A Compensation-Based Wellness Program. A Compliance Brief. Administered by. Page 1

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1 A Compensation-Based Wellness Program A Compliance Brief Administered by Page 1

2 The Department of Labor, the Treasury and Health and Human Services published joint final regulations on the nondiscrimination provisions of the Health Insurance Portability and Accountability Act (HIPAA). See 29 CFR These final regulations apply to group health plans and group health insurance issuers and included guidance on the implementation of wellness programs. The StayFit Plan, administered by Simplicity Health Plans offers a compensation-based wellness risk management program. The StayFit Plan s outcomes-based like design applies a compensation approach to the administration and implementation of this program; as such the HIPAA wellness rules and regulations do not apply. The following checklist is taken from the Department of Labor Field Assistance Bulletin No This compliance brief uses the wellness program checklist from the bulletin to address compliance pathway for application of the HIPAA rules regarding wellness programs. The StayFit Plan compliance pathway has been reviewed by the Simplicity Health Plans ERISA legal counsel. The StayFit Plan answers address questions B-D of the bulletin. Background: On December 13, 2006, the Departments of Labor, the Treasury, and Health and Human Services published joint final regulations on the nondiscrimination provisions of the Health Insurance Portability and Accountability Act (HIPAA). See 29 CFR The final regulations include guidance on the implementation of wellness programs. HIPAA s nondiscrimination provisions generally prohibit a group health plan or group health insurance issuer from denying an individual eligibility for benefits based on a health factor and from charging an individual a higher premium than a similarly situated individual based on a health factor. Health factors include: health status, medical condition (including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), and disability. An exception provides that plans may vary benefits (including cost-sharing mechanisms) and premiums or contributions based on whether an individual has met the standards of a wellness program that complies with paragraph (f) of the regulations. The regulations apply to group health plans and group health insurance issuers on the first day of the plan year beginning on or after July 1, Accordingly, for calendar year plans, the new regulations began to apply on January 1, Since the issuance of the final regulations, the Department has received questions concerning what types of programs must comply with the standards of 29 CFR (f) and how to apply these standards to particular wellness programs. (See Attached DOL Field Assistance Bulletin No ) Page 2

3 STAYFIT PLAN WELLNESS PROGRAM COMPLIANCE CHECKLIST 1. Does the plan have a wellness program?... Yes No StayFit Plan Response: A wellness program is only subject to Part 7 of ERISA if it is part of the group health plan. The non-discrimination rules only use the term group health plan and health insurance issuer and both terms are explicitly defined in the statute. Group health plan means an employee welfare benefit plan to the extent that the plan provides medical care [diagnosis, cure, mitigation, treatment, or prevention of disease; amounts paid for transportation for such medical care; and amounts paid for insurance covering such medical care]. 29 U.S.C. 1191B(a). An employee welfare benefit plan is defined as a plan established or maintained by an employer for the purpose of providing its participants medical, surgical, or hospital care or benefits in the event of sickness, accident, and death. 29 U.S.C. 1002(1). The StayFit Plan does not offer any sort of medical, surgical, or hospital care or benefits. The StayFit Plan program is not an employee welfare benefit plan as it does not provide participants with medical*, surgical, or hospital care or benefits, which means that it is not a group health plan. * Medical Care is defined, in part, as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or amounts paid for the purpose of affecting any structure or function of the body. See 29 CFR Sec While it is clear that the bonus compensation is not Medical Care, there may be an argument that the provision of a medical screening for diagnosis of high blood pressure, for example, may meet that definition. However, there are exceptions for on-site screenings, and the Field Assistance Bulletin No makes clear that the Department of Labor does not consider a screening program that is separate from a Group Health Plan to be subject to the nondiscrimination rules. See 29 CFR Sec (a) 2. Is the wellness program part of the group health plan? Yes No StayFit Plan Response: In a self-funded arrangement, where the employer is considered the group health plan, the rules would not apply because the employer operates the wellness program as part of an employee policy separate from the group health plan. (This is noted in the StayFit Plan employer policy template). The ERISA Summary Plan Document (SPD) will be specific that any wellness program is not part of the group health plan. This same example is cited in the DOL Field Assistance Bulletin No as a rationale for non-application of the wellness program rules. (See Attached Field Assistance Bulletin No ) StayFit Plan Example: The employer institutes a policy that request voluntary participation in a company sponsored wellness program administered separate from the group health plan and those who enroll are eligible for a discretionary bonus. Here the plan is not acting so the wellness program rules do not apply. Page 3

4 3. Does the program discriminate based on a health factor? Yes No According to the DOL Field Assistance Bulletin No , a plan discriminates based on a health factor if it requires an individual to meet a standard related to a health factor in order to obtain a reward. A reward can be in the form of a discount or rebate of a premium contribution, a waiver of all or part of the cost-sharing mechanism, the absence of a surcharge, or the value of a benefit that would otherwise not be provided under the plan. The employer/plan does not discriminate based on a health factor. DOL describes the award as a discount, rebate of a premium contribution, a waiver of all or part of the cost-sharing mechanism (such as deductibles, copayments, or co-insurance), the absence of a surcharge, or the value of a benefit that would otherwise not be provided under the plan. StayFit Plan Response: Since the program is separate from the group health plan and is actually part of a company policy, the rules do not apply. Also the reward is part of the usual and customary company discretionary bonus plan which is not driven by obtaining a specific result but rather is based on performance, productivity and participation in the wellness program. Although the employer is aware of the passing percent of his employees the "New" company policy does not include any specific levels that dictate the year end discretionary company bonus. The StayFit Plan administrator communicates the levels to the employees. StayFit Plan Example 1: Jim passes all 4 biometrics but he repeatedly fails to show up to work on time. Joe may not get a bonus. StayFit Plan Example 2: Joan is a great worker and very productive. Joan passes only two. Joan is given a bonus that the employer chooses. Perhaps an additional $400 or perhaps $500, the bonus amount is discretionary. StayFit Plan Example 3: Bob is not only a great worker but passes all 4 biometrics. The company chooses to give him an $800 dollar bonus. NOTE: According to the Department of Labor s Field Assistance Bulletin No , if ANY of the checklist questions are answered No, then the plan (again the program is not part of the plan) does not maintain a program subject to the group health plan wellness program rules. StayFit Plan Screening Disclaimer: Screenings associated with the StayFit Plan program do not constitute medical or preventive services or medical advice nor do they replace the medical advice of a participant s personal physician or other healthcare professional. Screening services are not intended or to be used for medical diagnostic purposes. Page 4

5 STAYFIT PLAN TAX IMPLICTIONS OF EMPLOYER BONUS AWARDS Health Savings Account/Flexible Spending Account/401K Plans In addition to the StayFit Plan employer policy, if an employer offers a Health Savings Account (HSA) and they contribute to the HSA then they must make comparable contributions to all comparable participating employees during the same period according to the IRS. See 26 C.F.R G-1. Comparable contributions are defined as the same amount or the same percentage of the annual deductible limit under the HDHP covering the employees. Comparable participating employees are those employees who are covered by the HDHP, are eligible to establish an HSA, have the same category of coverage and the same category of employment. The only exception to this rule is for HSA and FSA contributions made through a cafeteria plan. a. The StayFit Plan Employer Policy describes the discretionary bonus distribution into the employees usual paycheck which may at the direction of the employee be redirected by the employee through a cafeteria plan into their HSA, thus the contribution rule does not apply. b. However, if the bonus is distributed through a non-cafeteria plan HSA and the employer does not make a comparable contribution for comparable participating employees then the employer is subject to an excise tax equal to 35% of the aggregate amount contributed by the employer to HSAs for that period. See 26 C.F.R G-5. Page 5