“My emphysema makes me tired all the time. Can I adjust my work schedule?”
“My weight gives me back problems. I need a special chair with added support.”
“I’m a smoker, so I need occasional smoking breaks.”
Employers are being forced to address wellness issues and their impact on their businesses. However, employers have been understandably wary of risking legal problems if they link health factors to what employees pay for benefits. Experts anticipate the practice will grow now that federal regulations have been finalized covering how wellness programs can comply with nondiscrimination requirements under the Health Insurance Portability and Accountability Act.
In many cases, wellness programs differentiate among plan participants, based on health status, by giving rewards to healthy people or charging more for health coverage to those individuals who engage in unhealthy activities or fail to meet health standards.
The Health Insurance Portability and Accountability Act prohibits discrimination against health plan parti- cipants and beneficiaries based on “health status-related factors.” These factors include medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability and disability. However, under the new final regulations, HIPAA now pro- vides that a wellness program can discriminate based on health status-related factors as long as certain requirements are met.
These final regulations, issued jointly by the Departments of Treasury, Labor and Health and Human Services, provide helpful clarifications and modifications to the interim rules published in 1997 and 2001. The final regulations apply to plan years beginning on and after July 1, 2007. For most calendar year plans, that will mean compliance on Jan. 1, 2008.
But according to labor law and employee benefits at- torney Beth Rubin of Dechert LLP in Philadelphia, these regulations have not been well publicized. “A lot of em- ployers did not know about these rules and still don’t.”
“Employers tend not to get the memo on these things until they do something wrong,” cautioned Alden Bianchi, practice group leader for Mintz Levin’s employee benefits and executive compensation practice in Boston. “The news does not seem to have gotten out and a lot of programs are totally disregarding these rules.”
While establishing five non-discrimination requirements for wellness programs, the regulations also clarify that rewards to health plan participants that are not based on satisfying a standard related to a health factor are not subject to the requirements. For example, plans that reimburse for the cost of gym memberships, health education seminars and other programs, but do not require participants to satisfy health standards, are not subject to these rules.
“Program rewards based simply on participating got a carte blanche pass by the regulations,” said employment, labor and benefits attorney Thomas Greene of Mintz Levin in Boston.
But wellness programs that do provide rewards based on achievement of a standard related to a health factor must satisfy all of the following five rules:
Limited reward — the 20 percent rule
The amount of the reward for all wellness programs with respect to the plan may not exceed 20 percent of the cost of employee-only coverage, or 20 percent of the cost of employee-plus-dependent coverage if dependents are eligible to participate in the wellness program.
A reward for this purpose generally is in the form of: a discount; rebate of a premium or contribution; waiver of a cost-sharing mechanism; absence of a surcharge; or the value of a benefit that would otherwise not be provided under the plan.
The 20 percent limit on the size of the reward in the final regulations allows plans and issuers to maintain flexibility in their ability to design wellness programs while avoiding rewards or penalties so large as to deny coverage or create too heavy a financial penalty on individuals who do not satisfy an initial wellness program standard that is related to a health factor.
The program must be “reasonably designed” to promote health or prevent disease.
The rule provides that if a program has a reasonable chance of improving the health of participants, is not overly burdensome, is not a subterfuge for discriminating based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease, it satisfies this standard.
The “reasonably designed” requirement is intended to be an easy standard to satisfy. There does not need to be a scientific record that the method promotes wellness; experimentation in diverse ways of promoting wellness, such as aromatherapy, could meet the requirements.
The program must give eligible individuals the opportunity to qualify for the reward at least once a year.
Permitting individuals to qualify for a reward at least once a year will not automatically satisfy the “reasonably designed” standard. Instead, the once-per-year require-ment is independent of the requirement that the program be reasonably designed to promote good health or prevent disease; both must be satisfied.
Available to all similarly situated individuals
The reward must be available to all similarly situated individuals. Therefore, if someone’s medical condition keeps him or her from achieving a reward under the program, or if it is medically inadvisable for the indi- vidual to try to achieve the reward, then an alternative way to achieve the reward must be made available. If necessary, the wellness program may require verification of these circumstances, including a statement from an individual’s physician.
The regulations offer several explanations of how wellness programs can be designed to meet this require-ment. For example, if a wellness program requires someone to maintain a body-mass index target or specific cholesterol level in order to receive a reward, that reward must also be available through alternate means to in- dividuals who cannot meet the requirements because of health factors, or because it is medically inadvisable to try. This alternative can be designed specifically for the individual, or it can be generic.
Another common example is a wellness reward based on smoking cessation. Since nicotine addiction is a medical condition, it may be unreasonably difficult for a smoker to satisfy an initial program standard of not smoking. In that case, the individual must be offered a reasonable alternative standard, such as attendance at stop-smoking clinics, regardless of whether he actually quits smoking, to achieve the reward.
For the alternative standard to be reasonable, the in- dividual must be able to satisfy it without regard to any health factor and could include simply following a physician’s advice regarding the health factor.
All wellness program materials that describe the terms of the program must disclose the availability of a reason- able alternative standard for obtaining a reward, or if appropriate, disclose that the standard will be waived. The regulations offer sample language for meeting this requirement:
If it is unreasonably difficult due to a medical condition for you to achieve the standards for the reward under this program, or if it is medically inadvisable for you to attempt to achieve the standards for the reward under this program, call us at [insert telephone number] and we will work with you to develop another way to qualify for the reward.
Failure to comply
Failure to comply with the HIPAA nondiscrimination requirements will subject the wellness plan to excise taxes, generally amounting to $100 for each day the plan is not compliant with respect to each individual to whom the failure relates. In addition, compliance with HIPAA’s nondiscrimination rules does not affect whether health plan provisions or practices comply with the Internal Revenue Code, ERISA, the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, the Family Medical Leave Act, other HIPAA provisions (including privacy and security regulations), and other state and federal laws.
“These regulators are balancing the desire to encourage wellness programs with the potential for abuse, and yet they’ve been roundly criticized for it,” said Bianchi. “Critics are bemoaning the regulations as too restrictive. I think they are restrictive, but the agencies that wrote these rules had two competing considerations they had to balance. I think they did a credible job.”
Even while promoting the new regulations, Bianchi voiced several issues that might give one reason to pause. For employers, if they “expect these wellness rules to drive down the costs of healthcare, that’s not going to happen, not with these rules.”
Many plans also incorporate health risk assessments, private information that ideally should remain shielded from the employer. Bianchi warns that the EEOC doesn’t believe such assessments are legal and that the EEOC will likely issue a rule addressing this issue. “That would be unfortunate because you could prepare a plan to help with a potential health problem before it occurs,” he said.
Bianchi also has concerns about implementation and enforcement: With the regulations promulgated by three different agencies, enforcement could fall between the cracks (although he cautions that the Department of Labor is auditing this issue vigorously).
Rubin advises that once a wellness program has been structured to fit within applicable regulatory schemes, the program should be described to employees with care. “Even the most carefully structured program may raise privacy and other concerns from employees. Employers therefore should have clear, concise communication materials readily available, including questions and answers describing the information flow and stating whether the employer will receive identifiable health information,” cautioned Rubin. “Employees are becoming more sensitized to and less shy about raising privacy concerns.”
But, according to Rubin, the real issue is whether the reasonable alternative standard that a plan must offer will cause a wellness program to lose its punch.
“The regulations generally say that if you provide a reward related to a health factor achievement, you have to provide a reasonable alternative if the employee’s doctor says ‘this person can’t meet the standard for a medical reason,’” said Rubin. “I’ve had clients who then say the accommodation just took all the teeth out of their wellness program, taking away everything they are trying to achieve.”
To date, Rubin hasn’t found this to be true. But she remains guarded on this issue, believing that not many people have focused on the reasonable alternative requirement just yet.
“Last year, we had many clients with this in their plans, and we did not find it destroyed the value of the program. We still have to wait and see, once more wellness programs fit into regulations and deal with reasonable alternative language.”
Generally speaking, Russell Chapman, of the national employment and labor law firm Littler Mendelson PC, likes the regulations, especially the reasonable alternative standards. While one could “argue the accommodation standard attenuates the benefits of regulations, basically you have to go through what looks like the ‘interactive process’ of the ADA,” he said. Since the ADA still applies to wellness programs, it “looks like they did a good job of crafting the regulations so it would meet ADA standards. I like that aspect of the regulations,” said Chapman.
But while he finds the regulations helpful in that they provide a structure for wellness programs and health plans, he does find the 20 percent limit low. “It doesn’t begin to address added cost of smoking or obesity. I have seen obese workers’ healthcare costs are six times those of worker within normal weight limits,” said Chapman. “Twenty percent is a start. The one change I’d like in regulations is to see that number changed from 20 percent to upwards of 30 percent to have a greater impact.”
Greene also has concerns about the cap on potential rewards. “If the ideal would be making sure people have positive outcomes, by capping the amount of benefit involved, someone could say, ‘It’s just not worth my effort.’”
Greene would also like to see wellness programs designed in such a way as to maximize tax benefits. He believes there should be additional coordination with IRS to say benefits are tax-exempt to the extent of the financial reward involved. “Additional tax incentives may have given the regulations more oomph.”
But in the final analysis, Greene points out that the good thing about the regulations is that “they incentivised rewards for participation, which is first step to getting people into the (wellness) pipeline.”