Navigate HIPAA Nondiscrimination Compliance for Wellness Programs

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1 Navigate HIPAA Nondiscrimination Compliance for Wellness Programs 3/6/2014 By Brian M. Murray and Addisah Sherwood Employer-provided health coverage has been a bedrock of the employment relationship for as long as most people can remember. But, with the advent of health care exchanges and an emerging political consensus about the need to close the federal budget deficit through the elimination of tax deductions, employer-provided health coverage might soon become a thing of the past. In this environment, there is no shortage of difficult questions for employers. Should they continue providing group health coverage to their employees? Should they move employees to health care exchanges? Are there ways to reduce or avoid the penalties under the health care reform law? The right answers to these and similar questions require careful, expert analysis of each employer s facts and circumstances. Happily, there is a softball question for employers too: Should they implement wellness programs? The answer is yes! In recent years, wellness programs have exploded in popularity because they offer employers a direct way to reduce their group health plan expenses. In fact, one study of wellness programs in large companies found that average employer costs fell $3.27 for every dollar spent on wellness programs (see Health Affairs Health Policy Brief, dated May 10, 2012). Smaller companies also have been shown to benefit from wellness programs tailored to their workforces. The reason: Healthier employees incur fewer, and less costly, claims under their group health plans. Wellness programs also can be great for employee morale and used by those employers not offering group health plans, to show their employees that they care about their health and well-being at a small fraction of the cost of maintaining a traditional group health plan. So what is the catch? The journey to health cost savings and improved employee morale via wellness programs requires careful navigation of a sea of laws threatening to sink any employer that veers off course in the programs design and administration. These laws include the Internal Revenue Code, Patient Protection and Affordable Care Act, Health Insurance Portability and Accountability Act (HIPAA), Genetic Information Nondiscrimination Act, Employee Retirement Income Security Act, COBRA and the Americans with Disabilities Act. A discussion of all of these laws is outside the scope of this article. We can only let this intimidating string of laws serve as a warning to those who would lightly embark on the wellness program journey. Instead, this article is intended to guide employers through the final regulations published on June 3, 2013, by the Department of Health & Human Services, the Department of Labor and the Internal Revenue Service (IRS) for workplace wellness programs that became applicable for plan and policy years beginning on and after Jan. 1, Yet, it is critical for employers to understand that compliance with these regulations is not determinative of compliance with any of the other federal laws or state laws that apply to wellness programs. Scope of HIPAA Wellness Rules The HIPAA wellness rules significantly impact how wellness programs are designed and administered. From a policy perspective, the rules are designed so that every wellness program participant can receive the full amount of any reward or incentive regardless of any health factor. 1

2 Wellness Program Basics A wellness program is a program of health promotion or disease prevention. Common features of wellness programs include: Health-risk assessments and screenings for high blood pressure and cholesterol. Smoking cessation and weight management programs. Health education, such as lunch and learns and health coaching. On-site fitness facilities. Provision of special benefits to encourage healthy eating and exercise, such as subsidized health club memberships. Categories of Wellness Programs Under the HIPAA rules, there are two types of wellness programs: participatory and health-contingent. Participatory. Participatory wellness programs do not require a participant to meet any standard based on a health factor to receive a reward (and some may not provide an award at all). Examples of participatory wellness programs include: Gym membership reimbursements. Diagnostic testing programs. Health risk assessments or health screenings. Smoking cessation programs. Health education seminars. In all cases, any rewards are for mere participation and are given without regard to results. Participatory wellness programs must be made available to all similarly situated individuals regardless of health status. There is no limit on the financial incentives that can be made available through them. Health-contingent. Health-contingent wellness programs require individuals to satisfy a standard related to a health factor to obtain a reward. Rewards may be in the form of cash, gift cards, premium discounts or rebates, lower cost-sharing requirements, the absence of a surcharge and extra benefits. Examples include programs rewarding individuals for achieving or maintaining certain health outcomes, such as meeting targets for exercise or obtaining certain results on biometric screenings. On the flip side, programs may also penalize individuals for failing to achieve or maintain certain health outcomes. For example, programs may impose a health care premium surcharge on smokers or require at risk individuals to submit to coaching while their non-at risk co-workers are not required to participate. Under the final rule, health contingent wellness programs are divided into two types: (1) activity-only wellness programs; or (2) outcome-based wellness programs. An activity-only wellness program requires an individual to perform or complete an activity related to a health factor to obtain a reward or avoid a penalty. Examples include walking, diet and exercise programs. 2

3 An outcome-based wellness program requires an individual to obtain or maintain a specific health outcome to obtain a reward or avoid a penalty. These programs are subject to the highest level of scrutiny under the regulations. Generally, these programs require a measurement, screening or test for a specified medical condition or risk factors. An individual without the targeted condition or within a normal or healthy range is rewarded. An individual with the targeted condition or outside a normal or healthy range must take additional steps for a reward. For example, an individual might be required to meet with a health coach, take a health or fitness course, adhere to a health improvement action plan or comply with a health care provider s plan of care. Five Requirements for Health-Contingent Wellness Programs The HIPAA rules require a health-contingent wellness program to meet the following five requirements: Frequency of opportunity to qualify. A health-contingent wellness program must give individuals the opportunity to qualify for rewards (or to avoid penalties) at least once per year. Size of reward. The amount of the reward for a health-contingent wellness program offered under a group health plan must not exceed the applicable percentage of the cost of employee-only coverage under the plan. Prior to the final rule, the amount of health-based incentives was limited to 20 percent of the cost of coverage. The final rule adopts a higher limit of 30 percent, which took effect in The final rule also permits an additional 20 percent (effectively increasing the limit to 50 percent) for health-contingent wellness programs that are designed to prevent or reduce tobacco use. Implementation tip: The cost of coverage is based on the total amount of employer plus employee contributions for the benefit package under which the employee is receiving coverage (or the employee and dependents where applicable). The final rule provides an example where the employee portion is $1,500 and employer portion is $4,500. The example provides that the applicable percentage (30 percent) would be calculated based on the total cost of coverage of $6,000 (yielding up to $1,800 for health-contingent incentives). Additionally, the cost is based on employee-only coverage unless any class of dependents may participate, in which case the reward may be based on the total cost of the coverage in which the employee and any dependents are enrolled. The rule allows plans to use reasonable methods to apportion rewards among family members, if for example, one family member fails to qualify for the reward but other family members do qualify. Also, don t mistakenly add up all wellness program incentives participatory and health contingent when determining compliance with the 30 percent limit. Participation-only incentives can be excluded. For example, if a plan rewards $30 just for taking a biometric taking, and another $25 if the screening shows a normal BMI, only the $25 must be counted toward the 30 percent. Reasonable design. A corporate wellness program must be reasonably designed to promote health or prevent disease. This is not a difficult standard to meet and was intended to provide flexibility to the employer; there need be no scientific record that the method selected promotes wellness to satisfy the standard. A wellness program will meet this standard if it has a reasonable chance of improving health or preventing disease, is not overly burdensome, is not a subterfuge for discrimination based on a health factor, and is not highly suspect in the method chosen to promote health or disease prevention. The rule provides that the determination for reasonable design is based on all the relevant facts and circumstances. The rule continues to permit plans and issuers to conduct screenings and employ health measurements to mold wellness programs effectively. For example, plans and issuers could target individuals with high cholesterol for participation in cholesterol reduction programs. The rule dictates that a plan is not reasonably designed if no reasonable alternative is offered to any individual who cannot achieve an outcome-based standard (such as weight, blood pressure, glucose levels, cholesterol levels or 3

4 tobacco use), where a reward is offered for meeting the benchmark, not just those individuals who cannot due to a medical condition. This is a significant change from the old rule as it essentially expands the reasonable alternative requirement to all participants of outcome-based wellness programs, regardless of their medical situation. Reasonable alternative standards. An activity-only health-contingent wellness program must provide a reasonable alternative to the health-based standard (or waive the health-based standard entirely) for individuals who can show it is unreasonably difficult due to a medical condition, or medically inadvisable, to satisfy the health-based standard. An outcome-based health-contingent wellness program must offer a reasonable alternative to the health-based standard for anyone who does not meet the standard, not just those who cannot due to a medical condition. That is, the same full reward must be available to individuals who qualify by satisfying a reasonable alternative standard as is provided to individuals who qualify by satisfying the program s otherwise applicable standard. The departments intent with respect to offering reasonable alternatives was to discourage health-contingent wellness programs from making rewards available absent incentives for meaningful efforts by participants to improve their health habits and overall health. Outcome-based programs are not permitted to require medical verification that compliance with a standard is unreasonably difficult for an individual. Activity-only programs may seek verification (such as a doctor s note) that it is unreasonably difficult or medically inadvisable for the individual to meet the activity health-based standard, thus the individual should be given the reasonable alternative. New: The rule adds that a plan may seek a physician s verification only if reasonable under the circumstances. Additional sub-regulatory guidance may be issued with respect to verification of a participant s medical limitations by a medical professional. The final rule provides that whether an alternative standard is reasonable will depend on facts and circumstances. The wellness program is not required to determine the reasonable alternative in advance, but must provide one if an individual requests. Time commitment must also be considered in whether or not an alternative standard is reasonably designed. New examples: The rule provides examples of what may constitute a reasonable alternative: --If the reasonable alternative is completion of an educational program, the plan must make the educational program available and may not require an individual to find his/her own program unassisted, nor pay for the program. --If the reasonable alternative is a diet program, the employer must pay for membership or participation fees but is not required to pay for food. --If the reasonable alternative is to follow the recommendations of a doctor engaged by the plan, the employer may need to accommodate the recommendations of the individual s personal physician if different. Notice of reasonable alternative standard. Wellness plans must disclose the availability of other means of qualifying for the reward or the possibility of a waiver in all plan materials describing the terms of a health-contingent wellness program. This disclosure must also appear in a notice of failure to satisfy an initial outcome-based standard under such a program. If plan materials merely mention that a plan is available, without describing its terms, no disclosure is necessary. The final rule provides the following sample language: Your health plan is committed to helping you achieve your best health. 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 same reward by different means. Contact us at [insert contact information] and we will work with you (and if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light 4

5 of your health status. Enforcement Actions Employers whose group health plans violate the final regulations under the HIPAA nondiscrimination rules face civil enforcement actions from three separate federal agencies and there are statutory penalties for noncompliance. Under HIPAA, the IRS may impose an excise tax penalty of $100 per each day of noncompliance per each affected individual. Importantly, employers should know that corporate wellness programs can raise a variety of employment law issues that are outside the scope of this article. Such programs should be carefully structured to ensure compliance not only with HIPAA, but with a number of applicable federal and state laws. Nonetheless, a well-structured corporate wellness program can provide benefits for employers and employees alike in terms of increased productivity, reduced use of sick time, better health and lower health care costs. Brian M. Murray is a partner in Calfee s Employee Benefits and Executive Compensation practice. He can be reached at (216) or bmurray@calfee.com. Addisah Sherwood is an associate in Calfee s Litigation practice. She can be reached at (216) or at asherwood@calfee.com. 5