Wellness plans must comply with complex final regulations that were issued last year by the Departments of Labor, Health and Human Services, and the Treasury (collectively, the “Departments”). To help plans from falling off the treadmill, the Departments have issued additional FAQ guidance on three wellness topics (see Q8, Q9, and Q10). Plan sponsors should take note of the guidance (which also contains other FAQs related to health care reform), and check in with a personal trainer (er, lawyer) regarding the wellness plan’s legal health.
Overview of the final regulations
The scheme of the final regulations is summarized in this diagram. Broadly, wellness programs are divided into participatory-only and health-contingent. From a regulatory compliance perspective, participatory-only programs (i.e. those that are not based on an individual satisfying a standard that is related to a health factor or do not provide a reward) are relatively straightforward, and are compliant if they are available to all similarly situated individuals, regardless of health status. However, health-contingent programs (i.e. programs under which to obtain a reward, an individual must satisfy a standard related to a health factor, or do more than a similarly situated individual based on a health factor), are subject to greater scrutiny and regulation. Health-contingent programs are further subdivided into activity-only programs and outcome-based programs.
All health-contingent programs must satisfy five criteria. The precise details depend on whether the program is classified as either activity-only or outcome-based. Activity-only programs do not require the participant to attain or maintain a specific health outcome, whereas outcome-based programs do. The distinction is important. An activity-only program must provide a waiver or reasonable alternative standard only for individuals for whom it is unreasonably difficult due to a medical condition, or medically inadvisable, to attempt to satisfy the standard, whereas an outcome-based program must provide a waiver or reasonable alternative standard to any individual who does not meet the initial standard. That, coupled with other requirements, creates a difficult obstacle course for wellness plans to navigate.
Here is what the Departments have clarified in the FAQs:
- Plan does not have to provide multiple opportunities to satisfy the standard.
The Departments clarified that the plan does not necessarily have to provide multiple opportunities for an individual to satisfy the plan’s standard(s). The specific example is of a plan that charges participants a tobacco premium surcharge, but also provides an opportunity to avoid the surcharge if, at the time of enrollment or annual re-enrollment, the participant agrees to participate in (and subsequently completes within the plan year) a tobacco cessation educational program.
According to the Departments, the plan is not required to provide the opportunity to avoid the surcharge, or provide another reward, to a participant who is a tobacco user and initially declines the opportunity to participate in the tobacco cessation program, but joins in the middle of the plan year. The plan’s only obligation to such individuals is to provide a reasonable opportunity to enroll in the tobacco cessation program at the beginning of the plan year, and subsequently for following plan years. However, the employer could allow rewards (including pro-rated rewards) for mid-year enrollment in a wellness program.
Presumably the reasoning is not limited to tobacco cessation programs. For example, if a plan conditions a lower premium on obtaining certain biometric test results within, say, a six-week period preceding the plan year, it is assumed that this opportunity does not have to be offered again later in the year to a participant who refuses to take the biometric tests during that six-week period.
- Plan may have input into appropriate reasonable alternatives
The second clarification is that the plan may have an opinion with respect to a participant’s proposed reasonable alternative. The FAQs provide the example where a participant's doctor advises that an outcome-based standard for obtaining a reward is medically inappropriate for the plan participant. The doctor suggests a weight reduction program (an activity-only program) instead. The Departments clarified that the plan does have a say in the program that the participant chooses and the participant should discuss different options with the plan. However, we assume that the doctor’s opinion would prevail if the doctor were to specify a particular program.
- Plan may revise sample language
The final regulations provide sample language to satisfy the requirement to provide notice of the availability of a reasonable alternative standard. The FAQs clarify that plans and issuers are permitted to modify this language to reflect the details of their wellness programs, but the notice must include all of the content required by the regulations. Plan sponsors know their participants, so it is a good idea to write the notice in language that is meaningful to them.
Although the FAQs provide welcome guidance, there remains confusion as to the correct categorization of certain types of programs, complicated further because walking, diet, and exercises programs that were classified under the former regulations as participatory-only, are now classified as activity-only programs. Thus, plan sponsors may be under the impression that they are offering a participatory-only program because participants choose their wellness options—but if a participant chooses a walking program, presumably the employer now has to comply with the rules relating to activity-only programs for that participant.
Also, plan sponsors should ensure that their wellness plans are compliant not only with the final regulations, but also with other applicable laws including the Employee Retirement Income Security Act, Internal Revenue Code, Genetic Information Nondiscrimination Act, and Americans with Disabilities Act, among others.
Join us in Portland on Jan. 30 for a breakfast briefing where we will discuss the final wellness plan regulations and the FAQs, other aspects of health care reform, and the impact of DOMA’s demise.