As the cost of health care continues to increase, employers that provide health care benefits to employees are looking for ways to control costs. Since it is clear that better health translates into lower health care costs, employers increasingly embrace the concept of financial incentives to persuade employees to make healthier lifestyle choices.
Thus the rise of wellness programs—a great idea, but one that can run afoul of the federal Health Insurance Portability and Accountability Act (HIPAA).
Wellness programs—a relatively new phenomenon—emphasize ways to improve health or prevent disease. Many wellness programs feature financial incentives for employees to use them, such as reduced premiums or deductibles. Other health insurance programs charge higher premiums if people do not enroll in wellness programs.
Wellness programs are subject to HIPAA, a complex statute covering a variety of areas relating to employee health, including privacy and insurance benefits.
One basic principle in HIPAA is nondiscrimination. An employer cannot charge different rates to different workers based on their health conditions. Of course, insurance companies base their premium quotes on expected future claims, and those quotes are projections based on past experience. However, employers cannot make such judgments about individual employees and the share they must pay for their coverage.
That is important to remember when designing wellness programs.
There are two kinds of wellness programs: (1) “participation programs,” which simply reward employees for participating, and (2) “standard-based programs” in which rewards are based on achieving health goals. (See box below for details.)
5 standard-based restrictions
To avoid violating HIPAA regulations, standard-based wellness programs must comply with these specific requirements.
1. Wellness program rewards cannot exceed 20% of the cost of coverage. This limit applies to the total cost of coverage, not just the employee share. However, if eligibility for the program is limited to employees only (and does not cover spouses and other dependents who may be eligible for coverage), then the 20% limit applies only to the cost of employee coverage. Rewards may take several forms—rebates or contributions toward the employee share of the premium, waivers of co-pays or deductibles, the absence of a surcharge or some other additional benefit that would not otherwise be provided.
2. The program must be designed to promote health or prevent disease. This seems logical, but the point is to limit these to genuine wellness programs, not subterfuges designed to get around the nondiscrimination principle.
3. The wellness program must permit people to qualify at least once a year. In other words, programs that people can join only when they first become eligible for benefits are too restrictive.
4. To prevent abuse, the program has to be available to all similarly situated employees. For employees with medical conditions that make it “unreasonably difficult” to achieve the reward, the program must provide a reasonable alternative to get the reward, or a waiver.
5. The program materials must disclose that alternative standards or waivers are available. For example, an employer might offer a 20% premium discount for employees who have an annual cholesterol test and achieve results below a certain cholesterol count. The employer would also have to offer reasonable alternatives or waivers to those who are medically unable to achieve those cholesterol levels. Here are other examples:
- An employer might offer to waive a certain portion of the deductible for those who have a body mass index below a certain number, again with reasonable alternatives or waivers for those who are medically unable to do so, such as participating in an approved exercise program.
- Employees who provide annual certifications that they have not used tobacco products in the prior 12 months might not have to pay a premium surcharge. Participating in an approved smoking-cessation program might be a reasonable alternative for employees who could not certify that they have been tobacco-free.
In addition to the requirements under HIPAA, it is important to keep in mind that the ADA also imposes requirements on wellness programs. Complying with HIPAA’s nondiscrimination rules and wellness program requirements does not ensure compliance with the ADA or other laws.
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