On May 17, 2016, the EEOC issued final regulations on employer-sponsored wellness programs under both the ADA and GINA. Wellness programs have been discussed on this blog before, so I’ll skip the backgrounder. Suffice it to say that they’ve been subject to HIPAA rules since 2013, and these recently issued final regulations add new wrinkles worth noting.
30% Incentive Limit Applies to All Wellness Programs
There are two types of wellness programs: participatory wellness programs and health-contingent wellness programs. Participatory wellness programs provide incentives that are not conditioned on meeting a health standard (e.g., free gym memberships). By contrast, health-contingent wellness programs condition incentives on either performing an activity (e.g., walking) or reaching a health outcome (e.g., a cholesterol target). HIPAA rules do not limit the size of an incentive under a participatory wellness program, but both sets of final regulations do.
An incentive under any type of wellness program subject to the final regulations generally cannot exceed 30% of the total cost for the lowest cost self-only coverage under the group health plan. For example, if an employer offers three different group health plans (or three tiers under a single plan) with total costs for self-only coverage ranging from $5,000 to $8,000 per year, the maximum allowable incentive is $1,500 (30% of $5,000). (Remember, this is different from the 30% incentive limit on health-contingent wellness programs under the HIPAA rules, which is calculated based on the cost of coverage in which the employee and any dependents are enrolled.)
The final regulations also clarify that the 30% incentive limit counts not just financial incentives, but also in-kind incentives (e.g., free parking, easing of a dress code), which must be valued reasonably. There is no de minimis exception.
Incentives for Spousal Disclosure
The GINA final regulations were issued for the limited purpose of permitting employers to condition a wellness program incentive on an employee’s spouse disclosing information about that spouse’s disease or disorder. The incentive limits under GINA track those under the ADA, as do the confidentiality requirements discussed below. (Wellness program incentives based on disclosure of a disease or disorder of a child, regardless of age, are prohibited.)
Incentive Limits on Tobacco Cessation Programs
The HIPAA rules permit tobacco cessation programs to offer premium discounts up to 50%—not just 30%. Both sets of final regulations, however, limit wellness program incentives to 30%. The EEOC reconciles this apparent inconsistency by noting that the 30% incentive limit under the ADA final regulations only applies to wellness programs that require employees to be tested for nicotine. In other words, if your wellness program just asks whether a participant smokes, without requiring a medical exam to verify, a 50% incentive is allowed under the ADA final regulations. The 30% incentive limit under the GINA final regulations does not apply to tobacco cessation programs because tobacco use or nicotine levels are not information about a spouse’s disease or disorder.
Incentives for Wellness Programs Offered Outside a Group Health Plan
One unresolved issue settled by the final regulations is the treatment of wellness programs offered outside a group health plan. In other words, if an employer does not sponsor a group health plan, but does offer a wellness program, is the program exempt from the rules? Not surprisingly, the EEOC decided to treat all wellness programs equally. Accordingly, when applying the 30% incentive limit, the reference is the cost of self-only coverage under the second lowest cost Silver Plan for a 40-year-old nonsmoker in the ACA exchange where the employer is located.
Notice Requirements
The ADA final regulations require employers to provide wellness program participants with a notice that’s beyond what’s already required by HIPAA and the ACA. Fortunately, the EEOC has promised to post a sample notice on its website by mid-June.
Confidentiality Protections
Both sets of final regulations strengthen existing protections on the use and disclosure of medical information collected by wellness programs. Specifically, collected medical information may be provided to an employer only in aggregate terms that are not reasonably likely to disclose the identity of any employee. In addition, participation in a wellness program cannot be conditioned on an employee’s agreement to disclose medical information or waive any confidentiality protections in the final regulations.
Reevaluate Before 2017
Both sets of final regulations are effective for plan years beginning on or after January 1, 2017. Because the final regulations are not entirely consistent with existing rules that have shaped the design of existing wellness programs, employers should reevaluate their wellness programs before year end.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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