Every time you turn on the news, it seems that you see some kind of story about how unhealthy we are as a nation. In fact, the Centers for Disease Control and Prevention (CDC) reports that nearly two out of every three adults are overweight, and nearly a third of adults are obese. According to the CDC, chronic diseases such as heart disease, cancer and diabetes affect the quality of life of 90 million Americans, and yet are among the most preventable through such healthy behaviors as eating nutritious foods, being physically active and avoiding tobacco use.
Increasingly, employers who sponsor health plans are adopting wellness programs that provide incentives for employees to lead healthier lifestyles. In a 2003 study of nine large employers who had implemented a wellness program, the Department of Health & Human Services found that each dollar these employers spent on their wellness programs generated returns on investment ranging from $1.49 to $4.91.
Wellness programs, however, can be a legal trap for the unwary. They present issues under ERISA, HIPAA, ADA and COBRA, and could also affect the ability of your employees to participate in a health savings account (HSA) if you have a high-deductible health plan. These issues can be overcome with proper plan design. This article points out the issues that you should discuss with your legal counsel to ensure that your wellness program doesn't become a source of misery for your company.
The Employee Retirement Income Security Act broadly covers "employee welfare benefit plans," which are broadly defined to include any program established or maintained by an employer providing medical care to participants. While some wellness programs simply promote a healthy lifestyle, many of them conduct health risk assessments and make specific recommendations to participants or engage in disease management programs. These activities could be considered medical care. The Department of Labor (DOL) (the federal agency responsible for enforcing ERISA) has specifically indicated that wellness programs providing medical care may be subject to ERISA. If your wellness program is subject to ERISA and is not part of your health plan, it needs to comply with a broad array of requirements, such as claims procedures, summary plan descriptions, and Form 5500 requirements. Although the DOL has not aggressively pursued this position to date, it may step up enforcement as wellness programs become more prevalent.
HIPAA Privacy Implications
Your wellness program may also be subject to the privacy and security rules under the Health Insurance Portability and Accountability Act (HIPAA)—especially if your wellness program conducts health risk assessments or otherwise monitors the health of your employees. If you are subject to HIPAA privacy rules, you must have policies and procedures protecting the information and business associate agreements with vendors who provide services for the program. Also keep in mind that the HIPAA privacy rules prohibit an employer from using information from the wellness program for any other employee benefit program or for any employment-related decision making (e.g., who to promote, who to terminate, etc.).
HIPAA Nondiscrimination Rules
In addition to the privacy and security rules, your wellness program may also be subject to the HIPAA nondiscrimination rules that prohibit employers from discriminating among similarly situated employees based on their health status. An employer may not deny enrollment eligibility or charge individuals different premiums or impose different costs (such as deductibles or co-pays) based on a health factor. However, proposed regulations provide special exceptions to this rule that allow wellness programs to provide rewards based on meeting a health standard—provided that you structure your program properly.
If your program provides a reward based on meeting a health standard, then it must meet the requirements for a "bona fide wellness program." Specifically, the program must:
Limit the reward to 10%, 15% or 20% of the full cost of employee-only coverage;
Be designated to promote health or prevent disease (which generally means that individuals must be able to qualify for the reward at least once a year);
Be available to all similarly situated participants—which means that an individual who cannot obtain the reward because the health standard is unreasonably difficult due to a medical condition or because it is medically inadvisable for the individual to satisfy it must be permitted to satisfy a reasonable alternative health standard;
Provide notice that individual accommodations are available for those who cannot meet the health standard because of a medical condition or for whom achievement of the standard is medically inadvisable.
If your wellness program does not provide rewards based on health factors, then you are not restricted by the bona fide wellness program requirements. Examples of programs that are not based on health factors include: (1) monetary incentives (not related to the health plan) to participate in a health fair or health screening, regardless of outcome; (2) reimbursement for participating in smoking cessation or weight loss programs, regardless of outcome; and (3) reimbursement for health club memberships, regardless of outcome.
You should carefully review the requirements and rewards offered by your plan with your legal counsel to ensure that you do not trip over these requirements.
A key part of many wellness programs are health risk assessments that may be used to create targeted programs for individuals with high health risks. While the Americans with Disabilities Act (ADA) generally limits an employer's ability to make disability-related inquiries, the ADA does permit disability-related inquiries as part of a voluntary wellness program. If you use health risk assessments (or otherwise collect information related to disabilities), you should carefully review your program with legal counsel to determine whether it will be considered voluntary. You will also have to make sure that any medical records acquired as part of the wellness program are kept confidential and separate from personnel records.
Some wellness programs offer ongoing health care services such as flu shots, cholesterol screenings and physical examinations. These could be considered medical care and therefore a "group health plan" for purposes of the Consolidated Omnibus Budget Reconciliation Act (COBRA), which would require you to offer continuing participation in the program to employees when they terminate employment. If you are subject to COBRA (i.e., your business employed 20 or more employees on a typical business day during the previous calendar year), you should carefully evaluate whether your wellness program is a group health plan subject to COBRA.
Health Savings Accounts (HSAs)
HSAs are tax-favored, IRA-like accounts that employees covered by a high-deductible health plan can establish to pay medical expenses for themselves, their spouses, and their tax dependents. A key limitation on contributing to an HSA is that the employee must not have any other health coverage other than the high-deductible health plan. The IRS has clarified that an individual will not be prevented from contributing to an HSA simply because of participation in a wellness program, so long as the program does not provide significant benefits in the nature of medical care and treatment (other than permitted preventive programs). In other words, the wellness program cannot be a subterfuge for providing medical care that otherwise should be provided under the high-deductible health plan. If you have implemented a high-deductible health plan, you should review your wellness program with legal counsel to make sure that you are not inadvertently disqualifying your employees from being able to contribute to an HSA.
Wellness programs can be an integral part of your health plan, so long as they are properly structured to comply with the patchwork of laws that apply to health plans. A careful review of your program is a preventive measure that, like preventive medicine, can pay dividends in saved costs down the road.