As another year of double-digit increases in health care costs looms, employers are looking to save money wherever they can. Recently, many have tried to do so by implementing incentive programs designed to improve the health of their employees.
Incentive plans can help employees quit smoking, exercise more or eat healthier., and so do employers—healthy workers are more productive, more creative and miss less work. But health incentive plans must comply with federal law.
Types of incentive plans
There are many ways to promote better employee health. Some employers offer simple preventive screenings or health education classes that help employees quit smoking or lose weight. Others go a step beyond, creating financial incentives for employees—providing discounts on medical insurance premiums or additional cash to pay for out-of-pocket medical expenses.
All health incentive programs must comply with the federal Health Insurance Portability and Accountability Act (HIPAA). HIPAA creates privacy rules that protect confidential health-related information and also sets nondiscrimination rules.
While HIPAA does not apply to all employers, the act’s general definition of a health plan does apply to employer-sponsored group health plans and the health plan vendors that partner with those employers. Thus, HIPAA’s regulations are potentially broad enough to directly affect any health incentive program created by any employer.
HIPAA privacy rules
HIPAA requires a company implementing an incentive plan to guarantee the confidentiality of employees’ personal health information. That can be a tough balancing act since most health incentive plans rely on employees reaching specific health goals that may be measurable only by reviewing confidential information. For example, an incentive that concerns weight loss will work only with information about an employee’s previous weight.
Employers must determine who has access to confidential information and train them on HIPAA regulations:
- Personal information may be shared only with those who need it to accomplish the incentive plan’s goals.
- Once the plan is over, employers should evaluate whether to keep the confidential information.
- If the information is no longer needed, employers should plan to dispose of records in a way that minimizes the possibility of revealing confidential information.
HIPAA nondiscrimination rules
New HIPAA health plan nondiscrimination rules took effect Jan. 1, 2008. The rules effectively prohibit group health plans and insurers from charging similarly situated individuals different premiums or contributions based on specific health-related factors, such as physical or mental medical condition, claims experience, receipt of health care, medical history, genetic information, disability or evidence of insurability.
That would seem to prohibit employers from creating programs that offer rewards for some employees to meet health-related goals (lose 15 pounds, for example) because the incentive might discriminate against unhealthy people.
Rewards that do not require employees to meet health goals—such as reimbursing the cost of a gym membership or smoking cessation class—are not affected by the rules.
HIPAA’s nondiscrimination rules did create a limited exception to allow for certain health incentive programs. In order to meet this exception, a health incentive program offering any type of reward based on a health factor must meet five requirements:
- The total reward offered for participation must not exceed 20% of the cost of the employee-only coverage as an incentive.
- The program must be reasonably designed to promote good health or prevent disease.
- All employees must have the opportunity to qualify for the reward at least once a year.
- The reward must be available to all similarly situated employees. This focuses on employees who have any sort of medical condition that would make it unreasonably difficult to meet the goal. If such a situation exists, the program is required to offer a “reasonable alternative standard” to those employees.
- The written materials describing the health incentive plan must disclose the details of the availability of any reasonable alternative goals.
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