In preparation for beach vacations, many Americans are hitting the gym or eating healthier in an effort to get “beach ready.”  With the recent proposed regulations issued by the EEOC, it’s time for employers to take a look at their wellness programs to see if those programs are beach ready.  In other words, are you ready to comply with all of the legal compliance issues affecting wellness programs?

Compliance Background

Wellness programs can raise many legal compliance issues—tax issues regarding rewards offered, cafeteria plan issues, HSA eligibility issues, COBRA, ERISA, GINA, ADA, and ADEA to name just a few.  HIPAA’s nondiscrimination and wellness program regulations as well as HIPAA’s privacy and security rules may also apply to wellness programs.

In May 2013, the IRS, DOL, and HHS issued final regulations addressing changes relating to wellness programs under the ACA.  The final regulations amended the HIPAA wellness regulations issued in 2006 and are effective for plan years beginning on or after January 1, 2014.  The final regulations addressed the following:

• Increase in the maximum permissible reward under a health-contingent wellness program from 20% to 30% of the cost of coverage (and up to 50% for wellness programs related to tobacco use);
• Clarified what constitutes a “reasonable design” for health-contingent wellness program;
• Distinguished between health-contingent wellness programs that are “activity-only” programs versus “outcome-based” programs and the differing requirements that apply based on that classification;
• Clarified the reasonable alternative standard that must be offered for activity-only and outcome-based health-contingent wellness programs;
• Clarified when a health-contingent wellness program can require medical verification concerning an individual’s ability to comply; and
• Required notification of the availability of a reasonable alternative standard and model language.

Long-Awaited ADA Guidance

The ADA generally prohibits discrimination against disabled individuals and limits when employers may require physical examinations or medical inquiries.  Medical examinations and inquiries can be conducted as part of a wellness program, provided that participation is “voluntary” and the information obtained is maintained according to the ADA confidentiality requirements and is not used to discriminate against an employee.  Until recently, the EEOC has offered very little guidance regarding the “voluntary” requirement as it relates to wellness programs.  In late April 2015, the EEOC issued proposed regulations regarding wellness programs and ADA compliance.  The proposed regulations provide long-awaited guidance on the ADA “voluntary” requirement.

• Maximum Incentives – Conflicts with HIPAA Wellness Program Regulations. A wellness program that is part of a group health plan and includes disability-related inquires or medical examinations may offer limited incentives and remain voluntary. The total incentives (whether rewards or penalties) available under all programs (both participatory wellness programs and health-contingent programs) may not exceed 30% of the cost of employee-only coverage. The maximum incentive provisions in the EEOC proposed regulations create three conflicts with the HIPAA wellness regulations:

1. Only health-contingent wellness programs are subject to an incentive limit under the HIPAA wellness program regulations. The EEOC proposed regulations extend an incentive limitation to participatory wellness programs that are part of a group health plan and include disability-related inquiries or medical examinations.
2. When an employer allows dependents to participate in a health-contingent wellness program, the HIPAA wellness program regulations establish an incentive limit of 30% of the cost of family coverage. The EEOC proposed regulations restrict the incentive based on the cost of employee-only coverage.
3. The HIPAA wellness program regulations allow an incentive up to 50% for tobacco programs. Under the EEOC proposed regulations, this increased incentive limit would only be allowed if the wellness program does not include an inquiry or examination. Meaning that a wellness program that tests for nicotine would not be allowed to offer an incentive up to 50% of the cost of coverage under the EEOC proposed regulations (rather, would be restricted to 30% of the cost of employee-only coverage). This provision may also affect employers with tobacco-related incentives that affect premiums who have included the incentive in determining affordability for purposes of the play or play “unaffordable coverage” penalty.

•  No Required Participation or Adverse Actions. An employer cannot require participation in a wellness program, deny coverage under any of its group health plans for non-participation or limit the extent of such coverage, or take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten an employee who does not participate or fails to meet the program standards.
• Notification. Employers must provide a notice that clearly explains what medical information will be obtained, who will receive the medical information, how the medical information will be used, the restrictions on its disclosure, and the methods employed to prevent improper disclosure of the information.
• Confidentiality. Medical information obtained by wellness programs may only be disclosed to employers in aggregate form, except as needed to administer the plan. The Appendix to the regulations notes that when a wellness program is part of a group health plan, the medical information obtained by the wellness program will be considered protected health information (PHI) subject to the protections under HIPAA’s privacy and security rules.
• Reasonable Design. The ADA imposes a reasonable design requirement similar to the requirement imposed on wellness programs under the HIPAA wellness regulations. The proposed regulations provide that to meet this standard, a wellness program must (1) have a reasonable chance of improving health or preventing disease; (2) not be overly burdensome; (3) not be a subterfuge for violating the ADA or other laws preventing employment discrimination; and (4) not highly suspect in the method chosen to promote health or prevent disease.

 Additional Guidance from the Agencies

In addition to the EEOC proposed regulations, the IRS, DOL, and HHS jointly issued FAQs on wellness programs.  The ACA Implementation FAQs Part XXV addresses the reasonable design requirement under HIPAA for health-contingent wellness programs and provides that compliance with HIPAA is not determinative of the program’s compliance with other laws.  In a separate FAQ, HHS addressed how the HIPAA privacy and security rules apply to wellness programs.

 Don’t Get Burned

Wellness programs are an increasingly popular tool for employers to help employees and dependents lower existing health risks, make healthy lifestyle changes, and reduce overall health care spending related to manageable health risks.  Properly implemented and managed wellness programs can create successes for employees, dependents, and employers.  However, wellness compliance is often a secondary thought (or not considered at all) as employers explore wellness options.   Please contact our office if you have any questions about your wellness program and its legal compliance obligations.

Dated:  May 22, 2015