Wellness Guidance

The new rule supports workplace health promotion and prevention as a means to reduce the burden of chronic illness, improve health and limit growth of health care costs, while ensuring that individuals are protected from unfair underwriting practices that could otherwise reduce benefits based on health status.

Final Wellness Rules Issued

The U.S. departments of Health and Human Services, Labor and the Treasury issued a final rule on employment-based wellness programs in compliance with the Patient Protection and Affordable Care Act (PPACA). The final regulations will apply to all plans that offer wellness programs, including both grandfathered and non-grandfathered plans, effective for plan years beginning on or after January 1, 2014. The guidance also notes that the departments anticipate issuing further sub-regulatory guidance to provide additional clarity and potentially proposing modifications to the final rule, as necessary.

Wellness Programs

The Final Regulations address the various types of wellness programs. There are two primary categories:

  • Participatory wellness programs – either do not provide a reward or do include any conditions for obtaining a reward based on a standard related health factor
  • Health contingent wellness programs – either require an individual to satisfy a health factor-related standard to obtain a reward or require an individual to undertake more than a similarly situated individual based on a health factor in order to obtain the same reward. There are two types of health contingent wellness programs: activity-only and outcome-based.

Recall that health-contingent wellness programs must comply with five requirements under HIPAA:

  1. Annual qualification
  2. A limit on the amount of the reward
  3. Availability to similarly situated individuals, including a reasonable alternative standard
  4. Reasonable design to promote health or prevent disease
  5. Publication of any alternative means for qualifying or waiver


The final regulations confirm that the term “reward” includes both positive incentives and penalties. Accordingly, wellness program rewards can be either (i) discounts or rebates of a premium or contribution, waivers of a co-payment or other cost-sharing mechanism or any financial, or other incentive or (ii) the avoidance of a penalty, such as a premium surcharge or other disincentive. A wellness reward related to tobacco use is treated as earned for purposes of determining whether the employee’s required contribution toward group health coverage meets the affordability test applicable in determining whether the employer is liable for penalties. A wellness reward that does not relate to tobacco use is not treated as earned for affordability purposes.

Penalties For Non-Compliance

Aside from any participant lawsuit concerning whether a wellness program unlawfully discriminates against people based on health status-which could result in damages and attorneys’ fees-there are statutory penalties for noncompliance. Under the Health Insurance Portability and Accountability Act (HIPAA), the Internal Revenue Service may impose on the sponsoring employer an excise tax penalty of $100 per each day of noncompliance per each affected individual. Separately, the U.S. Department of Labor is actively auditing plans for compliance and could bring a civil action against an employer to enforce these requirements.

The federal departments said they anticipate issuing future sub-regulatory guidance to provide additional clarity on wellness programs and potentially proposing modifications to this final rule as necessary.

If you have questions, please contact us to discuss these significant health care reform changes.

Share Button

Comments are closed.