Wellness Incentive Programs: Navigating Legal Landmines and Designing Effective Employee Communication Strategies

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1 Wellness Incentive Programs: Navigating Legal Landmines and Designing Effective Employee Communication Strategies Susan M. Nash September 26, 2016

2 Wellness Programs Come in Many Shapes and Sizes Wellness programs are typically designed to promote health and educate employees about prevention To achieve participation, premium discounts, rebates or prizes are offered to the individuals who participate Some wellness programs are disease management oriented While other wellness programs are designed to improve the general overall health of an employee population 2

3 Why Are Wellness Programs So Popular? Improving quality and outcomes and controlling benefit costs are now top benefits objectives Cadillac Tax Managing Increasing Trends in Health Care Spending More Consumer Education and Accountability The Affordable Care Act (ACA) codified and expanded upon wellness program guidance issued under the HIPAA nondiscrimination rules 3

4 Agenda HIPAA Nondiscrimination Rules Tri-Agency Guidance under ACA on Wellness Programs Americans with Disabilities Act and GINA EEOC Enforcement of ADA and Final Regulations Internal Revenue Code Limitations 4

5 HIPAA Nondiscrimination Rules ERISA and the PHSA prohibit discrimination based on health status Health plans and insurance companies may not establish incentives or disincentives based on health status-related factors Health status-related factors are health status, medical condition (physical or mental), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or a disability Plans generally may not require an individual to pay a premium or contribution that is greater than that for a similarly situated individual based on a health statusrelated factor Compliance with HIPAA non-discrimination rules is an exception to this prohibition ACA codified these rules as amendment to ERISA, Code and PHSA 5

6 Tri-Agency Guidance on Wellness Programs Applies to wellness programs that are group health plans There are two main categories of wellness programs Participatory Health Contingent Activity-only Outcome-based 6

7 Health Contingent Programs are Divided into Two Categories Activity-only Outcome-based Compliance requirements vary based on type of program 7

8 Participatory Wellness Programs Do not provide a reward; or Do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor Must be made available to all similarly situated individuals, regardless of health status Not required to meet the Five Factor Test 8

9 Examples of a Participatory Wellness Program A program that reimburses all or a portion of the cost of membership in a fitness center 9

10 Examples of a Participatory Wellness Program A program that encourages preventive care based on the waiver of the plan s co-payment or deductible (i.e. well-baby visits or prenatal care) 10

11 Examples of a Participatory Wellness Program A program that reimburses employees for the costs of smoking-cessation programs without regard to whether the employee quits smoking 11

12 Examples of a Participatory Wellness Program A program that provides a reward based on an employee attending a monthly health education seminar 12

13 Health Contingent Wellness Program Activity-Only An individual is required to perform or complete an activity related to a health factor in order to obtain a reward Activity-only wellness programs do not require an individual to attain or maintain a specific health outcome Some individuals may be unable to participate in an activity-only wellness program due to a health factor Five Factor Test applies 13

14 Examples of a Contingent Wellness Program Activity-Only A program that rewards participants for exercising 14

15 Examples of a Contingent Wellness Program Activity-Only A program that rewards participants for walking 8,000 steps per day 15

16 Health Contingent Wellness Program Outcome-Based An individual must attain or maintain a specific health outcome to obtain a reward Program generally has two tiers: Tier 1 test or screening to determine if initial standard is met Tier 2 required follow-up wellness activities for those who do not meet or attain healthy standard from Tier 1 in order to obtain same reward as those who met Tier 1 initial standard Five Factor Test applies 16

17 Examples of Health Contingent Wellness Program Outcome-Based A program that tests for BMI, cholesterol, or blood pressure in a particular range Provides a reward to individuals who meet initial healthy standard; requires those who do not to take additional steps to obtain same reward 17

18 Examples of Health Contingent Wellness Program Outcome-Based A Program provides premium or contribution discount to nonsmokers Requires smokers to complete tobacco cessation program or other additional steps to obtain same reward 18

19 Health Contingent Wellness Programs Five Factor Test Size of reward: The reward may not exceed 30% of the cost of coverage (employer + employee) or up to 50% for tobacco cessation programs Reasonable design: The program must be reasonably designed to promote health or prevent disease Frequency of opportunity to qualify: The program must give eligible individuals the opportunity to qualify for the reward at least once a year Uniform availability: The reward must be made available to all similarly situated individuals (including making available a reasonable alternative standard) Notice: The plan must disclose in all plan materials describing the terms of the program the availability of other means of qualifying for the reward or the possibility of waiver of the otherwise applicable standard 19

20 Health Contingent Wellness Programs Must offer a reasonable alternative standard Activity-only wellness programs A reasonable alternative standard for obtaining the reward (or waiver of the requirement) must be provided for any individual for whom, for that period, it is either unreasonably difficult due to a medical condition to meet the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard Plan can seek reasonable verification, such as statement from individual s personal physician 20

21 Health Contingent Wellness Programs Must offer a reasonable alternative standard Outcome-based wellness programs A reasonable alternative standard for obtaining the reward (or waiver of the requirement) must be provided to any individual who does not meet the initial standard, regardless of any medical condition or other health status factor The alternative standard cannot be a requirement to meet a different level of the same standard without additional time to comply For example, if the initial standard is to achieve a BMI of less than 30, the reasonable alternative standard cannot be to achieve a BMI of less than 31 on that same date If the individual s physician joins in the individual s request for an alternative standard, the physician can be involved in setting (and adjusting) a second alternative standard, consistent with medical appropriateness If a participant s doctor determines that a plan s standard for an outcome-based wellness program is medically inappropriate and recommends an activity-only program, such as a weight-reduction program, the plan is not necessarily required to implement a specific program recommended by the physician and may choose among a range of reasonable programs 21

22 Health Contingent Wellness Programs Notice of availability of reasonable alternative standard Plan must disclose the availability of a reasonable alternative standard to qualify for the reward and possibility of waiver Must include contact information for obtaining alternative and a statement that recommendations of an individual s personal physician will be accommodated For outcome-based wellness programs, this notice must also be included in any disclosure that an individual did not satisfy an initial outcomebased standard Sample language now includes a statement that recommendations of an individual s personal physician will be accommodated Notice may be modified but must contain all required elements 22

23 Americans with Disabilities Act The Equal Employment Opportunity Commission ( EEOC ) is responsible for rules under the ADA The ADA prohibits discrimination against individuals with disabilities and defines a disability as: A physical or mental impairment that substantially limits one or more major life activities of such individual; A record of such an impairment; or Being regarded as having such an impairment 23

24 Americans with Disabilities Act The ADA generally prohibits employers from making disability-related inquiries or requiring medical examinations unless they are: Job related; and Consistent with business necessity However, the ADA permits an employer to conduct voluntary medical examinations, including voluntary medical histories, which are part of an employee health program available to employees at that work site 24

25 EEOC Enforcement Action EEOC v. Honeywell: EEOC argued that financial penalties for those who did not complete biometric screening violated the ADA even though plan complied with ACA wellness regs: (i) $500 surcharge for employee; (ii) $1,000 tobacco surcharge for employee; (iii) $1,000 surcharge if spouse did not complete HRA; (iv) forfeit HSA contribution of $1,

26 EEOC Enforcement Action (cont d) EEOC v. Orion Energy Systems: loss of employer subsidy plus $50 surcharge if no biometrics taken EEOC v. Flambeau: loss of coverage if no biometrics taken Seff v. Broward County: ADA s bona fide group health plan safe harbor provision permitted incentives 26

27 ADA Wellness Regulations In response to wide spread criticism of the EEOC s approach to enforcing its laws through litigation without first issuing regulations, the EEOC issued final wellness program regulations on May 17, 2016 Proposed regulations issued April 20, 2015 Provides guidance on the extent to which employers may use incentives to encourage employees to participate in wellness programs that include disability-related inquiries and/or medical examinations 27

28 ADA Wellness Regulations Apply to all employee wellness programs that include disability-related inquiries and/or medical examinations Regardless of whether wellness program is part of a group health plan or employee is enrolled in group health plan Incentive limits apply to both participatory and health-contingent wellness programs (different from HIPAA rules) Incentive limits include both financial and in-kind incentives No exclusion for de minimis value incentives Incentives may be in the form of either a reward or penalty 28

29 ADA Wellness Regulations Similar to HIPAA wellness rules with significant differences Program must be voluntary; does not matter if program is part of group health plan Does not require participation Does not deny coverage under GHP or any benefit option for failure nonparticipation Does not take any adverse employment action or retaliate against employees who do not participate or who fail to achieve certain outcomes 29

30 ADA Wellness Regulations Incentive/disincentive cannot exceed 30% of total cost of self-only coverage; no additional percentage increase for tobacco cessation or family coverage Required Notice; HIPAA privacy notice will likely not suffice Program must promote health or prevent disease Nondiscrimination 30

31 ADA Wellness Regulations ADA incentive limits wellness program incentives cannot exceed: 30 percent of the total cost of self-only coverage (including both the employee's and employer's contribution) where participation in a wellness program depends on enrollment in a particular health plan 30 percent of the total cost of self-only coverage when the covered entity offers only one group health plan and participation in a wellness program is offered to all employees regardless of whether they are enrolled in the plan 30 percent of the total cost of the lowest cost self-only coverage under a major medical group health plan where the covered entity offers more than one group health plan but participation in the wellness program is offered to employees whether or not they are enrolled in a particular plan 30 percent of the cost to a 40-year-old non-smoker of the second lowest cost Silver Plan (available under the Affordable Care Act) in the location that the employer identifies as its principal place of business, where the covered entity does not offer a group health plan or group health insurance coverage 31

32 ADA Wellness Regulations Wellness program must be reasonably designed to promote health or prevent disease program satisfies this standard if: It has a reasonable chance of improving the health of, or preventing disease in participating employees, is not overly burdensome, is not a subterfuge for violating the ADA or other laws prohibiting employment discrimination, and is not highly suspect in the method chosen to promote health or prevent disease The information collected is actually used to design a program that addresses at least some of the conditions identified 32

33 ADA Wellness Regulations Program is NOT reasonably designed if it exists mainly to shift costs from the covered entity to targeted employees based on their health or simply to give an employer information to estimate future health care costs Facts and circumstances test to determine whether program is reasonably designed to promote health or prevent disease 33

34 ADA Wellness Regulations ADA incentive limits only apply to the employee (EEOC GINA regulations address spouse participation in a health risk assessment) ADA incentive limits are not applicable to wellness programs that do not require disability-related inquiries or medical examinations Program where employees self-identify whether they use tobacco (in this case the maximum 50% HIPAA wellness incentive could apply) Earn an incentive by just attending nutrition, weight loss, or smoking cessation classes 34

35 Notice requirements: ADA Wellness Regulations Must be written so employee whose medical information is being obtained is reasonably likely to understand it Describes the type of medical information that will be obtained and the specific purposes it will be used for Describes the restrictions on the disclosure of the employee s medical information, the employer representatives or other parties it will be shared with, and how the employer will ensure it is not improperly disclosed (including whether the wellness program complies with HIPAA) EEOC issued a model notice in June 35

36 ADA Wellness Regulations ADA confidentiality requirements apply Wellness program information can only be used as necessary to administer the program Information regarding an employee s medical history may only be provided to the employer in aggregate terms that do not disclose, or are not reasonably likely to disclose, the employee s identity Medical records should be kept in separate files from personnel records 36

37 Genetic Information Nondiscrimination Act (GINA) The Genetic Information Nondiscrimination Act ( GINA ) was signed on May 21, 2008 and became applicable to group health plans for plan years beginning after May 21, 2009 GINA Title I applies to health plans GINA Title II applies to employers GINA s purpose is to ensure that individuals do not avoid genetic testing or counseling because they fear health or employment discrimination 37

38 GINA GINA prohibits group health plans and health insurance issuers from: Adjusting premiums or employer contribution amounts for a group on the basis of genetic information Requesting or requiring an individual or a family member to undergo genetic testing Requesting, requiring or purchasing genetic information for underwriting purposes Requesting, requiring or purchasing genetic information for any purpose before an individual s enrollment under the plan 38

39 GINA Under GINA genetic information includes: An individual s genetic tests Genetic tests of an individual s family members Family medical histories the manifestation of diseases or disorders among an individual s family members Information obtained through genetic services such as genetic tests, genetic counseling, genetic education GINA defines a family member to include first, second, third, and fourth degree relatives of the individual, as well as the individual s dependents The applicable regulations provide that the term dependent includes any individual who is or may become eligible for coverage under the terms of a group health plan because of a relationship to a participant 39

40 GINA Final regulations on GINA s applicability to employer-sponsored wellness programs issued May 17, 2016 Proposed regulations issued October 30, 2015 Address the extent to which an employer may offer an employee an incentive (financial or in-kind) in the form of a reward or a penalty when the employee s spouse provides information about the spouse s manifestation of disease or disorder as part of a health risk assessment ( HRA ) administered in connection with an employer-sponsored wellness program 40

41 GINA Regulations require that the health or genetic services are reasonably designed to promote health or prevent disease Reasonably designed if program has a reasonable chance of improving health or preventing disease, is not overly burdensome, is not a subterfuge for violating Title II of GINA or other laws prohibiting employment discrimination and is not highly suspect in the method chosen to promote health or prevent disease NOT reasonably designed if program imposes a penalty or disadvantage because a spouse s manifestation of disease or disorder prevents or inhibits the spouse from participating or achieving a certain health outcome May generally not offer an incentive for individuals to provide genetic information May offer an incentive for completion of a HRA that includes questions about family medical history or other genetic information provided the HRA clearly states that the incentive is available regardless of whether these questions regarding genetic information are answered 41

42 GINA May not offer an incentive for a spouse to provide their own genetic information (including results of genetic tests) May not offer an incentive for a spouse to provide information about the manifestation of disease or disorder or genetic information about an employee s children (including adult children) The HRA must be in connection with the spouse s receipt of health or genetic services offered by the employer May offer an incentive to an employee for a spouse to provide information about their manifestation of a disease or disorder The spouse must provide prior, knowing, voluntary, written authorization The authorization must describe the confidentiality protections and restrictions on the disclosure of genetic information 42

43 GINA If employee and spouse both participate in a wellness program, the incentive to each may not exceed: 30 percent of the total cost of self-only coverage under the group health plan in which the employee is enrolled, if enrollment in the plan is a condition for participation in the employer-sponsored wellness program 30 percent of the total cost of self-only coverage under the group health plan offered by the employer where the employer offers a single group health plan, but participation in a wellness program does not depend on the employee's or spouse's enrollment in that plan 30 percent of the total cost of the lowest cost self-only coverage under a major medical group health plan offered by the employer, if the employer offers more than one group health plan but enrollment in a particular plan is not a condition for participation in the wellness program 30 percent of the cost of self-only coverage available to a 40-year-old non-smoker under the second lowest cost Silver Plan available through the Exchange in the location that the employer identifies as its principal place of business, if the employer has no group health plan 43

44 GINA Under both the ADA and GINA final regulations, provisions relating to the amount of incentive and notice requirements are effective the first day of the first plan year that begins on or after January 1, 2017 All other requirements are effective now because the EEOC considers them clarifications of existing requirements 44

45 Internal Revenue Code Limitations Section 105(b) of the Internal Revenue Code generally provides that gross income does not include amounts received by an employee through accident or health insurance or otherwise if they are paid directly or indirectly to the employee to reimburse the employee for expenses incurred by the employee, his spouse or dependents for medical care, as defined under Code Section 213(d) 45

46 Internal Revenue Code Limitations Many wellness programs and incentives may have tax consequences Evaluate whether a wellness program is for medical care or general health and well-being Structure a program or incentive to achieve the company s intended results 46

47 Internal Revenue Code Limitations (cont d) Code Section 213(d) defines medical care to include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease or for the purpose of affecting any structure or function of the body Expenditures that are merely beneficial to the general health or well being of an individual are not expenditures for medical care 47

48 IRS Informal Guidance At an ABA Joint Committee on Employee Benefits meeting with IRS and Treasury Officials, (May 8-10, 2008) IRS officials stated that gift cards provided to employees by a third-party administrator of an employer's wellness program in exchange for participating in a health risk assessment were compensation from employment and should be reported on Form W-2 by the employer 48

49 Evaluating Taxable vs. Non-Taxable Programs/Incentives Non-Taxable Benefits The cost of a Health Risk Assessment is not taxable to an employee In-house use of a fitness facility would not be taxable At-work health seminars or classes would not be taxable Vouchers for the on-site cafeteria would not be taxable Smoking cessation or weight loss programs based on a physician s recommendation would not be taxable 49

50 Evaluating Taxable vs. Non-Taxable Programs/Incentives Taxable Benefits Cash incentives over a specific dollar amount would be taxable Large fitness equipment (i.e. treadmill or a bicycle) would be taxable Vitamins or supplements without a physician s diagnosis and recommendation would be taxable Fitness memberships without a physician s diagnosis and recommendation would be taxable 50

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