New Regulations Pave The Way For Employee Wellness Programs

If your group health plan offers a wellness program, or if your company is considering implementing a wellness program, you must be familiar with the recent Final Regulations under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which apply in plan years beginning on or after July 1, 2007 (or on January 1, 2008, for calendar-year plans). These Final Regulations replace the Proposed Regulations that were issued in 2001 and apply to all group health plans that have a wellness program component.   The Final Regulations were issued by the United States Department of Labor, Employee Benefits Security Administration, on December 13, 2006.   

The Wellness Craze 
As most employers know by now, wellness programs are hot. Wal-Mart has decided to go nationwide with  a “pilot” voluntary wellness program that began in Denver, Indianapolis, and Tampa, and received a warm reception from employees. Under the Wal-Mart program, employees can choose from several personal sustainability goals related to diet, smoking, and exercise. The program is expected to be available to all Wal-Mart employees by the end of this year.  A recent survey of 464 employers by the International Foundation of Employee Benefit Plans found that 62 percent of employers offered some form of wellness program, and 15 percent intended to do so in the near future. 

But the wellness craze is not just another fad. Physicians have long emphasized the superiority of prevention (or “health”) over curing illness. And now there are numbers to back up that traditional wisdom. One employer, We Energies, figured that it could save between $1.80 and $2.38 in medical, drug, and workers’ compensation costs for each dollar invested in its wellness program. And according to Employee Benefit News, third-party administrators for self-insured plans are discussing wellness programs with clients as a cost-reduction mechanism in addition to provider discounts. As an example, it was projected that each investment of $500 in a maintenance tool for diabetic employees could save a plan sponsor up to $5,000 in future expenses for a diabetic who does not regularly monitor his condition.     
          
Too Good to Be True?
Another bit of traditional wisdom is that if something sounds too good to be true, it probably is. Indeed, there are some legal snares that employers implementing wellness programs need to be aware of. But they are not particularly burdensome, and the new HIPAA regulations provide some welcome clarification.

The Americans with Disabilities Act
The ADA sharply curtails an employer’s right to require “medical examinations” of current employees, and any question that is calculated to elicit information that could reveal the existence of a disability constitutes a “medical examination.” However, there is an exception for information gathered pursuant to a voluntary wellness program. So, as long as the program is truly voluntary, there should not be a problem under the ADA with gathering information necessary to administer the program.

From an ADA standpoint, employers should not coerce employees to join the wellness program, nor should they “pressure” employees to join, or use participation or non-participation as a basis for employment decisions. Any information gathered should be treated as confidential. In addition, it is also wise from an ADA standpoint to reward efforts but not results. For example, an employee who is morbidly obese but diligently works out every day to the best of her ability should be treated as favorably as her co-worker who runs marathons and has no health issues.   

HIPAA
More frightening than the ADA is the specter of HIPAA privacy rules, but the new regulations dovetail nicely with the ADA restrictions. HIPAA contains several requirements applicable to group health plans, including privacy and security rules.  Another aspect of HIPAA deals with nondiscrimination rules.  Generally speaking, HIPAA prohibits a group health plan from discriminating against any individual based on a health-status-related factor. 

The Final Regulations provide that a group health plan may not establish rules for eligibility or benefits based on a health factor, such as health status, medical condition, claims experience, medical history, disability, or similar issues.  Simply put, any differential treatment of an individual based on a health factor is prohibited. This is generally consistent with ADA  requirements.

Because wellness programs focus on the health and medical condition of certain employees, in theory they could violate the nondiscrimination rules of HIPAA.  The Department of Labor, however, has explained that wellness programs will not violate the nondiscrimination rules if (1) they are not based on a health factor, or (2) they are based on a health factor but meet certain regulatory requirements. 

Certain types of wellness programs are not based on a specific health factor and therefore are permissible under the Final Regulations:

• A program that reimburses all or part of the costs for membership 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 through the waiver of the copayment or deductible requirement under a group health plan for the costs of, for example, prenatal care 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.

These programs do not base eligibility for a reward on satisfying a health-related standard but merely require some form of voluntary participation or education about health issues. 

Can You Ever Reward Results?
The quick answer is yes. A wellness program can reward good results (on a limited basis) if it satisfies five general requirements set forth in the new regulations:

• The reward for the wellness program must not exceed 20 percent of the cost of the applicable level of coverage under the plan (employee-only, family, etc.).
• The program must be designed to promote health or prevent disease. In other words,  the program must have a reasonable chance of improving the health of or preventing disease in participating individuals and must not be overly burdensome.
• The program must give individuals eligible for the program the opportunity to qualify for the reward under the program at least once a year; for example,  during open enrollment.
• The reward under the program must be available to all similarly situated individuals. A reasonable alternative standard for obtaining the reward must be available to those with a health factor that makes it unreasonably difficult or medically inadvisable to satisfy or attempt to satisfy the otherwise applicable standard.  For an alternative standard to be “reasonable,” it must be able to be satisfied without regard to any health factor.
• The plan must disclose in all plan materials describing the terms of the program the availability of the reasonable alternative standard for obtaining the reward.

Employers have great flexibility in designing what health issues a wellness program will target and what the reward will be.  Common programs focus on lowering blood pressure, lowering body mass index, and smoking cessation.  Rewards can range from reduced premiums to cash rewards or other prizes.  As long as your wellness program can meet the five factors above, it can cover a number of issues and change periodically to meet the needs of your workforce. 

Wellness programs present an excellent opportunity to promote the health and well-being of your employees as well as to help contain health coverage costs which increase every year.  Whether the program is a simple educational tool or a more complex monitoring regimen, it will send a positive message to employees, management, shareholders, and the public about the value your organization places on its people.

© 2007 Constangy, Brooks & Smith, LLC. All rights reserved.

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Constangy, Brooks & Smith, LLC has counseled employers on labor and employment law matters, exclusively, since 1946.  The firm represents Fortune 500 corporations and small companies across the country.  More than 100 lawyers partner with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. 

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