CLIENT ALERT: New Wellness Program Rules Under HIPAA
May 2007

As workplace wellness programs become an increasingly popular way of reducing employee healthcare costs through prevention, it’s important to know what employers can and cannot do to collect health information and incentivize employees to participate in healthier lifestyles. In February, new federal regulations went into effect that apply to group health plans for plan years beginning on or after July 1, 2007. The Rules amend and clarify the nondiscrimination provisions under the Health Insurance Portability and Accountability Act (“HIPAA”), which must be considered in relation to other federal and state laws.

How Do the Rules Apply to Employers?

The HIPAA wellness program rules apply to group health plans and issuers of health insurance coverage offered in connection with a group health plan. In addition, employers who make decisions affecting their group health plans, as well as wellness programs offered by or relating to health plans, should also comply with the Rules.

The Rules

The rules distinguish between two general categories of wellness programs: those that offer rewards using standards that are based on a health factor, and those that offer rewards using standards that are not based on a health factor. The following are “health factors”:

  • Health status
  • Medical condition (including mental illness)
  • Claims experience
  • Receipt of health care
  • Medical history
  • Genetic information
  • Evidence of insurability
  • Disability

However, a program that offers rewards using standards not based on a health factor need not comply with many of the wellness program requirements, so long as the program satisfies HIPAA non-discrimination requirements, i.e., it is available to all similarly situated individuals. These types of programs are the most desirable because they are easier to administer and are less likely to implicate HIPAA and the ADA.

Examples include:

  • A program that reimburses all or part of the cost for memberships in a fitness center.
  • A diagnostic testing program that provides a reward for participation and does not base any part of the reward on outcomes.
  • A program that encourages preventive care by waiving the co-payment or deductible requirement under a group health plan (i.e., for the costs of prenatal or well-baby visits).
  • A program that reimburses employees for the costs of smoking cessation programs without regard to whether the employee quits smoking.
  • A program that provides a reward to employees for attending a monthly health education seminar.
  • Regardless of the type of program, an employer may not offer a group health plan with eligibility rules that discriminate based on a health factor relating to a participant or dependent of a participant. Eligibility rules include rules governing benefits, enrollment, and cost-sharing mechanisms such as coinsurance, co-payments, and deductibles.

What Requirements must a Wellness Program Meet if it uses Standards Based on Health Factors?

  1. The reward offered under the wellness program must not exceed 20% of the cost of employee-only coverage under the plan. If a class of dependents may participate in the wellness program, the reward must not exceed 20% of the cost of the coverage in which an employee and any dependents are enrolled. This limit is designed to prevent a reward from being so large as to have the effect of denying coverage or creating a heavy financial burden for individuals who do not satisfy a wellness program standard that is based on a health factor.
  2. The program must be reasonably designed to promote health. “Reasonably designed” means that the wellness program must: (1) have a reasonable chance of improving the health of or preventing disease in participating employees; (2) not be overly burdensome; (3) not be a subterfuge for discriminating based on a health factor; and (4) not be “highly suspect” in the methods chosen to promote wellness. This is intended to be an easy standard to satisfy and to allow experimentation in promoting wellness, but it prohibits bizarre, extreme, or illegal requirements in a wellness program.
  3. An employee must be eligible for the reward at least once per year. This requirement establishes the minimum frequency for a reasonably designed wellness program.
  4. The program must be available to all similarly-situated individuals. This means that the program must allow a reasonable alternative standard or a waiver of the original standard for any individual who cannot satisfy the original standard because it is either (1) unreasonably difficult to meet the standard due to a medical condition, or (2) medically inadvisable to satisfy the original standard. The program may require verification, such as a statement from the employee’s physician, that a medical condition makes it unreasonably difficult or medically inadvisable for the employee to satisfy or attempt to satisfy a particular wellness program standard.
  5. Materials that describe the terms of a wellness program must disclose the availability of an alternative standard or the possibility of waiver of the original standard. This requirement does not apply to materials that simply mention that a wellness program is available without describing its terms. The regulations provide language that may be used to meet this disclosure requirement: “If it is unreasonably difficult due to a medical condition for you to achieve the standards for the reward under this program, or if it is medically inadvisable for you to attempt to achieve the standards for the reward under this program, call us at [insert telephone number] and we will work with you to develop another way to qualify for the reward.”

Does Compliance with these Regulations Constitute Compliance with other Federal Law?

No. An employer’s compliance with the regulations governing wellness programs does not necessarily mean that it is in compliance with other provisions of HIPAA or any State or other Federal law. In particular, wellness programs and related health assessments risk violating the ADA, which prohibits discrimination based on disability and governs when medical exams may be required of employees (whether or not disabled).

This Client Alert has been prepared by Lewis and Roca LLP for informational purposes only and is not legal advice. Readers should seek professional legal advice on matters involving these issues.

View entire article in PDF format here.