Two wellness programs under the ACA’s final rules

Dan Kuperstein

As we approach 2015, the year the Affordable Care Act (ACA) grows teeth for most employers with 100 or more employees. It’s beginning to sink in that now it’s for real.

At the same time that we’re preparing for this reality, many employers are seeing their premiums rise, which adds a thick layer to the work being done right now. Further, benefits managers are charged with providing the best healthcare plans to employees at the best cost, which is a challenge even under normal circumstances.

One solution that can help meet both challenges is the implementation of a robust health and wellness program. A properly administered wellness program can help an employer reduce premiums and promote a healthier and more productive work force. However, many employers are having considerable difficulty understanding the rules for wellness plans, since there are still questions about them under the ACA1, the Americans with Disabilities Act (ADA), and relevant employment laws and regulations.

Consider, for example, the tension between Equal Employment Opportunity Commission (EEOC) rules and ACA rules. Current EEOC employment guidelines require that health and wellness plans be “voluntary.” These rules are quite strict. However, ACA rules don’t address this aspect of wellness plans and do not contain any voluntariness requirement.

Given that there is considerable uncertainty in the law in this area, as a first step in implementing a properly administered health and wellness plan it is important that these programs be voluntary. What is a voluntary plan? Generally, employers should not require or mandate participation in wellness programs, and certainly not penalize employees who cannot participate due to a health condition.

What Can You Do? 

Assuming that the plan is not an involuntary (and therefore, potentially unlawful), ACA rules provide considerable flexibility in its design. This flexibility allows plans to establish rewards or penalties that maximize employee health and productivity and lower employer premium costs. Specifically, ACA rules increased the maximum amount of rewards (or penalties) allowed under a wellness plan from 20% to 30% of the total cost of coverage (including both employer and employee contributions). In addition, ACA rules increased the maximum permissible reward or penalty to 50% for wellness incentives that are designed to prevent or reduce tobacco usage.

While ACA rules do provide this enhanced flexibility, a properly administered health and wellness plan must be documented and must be administered in accordance with its program type. ACA rules permit the following different types of wellness programs:

Participatory wellness programs either reward plan members for participating in activities, such as being reimbursed for fitness center memberships, or they are simply health programs that do not provide any reward at all. Participatory programs are distinct from other programs because they are not allowed to include any conditions (based on an individual satisfying a particular standard that is related to a health factor) on the reward that they provide.

Health-contingent wellness programs require participants to meet a specific standard related to a health factor, such as a lowered cholesterol level. There are two types of health-contingent plans: “activity-only” (sometimes referred to as activity-based plans) and “outcome-based.” Activity-only wellness plans require the participant to complete an activity related to a health factor in order to get a reward; no attainment of a specific health outcome is required. An example is a walking program. Outcome-based plans require an individual to attain a specific health outcome. For example, quitting smoking.

Reasonable Alternatives
Employers offering health-contingent plans must provide employees with a reasonable alternative for securing the reward. For activity-based programs, a reasonable alternative must be provided for any individual if, based on a health condition, it would be medically inadvisable or unreasonably difficult to meet the goal. For outcome-based programs, a reasonable alternative must be provided to any individual who does not meet the initial health standard. This could include individuals for whom the health outcome target may not be medically appropriate. For both types of health-contingent plans, ACA rules do not require plans to determine a particular reasonable alternative standard in advance of the participant’s request for one. However, if the reasonable alternative standard is not provided to the participant upon request, then the condition for obtaining the reward must be waived.

It should be noted that participatory health and wellness programs do not require a reasonable alternative, although exceptions should be permitted. For example, if someone is recovering from a serious injury.

Tobacco Cessation
Tobacco cessation is a very popular type of an outcome-based program, and questions remain as to what employers can and can’t do. A frequent question employers have is about the timing of cessation programs. Specifically, they ask about whether the plan has to offer smoking cessation programs to employees who start with the company mid-year. The answer is no; according to the U.S. Department of Labor, plans are only required to offer cessation programs at the start of the benefit year2 even if an employee who is a smoker joins the organization in the middle of that year. Some plans offer two cessation programs during the year.

Another question that has emerged in recent months is about e-cigarettes and where they fit into wellness and smoking cessation programs. Specifically, two big unanswered questions for wellness plan participants in such programs are:

  1. Whether participants who use e-cigarettes are “smokers” for purposes of qualifying, or not qualifying, for a wellness program reward.
  2. Whether such programs can offer e-cigarettes as an alternative standard so that, if satisfied, it would qualify the participant as a non-smoker.

ACA rules do not address e-cigarettes. Accordingly, the short answer is that we don’t know, at least not at press time.

While health and wellness programs were designed to be a major component of the ACA, they are still relatively new and considerable compliance questions remain. Employers should stay tuned and continue to speak with their benefits and compliance professionals to understand how these rules are evolving.

1 Department of Labor, “Incentives for Nondiscriminatory Wellness Programs in Group Health Plans.
2 Department of Labor, “FAQS about Affordable Care Act Implementation and Mental Health Parity Implementation.


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