A Balanced Approach to Wellness Benefits

December 10, 2012

On November 20, 2012, the U.S. Department of Human Services issued a Notice of Proposed Rulemaking on incentives for non-discriminatory wellness programs in group health plans. These proposed rules take a fair approach to a complicated issue: how to encourage health promotion programs while at the same time protecting individuals from potential health insurance discrimination.

Here’s the concern: incentives can be directed at helping to improve the health of a population, but they can also be used to limit benefits for those who are sick. Indeed, it would be possible for employers to use wellness incentives as a way to circumvent the ACA’s restrictions on medical underwriting. So, rules to clarify what is permissible in the way of incentives are very important.

The November 20 rule updates the 2006 rule that implemented wellness provisions in the 1996 Health Insurance Portability and Accountability Act (HIPAA). That rule made a distinction between “participatory” wellness programs and “health contingent” wellness programs.

In participatory programs, individuals earn incentives by doing things, e.g., taking health risk assessments, checking cholesterol, participating in stop smoking programs. The rules aren’t concerned about these programs because employees can get the incentive by doing something in their control.

In contrast, health contingent wellness programs provide incentives based on outcomes, e.g., cholesterol readings at a certain level; not smoking; weight levels within certain ranges. These programs raise many more complex policy-related issues; the rules seek to ensure incentives are promoting good health in ways that are truly possible for employees to achieve.

The Nov. 20 rule lays out five tests of program fairness:

  1. Individuals eligible for the program have the opportunity to qualify for the reward at least once per year.
  2. The total reward does not exceed 30 percent of the cost of coverage, except for tobacco use programs, which can be up to 50 percent. (This appears to be a way for smokers to offset the premium surcharge of 1.5:1 permitted elsewhere in the ACA; as others have noted, this provision is not entirely clear in the rule.)
  3. A “reasonable alternative standard” (or waiver of the otherwise applicable standard) for obtaining the reward must be provided for any individual for whom it is either unreasonably difficult or medically inadvisable to meet the standard due to a medical condition. The treating physician’s determination of the “reasonableness” of the alternative standard is the final arbiter, not the employer or health plan.
  4. Programs must be “reasonably designed” to promote health or prevent disease, not be overly burdensome, not be a subterfuge for discrimination based on a health factor, and not be highly suspect in the method chosen to promote health or prevent disease.
  5. Plans and issuers must disclose the availability of other means of qualifying for the reward or the possibility of waiver of the otherwise applicable standard in all plan materials describing the terms of a health-contingent wellness program.

While the use of incentives in wellness programs is relatively rare today (a 2009 Mercer study said they were used by just 6 percent of employers; other studies up to 14 percent) they are increasing in popularity. And with 63 percent of all employers offering some kind of wellness program in 2012 (according to a Kaiser survey), the inclusion of incentives by even a small percentage of those could affect many people.

Research to date has provided scant data on the positive or negative effects of wellness program incentives (or really, about the ROI from wellness programs overall). While participatory wellness programs are by far the majority of programs in place today, as health care costs continue to rise, more employers are likely to consider health contingent wellness programs. Rules like those promulgated on November 20 are important to assuring that wellness programs can grow and improve population health without harming those who most need the help.