This renewed interest is partly because PPACA increased the amount of incentives employers may offer under these programs, which gives employers more flexibility in how to structure their programs and potentially a greater “take up” rate among employees.
This week we look at the impact the PPACA has had on these program designs.
Did PPACA expand how employer health plans may offer incentives under wellness programs?
Yes – PPACA codified the existing HIPAA wellness rules, which set parameters on the types of wellness programs a health plan may offer. Previously, these rules were part of HIPAA nondiscrimination and wellness regulations, so could be changed by regulation of one of the agencies with enforcement authority over HIPAA – HHS, DOL, or Treasury. The previous HIPAA rules allowed an employer health plan to establish a wellness program that offered rewards for health-based standards, such as having a low BMI or cholesterol level, as long as the rewards were limited to 20% of the cost of employer coverage (the employee plus employer shares). In addition, the plan was required to allow a reasonable alternative way for those who were medically incapable of meeting the health standard to earn the same reward, the program was required to be reasonably designed to promote health or prevent disease, and the plan had to allow qualification for the reward at least once per year.
Congress adopted the existing HIPAA wellness rules as part of the PPACA statute (for the most part “as is”), but increased the incentive limit for health-based rewards to 30% of the cost of coverage beginning in 2014. Notably, Congress also gave the Secretary of HHS discretion to increase the limit to 50% of the cost of coverage.
Does the 20% limit on rewards apply to all wellness programs?
No – the 20% limit (which will increase to 30% in 2014) only applies to programs that provide a reward based on a health standard. For example, if a program pays a reward for having a low cholesterol level or for not smoking, these would be incentives based on a health standard. On the other hand, if a program offers a reward merely for participating in a program, such as undergoing a screening or attending a coaching program, the reward does not have to be counted in the 20% limit. The agencies issued a FAQ in December 2010 as part of the PPACA FAQs that made this distinction.
Does the PPACA wellness rule allow a plan to charge higher premiums for smokers?
Both the HIPAA (and now the PPACA) wellness rules would allow a plan to structure an incentive either as a reward or penalty, as long as the incentive amounts for all health-based standards are limited to 20% of the cost of coverage (30% in 2014). In addition, the program must offer an alternative way to earn the same reward for those who are medically incapable of meeting the health standard. For example, if a plan charges a 20% higher premium for smokers and an individual’s doctor certifies that the individual is addicted to nicotine so is medically incapable of not smoking, the plan may offer a reasonable alternative, such as attending a smoking cessation class, to allow the smoker to avoid the penalty.
Note that other laws may come into play as well, such as the ADA, HIPAA privacy rules, ERISA, and tax rules, so plans must consider these programs carefully.
Got a health-care reform question? You can ask YOUR health-care reform legislation question online at http://www.surveymonkey.com/s/second_opinions
You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html
Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C. She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare. She represents employers designing health plans as well as insurers designing new products. Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.
Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.
PLEASE NOTE: This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.