Transfers
will arise as plans reduce discounts and surcharges. Plan sponsors can
exercise substantial control over the size and direction of these
transfers. Limiting the size of discounts and surcharges restricts only
the differential treatment of participants who satisfy wellness program
standards and those who do not. It does not, for example, restrict
plans sponsors' flexibility to determine the respective employer and
employee shares of base premiums. Possible outcomes include a transfer
of costs to plan sponsors from participants who satisfy wellness
program standards, from plan sponsors to participants who do not
satisfy the standards, from participants who satisfy the standards to
those who do not, or some combination of these.
The
Departments developed a very rough estimate of the total amount of
transfers that might derive from this requirement. The Departments'
estimate assumes that (1) all discounts and surcharges take the form of
employee premium discounts; (2) discounts are distributed evenly within
both the low-to-average range and the average-to-high range, and are
distributed across these ranges such that their mean equals the assumed
average; and (3) 70 percent of participants qualify for the discount.
This implies that just more than one-fourth of plans with discounts or
surcharges will be impacted by the cap, and that these plans' current
discounts and surcharges exceed the cap by $ 86 on average. The 9,600
affected plans could satisfy this requirement by reducing premiums for
the 106,000 participants who do not qualify by $ 86 annually, for an
aggregate, ongoing annual transfer of approximately $ 9 million. The
Departments solicit comments on their assumptions and estimate, and
would welcome information supportive of better estimates.
New
economic costs and benefits may arise if changes in the size of
discounts or surcharges result in changes in participant behavior.
Net
economic welfare might be lost if some wellness programs' effectiveness
is eroded, but the magnitude and incidence of such effects is expected
to be negligible. Consider a wellness program that discounts premiums
for
[*1429]
participants who take part in an exercise program. It is plausible
that, at the margin, a few participants who would take part in order to
obtain a discount of between $ 368 and $ 560 annually will not take
part to obtain a discount of $ 367. This might represent a net loss of
economic welfare. This effect is expected to be negligible, however.
Based on the assumptions specified above, just 248,000 participants now
qualifying for discounts would be affected. Reductions in discounts are
likely to average about $ 86 annually, which amounts to $ 7 per month
or $ 3 per biweekly pay period. Employee premiums are often deducted
from pay pre-tax, so the after tax value of these discounts may be even
smaller. Moreover, the proposed regulation caps only discounts and
surcharges applied to similarly situated individuals in the context of
a group health plans. It does not restrict plan sponsors from employing
other motivational tools to encourage participation in wellness
programs. According to the Hewitt survey, among 408 employers that
offered incentives for participation in wellness programs, 24 percent
offered awards or gifts and 62 percent varied life insurance premiums,
while just 14 percent varied medical premiums.
On
the other hand, net economic welfare likely will be gained in instances
where large premium differentials would otherwise have served to
discourage enrollment in health plans by employees who did not satisfy
wellness program requirements. Consider a plan that provides a very
large discount for non-smokers. The very high employee premiums charged
to smokers might discourage some from enrolling in the plan at all, and
some of these might be uninsured as a result. It seems unlikely that
the plan sponsor would respond to the first requirement of the proposed
regulation by raising premiums drastically for all non-smokers, driving
many out of the plan. Instead, the plan sponsor would reduce premiums
for smokers, and more smokers would enroll. This would result in
transfers to newly enrolled smokers from the plan sponsor (and possibly
from non-smokers if the plan sponsor makes other changes to
compensation). But it would also result in net gains in economic
welfare from reduced uninsurance.
The
Departments believe that the net economic gains from prohibiting
discounts and surcharges so large that they could discourage enrollment
based on health factors outweigh any net losses that might derive from
the negligible reduction of some employees' incentive to participate in
wellness programs. Comments are solicited on the magnitude of these and
any other effects and on the attendant costs and benefits.
Reasonable
Design-Under the second requirement, the program must be reasonably
designed to promote health or prevent disease. The Departments believe
that a program that is not so designed would not provide economic
benefits, but would serve merely to transfer costs from plan sponsors
to targeted individuals based on health factors. This requirement
therefore is not expected to impose economic costs but might prompt
transfers of costs from otherwise targeted individuals to their plans'
sponsors (or to other participants in their plans if plan sponsors
elect to pass these costs back evenly to all participants). Comments
received by the Departments and available literature on employee
wellness programs, however, suggest that existing wellness programs
generally satisfy this requirement. The requirement therefore is not
expected to compel plans to modify existing wellness programs. It is
not expected to entail economic costs nor to prompt transfers. The
Departments would appreciate comments on this conclusion and
information on the types of existing wellness programs (if any) that
would not satisfy requirement.
Uniform
Availability-The third requirement provides that rewards under the
program must be available to all similarly situated individuals. In
particular, the program must allow any individual for whom it would be
unreasonably difficult due to a medical condition to satisfy the
initial program standard an opportunity to satisfy a reasonable
alternative standard. Comments received by the Departments and
available literature on employee wellness programs suggest that some
wellness programs do not currently satisfy this requirement and will
have to be modified. Based on the Hewitt survey, the Departments
estimate that among employers that provide incentives for employees to
participate in wellness programs, 18 percent require employees to
achieve a low risk behavior to qualify for the incentive, 79 percent
require a pledge of compliance, and 38 percent require participation in
a program. (These numbers sum to more than 100 percent because wellness
programs may apply more than one criterion.) Depending on the nature of
the wellness program, it might be unreasonably difficult due to a
medical condition for at least some plan participants to achieve the
behavior or to comply with or participate in the program.
The
Departments identified three broad types of economic impact that might
arise from the third requirement. First, affected plans will incur some
economic cost to make available reasonable alternative standards.
Second, additional economic costs and benefits may arise depending on
the nature of alternatives provided, individuals' use of these
alternatives, and any changes in the affected individuals' behavioral
and health outcomes. Third, some costs may be transferred from
individuals who would fail to satisfy programs' initial standards, but
who will satisfy reasonable alternative standards once available (and
thereby qualify for associated discounts), to plan sponsors (or to
other participants in their plans if plan sponsors elect to pass these
costs back evenly to all participants).
The
Departments note that some plans that apply different discounts or
surcharges to similarly situated individuals and are therefore subject
to the requirement may not need to provide alternative standards. The
requirement provides that alternative standards need not be specified
or provided until a participant for whom it is unreasonably difficult
due to a medical condition to satisfy the initial standard seeks such
an alternative. Some wellness programs' initial standards may be such
that no participant would ever find them unreasonably difficult to
satisfy due to a medical condition. The Departments reviewed Hewitt
survey data on wellness program standards and criteria. Based on their
review they estimate that 20,000 of the 35,000 potentially affected
plans have initial wellness program standards that might be
unreasonably difficult for some participants to satisfy due to a
medical condition. Moreover, because alternatives need not be made
available until they are sought by qualified plan participants, it
might be possible for some of these plans to go for years or even
indefinitely without needing to make available an alternative standard.
This could be particularly likely for small plans. The most common
standards for wellness programs pertain to smoking, blood pressure, and
cholesterol levels, according to the Hewitt Survey. Based on U.S.
Centers for Disease Control and Management data on the incidence of
certain health habits and conditions in the general population, the
Departments estimate that among companies with 5 employees, about
one-fourth probably employ no smokers, and about one-third probably
employ no one with high blood pressure or cholesterol.
[*1430]
Approximately 96 percent of all plans with potentially difficult
initial wellness program standards have fewer than 100 participants.
How
many participants might qualify for, seek, and ultimately satisfy
alternative standards? The Departments lack sufficient data to estimate
these counts with confidence. Rough estimates were developed as
follows. The Departments examined the Hewitt survey of wellness program
provisions and U.S. Centers for Disease Control and Prevention
statistics on the incidence of certain health habits and conditions in
the general population in order to discern how wellness programs'
initial standards might interact with plan participants' health habits
and health status. Based on these data, it appears that as many as 29
percent of participants in plans with discounts or surcharges, or
394,000 individuals, might fail to satisfy wellness programs' initial
standards. Of these, approximately 229,000 are in the 22,000 plans
which apply standards that might be unreasonably difficult due to a
medical condition for some plan participants to satisfy, the
Departments estimate. The standards would in fact be unreasonably
difficult to satisfy for some subset of these individuals-148,000 by
the Departments' estimate. The Departments lack any basis to estimate
how many of these will avail themselves of an alternative standard, or
how many that do will succeed in satisfying that standard. To estimate
the potential impact of this requirement, the Departments considered
two assumptions: an upper bound assumption under which all 148,000
individuals seek and satisfy alternative standards, and an alternative
assumption under which one-half (or 74,000) seek an alternative and
one-half of those (37,000) satisfy it.
Where
plans are required to make available reasonable alternative standards,
what direct costs will they incur? The regulation does not prescribe a
particular type of alternative standard that must be provided. Instead,
it permits plan sponsors flexibility to provide any reasonable
alternative. The Departments expect that plans sponsors will select
alternatives that entail the minimum net costs (or, stated differently,
the maximum net benefits) that are possible. Plan sponsors may select
low-cost alternatives, such as requiring an individual for whom it
would be unreasonably difficult to quit smoking (and thereby qualify
for a non-smoker discount) to attend a smoking cessation program that
is available at little or no cost in the community, or to watch
educational videos or review educational literature. Plan sponsors
presumably will select higher-cost alternatives only if they thereby
derive offsetting benefits, such as a higher smoking cessation success
rate. The Departments also note that the number of plans with initial
wellness program standards that might be unreasonably difficult for
some participants to satisfy is probably small (having been estimated
at 22,000, or 1 percent of all plans), as is the number of individuals
who would take advantage of alternative standards (estimated at between
74,000 and 148,00, or between 0.1 percent and 0.2 percent of all
participants).
It seems reasonable to
presume that the net cost plan sponsors will incur in the provision of
alternatives, including transfers as well as new economic costs and
benefits, will not exceed the transfer cost of providing discounts (or
waiving surcharges) for all plan participants who qualify for
alternatives, which is estimated below at between $ 9 million and $ 37
million. It is likely that many plan sponsors will find more cost
effective ways to satisfy this requirement, and that the true net cost
to them will therefore be much smaller than this. The Departments have
no basis for estimating the magnitude of the cost of providing
alternative standards or of potential offsetting benefits, however, and
therefore solicit comments from the public on this question.
What
other economic costs and benefits might arise where alternative
standards are made available? A large number of outcomes are possible.
Consider a program that provides premium discounts for non-smokers.
It
is possible that some individuals who would have quit smoking in order
to qualify for a discount will nonetheless find it unreasonably
difficult to quit and will obtain the discount while continuing to
smoke by satisfying an alternative standard. This would represent a net
loss of economic welfare from increased smoking.
On
the other hand, consider individuals who, in the context of the initial
program, are unable or unwilling to quit smoking. It seems likely that
some of these individuals could quit with appropriate assistance, and
that some alternative standards provided by plan sponsors will provide
such assistance. In such cases, a program which had the effect of
shifting premium costs to smokers would be transformed into one that
successfully reduced smoking. This would represent a net gain of
economic welfare.
Which scenario is more
likely? The Departments have no concrete basis for answering this
question, and therefore solicit comments on it. However, the
Departments note that plan sponsors will have strong motivation to
identify and provide alternative standards that have positive net
economic effects. They will be disinclined to provide alternatives that
undermine their overall wellness program and worsen behavioral and
health outcomes, or that make financial rewards available absent
meaningful efforts by participants to improve their health habits and
health. Instead they will be inclined to provide alternatives that
sustain or reinforce plan participants' incentive to improve their
health habits and health, and/or that help participants make such
improvements. It therefore seems likely that gains in economic welfare
from this requirement will equal or outweigh losses. The Departments
anticipate that the requirement to provide reasonable alternative
standards will reduce instances where wellness programs serve only to
shift costs to higher risk individuals and increase instances where
programs succeed at helping high risk individuals improve their health
habits and health.
What transfers of costs
might derive from the availability of (and participants' satisfaction
of) alternative standards? The transfers arising from this requirement
may take the form of transfers to participants who satisfy new
alternative wellness program standards from plan sponsors, to such
participants from other participants, or some combination of these. The
Departments estimated potential transfers as follows. Assuming average
annual total premiums for employee-only coverage of $ 2,448, n3 the
maximum allowable discount of 15 percent amounts to $ 367 per year. As
noted earlier, discounts under existing wellness programs appear to
average about 11 percent (or $ 280 per year for a plan costing $
2,448), ranging from 3 percent ($ 70) to 23 percent ($ 560). Reducing
all discounts greater than $ 367 per year to that amount will reduce
the average, perhaps to about $ 251. Assuming that the 37,000 to
148,000 participants who satisfy alternative standards would not have
satisfied the wellness programs' initial standards, the transfers
attributable to their discounts and hence to this requirement would
amount to between $ 9 million and $ 37 million. The Departments solicit
comments on their assumptions and estimates regarding
[*1431]
transfers that may derive from this requirement.
n3
Average level based on the Kaiser Family Foundation/Health Research and
Education Trust Survey of Employer-Sponsored Health benefits, 1999,
projected by the Departments to 2000 levels.
Disclosure of Alternatives' Availability
-The fourth requirement provides that plan materials describing
wellness plan standards must disclose the availability of reasonable
alternative standards. This requirement will affect the 37,000 plans
that apply discounts or surcharges. These plans will incur economic
costs to revise affected plan materials. The 37,000 to 148,000
participants who will succeed at satisfying these alternative standards
will benefit from these disclosures. The disclosures need not specify
what alternatives are available, and the regulation provides model
language that can be used to satisfy this requirement. The Departments
generally account elsewhere for plans' cost of updating such materials
to reflect changes in plan provisions as required under various
disclosure requirements and as is part of usual business practice. This
particular requirement is expected to represent a negligible fraction
of the ongoing cost of updating plans' materials, and is not separately
accounted for here.
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health insurance, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 2590
Employee
benefit plans, Employee Retirement Income Security Act, Health care,
Health insurance, Reporting and recordkeeping requirements.
45 CFR Part 146
Health care, Health insurance, Reporting and recordkeeping
requirements, and State regulation of health insurance.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 54 is proposed to be amended as follows:
PART 54--PENSION EXCISE TAXES
Paragraph 1. The authority citation for part 54 continues to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 54.9802-1 is amended by adding text to paragraph
(b) to read as follows:
§ 54.9802-1 -- Prohibiting discrimination against participants
and beneficiaries based on a health factor.
* * * * *
(f)
Bona fide wellness programs- (1)
Definition.
A wellness program is a bona fide wellness program if it satisfies the
requirements of paragraphs (f)(1)(i) through (f)(1)(iv) of this
section. However, a wellness program providing a reward that is not
contingent on satisfying a standard related to a health factor does not
violate this section even if it does not satisfy the requirements of
this paragraph (f) for a bona fide wellness program.
(i)
The reward for the wellness program, coupled with the reward for other
wellness programs with respect to the plan that require satisfaction of
a standard related to a health factor, must not exceed (10/15/20)
percent of the cost of employee-only coverage under the plan. For this
purpose, the cost of employee-only coverage is determined based on the
total amount of employer and employee contributions for the benefit
package under which the employee is receiving coverage. A reward can be
in the form of a discount, a rebate of a premium or contribution, or a
waiver of all or part of a cost-sharing mechanism (such as deductibles,
copayments, or coinsurance), or the absence of a surcharge.
(ii)
The program must be reasonably designed to promote good health or
prevent disease. For this purpose, a program is not reasonably designed
to promote good health or prevent disease unless the program gives
individuals eligible for the program the opportunity to qualify for the
reward under the program at least once per year.
(iii)
The reward under the program must be available to all similarly
situated individuals. A reward is not available to all similarly
situated individuals for a period unless the program allows-
(A)
A reasonable alternative standard to obtain the reward to any
individual for whom, for that period, it is unreasonably difficult due
to a medical condition to satisfy the otherwise applicable standard for
the reward; and
(B) A reasonable
alternative standard to obtain the reward to any individual for whom,
for that period, it is medically inadvisable to attempt to satisfy the
otherwise applicable standard for the reward.
(iv)
The plan must disclose in all plan materials describing the terms of
the program the availability of a reasonable alternative standard
required under paragraph (f)(1)(iii) of this section. (However, in plan
materials that merely mention that a program is available, without
describing its terms, this disclosure is not required.) The following
language, or substantially similar language, can be used to satisfy
this requirement: "If it is unreasonably difficult due to a medical
condition for you to achieve the standards for the reward under this
program, or if it is medically inadvisable for you to attempt to
achieve the standards for the reward under this program, call us at
[insert telephone number] and we will work with you to develop another
way to qualify for the reward." In addition, other examples of language
that would satisfy this requirement are set forth in Examples 4, 5, and
6 of paragraph (f)(2) of this section.
(2)
Examples. The rules of this paragraph (f) are illustrated
by the following examples:
Example 1.
(i) Facts. A group health plan offers a wellness program to
participants and beneficiaries under which the plan provides
memberships to a local fitness center at a discount.
(ii)
Conclusion. In this
Example 1,
the reward under the program is not contingent on satisfying any
standard that is related to a health factor. Therefore, there is no
discrimination based on a health factor under either paragraph (b) or
(c) of this section and the requirements for a bona fide wellness
program do not apply.
Example 2. (i)
Facts.
An employer sponsors a group health plan. The annual premium for
employee-only coverage is $ 2,400 (of which the employer pays $ 1,800
per year and the employee pays $ 600 per year). The plan implements a
wellness program that offers a $ 240 rebate on premiums to program
enrollees.
(ii)
Conclusion. In this
Example 2, the program satisfies the requirements of paragraph
(f)(1)(i) of this section because the reward for the wellness program,
$ 240, does not exceed [10/15/20] percent of the total annual cost of
employee-only coverage, [$ 240/$ 360/$ 480]. ($ 2,400 x [10/15/20]% =
[$ 240/$ 360/$ 480].)
Example 3. (i)
Facts.
A group health plan gives an annual premium discount of [10/15/20]
percent of the cost of employee-only coverage to participants who
adhere to a wellness program. The wellness program consists solely of
giving an annual cholesterol test to participants. Those participants
who achieve a count under 200 receive the premium discount for the year.
(ii)
Conclusion. In this
Example 3,
the program is not a bona fide wellness program. The program fails to
satisfy the requirement of being available to all similarly situated
individuals because some participants may be unable to achieve a
cholesterol count of under 200 and the plan does not make available a
reasonable alternative standard for obtaining the premium discount. (In
addition, plan materials describing the program are required to
disclose the availability of the reasonable alternative standard for
obtaining the premium discount.) Thus, the premium discount violates
paragraph (c) of this section because it may require an individual to
pay a higher premium based on a health factor of the individual than is
required of a similarly situated individual under the plan.
Example 4. (i)
Facts. Same facts as
Example 3,
except that if it is unreasonably
[*1432]
difficult due to a medical condition for a participant to achieve the
targeted cholesterol count (or if it is medically inadvisable for a
participant to attempt to achieve the targeted cholesterol count), the
plan will make available a reasonable alternative standard that takes
the relevant medical condition into account. In addition, all plan
materials describing the terms of the program include the following
statement: "If it is unreasonably difficult due to a medical condition
for you to achieve a cholesterol count under 200, or if it is medically
inadvisable for you to attempt to achieve a count under 200, call us at
the number below and we will work with you to develop another way to
get the discount." Individual
D is unable to achieve a
cholesterol count under 200. The plan accommodates
D by making
the discount available to
D, but only if
D complies
with a low-cholesterol diet.
(ii)
Conclusion. In this
Example 5,
the program is a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the reward
under the program is available to all similarly situated individuals
because it accommodates individuals for whom it is unreasonably
difficult due to a medical condition to achieve the targeted count (or
for whom it is medically inadvisable to attempt to achieve the targeted
count) in the prescribed period by providing a reasonable alternative
standard. Fourth, the plan discloses in all materials describing the
terms of the program the availability of a reasonable alternative
standard. Thus, the premium discount does not violate this section.
Example 5. (i)
Facts.
A group health plan will waive the $ 250 annual deductible (which is
less than [10/15/20] percent of the annual cost of employee-only
coverage under the plan) for the following year for participants who
have a body mass index between 19 and 26, determined shortly before the
beginning of the year. However, any participant for whom it is
unreasonably difficult due to a medical condition to attain this
standard (and any participant for whom it is medically inadvisable to
attempt to achieve this standard) during the plan year is given the
same discount if the participant walks for 20 minutes three days a
week. Any participant for whom it is unreasonably difficult due to a
medical condition to attain either standard (and any participant for
whom it is medically inadvisable to attempt to achieve either standard
during the year) is given the same discount if the individual satisfies
a reasonable alternative standard that is tailored to the individual's
situation. All plan materials describing the terms of the wellness
program include the following statement: "If it is unreasonably
difficult due to a medical condition for you to achieve a body mass
index between 19 and 26 (or if it is medically inadvisable for you to
attempt to achieve this body mass index) this year, your deductible
will be waived if you walk for 20 minutes three days a week. If you
cannot follow the walking program, call us at the number above and we
will work with you to develop another way to have your deductible
waived, such as a dietary regimen."
(ii)
Conclusion. In this
Example 5,
the program is a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the reward
under the program is available to all similarly situated individuals
because it generally accommodates individuals for whom it is
unreasonably difficult due to a medical condition to achieve (or for
whom it is medically inadvisable to attempt to achieve) the targeted
body mass index by providing a reasonable alternative standard
(walking) and it accommodates individuals for whom it is unreasonably
difficult due to a medical condition (or for whom it is medically
inadvisable to attempt) to walk by providing an alternative standard
that is reasonable for the individual. Fourth, the plan discloses in
all materials describing the terms of the program the availability of a
reasonable alternative standard for every individual. Thus, the waiver
of the deductible does not violate this section.
Example 6. (i)
Facts.
In conjunction with an annual open enrollment period, a group health
plan provides a form for participants to certify that they have not
used tobacco products in the preceding twelve months. Participants who
do not provide the certification are assessed a surcharge that is
[10/15/20] percent of the cost of employee-only coverage. However, all
plan materials describing the terms of the wellness program include the
following statement: "If it is unreasonably difficult due to a medical
condition for you to meet the requirements under this program (or if it
is medically inadvisable for you to attempt to meet the requirements of
this program), we will make available a reasonable alternative standard
for you to avoid this surcharge." It is unreasonably difficult for
Individual
E to stop smoking cigarettes due to an addiction to
nicotine (a medical condition). The plan accommodates
E by
requiring
E to participate in a smoking cessation program to
avoid the surcharge.
E can avoid the surcharge for as long as
E
participates in the program, regardless of whether
E stops
smoking (as long as
E continues to be addicted to nicotine).
(ii)
Conclusion. In this
Example 6,
the premium surcharge is permissible as a bona fide wellness program
because it satisfies the four requirements of this paragraph (f).
First, the program complies with the limits on rewards under a program.
Second, it is reasonably designed to promote good health or prevent
disease. Third, the reward under the program is available to all
similarly situated individuals because it accommodates individuals for
whom it is unreasonably difficult due to a medical condition (or for
whom it is medically inadvisable to attempt) to quit using tobacco
products by providing a reasonable alternative standard. Fourth, the
plan discloses in all materials describing the terms of the program the
availability of a reasonable alternative standard. Thus, the premium
surcharge does not violate this section.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
For the reasons set forth above, 29 CFR Part 2590 is proposed to be
amended as follows:
PART 2590 [AMENDED]--RULES AND REGULATIONS FOR HEALTH INSURANCE
PORTABILITY AND RENEWABILITY FOR GROUP HEALTH PLANS
1. The authority citation for Part 2590 continues to read as follows:
Authority: Secs. 107, 209, 505, 701-703, 711-713, and 731-734 of
ERISA
(29 U.S.C. 1027,
1059, 1135, 1171-1173, 1181-1183, and 1191-1194), as amended by HIPAA
(Public Law 104-191, 110 Stat. 1936), MHPA and NMHPA (Public Law
104-204, 110 Stat. 2935), and WHCRA (Public Law 105-277, 112 Stat.
2681-436), section 101(g)(4) of HIPAA, and Secretary of Labor's Order
No. 1-87,
52 FR 13139, April 21, 1987.
2. Section 2590.702 is proposed to be amended by adding text to
paragraph (b) to read as follows:
§ 2590.702 -- Prohibiting discrimination against participants
and beneficiaries based on a health factor.
* * * * *
(f)
Bona fide wellness programs -(1)
Definition.
A wellness program is a bona fide wellness program if it satisfies the
requirements of paragraphs (f)(1)(i) through (f)(1)(iv) of this
section. However, a wellness program providing a reward that is not
contingent on satisfying a standard related to a health factor does not
violate this section even if it does not satisfy the requirements of
this paragraph (f) for a bona fide wellness program.
(i)
The reward for the wellness program, coupled with the reward for other
wellness programs with respect to the plan that require satisfaction of
a standard related to a health factor, must not exceed [10/15/20]
percent of the cost of employee-only coverage under the plan. For this
purpose, the cost of employee-only coverage is determined based on the
total amount of employer and employee contributions for the benefit
package under which the employee is receiving coverage. A reward can be
in the form of a discount, a rebate of a premium or contribution, or a
waiver of all or part of a cost-sharing mechanism (such as deductibles,
copayments, or coinsurance), or the absence of a surcharge.
(ii) The program must be reasonably designed to promote good health or
[*1433]
prevent disease. For this purpose, a program is not reasonably designed
to promote good health or prevent disease unless the program gives
individuals eligible for the program the opportunity to qualify for the
reward under the program at least once per year.
(iii)
The reward under the program must be available to all similarly
situated individuals. A reward is not available to all similarly
situated individuals for a period unless the program allows-
(A)
A reasonable alternative standard to obtain the reward to any
individual for whom, for that period, it is unreasonably difficult due
to a medical condition to satisfy the otherwise applicable standard for
the reward; and
(B) A reasonable
alternative standard to obtain the reward to any individual for whom,
for that period, it is medically inadvisable to attempt to satisfy the
otherwise applicable standard for the reward.
(iv)
The plan or issuer must disclose in all plan materials describing the
terms of the program the availability of a reasonable alternative
standard required under paragraph (f)(1)(iii) of this section.
(However, in plan materials that merely mention that a program is
available, without describing its terms, this disclosure is not
required.) The following language, or substantially similar language,
can be used to satisfy this requirement: "If it is unreasonably
difficult due to a medical condition for you to achieve the standards
for the reward under this program, or if it is medically inadvisable
for you to attempt to achieve the standards for the reward under this
program, call us at [insert telephone number] and we will work with you
to develop another way to qualify for the reward." In addition, other
examples of language that would satisfy this requirement are set forth
in Examples 4, 5, and 6 of paragraph (f)(2) of this section.
(2)
Examples. The rules of this paragraph (f) are illustrated
by the following examples:
Example 1. (i)
Facts.
A group health plan offers a wellness program to participants and
beneficiaries under which the plan provides memberships to a local
fitness center at a discount.
(ii)
Conclusion. In this
Example 1,
the reward under the program is not contingent on satisfying any
standard that is related to a health factor. Therefore, there is no
discrimination based on a health factor under either paragraph (b) or
(c) of this section and the requirements for a bona fide wellness
program do not apply.
Example 2. (i)
Facts.
An employer sponsors a group health plan. The annual premium for
employee-only coverage is $ 2,400 (of which the employer pays $ 1,800
per year and the employee pays $ 600 per year). The plan implements a
wellness program that offers a $ 240 rebate on premiums to program
enrollees.
(ii)
Conclusion. In this
Example 2,
the program satisfies the requirements of paragraph (f)(1)(i) of this
section because the reward for the wellness program, $ 240, does not
exceed [10/15/20] percent of the total annual cost of employee-only
coverage, [$ 240/$ 360/$ 480]. ($ 2,400 x [10/15/20]% = [$ 240/$ 360/$
480].)
Example 3. (i)
Facts.
A group health plan gives an annual premium discount of [10/15/20]
percent of the cost of employee-only coverage to participants who
adhere to a wellness program. The wellness program consists solely of
giving an annual cholesterol test to participants. Those participants
who achieve a count under 200 receive the premium discount for the year.
(ii)
Conclusion. In this
Example 3,
the program is not a bona fide wellness program. The program fails to
satisfy the requirement of being available to all similarly situated
individuals because some participants may be unable to achieve a
cholesterol count of under 200 and the plan does not make available a
reasonable alternative standard for obtaining the premium discount. (In
addition, plan materials describing the program are required to
disclose the availability of the reasonable alternative standard for
obtaining the premium discount.) Thus, the premium discount violates
paragraph (c) of this section because it may require an individual to
pay a higher premium based on a health factor of the individual than is
required of a similarly situated individual under the plan.
Example 4. (i)
Facts. Same facts as
Example 3,
except that if it is unreasonably difficult due to a medical condition
for a participant to achieve the targeted cholesterol count (or if it
is medically inadvisable for a participant to attempt to achieve the
targeted cholesterol count), the plan will make available a reasonable
alternative standard that takes the relevant medical condition into
account. In addition, all plan materials describing the terms of the
program include the following statement: "If it is unreasonably
difficult due to a medical condition for you to achieve a cholesterol
count under 200, or if it is medically inadvisable for you to attempt
to achieve a count under 200, call us at the number below and we will
work with you to develop another way to get the discount." Individual
D
is unable to achieve a cholesterol count under 200. The plan
accommodates
D by making the discount available to
D,
but only if
D complies with a low-cholesterol diet.
(ii)
Conclusion. In this
Example 4,
the program is a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the reward
under the program is available to all similarly situated individuals
because it accommodates individuals for whom it is unreasonably
difficult due to a medical condition to achieve the targeted count (or
for whom it is medically inadvisable to attempt to achieve the targeted
count) in the prescribed period by providing a reasonable alternative
standard. Fourth, the plan discloses in all materials describing the
terms of the program the availability of a reasonable alternative
standard. Thus, the premium discount does not violate this section.
Example 5. (i)
Facts.
A group health plan will waive the $ 250 annual deductible (which is
less than [10/15/20] percent of the annual cost of employee-only
coverage under the plan) for the following year for participants who
have a body mass index between 19 and 26, determined shortly before the
beginning of the year. However, any participant for whom it is
unreasonably difficult due to a medical condition to attain this
standard (and any participant for whom it is medically inadvisable to
attempt to achieve this standard) during the plan year is given the
same discount if the participant walks for 20 minutes three days a
week. Any participant for whom it is unreasonably difficult due to a
medical condition to attain either standard (and any participant for
whom it is medically inadvisable to attempt to achieve either standard
during the year) is given the same discount if the individual satisfies
a reasonable alternative standard that is tailored to the individual's
situation. All plan materials describing the terms of the wellness
program include the following statement: "If it is unreasonably
difficult due to a medical condition for you to achieve a body mass
index between 19 and 26 (or if it is medically inadvisable for you to
attempt to achieve this body mass index) this year, your deductible
will be waived if you walk for 20 minutes three days a week. If you
cannot follow the walking program, call us at the number above and we
will work with you to develop another way to have your deductible
waived, such as a dietary regimen."
(ii)
Conclusion. In this
Example 5,
the program is a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the reward
under the program is available to all similarly situated individuals
because it generally accommodates individuals for whom it is
unreasonably difficult due to a medical condition to achieve (or for
whom it is medically inadvisable to attempt to achieve) the targeted
body mass index by providing a reasonable alternative standard
(walking) and it accommodates individuals for whom it is unreasonably
difficult due to a medical condition (or for whom it is medically
inadvisable to attempt) to walk by providing an alternative standard
that is reasonable for the individual. Fourth, the plan discloses in
all materials describing the terms of the program the availability of a
reasonable alternative standard for every individual. Thus, the waiver
of the deductible does not violate this section.
Example 6. (i)
Facts.
In conjunction with an annual open enrollment period, a group health
plan provides a form for participants to certify that they have not
used tobacco products in the preceding twelve months.
[*1434]
Participants who do not provide the certification are assessed a
surcharge that is [10/15/20] percent of the cost of employee-only
coverage. However, all plan materials describing the terms of the
wellness program include the following statement: "If it is
unreasonably difficult due to a health factor for you to meet the
requirements under this program (or if it is medically inadvisable for
you to attempt to meet the requirements of this program), we will make
available a reasonable alternative standard for you to avoid this
surcharge." It is unreasonably difficult for Individual
E to
stop smoking cigarettes due to an addiction to nicotine (a medical
condition). The plan accommodates
E by requiring
E to
participate in a smoking cessation program to avoid the surcharge.
E
can avoid the surcharge for as long as
E participates in the
program, regardless of whether
E stops smoking (as long as
E
continues to be addicted to nicotine).
(ii)
Conclusion. In this
Example 6,
the premium surcharge is permissible as a bona fide wellness program
because it satisfies the four requirements of this paragraph (f).
First, the program complies with the limits on rewards under a program.
Second, it is reasonably designed to promote good health or prevent
disease. Third, the reward under the program is available to all
similarly situated individuals because it accommodates individuals for
whom it is unreasonably difficult due to a medical condition (or for
whom it is medically inadvisable to attempt) to quit using tobacco
products by providing a reasonable alternative standard. Fourth, the
plan discloses in all materials describing the terms of the program the
availability of a reasonable alternative standard. Thus, the premium
surcharge does not violate this section.
* * * * *
Signed at Washington, DC this 28th day of December, 2000.
Leslie B. Kramerich,
Assistant Secretary, Pension and Welfare Benefits Administration,
U.S. Department of Labor.
For the reasons set forth above, we propose to amend 45 CFR Part 146 as
follows:
PART 146 [AMENDED]--RULES AND REGULATIONS FOR HEALTH INSURANCE
PORTABILITY AND RENEWABILITY FOR GROUP HEALTH PLANS
1. The authority citation for Part 146 continues to read as follows:
Authority: Secs. 2701 through 2763, 2791 and 2792 of the Public
Health Service Act,
42 U.S.C. 300gg
through 300gg-63, 300gg-91, 300gg-92 as amended by HIPAA (Public Law
104-191, 110 Stat. 1936), MHPA and NMHPA (Public Law 104-204, 110 Stat.
2935), and WHCRA (Public Law 105-277, 112 Stat. 2681-436), and section
102(c)(4) of HIPAA.
2. We propose to amend § 146.121 by adding text to paragraph (b)
to read as follows:
§ 146.121 -- Prohibiting discrimination against participants
and beneficiaries based on a health factor.
* * * * *
(f)
Bona fide wellness programs- (1)
Definition.
A wellness program is a bona fide wellness program if it satisfies the
requirements of paragraphs (f)(1)(i) through (f)(1)(iv) of this
section. However, a wellness program providing a reward that is not
contingent on satisfying a standard related to a health factor does not
violate this section even if it does not satisfy the requirements of
this paragraph (f) for a bona fide wellness program.
(i)
The reward for the wellness program, coupled with the reward for other
wellness programs with respect to the plan that require satisfaction of
a standard related to a health factor, must not exceed [10/15/20]
percent of the cost of employee-only coverage under the plan. For this
purpose, the cost of employee-only coverage is determined based on the
total amount of employer and employee contributions for the benefit
package under which the employee is receiving coverage. A reward can be
in the form of a discount, a rebate of a premium or contribution, or a
waiver of all or part of a cost-sharing mechanism (such as deductibles,
copayments, or coinsurance), or the absence of a surcharge.
(ii)
The program must be reasonably designed to promote good health or
prevent disease. For this purpose, a program is not reasonably designed
to promote good health or prevent disease unless the program gives
individuals eligible for the program the opportunity to qualify for the
reward under the program at least once per year.
(iii)
The reward under the program must be available to all similarly
situated individuals. A reward is not available to all similarly
situated individuals for a period unless the program allows-
(A)
A reasonable alternative standard to obtain the reward to any
individual for whom, for that period, it is unreasonably difficult due
to a medical condition to satisfy the otherwise applicable standard for
the reward; and (B) A reasonable alternative standard to obtain the
reward to any individual for whom, for that period, it is medically
inadvisable to attempt to satisfy the otherwise applicable standard for
the reward.
(iv) The plan or issuer must
disclose in all plan materials describing the terms of the program the
availability of a reasonable alternative standard required under
paragraph (f)(1)(iii) of this section. (However, in plan materials that
merely mention that a program is available, without describing its
terms, this disclosure is not required.) The following language, or
substantially similar language, can be used to satisfy this
requirement: "If it is unreasonably difficult due to a medical
condition for you to achieve the standards for the reward under this
program, or if it is medically inadvisable for you to attempt to
achieve the standards for the reward under this program, call us at
[insert telephone number] and we will work with you to develop another
way to qualify for the reward." In addition, other examples of language
that would satisfy this requirement are set forth in Examples 4, 5, and
6 of paragraph (f)(2) of this section.
(2)
Examples. The rules of this paragraph (f) are illustrated
by the following examples:
Example 1. (i)
Facts.
A group health plan offers a wellness program to participants and
beneficiaries under which the plan provides memberships to a local
fitness center at a discount.
(ii) Conclusion. In this
Example 1,
the reward under the program is not contingent on satisfying any
standard that is related to a health factor. Therefore, there is no
discrimination based on a health factor under either paragraph (b) or
(c) of this section and the requirements for a bona fide wellness
program do not apply.
Example 2. (i)
Facts.
An employer sponsors a group health plan. The annual premium for
employee-only coverage is $ 2,400 (of which the employer pays $ 1,800
per year and the employee pays $ 600 per year). The plan implements a
wellness program that offers a $ 240 rebate on premiums to program
enrollees.
(ii)
Conclusion. In this
Example 2,
the program satisfies the requirements of paragraph (f)(1)(i) of this
section because the reward for the wellness program, $ 240, does not
exceed [10/15/20] percent of the total annual cost of employee-only
coverage, [$ 240/$ 360/$ 480]. ($ 2,400 x [10/15/20]% = [$ 240/$ 360/$
480].)
Example 3. (i)
Facts.
A group health plan gives an annual premium discount of [10/15/20]
percent of the cost of employee-only coverage to participants who
adhere to a wellness program. The wellness program consists solely of
giving an annual cholesterol test to participants. Those participants
who achieve a count under 200 receive the premium discount for the year.
(ii)
Conclusion. In this
Example 3,
the program is not a bona fide wellness program. The program fails to
satisfy the requirement of being available to all similarly situated
individuals because some participants may be unable to achieve a
cholesterol count of under 200 and the plan does not make available a
reasonable alternative standard for obtaining the premium discount. (In
addition, plan materials describing the program are required to
disclose the availability of the reasonable alternative standard for
obtaining the premium
[*1435]
discount.) Thus, the premium discount violates paragraph (c) of this
section because it may require an individual to pay a higher premium
based on a health factor of the individual than is required of a
similarly situated individual under the plan.
Example 4. (i)
Facts. Same facts as
Example 3,
except that if it is unreasonably difficult due to a medical condition
for a participant to achieve the targeted cholesterol count (or if it
is medically inadvisable for a participant to attempt to achieve the
targeted cholesterol count), the plan will make available a reasonable
alternative standard that takes the relevant medical condition into
account. In addition, all plan materials describing the terms of the
program include the following statement: "If it is unreasonably
difficult due to a medical condition for you to achieve a cholesterol
count under 200, or if it is medically inadvisable for you to attempt
to achieve a count under 200, call us at the number below and we will
work with you to develop another way to get the discount." Individual
D
is unable to achieve a cholesterol count under 200. The plan
accommodates
D by making the discount available to
D,
but only if
D complies with a low-cholesterol diet.
(ii)
Conclusion. In this
Example 4,
the program is a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the reward
under the program is available to all similarly situated individuals
because it accommodates individuals for whom it is unreasonably
difficult due to a medical condition to achieve the targeted count (or
for whom it is medically inadvisable to attempt to achieve the targeted
count) in the prescribed period by providing a reasonable alternative
standard. Fourth, the plan discloses in all materials describing the
terms of the program the availability of a reasonable alternative
standard. Thus, the premium discount does not violate this section.
Example 5. (i)
Facts.
A group health plan will waive the $ 250 annual deductible (which is
less than [10/15/20] percent of the annual cost of employee-only
coverage under the plan) for the following year for participants who
have a body mass index between 19 and 26, determined shortly before the
beginning of the year. However, any participant for whom it is
unreasonably difficult due to a medical condition to attain this
standard (and any participant for whom it is medically inadvisable to
attempt to achieve this standard) during the plan year is given the
same discount if the participant walks for 20 minutes three days a
week. Any participant for whom it is unreasonably difficult due to a
medical condition to attain either standard (and any participant for
whom it is medically inadvisable to attempt to achieve either standard
during the year) is given the same discount if the individual satisfies
a reasonable alternative standard that is tailored to the individual's
situation. All plan materials describing the terms of the wellness
program include the following statement: "If it is unreasonably
difficult due to a medical condition for you to achieve a body mass
index between 19 and 26 (or if it is medically inadvisable for you to
attempt to achieve this body mass index) this year, your deductible
will be waived if you walk for 20 minutes three days a week. If you
cannot follow the walking program, call us at the number above and we
will work with you to develop another way to have your deductible
waived, such as a dietary regimen."
(ii)
Conclusion. In this
Example 5,
the program is a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the reward
under the program is available to all similarly situated individuals
because it generally accommodates individuals for whom it is
unreasonably difficult due to a medical condition to achieve (or for
whom it is medically inadvisable to attempt to achieve) the targeted
body mass index by providing a reasonable alternative standard
(walking) and it accommodates individuals for whom it is unreasonably
difficult due to a medical condition (or for whom it is medically
inadvisable to attempt) to walk by providing an alternative standard
that is reasonable for the individual. Fourth, the plan discloses in
all materials describing the terms of the program the availability of a
reasonable alternative standard for every individual. Thus, the waiver
of the deductible does not violate this section.
Example 6. (i)
Facts.
In conjunction with an annual open enrollment period, a group health
plan provides a form for participants to certify that they have not
used tobacco products in the preceding twelve months. Participants who
do not provide the certification are assessed a surcharge that is
[10/15/20] percent of the cost of employee-only coverage. However, all
plan materials describing the terms of the wellness program include the
following statement: "If it is unreasonably difficult due to a health
factor for you to meet the requirements under this program (or if it is
medically inadvisable for you to attempt to meet the requirements of
this program), we will make available a reasonable alternative standard
for you to avoid this surcharge." It is unreasonably difficult for
Individual
E to stop smoking cigarettes due to an addiction to
nicotine (a medical condition). The plan accommodates
E by
requiring
E to participate in a smoking cessation program to
avoid the surcharge.
E can avoid the surcharge for as long as
E
participates in the program, regardless of whether
E stops
smoking (as long as
E continues to be addicted to nicotine).
(ii)
Conclusion. In this
Example 6,
the premium surcharge is permissible as a bona fide wellness program
because it satisfies the four requirements of this paragraph (f).
First, the program complies with the limits on rewards under a program.
Second, it is reasonably designed to promote good health or prevent
disease. Third, the reward under the program is available to all
similarly situated individuals because it accommodates individuals for
whom it is unreasonably difficult due to a medical condition (or for
whom it is medically inadvisable to attempt) to quit using tobacco
products by providing a reasonable alternative standard. Fourth, the
plan discloses in all materials describing the terms of the program the
availability of a reasonable alternative standard. Thus, the premium
surcharge does not violate this section.
* * * * *
Dated: June 22, 2000.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
Approved: August 29, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 01-107 Filed 1-5-01; 8:45 am]
BILLING CODE 4120-01-P; 4510-29-P; 4830-01-P