By Nancy Lopez

Background

As described in a previous Implementation Brief, the Health Insurance Portability and Accountability Act of 1996^[1] (HIPAA) generally prohibits group health plans and group health insurance issuers operating in the group health market from discriminating against similarly situated individuals with regard to premiums, benefits or eligibility based on a health factor. HIPAA recognized an exception to this rule if an individual adheres to certain programs of health promotion and disease prevention, known as wellness programs. Under regulations issued in 2006,^[2] HIPAA has been interpreted to permit two types of wellness programs: (1) participatory programs that do not impose health factors or goals as a condition of receiving a reward (e.g., attending a health seminar or receiving a subsidized gym membership); and (2) health-contingent programs that require individuals to meet certain health factor benchmarks, such as weight loss or tobacco cessation, in order to receive the reward.^[3] The 2006 regulations further provide that health-contingent programs must meet five “non-discriminatory standards”: (1) the reward offered for the program must not exceed 20% of the cost of coverage (i.e., the total amount of employer and employee contribution to cost of coverage); (2) the program must be reasonably designed for health promotion and disease prevention and not be a subterfuge for discrimination based on a health factor; (3) the program must permit eligibility for the reward at least once a year; (4) a reasonable alternative standard (or a waiver of the applicable standard) must be offered for employees who are unable to participate for certain medical reasons; and (5) the program must disclose the alternative standard.^[4] Participatory programs are not subject to comply with any additional non-discriminatory standards as long as the program is offered to all similarly situated individuals.^[5]

The Affordable Care Act (ACA) further amends the HIPAA standards to broaden the permissible use of wellness programs. Specifically, ACA §1201(4) adds §2705 to the Public Health Service Act (PHSA) to permit such programs in the following ways: (1) extends the non-discrimination protections of wellness programs to the individual market;^[6] and (2) increases the maximum reward amount of a health contingent program to 30% of the cost of coverage (with authority given to the Secretary of HHS to allow up to 50% of the cost of coverage).^[7]

On November 26, 2012, the Departments of Health and Human Services, Labor, and Treasury, issued a notice of proposed rulemaking (NPRM) (77 Fed. Reg. 70620) implementing ACA modifications to the HIPAA wellness program authority and providing clarification of the non-discriminatory standards for health contingent programs. These proposed rules take effect for plan years starting January 1, 2014 and are proposed to apply to both grandfathered and non-grandfathered plans in the insured and self-insured markets to avoid inconsistency among group coverage and to provide flexibility to grandfathered plans.^[8] The NPRM allows a 60-day comment period; comments are due by January 25, 2013. This Update focuses on the amendments^[9] and clarifications made by the proposed regulations.

The Proposed Regulations

The NPRM is consistent with the majority of HIPAA provisions regarding wellness programs and re-iterates the two categories of wellness programs, participatory and health contingent. However, in response to stakeholder comments to HIPAA regulations and to remain consistent with the ACA, the proposed regulations modify and clarify four of the five additional non-discriminatory standards that the health contingent programs are required to follow.^[10]

Size of Reward Standard [Proposed 26 CFR §54.9802-1(f)(3)(ii), 29 CFR §2590.702(f)(3)(ii), and 45 CFR §146.121(f)(3)(ii)]

The NPRM maintains the 30 percent maximum reward increase for health contingent wellness programs added by the ACA, but also adds a maximum award of 50 percent for wellness program that are designed to prevent or reduce tobacco use. The proposed rule lists several examples that illustrate how to calculate the applicable percentage so that the program satisfies this requirement. Comments are invited on the apportionment of rewards among family members/dependents, the general approach for coordinating the tobacco rating factor with wellness program non-discriminatory standards, and whether additional rules or examples would be helpful when the amount of the reward is variable or not determinable.

Reasonable Alternative Standard [Proposed 26 CFR §54.9802-1(f)(3)(iii), 29 CFR §2590.702(f)(3)(iii), and 45 CFR §146.121(f)(3)(iii)]

The NPRM provides the following clarifications for this standard:

• Instead of providing a reasonable alternative, a plan or issuer may waive an otherwise applicable standard and provide the reward. This waiver may be issued to an entire class of individuals or on an individual basis based on circumstances presented. [Preamble at 70624]
• Although not required to establish an alternative standard prior to an individual’s request for one, plans and issuers must provide a reasonable alternative upon an individual’s request; alternatively, the condition for receiving the reward must be waived.
• Plans or issuers may not refuse to provide a reasonable alternative solely because one was unsuccessful before. [Preamble at 70624]
• The proposed rule provides the following non-exclusive list of factors to take into account in determining whether a reasonable alternative has been provided:
  • If the reasonable alternative is completion of an educational program, the plan or issuer is required to make the program available and free of cost to the individual.
  • If the reasonable alternative is a diet program, the plan or issuer is required to pay for membership or participation fees but not the cost of food.
  • If the reasonable alternative is compliance with a recommendation from a medical professional who is employed by the plan or issuer and the individual’s personal physician states that it would be medically inappropriate to follow such recommendations, then the plan or issuer is required to offer a reasonable alternative that accommodates the individual’s physician’s recommendations with regard to medical appropriateness.

The Departments issuing the proposed rule request comments on this list of factors and any additional facts and circumstances that would be needed to determine a reasonable alternative standard.

The NPRM also clarifies that plans and issuers may seek verification that an individual’s health factor prohibits the individual from satisfying the applicable standard however, verification may not be sought where a claim is obviously valid based on the nature of the individual’s medical condition known to the plan or issuer. An issue that may arise around this standard would be violations of HIPAA privacy requirements. Comments are requested on whether additional clarification would help in determining reasonableness of physician verification.

Reasonable Design Standard [Proposed 26 CFR §54.9802-1(f)(3)(iv), 29 CFR §2590.702(f)(3)(iv), and 45 CFR §146.121(f)(3)(iv)]

The NPRM requests comments on whether standards such as evidence- or practice-based standards would be necessary to ensure that wellness programs are reasonably designed.

The NPRM proposes to amend the reasonable design standard to provide that if the qualification to obtain the reward is based on the results of a health factor measurement, test or screening, then the program will not be deemed reasonably designed unless it is offered to all individuals who did not meet the health factor standard based on the test, measurement or screening. This means, for example, that a plan or issuer may target its program to individuals with high cholesterol as long as those individuals that do not have high cholesterol are provided a different, reasonable means to qualify for the identical reward. Comments are requested on this approach and whether any other consumer protections are necessary to ensure a reasonable design.

Notice of Alternative Standard [Proposed 26 CFR §54.9802-1(f)(3)(v), 29 CFR §2590.702(f)(3)(v), and 45 CFR §146.121(f)(3)(v)]

Consistent with the HIPAA regulations, the proposed rule requires plans and issuers to disclose the availability of an alternative standard or the possibility of a waiver. The NPRM [Preamble at 70625] notes that the sample language provided in the 2006 HIPAA regulations to be used to satisfy the notice requirement was determined to be complicated and confusing so the proposed rules offer new sample language.^[11] The Departments invite comments on this sample language.