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March 10, 2008

DOL ISSUES CHECKLIST FOR WELLNESS PROGRAMS

Employers and other health plan sponsors concerned about medical costs are turning to new programs to promote the health of employees and their families. This includes designing wellness programs that promote healthy behavior.

Wellness programs cover a wide variety of different arrangements. They include those provided to all employees, such as a gym membership or flu shot, and those available only to employees with certain health plan coverage, such as an asthma education program or special cost sharing for individuals with chronic diseases, like waiving copayments for cholesterol lowering drugs. Other wellness programs, such as a non-smoker premium discount, attempt to encourage healthy behaviors by plan participants. In some cases, plan sponsors evaluate the health profile of their population and design wellness programs to target known diseases or characteristics of a particular population and provide incentives specifically designed to address that need.

Wellness programs must be carefully reviewed to assure that they fit within a variety of legal boundaries. Most important, perhaps, are the nondiscrimination rules under the Health Insurance Portability and Accountability Act (HIPAA). The Department of Labor (DOL) has issued helpful guidance in Field Assistance Bulletin 2008-02 (FAB 2008-02), including a useful checklist. This guidance should be reviewed by any plan sponsor implementing a wellness program or considering one.¹ FAB 2008-02 addresses important questions:

• Is the wellness program part of a group health plan and therefore subject to HIPAA’s nondiscrimination rules, or is the program simply an employment program or policy and therefore not part of the health plan?
• If the program is subject to HIPAA, what rules must it follow?

Plan sponsors need to consider both of these questions as they evaluate their wellness programs to make sure that the plan is administered in compliance with HIPAA.

Background

In 2006, the Departments of Health and Human Services, Labor and Treasury published joint final regulations on how HIPAA’s nondiscrimination provisions apply to group health plans and health insurance issuers.² The regulations were effective on the first day of the plan year beginning on or after July 1, 2007, which was January 1, 2008, for calendar year plans.

HIPAA’s nondiscrimination provisions generally prohibit a group health plan or insurer from denying an individual eligibility for benefits based on a health factor. HIPAA also prohibits charging an individual a higher premium than others who are similarly situated based on a health factor. Health factors include: health status, medical condition (physical and mental), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), and disability. However, plans may provide for different benefits, premiums, or contributions for individuals who participate in a wellness program that complies with the law.

The New Checklist

In order to help plan sponsors apply the wellness rules, the DOL issued FAB 2008-02, which has an easy-to-use checklist to identify both whether the wellness program is part of a group health plan and how the rules apply if it is.

Although the FAB was issued by the DOL, it provides guidance for governmental and church plan sponsors on HIPAA nondiscrimination compliance because the same rules also apply to these plans.

Deciding Whether a Wellness Program Is a Group Health Plan

The FAB 2008-02 checklist first asks plan sponsors to determine whether the wellness program is part of a group health plan. Plan sponsors with wellness programs may remember implementing the HIPAA privacy rules, and going through a similar exercise to determine which programs were part of the group health plan and therefore subject to HIPAA. Deciding whether a plan is subject to the wellness rules requires the same type of analysis. For example, an employer’s flu shot program may be an employment benefit rather than a group health plan benefit, and might therefore be exempt from HIPAA compliance. Similarly, a policy to fire smokers is not a group health plan, whereas programs that reduce cost-sharing for complying with a preventive care plan are, as are premium discounts for following health behaviors or meeting certain biometric targets (e.g., blood pressure targets).

Deciding Whether the Program Requires Individuals to Meet Health Objectives

Next, plan sponsors must determine whether the plan requires individuals to meet a health-related standard in order to obtain a reward (or face a penalty), and therefore discriminates based on a health standard. For example, if a program requires individuals to have a cholesterol level under 200 to receive a premium reduction, that is a wellness program subject to the HIPAA wellness rules. On the other hand, a program that requires all employees to complete a health risk assessment to enroll in a plan does not discriminate based on a health factor and is not subject to the HIPAA wellness rules. (However, any mandatory program must be evaluated in light of whether it is permissible under the Americans with Disabilities Act. The Equal Employment Opportunity Commission has informally suggested that these types of programs may be problematic, but has not issued regulatory guidance on them.)

Even if the program discriminates based on a health-related standard, if the program works in favor of an individual, it is considered benign discrimination and does not have to comply with the HIPAA wellness rules. For example, if a plan waives an annual deductible for individuals with diabetes if they participate in a disease management program (educational classes and regular physician visits) then it is not subject to the rules. However, if an employee with diabetes were required to meet a certain biometric standard (e.g., maintaining a certain BMI), this is not benign discrimination and the program would have to be evaluated under the HIPAA wellness rules.

Evaluating Wellness Programs for HIPAA Compliance

Once the wellness program is found to be part of a group health plan and a program that discriminates based on a health-related standard, the plan sponsor must make sure that the program operates in compliance with the HIPAA wellness rules. These rules are as follows:

• The amount of the reward must not exceed 20 percent of the cost of coverage. When calculating the 20 percent, the plan sponsor must include all of the plan’s wellness programs that require individuals to meet a health-related standard.
• The program must be reasonably designed to promote health or prevent disease.
• Individuals must have a chance to qualify for the reward at least once a year.
• The program must have a reasonable alternative standard for obtaining the reward for individuals for whom it is unreasonably difficult due to a medical condition to satisfy the standard or it is medically inadvisable to attempt to satisfy the standard, and
• All plan materials that describe the program must disclose the availability of a reasonable alternative.

To sum up the rules, if a wellness program varies benefits (including cost-sharing, deductibles, copayments, coinsurance or premiums) based on whether an individual meets a health-related measurement, it must satisfy these five factors, or it will be in violation of HIPAA.

Enforcement

For ERISA-governed plans, HIPAA is enforced by the DOL. The DOL’s audit program is ongoing, and its investigators are trained in reviewing plan documents and brochures to see if the plan is compliant with all HIPAA rules and guidance. Plans found to be out of compliance are directed to change the plan and, in some cases, are ordered to retroactively make participants whole for any violation of HIPAA. HIPAA violations may also be raised by participants, particularly when combined with claims of breach of fiduciary duty or other employment litigation.

Consequently, it is important to take two steps in response to this recent guidance:

• Review existing group health plans and related employment practices to see whether the program is subject to the HIPAA wellness rules, and
• Keep these rules in mind when designing any new wellness programs.

A comprehensive review of plan documents and wellness programs now can avoid later enforcement issues, and can increase the likelihood that the plan is operating in compliance with the law.

As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on FAB 2008-02. The Segal Company can be retained to work with plan sponsors and their attorneys to design wellness programs and to comply with the laws and regulations that apply to them.

1	To see FAB 2008-02, click here. (To return to the Capital Checkup text, click here.)
2	To see the joint regulations, click here. For a summary of the regulations, see The Segal Company’s January 2007 Bulletin, “Final HIPAA Nondiscrimination Regulations Issued.” (To return to the Capital Checkup text, click here.)

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