Starting Your Corporate Wellness Program: Ideas and Compliance for HR Pros

© benefitexpress 2016
Compliance Issues Under
Wellness Programs
Larry Grudzien
Attorney at Law

Agenda
•Review requirements under HIPAA
•Review requirements under the Internal Revenue Code
•Review requirements under ERISA
•Review requirements under GINA
•Review requirements under ADA
•ACA
•Questions

Wellness Program Requirements Under HIPAA

Fundamental Principles
•Group health plans and insurers cannot discriminate
against participants on the basis of any health factors
•Discrimination encompasses:
Eligibility:
•Enrollment, effective date, waiting periods, benefits
Premiums or contributions:
•Including discounts, rebates or differential mechanisms
•But wellness plans are an exception

Fundamental Principles
Violations of HIPAA nondiscrimination rules can
result in:
Code-based excise taxes of $100 per day per person
per failure
DOL audit and civil action to enforce rules
Private right of action under ERISA §502 to enforce
rules

Wellness Programs in General
• Guidance is provided in the final regulations for evaluating the permissibility
of wellness programs under HIPAA’s nondiscrimination requirements.
• Separate requirements apply under HIPAA depending upon whether the
wellness program is:
 a health-contingent program (it provides a reward that is contingent on satisfaction of a
health-contingent standard related to a health factor); or
 a participation-only program (it simply rewards participation in the program regardless of
whether the individual satisfies a health-contingent standard related to a health factor)
• In a nutshell, if the program is health-contingent-based, the final regulations
require the program to meet five specific conditions
• If the program is participation-only, the final regulations require only that the
program be available to all similarly situated individuals

What is a Wellness Program?
•A wellness program can take many forms (and might not even be
called a wellness program), but its defining feature is usually a
reward to encourage healthier lifestyles—reduced premiums or
co-pays in exchange for quitting smoking or reducing bad
cholesterol levels, for example
•Employers and insurers hope that by encouraging healthier
lifestyles, health care costs can be contained or reduced
•HHS has recommended that employers “consider providing health
promotion or wellness programs and disease management
programs for employees as part of their health benefits”

What is a Wellness Program?
• Some wellness programs simply make their services available to those who
wish to use them, but others target individuals who have specific medical
conditions, such as asthma or diabetes, and make special help available to
them.
• For example, the program may provide case managers who will help monitor
compliance with medication protocols and schedule appointments with
physicians or therapists; special educational opportunities; newsletters; and
discounts on co-pays for required medications.
• The rewards offered by wellness programs can vary greatly, from T-shirts or
water bottles to significant reductions in premiums, co-pays, or deductibles
• In addition, the health-contingents necessary to qualify for the reward can
vary greatly, from actually quitting smoking or lowering cholesterol to merely
attending a smoking-cessation class or signing a certification that weekly
exercise sessions have been completed

Health Risk Assessments (HRAs)
• HRAs are often used by wellness programs to identify the individuals who
can benefit the most from the wellness programs and who represent the
greatest opportunities for cost containment
• In addition, health risk assessments can be used by plan participants and
beneficiaries to identify areas of possible concern and to set health-related
goals
• HRAs can also be much more hands-on and can range from basic
screenings at the employee’s worksite (e.g., blood pressure, cholesterol,
body mass index, blood sugar, and bone density) to complete physical
examinations at a doctor’s office or a hospital
• Often the initial HRA is used as a baseline against which subsequent
assessments are measured to track progress toward health-related goals
• An employer cannot make taking HRAs mandatory to receive coverage

Participation-Only Programs
Wellness programs that do not condition eligibility for a reward upon a
participant’s ability to meet a health standards.
Examples of participation-only programs include:
 incentives to participate in a health fair or testing (regardless of outcome);
 waiver of co-payment/deductible for well-baby visits;
 reimbursement of health club membership;
 reimbursements for smoking cessation programs (regardless of outcome); and
 a program that rewards employees who complete a health risk assessment, without
further action related to health issues identified as part of the health risk assessment

Health-Contingent-Based Programs
• Health-contingent wellness programs require individuals to satisfy a health-contingent
standard related to a health factor as a condition for obtaining a reward
• A “reward” includes both an incentive in the form of a reward (e.g., premium discount, waiver
of cost sharing amount, an additional benefit or any financial or other incentive) and an
incentive in the form of avoiding a penalty (e.g., the absence of a premium surcharge or
other financial or nonfinancial disincentive)
• Health-contingent programs are further divided into activity-only programs and outcome-
based programs:
 Activity-only programs require individuals to complete an activity related to a health factor to obtain
the reward, but the activity need not result in a specific health outcome.
• For example, the employer may provide a reward for a walking, diet, or exercise program
 Outcome-based programs require individuals to attain or maintain a specific health outcome in
order to obtain the reward
• For example, an employer could provide a reward for not smoking, for obtaining a certain result
on a biometric screening, or for maintaining a certain body mass index (BMI)

Each health-contingent program must meet five requirements to be
exempt from HIPAA nondiscrimination provisions:
 The Reward Must Be No More Than 30% of the Cost of Coverage;
 The Program Must Be Reasonably Designed to Promote Health or
Prevent Disease;
 The Program Must Give Individuals an Opportunity to Qualify for the
Reward at Least Once a Year;
 The Reward Must Be Available to All Similarly Situated Individuals; and
 The Plan Must Disclose That Alternative Health-Contingents (Or Waivers)
Are Available

• The reward, combined with any other rewards for Health-Contingent based programs
provided under the same plan, must not exceed 30% of the cost of coverage
• When determining the maximum permissible reward, the full cost of the relevant
coverage, including both the employer and employee-paid portions are counted
• The 30% limit on health-based incentives is increased to 50% if related to tobacco-use
• The reward can be in the form of a discount or rebate of a premium or contribution, a
waiver of all or part of a cost-sharing mechanism (such as a deductible, co-payments, or
co-insurance), the absence of a surcharge, or the value of a benefit that would otherwise
not be provided under the plan
• If only the employee may participate in the wellness program, then the reward must not
exceed 30% of the cost of employee-only coverage
The Reward Must be No More than 30% of the Cost of Coverage

Health-Contingent-Based-Programs
A program meets this requirement if it:
 has a reasonable chance of improving the health of, or preventing disease
in, participating individuals;
 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
The Program Must be Reasonably Designed to Promote Health or Prevent Disease

• There does not need to be a scientific record that the chosen method promotes
wellness, and this requirement is intended to be easy to satisfy and prohibits
bizarre, extreme, or illegal requirements in a wellness program
• There are examples in in the final regulations that serve as safe harbors, so that an
employer can adopt a program identical to one described as satisfying the example
and be assured of satisfying the requirements in the regulations
• Wellness programs similar to the examples also would satisfy the reasonably
designed requirement
• Plans or issuers should not feel constrained by the relatively narrow range of
programs described by the examples but want plans and issuers to feel free to
consider innovative programs for motivating individuals to make efforts to improve
their health
• This determination must be based on all relevant facts and circumstances
The Program Must be Reasonably Designed to Promote Health or Prevent Disease

This is a bright-line Health-Contingent that establishes a minimum
frequency of qualification opportunities
A program could offer more frequent qualification opportunities, but
not less frequent opportunities than once a year.
The Program Must Give Individuals an Opportunity to Qualify for the Reward at Least Once a Year

• It means that that both the general Health-Contingent for grouping “similarly
situated individuals” must be satisfied, and that a reasonable alternative
generally must be provided
• Certain groups of individuals may be treated as distinct similarly situated
groups if the distinction is based on a bona fide employment classification
(such as full-time versus part-time status, current employees versus former
employees, and different geographic locations)
• A reward could be offered to a group of employees (but not retirees), or a
group of employees from one location but not those from another location
• Similarly, a reward could be offered only to employees and not to spouses or
dependent children, or only to employees and spouses and not to dependent
children
The Reward Must Be Available to All Similarly Situated Individuals

• For activity based programs, a reward is not available to all similarly situated
individuals unless the program allows a reasonable alternative standard (or
waiver of the applicable standard) for any individual for whom it is either
unreasonably difficult due to a medical condition to satisfy the otherwise
applicable standard or medically inadvisable to attempt to satisfy the
otherwise applicable standard
• For activity-only programs, it is permissible for a plan to require verification
(such as a statement from the individual’s personal physician) that the
individual has such a medical condition, but only if it is reasonable under the
circumstances
• It is reasonable to require such verification if medical judgment is required to
evaluate the validity of a request for a reasonable alternative standard

• Outcome-based programs: If an individual does not meet a plan’s target standards
for out come based programs based on a measurement, test, or screening related
to a health factor, the individual must be provided with a reasonable alternative
standard, regardless of any medical condition or other health status, to ensure that
outcome based initial standards are not a subterfuge for discrimination or
underwriting based on a health factor
• For outcome-based programs, the reasonable alternative standard cannot be a
requirement to meet a different level of the same standard without additional time to
comply that takes into account the individual’s circumstances
• An individual must be given the opportunity to comply with the recommendations of
the individual’s personal physician as a second reasonable alternative standard to
meeting the reasonable alternative standard defined by the plan, but only if the
physician joins in the request

Under outcome-based programs, it is not reasonable to require verification
that a health factor makes it unreasonably difficult or it is medically inadvisable
for the individual to satisfy the otherwise applicable standard
However, if the reasonable alternative standard to an outcome based program
is an activity-only program, then the plan may seek such verification, if
reasonable under the circumstances, with respect to the activity-only portion
of the program

The determination of whether a plan has provided a reasonable alternative standard is based
on the facts and circumstances
The following factors, among others, should be taken into account in determining whether a
plan has provided a reasonable alternative standard:
 If the reasonable alternative standard is completion of an educational program, the plan must make
the educational program available or assist the employee in finding such a program, and may not
require an individual to pay for the cost of the program
 The time commitment required must be reasonable
 If the reasonable alternative standard is a diet program, the plan is not required to pay for the cost
of food but must pay any membership or participation fee
 If an individual’s personal physician states that any plan standard (including the recommendations
of the plan’s medical professional) is not medically appropriate for that individual, the plan must
provide a reasonable alternative standard that accommodates the recommendations of the
individual’s personal physician with regard to medical appropriateness

• Plans may always waive the otherwise applicable standard instead of providing a reasonable
alternative standard
• Additionally, plans do not need to establish a particular reasonable alternative standard in
advance of an individual’s specific request for one, as long as one is provided upon request
• Reasonable alternative standards may be provided for a class of individuals or on an
individual-by-individual basis
• The full reward under either an activity-only or an outcome-based program must be available
to all similarly situated individuals
• Individuals who qualify by satisfying a reasonable alternative standard must be provided the
same, full reward that is provided to individuals who qualify by satisfying the otherwise
applicable standard
• This same, full reward must be provided even if an individual takes some time to request,
establish, and satisfy a reasonable alternative standard

• A health plan must disclose, in all plan materials describing the health-
contingent-based wellness program, that reasonable alternative health-
contingents (or the possibility of waiver of the otherwise applicable health-
contingent) are available
• The disclosure must also include a statement that recommendations of an
individual’s personal physician will be accommodated
• For outcome-based wellness programs, a similar notice must be included in
any communication that any individual did not satisfy an outcome-based
standard
• If the plan materials merely mention the availability of the wellness program
without describing its terms, then the reasonable alternatives do not need to
be described in the plan materials
The Plan Must Disclose That Alternative Health-Contingents (Or Waivers) Are Available

Wellness Programs and Income Tax

Taxation Issues
• A wellness benefit that does not qualify either as an “eligible medical expense” under Code §
213(d) or a “fringe benefit” under Code §132 is taxable to the employee
• Cash and non-cash incentives, payments and rewards paid to an employee are not
excludable from an employee’s taxable income merely because they are paid under an
employer wellness program
• For purposes of income and employment taxes (e.g., FICA and FUTA), the following items
are included as taxable income/wages even if paid under an employer wellness program:
 Cash payments (even small amounts such as $10 or $25) for participating in a wellness
program
 Non-cash rewards, incentives or other benefits that are not medical care as defined under
Code section 213. E.g., payment of gym membership, unless, based on the facts and
circumstances, it would be a medical expense under 213(d)
 Payment or “reimbursements” through a wellness program to reimburse employees for all
or a portion of the premiums the employees paid by salary reduction
IRS Memo 2016-22031

Taxation Issues
The following items are excluded from taxable income, whether paid under a wellness
program or not:
 Benefits, services and non-cash rewards or incentives that are medical care as defined under Code
section 213. E.g., biometric screenings, smoking cessation programs, health risk assessments
 Rewards or incentives that qualify as “de minimis” fringe benefits under Code section 132(e). These
are defined as property or services whose value is so small that accounting for them would be
unreasonable or administratively impracticable. An example would be tee shirts provided under a
wellness program
Two other employer payments that are also excluded from taxable income but were not
addressed under Tax Memo 201622031 are:
 Group health plan premium reduction amounts paid as rewards for employees who participate in or
complete specified activities under the employer wellness program that is connected to the group
health plan
 Employers’ H.S.A. contributions for employees who complete specified activities under the
employer wellness program, so long as they meet applicable comparability requirements or
cafeteria plan nondiscrimination rules
IRS Memo 2016-22031

Wellness Programs and ERISA
•It depends
•To the extent that a wellness program provides medical
benefits, it will likely be treated as a group health plan
subject to the special ERISA rules
•In the DOL Information Letter to Joseph Dunn (November
17, 1993), the DOL indicated that a wellness program will
be considered providing "medical care" if it provides
programs that are diagnostic or preventive, or that
"coach" for certain identified health risks

Wellness Programs and GINA
• Underwriting purposes include changing deductibles or other cost-sharing mechanisms or
providing discounts, rebates, payments in kind or other premium differential mechanisms in
return for activities such as completing a health risk assessment (“HRA”) or participating in a
wellness program
• Family history or other genetic information can be collected if the purpose of such collection is
neither for underwriting purposes nor prior to or in connection with enrollment
• Genetic information includes the collection of family medical history
• Any wellness program that provides rewards for completing HRAs that request genetic
information, including family medical history, violates the prohibition against requesting genetic
information for underwriting purposes
• This is the result even if rewards are not based on the outcome of the assessment
• Genetic information can be collected as long as no rewards are provided (and if the request is
not made prior to or in connection with enrollment)
• A group health plan or health insurer can provide rewards for completing a HRA as long as the
HRA does not collect genetic information

• Prior Authorization Required:
 An employer offering an incentive to an employee for the employee’s spouse to complete an HRA or
biometric screening must obtain a voluntary written authorization from the spouse
 The written authorization must describe the type of genetic information that will be obtained, how it will be
used, and the confidentiality protections on the sale, transfer, and disclosure of the genetic information
• No gateway plans
 A wellness program is required be voluntary and reasonably designed to promote health and prevent
disease
 An employer is prohibited from restricting access to particular benefits based to an employee or his or
her family members based on a spouse’s refusal to provide information about the manifestation of
disease or disorder in an HRA or biometric screening
• Incentives for child participation prohibited
 Inducements for information from children of employees are prohibited
 The prohibition applies to both minor and adult children and to both biological and adopted children
In May 2016, EEOC released regulation how GINA affects wellness programs:

In May 2016, EEOC released regulation how GINA affects wellness programs:
Separate Incentives for Employees and Spouses
 The EEOC does not consider a wellness program to meet the reasonable design requirement if it
penalizes an employee due to a spouse’s failure to participate or achieve a particular health
outcome
 Plans with a spousal participation component must be designed in such a way that an employee
may still receive their own award independent of the spouse’s participation in or results from an
HRA or biometric screening
Incentives Limited to 30% of the Cost of Self-Only Coverage:
 An incentive provided to a spouse under the final rule is limited to 30% of the total cost of self-only
coverage under the group health plan in which the employee is enrolled, if enrollment is a condition
for participation in the wellness program
 The GINA final rule provides three additional methods for calculating the maximum permissible
incentive in cases where an employer offers one or more group health plans and enrollment is not a
condition of participation in the wellness program, and where an employer does not offer a group
health plan

The final regulations are effective prospectively as of the first day
of the first plan year beginning on or after January 1, 2017, for the
health plan used to determine the wellness program incentives
The final regulations apply to wellness programs connected to a
group health plan and stand-alone wellness programs with no
connection to a group health plan

Wellness and ADA
No Gateway Plans
 The EEOC made clear that the ADA prohibits “the outright denial of access
to a benefit available by virtue of employment” and concluded that such
plan designs discriminate against the employee in violation of 42 U.S.C.
12112(d)(4)
 Employers that currently utilize gateway plans should prepare to align their
wellness program structure with the requirements of the final rule
In May 2016, EEOC released final regulations how ADA impacts Wellness programs:

Wellness and ADA
• There are two rules under the ADA that employers offering wellness and disease-
management programs should consider carefully
• First, the ADA generally prohibits employment discrimination against disabled individuals
• A wellness or disease-management program that requires disabled individuals to participate
in order to attain benefits equal to those offered to nondisabled individuals might be found to
violate this provision—even if HIPAA's nondiscrimination requirements are satisfied
• Second, the ADA limits the circumstances under which an employer may require employees
to undergo physical examinations or provide answers to medical inquiries
• The prohibition on medical examinations or inquiries is subject to some exceptions, including
an exception that permits employers to conduct voluntary medical examinations and
inquiries as part of an employee health program (e.g., a wellness or disease-management
program that offers medical screening for high blood pressure, weight control, or cancer
detection), provided that participation in the program is voluntary, information obtained is
maintained according to the confidentiality requirements of the ADA, and the information is
not used to discriminate against an employee

Wellness and ADA
New Notice Requirement:
 For a wellness program to be considered voluntary, employers must meet certain
conditions
 One of these conditions is a new notice requirement
 Employees participating in wellness programs that involve disability-related inquiries or
medical examinations must be given a notice that describes
• the type of information to be collected,
• the purpose for which the information will be used,
• the restrictions on disclosure of the information,
• any employer representatives or other parties with whom the information will be
shared, and
• the methods used to ensure the information will not be improperly disclosed

Wellness and ADA
Incentive Limitations – Not Tobacco Related:
 The final rule retains the 30% cap on incentives but clarifies how the limitation must be calculated
 The limitation is based on the cost of self-only coverage
 The calculation methods in the final rule address four scenarios:
• incentives provided to employees when participation in the wellness program is limited to
employees enrolled in the plan;
• incentives provided to employees when the employer offers only one group health plan and
participation in the wellness program is offered to all employees regardless of enrollment;
• incentives provided to employees when the employer offers more than one group health plan
and participation in the wellness program is offered to all employees regardless of enrollment;
and
• incentives provided to employees when the employer does not offer a group health plan

Wellness and ADA
Incentive Limitations – Tobacco Related:
 Under the EEOC final rule, a program would be subject to a total incentive
cap of up to 30% of the cost of self-only coverage
 This limitation applies if the program involves a medical examination, like a
cotinine test administered as part of a biometric screening or on a stand-
alone basis
 A wellness program that merely asks an employee whether or not they use
tobacco is not subject to the lower 30% limitation

Wellness and ADA
Confidentiality:
 The final rule reiterates the ADA’s confidentiality protections for medical records
 Generally, wellness programs that are connected to a group health plan or wellness programs
that meet the definition of a group health plan are subject to HIPAA’s privacy and security
protections
 The EEOC’s interpretive guidance states that it is likely wellness programs that must comply
with HIPAA’s Privacy Rule will also be compliant with the ADA’s confidentiality protections
 However, for wellness programs that are not subject the HIPAA, the EEOC’s final rule clarifies
the confidentiality protections that apply to such a program
 Under these protections, employers offering wellness programs subject to this final rule are
only permitted to receive information collected as part of the wellness program in aggregate
form that does not disclose, and is not reasonably likely to disclose, the identity of specific
individuals except as necessary to administer the plan or as permitted by the regulations

Wellness and ADA
The final regulations are effective prospectively as of the first day
of the first plan year beginning on or after January 1, 2017, for the
health plan used to determine the wellness program incentives
The final regulations apply to wellness programs connected to a
group health plan and stand-alone wellness programs with no
connection to a group health plan

ACA
Grandfathered status:
 The various federal agencies caution that penalties related to wellness programs (such as
cost-sharing surcharges) should be examined carefully as they could jeopardize the
plan's grandfather status-for example, by decreasing the employer's contribution
percentage by more than 5 percentage points below the contribution rate on March 23,
2010
Employer Mandate:
 To avoid the employer mandate penalty, premiums for coverage may not exceed 9.66%
of the employee’s household income in 2015
 The IRS has proposed that the affordability of an employer-sponsored plan is determined
by assuming that each employee fails to satisfy the requirements of a wellness program,
except the requirements of a nondiscriminatory wellness program related to tobacco use
 The affordability of a plan that charges a higher initial premium for tobacco users will be
determined based on the premium that is charged to non-tobacco users, or tobacco users
who complete the related wellness program, such as attending smoking-cessation
classes

Contact
Larry Grudzien
Attorney at Law
708-717-9638
larry@larrygrudzien.com
larrygrudzien.com

Starting Your Corporate Wellness Program: Ideas and Compliance for HR Pros

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