Wellness programs have the potential to benefit both employers and employees. Employees get the opportunity to improve their health, which, in turn, can lower employers' costs. However, wellness programs inherently create a situation in which employers become expressly interested in the health of their workforce. This is where it may become tricky to navigate federal and state laws that exist to protect privacy and prevent discrimination.
In general, an employer who aggressively structures a wellness plan in order to produce positive health outcomes incurs a greater risk of legal recourse. The following guidelines are intended to offer a general overview and should not be taken as legal advice. Consult with your benefit advisor and legal counsel.
A waiver is intended to relieve your company from lawsuits brought by injured employees. Keep in mind, however, that no waiver can act as a complete shield against legal claims. Here are two samples of waivers you may consider.
In 2013, the federal government released regulations addressing the employer wellness program provisions of the ACA and the Health Insurance Portability and Accountability Act (HIPAA). Regulations apply to grandfathered and non-grandfathered plans in the fully insured and self-funded markets for plans effective January 1, 2014 and after. The rules are similar to the 2006 HIPAA rules, with some key differences:
- Increases the maximum reward under participation-only programs and health-contingent programs to 30 percent (50 percent for tobacco-use reduction/cessation programs)
- Clarifies that a "health status factor" includes an individual's health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence or insurability, disability, or other health status-related factor as determined by federal agencies
- Divides health-contingent programs, also called standards-based, into two types: activity-only programs (based on participation) and outcome-based programs (designed to achieve a specific result)
- Expands the employer's role in health-contingent programs when providing a "reasonable alternative" for participants who cannot meet the standard due to a medical condition. Here are two examples:
- If the reasonable alternative is an education program, the employer must make it available at no cost.
- If the reasonable alternative is a diet program, the employer must pay for the cost of membership in the program, but not the cost of food.
- Limits the power of a health-contingent program to require a verification statement from a participant's personal physician if a health condition makes it unreasonably difficult to satisfy a wellness program standard
- The reasonable alternative standard in an outcomes-based program cannot be a requirement to meet a different level of the same standard without additional time to comply
- Provides model language indicating that recommendations from an individual's personal physician will be accommodated
HIPAA contains non-discrimination rules that generally prohibit discriminating against a similarly situated individual on the basis of a health factor with regard to cost-sharing, premium calculation and contributions. However, the HIPAA requirements allow such discrimination if it is done as part of a wellness program that is designed to promote health and prevent disease. This section describes the HIPAA rules, as amended by the ACA, which apply to grandfathered and non-grandfathered plans in the fully insured and self-funded markets for plan effective January 1, 2014 and after. Note that 2006 HIPAA rules apply to any plan effective before January 1, 2014.
The HIPAA wellness program rules, as amended by the ACA, differentiate between a "health-contingent" program (i.e. a "standards-based" program) and a "participatory" (i.e. a "participation-only" program). Health-contingent programs are further divided into two types: activity-only programs and outcomes-based programs. A health-contingent program provides a reward only if the participant meets a standard related to a health factor, such as hitting a specific body mass index (BMI) threshold. A participatory program either offers no reward or provides a reward regardless of whether a standard is met – it requires only that an individual participate.
Participatory programs must be designed to promote health and prevent disease and must be made available to all similarly-situated individuals (e.g. employees versus dependent spouses and/or children, full-time versus part-time). For instance, a participation-only program might provide a reward for participating in a health assessment, encourage preventative care by waiving co-payments for certain services, or reimburse an employee for enrolling in a smoking cessation program without regard for the employee's success in quitting smoking. However, such a wellness program would fail to treat individuals as "similarly situated" if the program's structure was based on health factors, e.g., the program provided different incentives for individuals with high blood pressure than for those without.
Health-contingent programs (either activity-only or outcomes-based) must be reasonably designed to promote health and prevent disease and must be available to all similarly situated individuals. However, health-contingent programs must meet additional requirements including:
- A 30 percent limitation on the relative value of incentives or 50% for tobacco-use reduction/cessation programs
- A requirement that individuals received an opportunity to qualify for the reward at least once a year
- The provision of reasonable alternative standards (or waiver of standards) if the standard is medically inadvisable or unreasonably difficult for an employee to satisfy due to a medical condition
The Department of Labor has a checklist to help employers navigate compliance with HIPAA non-discrimination rules. Health-contingent programs are the most difficult to offer from a compliance perspective.
Compliance with HIPAA guidelines does not guarantee compliance with other federal laws, such as ADA. You are probably familiar with the provisions of ADA, which prohibits employers from discriminating against a qualified individual (one who can perform the requirements of the job) on the basis of disability. Wellness programs, with their focus on employee health and, in some instances, employer knowledge of employee health status, inherently create situations that could cause an employee to feel discriminated.
There are two areas where the U.S. Equal Employment Opportunity Commission (EEOC), which regulates the employment-aspects of the ADA, has provided guidance regarding wellness programs. Employers should take particular note of the following:
Disability-related inquiries under voluntary programs
Such inquiries include health risk assessments (HRAs) and personal health assessments (PHAs). In general, the ADA prohibits employers from requiring employees to undergo medical examinations. However, there are exceptions for medical examinations conducted as part of a wellness program. Under its guidance related to "disability-related inquiries and medical examinations," the EEOC clarifies that employers may conduct medical examinations, such as PHAs. In order to do this, three standards must be met:
- Employers cannot use the screening to discriminate against an employee.
- Employers must keep records confidential and store them separately.
- The wellness program must be considered "voluntary," meaning that the employer neither requires participation nor penalizes employees who do not participate.
Offering a reward for completion of a PHA appears to be permissible, though the EEOC has not issued guidance on the allowable level of a reward, other than to generally say that the reward should be "nominal." Be cautious about programs that impose penalties on employees for not participating or not meeting standards imposed by the program, as these negative incentives may render the program "involuntary" under ADA standards.
Reasonable accommodation and access
The ADA obligates employers to provide "reasonable accommodation" to employees with disabilities. Employers should ensure that wellness programs are accessible. For instance, the location of a site for biometric screenings should be accessible to individuals with physical disabilities and a telephone line for health coaching should be accessible to individuals with hearing or sight disabilities. Employers should be prepared to address a request for accommodation from a disabled employee who is unable to participate in or meet the criteria imposed by a wellness program.
GINA restricts the manner in which employers and insurers may collect and use an individual's genetic information. Genetic information is broadly defined to include the individual's genetic tests, genetic tests of family members and family medical history. GINA significantly impacts personal health assessments (PHAs). Some states, including Oregon, have passed laws prohibiting the collection of genetic information from an employee or prospective employee. To simplify GINA compliance, Providence Health Plan's PHA does not include any questions about an individual's genetic tests, genetic tests of family members or family medical history.
Before launching a wellness program, determine:
- Whether your wellness program is covered by, and therefore must comply with, ERISA
- Whether your wellness program or components should be stand-alone ERISA plans or part of the ERISA group health plans that provide major medical coverage.
In general, once a wellness program begins to include the provision of medical services, it is more likely to be subject to ERISA. If ERISA applies to a wellness program, the requirements for standard ERISA health plans, such as COBRA, apply.
The HIPAA privacy and security rules are designed to protect individuals' health information. These laws apply to any information obtained from or about an employee in the administration of a wellness program. Most states have laws that duplicate or enhance HIPAA's privacy and security rules. The specific requirements of those laws fall beyond the scope of this document.
State employment discrimination laws often mirror ADA requirements. However, that is not always the case. For instance, Washington state protects workers with a broader range of health conditions than the federal government does. If you have employees in multiple states, make sure to comply with the law of several jurisdictions.
The following is a high-level overview of the tax implications of common types of rewards.
Cash rewards (e.g. bonuses) and cash equivalents (e.g. gift cards) are generally subject to federal income and employment taxes and should therefore be included in an employee's taxable income, according to IRS Publication 15-B, "Employer's Tax Guide to Fringe Benefits." There is no de minimis standard that allows cash rewards under a certain value to be given tax-free.
Other awards are generally taxable unless they fall under the IRS's de minimis standard for fringe benefits. According to IRS Publication 15-B, the de minimis rule allows for certain benefits to be excluded from an employee's taxable income if it is of so little value that it would be unreasonable or administratively impractical to account for it.
Health coverage and medical contributions
Rewards that are structured as reductions to premium or other health plan cost-sharing or as contributions to FSA, HRA or HSA accounts are generally not taxable.
Note that other laws may apply, depending on the location and structure of the program. Be cautious about programs that target protected groups and may violate state non-discrimination laws, including:
- Pregnancy discrimination protections
- Age Discrimination in Employment Act (ADEA)
- Prohibitions regarding discrimination in favor of highly compensated employees
- Civil rights laws
- “Lifestyle laws" that protect employee behavior (e.g. smoking) outside the workplace