Administration Finalizes Rules Setting Limits On Employer Wellness Incentives Under ACA

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The federal government May 29 released final regulations that implement an Affordable Care Act provision boosting the maximum rewards employers can offer under wellness programs beginning in 2014.

The limit on such rewards will increase from 20 percent to 30 percent of the cost of health coverage, and the regulations also allow a reward of up to 50 percent for programs aimed at curbing tobacco use.

The regulations, released by the Internal Revenue Service and the departments of Labor and Health and Human Services, are scheduled to be published in the June 3 Federal Register and will take effect Aug. 2, the departments said.

The final rules (TD 9620, RIN 1210-AB55, CMS-9979-F) include clarification on the reasonable design of health wellness programs and the reasonable alternatives they must offer to avoid prohibited discrimination, the agencies said.

“Today's final rule promotes wellness, while also … ensuring that the individuals are protected from unfair underwriting practices that the Affordable Care Act was designed to prevent that could otherwise reduce health benefits based on the individual's health status,” a senior administration official said on a call regarding the release of the rules.

The final rules largely retain the spirit of the proposed rules, which were released on Nov. 20 (30 HRR 1265, 11/26/12), but are “reorganized” in places to make clarifications.

The agencies said they anticipate issuing further guidance on wellness programs, either in the form of subregulatory guidance, such as frequently asked questions-and-answers, or possibly proposed tweaks to the final rules.

The final rules are effective for plan years beginning on or after Jan. 1, 2014.

Types of Wellness Programs

The final regulations continued dividing wellness programs into two categories: “participatory wellness programs,” which make up the majority of wellness programs, and “health-contingent wellness programs,” the agencies said.

Participatory wellness programs are defined in the final rules as programs available to all similarly situated individuals that either do not provide a reward or do not include any conditions for obtaining a reward based on an individual satisfying a standard that is related to a health factor. The final rules state that participatory wellness programs are permitted under the nondiscrimination rules of the Health Insurance Portability and Accountability Act, provided they are available to all “similarly situated individuals outside of health status.”

The final rules define health-contingent wellness programs as programs requiring an individual to “satisfy a standard related to a health factor to obtain a reward.” The final rules list five requirements that health-contingent wellness programs must meet: frequency of opportunity to qualify, size of reward, uniform availability, reasonable design, and notice of other means for qualifying for the reward.

The departments further clarify the requirements, which are the same as those listed in the proposed rules, by creating two “sub-categories” of health-contingent wellness programs: activity-based and outcome-based, the rules said.

“If you offer either of these two health-contingent wellness programs, you have to offer a reasonable alternative standard and that has to be made available to everybody, regardless of their health status, who don't meet the biometric test, or the other outcome based initial standards,” a senior administration official said.

“This approach is intended to ensure that outcome-based programs are more than mere rewards in return for results in biometric screenings or responses to a health risk assessment, and are instead part of a larger wellness program designed to promote health and prevent disease, ensuring the program is not a subterfuge for discriminating or underwriting based on a health factor,” the final rules said.

ACA-Mandated Wellness Report

The departments also released a report to Congress on wellness programs as required by Public Health Service Act Section 2705(m)(1). The study was examined for the final rules' economic analysis.

The study, Workplace Wellness Programs Study, which was done in collaboration with RAND Corp., found that about half of employers in the United States offer wellness incentives to employees, with larger employers more likely to offer a wider range of wellness options.

In addition, the study found that 75 percent of employees working in a company of 50 or more employees are offered wellness incentives by their employer.

“Most employers who offer workplace wellness programs regard them as a viable strategy to contain health care costs. A review of the literature identified randomized controlled trials that found workplace wellness programs did result in significant decreases in healthcare costs, including a savings in medical costs ranging from $11 to $626 per year. The employer survey found that 60 percent of employers offering a wellness program stated that their programs reduced health care costs, and around four-fifths reported that they decreased absenteeism and increased productivity,” the study said.

Text of the final rules is available at, and of the study at

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