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Mandatory "Wellness" Programs

New Rules Now in Effect 

Will it be common, in the near future, for employers to penalize or reward employees for meeting personal health improvement goals, such as stopping smoking or losing weight? 

What are the legal risks for employers who make it mandatory for staff members to participate in wellness programs?

The high cost of health insurance for employers is driving more organizations to set up wellness programs that encourage healthier lifestyles. Some employers even mandate that employees participate and meet certain goals.

 The Labor Department Warns ... 

    Compliance with the HIPAA nondiscrimination provisions does not in any way reflect compliance with other laws, including:

  • Provisions of ERISA (including COBRA and ERISA's fiduciary provisions).
  • State or federal laws (such as the Americans with Disabilities Act or the Age Discrimination in Employment Act).

Here's an aggressive example: Clarian Health in Indianapolis will soon require employees who participate in medical insurance plans to complete a health screening and "Health Risk Appraisal." The screening will include tests for body mass index ratio of height to weight, blood pressure, cholesterol and blood glucose.
Also new will be health risk charges levied against certain employees. For example, there will be a $5 per paycheck charge for medical plan participants who have used tobacco within six months of their Health Risk Appraisal completion date, according to an announcement issued by Clarian. "This is an effort within our health plan changes to provide an incentive for employees to adopt healthier lifestyle habits," the announcement added.

The changes will be phased in in 2008 and 2009 to give employees time to make lifestyle changes. Clarian is providing screenings and resources to help staff members achieve goals in the meantime.

"The information provided in the Health Risk Assessment will not be used to exclude anyone from our medical insurance plans," emphasized a Clarian spokesman. "We hope that employees learn about one or more health risks they may not have been aware of, they will take steps to protect their health and, by addressing those risks, no longer fall into a high-risk category for some or even all of the risks identified by the time the 2009 plan changes take effect."

New Regulations Provide Some Flexibility

In the past, some employers were cautious about wellness program requirements because they didn't want to violate employment discrimination laws.

But new U.S. Department of Labor regulations, which became effective on July 1, 2007, spell out what employers can, and cannot, do in wellness programs so they are not discriminatory under the Health Insurance Portability and Accountability Act (HIPAA).

The new nondiscrimination regulations give employers some flexibility in their wellness programs.

Background: Under HIPAA, an individual cannot be denied eligibility for benefits or charged more for coverage because of any health factor. The "health factors" are:

  • Health status and medical condition, including both physical and mental illnesses.
  • Claims experience.
  • Receipt of health care.
  • Medical history and genetic information.
  • Evidence of insurability, including conditions arising from domestic violence, as well as participation in activities such as motorcycling, snowmobiling, all-terrain vehicle riding, horseback riding and skiing.
  • Disability.

Answers From the Labor Department

Here are some answers to frequently asked questions from the U.S. Department of Labor to help clarify the new rules.

Q. Are wellness programs allowed under HIPAA's nondiscrimination rules?

A. The HIPAA nondiscrimination provisions generally prohibit group health plans from charging "similarly situated" individuals different premiums or contributions or imposing different deductible, copayment or other cost sharing requirements based on a health factor. (Examples of similarly situated employees are all part-time or all full-time employees or all employees working in different geographic locations.)

However, despite the prohibition on charging different amounts, there is an exception that allows plans to offer wellness programs.

If none of the conditions for obtaining a reward under a wellness program are based on an individual satisfying a standard related to a health factor, or if no reward is offered, the program complies with the nondiscrimination requirements (assuming participation is made available to similarly situated individuals). Examples are programs that:

  • Reimburse all or part of the cost for memberships in a fitness center.

  • Involve diagnostic testing with a reward for participation rather than outcomes.

  • Encourage preventive care by waiving the copayment or deductible requirement for the costs of prenatal care or well-baby visits.

  • Reimburse employees for smoking cessation program costs without regard to whether they quit.

  • Provide a reward to employees for attending a monthly health education seminar.

Wellness programs that condition a reward on an individual satisfying a standard related to a health factor must meet five requirements described in the final rules in order to comply with the nondiscrimination rules.

Q. What are the five requirements?

They are:

  1. The total reward for all the plan's wellness programs that require satisfaction of a standard related to a health factor is limited. Generally, it must not exceed 20 percent of the cost of employee-only coverage under the plan. If dependents (such as spouses and dependent children) can participate in the wellness program, the reward must not exceed 20 percent of the cost of the coverage in which an employee and any dependents are enrolled.

  2. The program must be reasonably designed to promote health and prevent disease.

  3. The program must give eligible individuals the opportunity to qualify for the reward at least once per year.

  4. The reward must be available to all similarly situated individuals. The program must allow individuals a reasonable alternative (or waiver) for obtaining the reward if they find it unreasonably difficult to satisfy the initial standard due to a medical condition, or because it is medically inadvisable.

  5. In all materials, the plan must disclose the terms of the program and the availability of a reasonable alternative standard (or the possibility of a waiver).

Q. How do the new wellness program rules apply to a group program that offers a reward to individuals who participate in voluntary testing for early detection of health problems? Let's say the plan does not use the test results to determine whether an individual receives a reward or the amount of a reward.

A. Since the plan's program does not base any reward on the outcome of the testing, it is allowed under the HIPAA nondiscrimination provisions without being subject to the five requirements for wellness programs described above.

Q. Can a plan provide a premium differential between smokers and nonsmokers if the plan is offering a reward based on an individual's ability to quit?

A. For a group health plan to maintain a premium differential between smokers and nonsmokers and not be considered discriminatory, the plan's nonsmoking program would need to meet the five requirements for wellness programs that are listed above.

The rising cost of health and disability insurance is causing many employers to consider turning voluntary wellness initiatives into mandatory programs -- and forcing employees to change their lifestyles. However, while the new HIPAA nondiscrimination regulations provide employers some flexibility, keep in mind that wellness requirements must be handled carefully to comply with various laws.


Virtualex.com Ronald J. Cappuccio, J.D., LL.M.(Tax) 1800 Chapel Avenue West Suite 128 Cherry Hill, NJ 08002 Phone:(856) 665-2121      Fax: (856) 665-9005 Email: ron@taxesq.com

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