

Employers offering only participatory wellness programs must offer participation to all similarly situated individuals, regardless of their health status. Employers offering activity-only or outcome-based programs must meet additional requirements because the risk of discrimination between employees based on health status is greater under those programs. Those requirements are, generally:

1. Frequency of Opportunity to Qualify: The wellness program must allow participants to qualify for the program reward at least once each year.
2. Size of Reward: The total reward resulting from satisfying health-contingent standards under the program may not exceed 30% of the total insurance premium for the person(s) covered under the program. This percentage is increased to 50% to the extent that the increase in the reward is the result of a program related to smoking cessation.
3. Reasonable Design: The program must be reasonably designed to promote health or prevent disease. This requirement considers a variety of program-specific facts, including the burden to participants, the likelihood of program success, and whether the program is a cover for discriminating between employees based on health status.
4. Reasonable Alternative Standard: The program must provide a reasonable alternative standard for any individual who cannot meet a required standard or has been advised by a doctor that it would be dangerous to try to meet the standard.
5. Notice of Availability of Reasonable Alternative Standard: In addition to offering a reasonable alternative, the program must notify participants, in all materials describing the terms of the wellness program, that reasonable alternatives are available and the program will respect the recommendations of a participant’s primary physician.

These new requirements take effect beginning January 1, 2014. Unlike other provisions under the ACA, the employer wellness program requirements apply to both grandfathered and non-grandfathered plans. As a result, all employers currently offering a wellness program or considering implementing a wellness program should review their wellness program to make sure it complies with the new regulations.

This posting is intended to provide a general overview of the requirements under the new wellness program regulations, and is by no means exhaustive. You should contact an experienced benefits attorney for guidance on how the new requirements apply to you.