On May 29, 2013, the DOL, HHS and Treasury (Departments) jointly issued final regulations on wellness programs, reflecting changes made under the Affordable Care Act (ACA) that:

In addition, the final regulations:

The regulations finalize proposed rules on wellness programs that were issued in November 2012 (see Legal Update, Proposed Regulations on Wellness Program Incentives Include Sample Language). The final regulations apply:

Under the HIPAA nondiscrimination rules, group health plans and insurers are generally prohibited from discriminating against individuals in eligibility, benefits or premiums based on a health factor (for example, health status, claims experience or receipt of health care). However, an exception permits variation in benefits (including cost-sharing, such as copayments and deductibles), premiums or contributions based on wellness program participation if the program satisfies certain conditions.

The final regulations divide wellness programs into two general types:

An example of a health-contingent wellness program is one that imposes a premium surcharge on tobacco use. Health-contingent wellness programs are permissible if they satisfy five conditions involving frequency of opportunity to qualify, size of reward, availability to similarly situated individuals and reasonable alternative standards, reasonable design (to promote health or prevent disease) and disclosure in certain plan materials of other means of qualifying for the reward. The final regulations divide health-contingent wellness programs into two types:

Under the final regulations, health-contingent wellness programs that are outcome-based must offer a reasonable alternative standard (or waiver of an otherwise applicable standard) to a broader group of individuals than is required for activity-only wellness programs.

The final regulations limit the total reward available for health-contingent wellness programs (both activity-only and outcome-based) to a percentage of the cost of employee-only coverage, taking into account both employer and employee contributions, whether:

Implementing the ACA, the final regulations provide that, effective for plan years beginning on or after January 1, 2014, the maximum permitted reward under a health-contingent wellness program is:

In the preamble, the Departments note that the final regulations do not include detailed rules for apportioning rewards for health-contingent wellness programs that allow dependents to participate. Plans and insurers may adopt reasonable methods for apportioning rewards among family members.

The final regulations make clarifications regarding the reasonable alternative standard for health-contingent wellness programs, some of which apply equally to activity-only and outcome-based wellness programs. Instead of providing a reasonable alternative standard, a plan or insurer can simply waive the standard and provide the reward. Also, the final regulations do not require plans and insurers to establish an alternative standard until an individual specifically requests one. However, the plan or insurer must provide a reasonable alternative standard (or waive the condition for obtaining the reward) following an individual's request. The final regulations clarify that for an alternative standard to be reasonable, the time commitment must be reasonable (requiring nightly attendance at a one-hour class would be unreasonable).

The final regulations also clarify that if an individual's personal doctor states that a plan standard (including recommendations made by the plan's medical professional) are not medically appropriate for the individual, the plan or insurer:

In the preamble to the final regulations, the Departments note that under the ACA's internal claims and appeals and external review rules (see Practice Note, External Review under the ACA), an adverse benefit determination based on whether an individual is entitled to a reasonable alternative standard for a wellness program reward is:

Regarding health-contingent, outcome-based wellness programs, the final regulations clarify that plans and insurers cannot require verification by an individual's doctor that a health factor makes it unreasonably difficult to satisfy (or medically inadvisable for the individual to attempt to satisfy) an otherwise applicable standard as a condition of furnishing a reasonable alternative to the initial standard. However, plans and insurers may still require such verification as a condition of providing a reasonable alternative standard in the context of a health-contingent, activity-only wellness program.

Plans and insurers must disclose the availability of a reasonable alternative standard for qualifying for a reward (or the possibility to waive a standard) in all plan materials describing the terms of a health-contingent wellness program (both activity-only and outcome-based). The final regulations clarify that this disclosure includes:

For health-contingent, outcome-based wellness programs, this notice must also be furnished in any disclosure that an individual did not satisfy an initial outcome-based standard.

However, the disclosure is not required for health contingent wellness programs (both activity-only and outcome-based), if plan materials merely mention that such a program is available. The preamble to the proposed regulations states that a summary of benefits of coverage (SBC) would not trigger the disclosure if it simply notes that cost-sharing may vary based on participation in a diabetes wellness program, without describing the program's standards (see Practice Note, Summaries of Benefits and Coverage under the ACA). However, a plan disclosure that references a premium differential based on tobacco use, or based on the results of a biometric exam, is a disclosure describing the terms of a health-contingent wellness program and must therefore include this disclosure.