PPACA Update – Proposed Regs. On Wellness

The Departments of Labor (DOL), Health and Human Services (HHS) and Treasury have proposed wellness program guidance addressing requirements added under health care reform. The proposed regulations include sample language for providing notice of other means of qualifying for a reward under standards-based wellness programs.

Speedread

On November 20, 2012, the DOL, HHS and Treasury (Departments) jointly issued proposed regulations on wellness programs (2012 Proposed Regulations) reflecting changes made under health care reform that would:

• Increase the maximum allowed reward for standards-based wellness programs offered in connection with a group health plan from 20% to 30% of the cost of coverage.
• Further increase the maximum allowed reward for wellness programs designed to prevent or reduce tobacco use to 50%.

The 2012 Proposed Regulations also include new sample language, applicable to standards-based wellness programs, for informing individuals of other means of qualifying for a reward. In addition, the 2012 Proposed Regulations make clarifications regarding:

• The design of standards-based wellness programs.
• Reasonable alternatives that must be offered to avoid prohibited discrimination under standards-based wellness programs.

Applicability Date

The 2012 Proposed Regulations would apply for plan years beginning on or after January 1, 2014.

Wellness Exception to HIPAA Nondiscrimination Rules

Under the HIPAA nondiscrimination rules, group health plans and insurers are generally prohibited from discriminating against individuals in eligibility, benefits or premiums based on a health factor. However, an exception permits variance in benefits (including cost-sharing), premiums or contributions based on wellness program participation if the program satisfies certain conditions. Regulations issued in 2006 set out two types of wellness programs:

• Participatory wellness programs, which do not require an individual to satisfy a health factor standard to obtain a reward, or which do not offer a reward at all. An example of a participatory program is one that reimburses employees for the costs of a smoking cessation program even if the employee does not quit smoking.
• Standards-based wellness programs, which both provide a reward and condition the reward on satisfying a health factor-related standard. These programs:
  • require individuals to reach a particular health outcome to obtain a reward (for example, not smoking); and
  • are permissible if they satisfy five conditions involving frequency of opportunity to qualify, size of reward, uniform availability and reasonable alternative standards, reasonable design and notice of other means of qualifying for the reward.

The 2012 Proposed Regulations replace part of the wellness program rules under the 2006 regulations and, according to the Departments, would apply:

• To both grandfathered and non-grandfathered group health plans and coverage.
• For plan years beginning on or after January 1, 2014.

Requirements for Standards-based Wellness Programs under 2012 Proposed Regulations

The 2012 Proposed Regulations generally maintain the five conditions for standards-based wellness programs, but with a significant change involving the size-of-reward condition. Under both the 2006 regulations and the 2012 Proposed Regulations, the total reward available to an individual under a standards-based wellness program cannot exceed a specified percentage of the cost of employee-only coverage (taking into account both employer and employee contributions). Implementing health care reform, the 2012 Proposed Regulations provide that, effective for plan years beginning on or after January 1, 2014:

• The maximum reward is increased to 30%.
• The specified percentage increases to 50% for standards-based wellness programs intended to prevent or reduce tobacco use.

Examples in the 2012 Proposed Regulations illustrate how to calculate the applicable percentage.

The 2012 Proposed Regulations also include changes involving the reasonable alternative standard, an alternative for obtaining a reward that must be provided for individuals who cannot satisfy the otherwise applicable standard because it is either:

• Unreasonably difficult due to a medical condition.
• Medically inadvisable to attempt to satisfy the otherwise applicable standard.

The 2012 Proposed Regulations would not require plans and insurers to establish an alternative standard until an individual specifically requests one. However, the plan or insurer must provide a reasonable alternative standard (or waive the condition for obtaining the reward) following an individual’s request. A facts and circumstances test would govern whether a plan or insurer has provided a reasonable alternative standard, and the 2012 Proposed Regulations include several specific factors.

Other Clarifications

The 2012 Proposed Regulations build on a rule in the 2006 regulations under which a plan or insurer can seek verification (for example, a doctor’s statement) that a health factor makes it either unreasonably difficult for an individual to satisfy, or medically inadvisable for an individual to attempt to satisfy, an otherwise applicable standard. Under the 2012 Proposed Regulations:

• Plans and insurers may seek verification of claims requiring the use of medical judgment to evaluate.
• It is unreasonable for a plan or insurer to seek verification of a claim that is obviously valid based on the nature of the individual’s medical condition that is known to the plan or insurer.

The 2012 Proposed Regulations also include clarifications regarding the condition that standards-based wellness programs be reasonably designed to promote health or prevent disease. The 2012 Proposed Regulations provide that to the extent a plan’s initial standard for obtaining a reward is based on a measurement, test or screening involving a health factor (for example, a health risk assessment), the plan is not reasonably designed unless a different, reasonable means of qualifying for the reward is made available to all individuals who do not meet the standard based on the measurement, test or screening.

Notice of Other Means of Qualifying for a Reward

Under the 2006 regulations, plans and insurers must disclose the availability of other means of qualifying for a reward (or the possibility to waive a standard) in all plan materials describing the terms of a standards-based wellness program. This disclosure is not required for plan materials that merely mention that a program is available, without describing its terms. The preamble to the 2012 Proposed Regulations state that if a summary of benefits of coverage (SBC) (see Practice Note, Summaries of Benefits and Coverage under Health Care Reform (www.practicallaw.com/6-506-3287)) simply notes that cost-sharing may vary based on participation in a diabetes wellness program, without describing the program’s standards, then this disclosure requirement is not triggered.

Also, the 2012 Proposed Regulations include new sample language (both in the text of the regulations and the examples) intended to:

• Be simpler for individuals to understand (relative to sample language provided under the 2006 regulations).
• Increase the likelihood that individuals who qualify for a different means of obtaining a reward would actually contact the plan or insurer to request it.

Practical Impact

Although in many respects the 2012 Proposed Regulations implement requirements set out under health care reform, some of the Departments’ positions and clarifications may be of interest to health plans and insurers, including the notice of other means of qualifying for a reward under standards-based wellness programs and related new model language. Notably, in a footnote, the Departments reiterate that an adverse benefit determination based on whether an individual is entitled to a reasonable alternative for a reward under a plan’s wellness program is:

• A situation in which a claim is considered to involve medical judgment.
• Eligible for federal external review under the health care reform requirements governing external review (see Practice Note, External Review under Health Care Reform (www.practicallaw.com/5-506-9572)).

The 2012 Proposed Regulations also request comments on several points, including how to demonstrate compliance with the size-of-reward limit when the reward is variable and not determinable when the reward is established (for example, a reward consisting of waiver of a copayment for outpatient office visits where the frequency of the visits cannot be predicted). Comments must be submitted by January 25, 2013.