Introduction
On August 26, 2026, the Departments of Labor, Health and Human Services and the Treasury (collectively, the “Departments”) issued “FAQs About Affordable Care Act and Health Insurance Portability and Accountability Act Implementation Part 74,” providing important guidance regarding the “full reward” requirement for health-contingent wellness programs. The guidance addresses a longstanding question: When individuals satisfy a reasonable alternative standard partway through a plan year, must the plan provide the wellness reward retroactively to the beginning of the plan year, or may it provide the reward only prospectively after they satisfy the alternative standard?
The Retroactive “Full Reward” Issue
Health-contingent wellness programs must make the full wellness reward available to individuals who qualify for and satisfy a reasonable alternative standard. For example, a plan that imposes a tobacco surcharge may allow an employee who uses tobacco to avoid the surcharge by completing a tobacco cessation program as a reasonable alternative standard. The preamble to the Departments’ 2013 final wellness program regulations indicated that when an individual satisfies a reasonable alternative standard partway through the plan year, the individual must receive the same full reward provided to individuals who satisfied the program’s initial standard. Under that interpretation, if an employee completed the reasonable alternative standard several months into the plan year, the plan would need to provide the reward prospectively and for the earlier portion of the plan year. However, the Departments now acknowledge that the actual regulatory text of the 2013 final rules does not clearly require the reward to be applied retroactively.
Departments’ Non-Enforcement Guidance
Under the new guidance, until further guidance or regulations are issued, the Departments will not take enforcement action against a plan or issuer for failing to provide the reward retroactively to the beginning of the plan year, provided that:
- the plan provides the reward for the period after the individual satisfies the reasonable alternative standard; and
- the wellness program otherwise complies with the applicable federal wellness program requirements.
Accordingly, for federal enforcement purposes, an otherwise compliant health-contingent wellness program may provide the reward prospectively once the individual completes the reasonable alternative standard rather than reimbursing the individual for the portion of the plan year that preceded completion. Importantly, this is an exercise of enforcement discretion, not a change to the underlying regulations. The Departments also emphasize that wellness programs must continue to be reasonably designed to promote health or prevent disease, may not operate as a subterfuge for discrimination or underwriting based on a health factor and must provide individuals sufficient time to complete a reasonable alternative standard and receive the applicable reward.
What Should Employers Do Now?
The new guidance provides meaningful relief for employers that administer health-contingent wellness programs on a prospective basis. However, it does not necessarily resolve whether an employee could independently pursue a claim arguing that the 2013 rules require a retroactive reward.
Accordingly, Warner Norcross + Judd continues to recommend, where practicable, providing the full reward retroactively to the beginning of the applicable plan year when an individual satisfies a reasonable alternative standard. This remains the most conservative approach while the legal requirements remain unsettled. Employers that provide rewards only prospectively now have an additional layer of persuasive authority supporting that approach because the Departments have expressly concluded that the regulatory text does not clearly require retroactive rewards and have declined to enforce such a requirement. Nevertheless, the Departments’ enforcement position does not eliminate private litigation risk or definitively resolve how a court may interpret the regulations.
Until the Supreme Court or an applicable federal court provides greater clarity on the merits of the issue, employers should carefully consider the litigation risk before changing the existing practice of providing retroactive rewards.
Warner Norcross + Judd Has You Covered
Employers sponsoring health-contingent wellness programs should review how their programs administer reasonable alternative standards and wellness rewards, particularly programs involving tobacco surcharges or other premium differentials. If you would like assistance reviewing your wellness program, evaluating whether rewards should be provided retroactively or prospectively or assessing the impact of the Departments’ new enforcement position, please contact Stephanie Grant, De’Andre Robbins or your Warner attorney.
