An organizations medical plan is not the only employee benefit that will be impacted by PPACA in 2015. Final regulations published in the June 3, 2013 Federal Register increases the maximum permissible reward (or penalty) under a "health contingent" wellness program offered in connection with an employer group health plan (insured or self-insured). These new mandated requirements went into effect for plan years beginning on or after January 1, 2015. Specifically, the maximum rewards (or penalties) may total up to 30% of the total cost of coverage (including both employer and employee contributions), up from 20% under current law. In addition, the final regulation increases the maximum permissible reward (or penalty) to 50% for wellness program incentives designed to prevent or reduce tobacco use.
The final regulation, which implements provisions of the Patient Protection and Affordable Care Act of 1996 (PPACA) and amends guidance previously issued under the Health Insurance Portability and Accountability Act (HIPAA), also includes other significant clarifications and modifications regarding the design of health-contingent wellness programs and the reasonable alternative standards employer plan sponsors must offer in order to implement compliant wellness programs and avoid prohibited discrimination based on health status factors.
The final regulation, and the opportunity to increase wellness financial rewards (and penalties), applies for plan or policy years beginning on and after January 1, 2014.
Types of Wellness Programs
The final regulation continues to divide wellness programs into two categories, and newly divides health-contingent wellness programs into two subcategories:
- Participatory wellness programs
- Health-contingent wellness programs
o Activity-only wellness programs
o Outcome-based wellness programs
Participatory wellness programs
Participatory wellness programs are programs that either: (i) do not provide a reward or (ii) do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor. In addition, participatory wellness programs must be made available to all similarly situated individuals, regardless of health status.
Participatory wellness programs are not required to meet the five special requirements applicable to health-contingent wellness programs (see below). Therefore, any rewards provided in connection with a participatory wellness program do not count toward the 30% - 50% maximum permissible reward thresholds. Furthermore, reasonable alternative standards need not be made available under participatory wellness programs.
Health-contingent wellness programs
In contrast, health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward or require an individual to undertake more than a similarly situated individual based on a health factor in order to obtain the same reward. This standard may be performing or completing an activity relating to a health factor, or it may be attaining or maintaining a specific health outcome. Ostensibly, this represents discrimination among plan participants and beneficiaries based on their health status, which is generally prohibited under current HIPAA rules and the PPACA. However, if a group health plan or insurer complies with the five special (and revised) requirements for health-contingent wellness programs (as described below), the final regulation continues to permit such rewards, similar to the permissibility of such wellness program rewards under current HIPAA rules.
The final regulation subdivides the category of health- contingent wellness programs into two new subcategories:
(A) activity-only wellness programs and (O) outcome-based wellness programs. As described below, the final regulation imposes significant differences in how the wellness program rules apply to each of these types of programs, particularly with respect to the reasonable alternative standard requirement.
Activity-only wellness programs
Under an activity-only wellness program, an individual is merely required to perform or complete an activity related to a health factor in order to obtain a reward. Activity-only wellness programs do not require an individual to attain or maintain a specific health outcome. Examples of activity- only wellness programs include:
- Walking programs
- Diet programs
- Exercise programs
Outcome-based wellness programs
Alternatively, under an outcome-based wellness program, an individual must attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) in order to obtain a reward.
Generally, in order for outcome-based wellness programs to comply with the final regulation, the program generally has two tiers:
- Tier 1: A measurement, test, or screening as part of an initial standard
- Tier 2: A program that targets individuals who do not meet the initial (healthy) standard in Tier 1 with required follow-up wellness activities, for example, for individuals who do not attain or maintain the specific healthy outcome in Tier 1, compliance with an educational program or another activity may be offered as an alternative to achieve the same reward as Tier 1 healthy individuals.
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