Off and Running: Federal Government Releases Final Rule For Employee Wellness Programs

New federal regulations are designed to help employers trim the fat from their employee health care programs – literally and figuratively.

In May the Obama administration released the Final Rule governing employee wellness programs under the 2010 Patient Protection and Affordable Care Act.  In an effort to reduce health care costs, an increasing number of employers are turning to programs that encourage employee wellness; in fact, the Labor Department reports that more than 90 percent of companies with 200 or more employees have programs to promote healthy behavior or prevent disease.

The Final Rule gives companies more flexibility to reward – or penalize – their employees based on certain health measures, but also includes measures to prevent discrimination against less healthy individuals.

Types of Wellness Programs

Specifically, the Final Rule addresses two main types of programs. Participatory wellness programs include arrangements that reimburse employees for all or part of the cost of gym memberships, or reward employees for undergoing diagnostic testing (to detect and treat preventable diseases) or attending health education seminars. Health contingent programs may include those that impose a premium surcharge based on tobacco use, or reward employees for attaining a healthy cholesterol or blood pressure level, or favorable weight.

The Final Rule increases the maximum permissible reward under a health-contingent wellness program from 20 percent to 30 percent of the cost of coverage.  Additionally, the maximum permissible reward is increased up to 50 percent for wellness programs designed to prevent or reduce tobacco use.

For example, suppose an employer sponsors a group health plan with an annual individual premium of $6,000 (the employer pays $4,500 annually and the employee pays $1,500).  The plan offers a health-contingent wellness program focused on exercise and maintaining a healthy weight, cholesterol, and blood pressure.  Here, the employer could offer complying employees an annual premium rebate of up to $1,800 ($6,000 x 30% = $1,800).  If the health-contingent wellness program focuses exclusively on preventing tobacco use, employees who do not smoke or successfully quit smoking could receive an annual premium rebate of up to $3,000 ($6,000 x 50% = $3,000).

Program Criteria

Under the Final Rule, health-contingent wellness programs must meet five elements:

1)  The program must give employees the opportunity to qualify for the reward at least once per year.

2)  The rewards must comply with the 30 percent/50 percent criteria.

3) The reward must be available to all similarly situated individuals, and a reasonable alternative standard must be made available to individuals who cannot satisfy the applicable standard criteria.  For example, an employer may provide an award to participants who have a body mass index (BMI) that is 26 or lower, measured shortly before the beginning of the year.   Any employee who does not meet the target BMI is given the same discount if the employee complies with an exercise program that consists of walking 150 minutes a week.  However, if an employee cannot meet the BMI threshold or comply with the walking program because of a medical condition, the employee must be given the opportunity to satisfy an alternative standard.  Here, the employer could work with the employee or the employee’s physician to develop an alternative, such as a personally-tailored diet and exercise plan.  If the employee complies with the diet and exercise plan, then he or she is eligible for the reward.

4) The program must be reasonably designed to promote health or prevent disease, and must not be overly burdensome or a subterfuge for discriminating based on a health factor.

5) The plan must disclose, in all plan materials describing the terms of the program, the availability of other means of qualifying for the reward, or the possibility of waiver of the otherwise applicable standard.

Privacy Concerns

Importantly, the Final Rule does not address the privacy and confidentiality of health information.  Therefore, employers must still abide by all state and federal laws regarding the privacy, disclosure, and confidentiality of employee (patient) health information.  Regular HIPAA Privacy and Security Rules will still apply to health plans and providers.

An experienced health care/employment attorney should be consulted when drafting criteria for a wellness plan, as “boiler plate” documents may not suffice.  Importantly, failure to comply with the Final Rule’s requirements may expose employers to liability under the Americans with Disabilities Act or other anti-discrimination laws.

The Final Rule, released May 29th, is slated to take effect for plan years beginning on or after January 1, 2014.  It is available online at:

Mercedes Varasteh Dordeski is an attorney with the Detroit and Grand Rapids offices of Foley & Mansfield, PLLP.  She is a member of the firm’s employment, health care law, and False Claims Act practice groups.  She may be reached at (248) 721-4200 or

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