IRS, DOL and HHS Issue Final Wellness Program Regulations

On May 29, 2013, the U.S . departments of Health and Human Services and Labor and the Internal Revenue Service issued final regulations regarding employee wellness programs under the Patient Protection and Affordable Care Act (PPACA). The final rules were published in the Federal Register on June 3, 2013 (78 F.R. 33157) and will take effect 60 days later, on August 2, 2013.

Under the final regulations implementing the Health Insurance Portability and Accountability Act (HIPAA) non-discrimination and wellness provisions issued in 2006, wellness programs are divided into two categories: “participatory wellness programs” and “health-contingent wellness programs.” The new final regulations under the PPACA further divide health-contingent plans into two sub-categories: “activity-only” wellness programs and “outcome-based” wellness programs.

The final rules require that health-contingent wellness programs be reasonably designed, uniformly available to all similarly situated individuals and accommodate recommendations made at any time by an individual’s physician, based on medical appropriateness. The final rules also clarify the “reasonable design” requirement for health-contingent wellness programs and the reasonable alternatives they must offer to avoid prohibited discrimination. Notably, the final rules establish criteria for an affirmative defense against a claim that the plan discriminated based on health status in violation of HIPAA.

The final rules are largely consistent with earlier proposed regulations, which were released on November 20, 2012, but are reorganized for clarification. The final regulations also increase the maximum permissible reward under a health-contingent wellness program offered in connection with a group health plan (and any related health insurance coverage) from 20 percent to 30 percent of the cost of employee coverage, and further increase the maximum permissible reward to 50 percent for programs targeting tobacco use prevention or reduction.

The final regulations are effective for plan years beginning on or after January 1, 2014, and apply to both insured and self-funded health plans, regardless of grandfathered status.

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