The Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments) issued new FAQs addressing health-contingent wellness programs, including programs that impose tobacco-related premium surcharges.
The guidance provides important enforcement relief concerning when a wellness reward must be provided after an individual completes a reasonable alternative standard.
Health-contingent wellness programs require participants to satisfy a standard related to a health factor to receive a reward, such as a premium discount or avoidance of a surcharge. These programs may be activity-only, requiring completion of an activity, or outcome-based, requiring an individual to attain or maintain a particular health outcome.
Federal rules permit these programs when specific requirements are satisfied. Among other requirements, programs must be reasonably designed to promote health or prevent disease, comply with applicable limits on rewards, and offer reasonable alternative standards when required.
For outcome-based programs, a reasonable alternative generally must be available to any individual who does not satisfy the initial health-related standard.
New Relief on the Timing of Rewards
The new FAQs address when a participant must receive a reward after completing a reasonable alternative standard.
Previous guidance established that an individual who satisfies a reasonable alternative must be able to receive the full reward available under the program. However, the Departments now explain that the regulations do not clearly require the reward to be applied retroactively to the beginning of the plan year when the alternative is completed later in the year.
Until additional guidance or regulations are issued, the Departments will not take enforcement action solely because a plan provides the reward prospectively from the date the participant completes the reasonable alternative, rather than retroactively for the entire plan year.
For example, if an employee is subject to a tobacco premium surcharge but completes the plan’s qualifying tobacco cessation program during the year, the plan may generally apply the corresponding reward prospectively under the enforcement policy described in the FAQs.
Disclosure Requirements Continue to Apply
The guidance also reinforces existing notice requirements. Materials describing the terms of a health-contingent wellness program must disclose the availability of a reasonable alternative standard.
For outcome-based programs, this information must also be provided when an individual is notified that they did not satisfy the initial standard. Required disclosures include contact information for obtaining a reasonable alternative and a statement that recommendations from the individual’s personal physician will be accommodated.
The existing incentive limits remain unchanged. Generally, health-contingent wellness rewards may not exceed 30% of the cost of applicable coverage, increasing to 50% for programs designed to prevent or reduce tobacco use.
Employer Action Items
- Review tobacco surcharges and other wellness incentives to determine whether they are subject to the health-contingent wellness program requirements.
- Confirm reasonable alternatives are available when required and that participants have sufficient time to complete them.
- Review the timing of rewards for employees who complete reasonable alternative standards during the plan year.
- Audit employee communications to ensure required reasonable alternative disclosures are included.
- Coordinate with carriers, TPAs, wellness vendors, and payroll providers to confirm that incentives and surcharges are administered consistently with plan terms.
- Review plan design and administrative practices to ensure continued compliance with existing HIPAA nondiscrimination and wellness program requirements.
This information has been prepared by UBA. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
