Wellness programs may cut employer health insurance costs, but navigating discrimination rules has its costs, too.

By  Scott Sinder and John Fielding

Hit hard by the spiraling costs of employee health care benefits, employers are looking for new ways to reduce health insurance expenses without transferring them to workers, reducing benefits to a level that jeopardizes employee retention, or violating the law. Wellness programs are becoming an increasingly popular means to help control health insurance costs by improving employee health and reducing the need for medical care.

There is mounting concern, however, that wellness programs create a separate set of cost drivers—legal bills. New federal regulatory guidance may actually minimize legal cost concerns and bolster employers’ efforts to implement wellness programs.

Wellness programs are, essentially, employer-sponsored programs designed to maintain or improve employee health before problems (Read: costs) arise. Although there are many types, wellness programs included in group health plans generally fall into two categories: those that reward employees for meeting a standard related to a “health factor” and those that do not.

Employers are generally prohibited from discriminating among employees when it comes to benefits or the premiums they must pay for those benefits that are based on an individual’s “health factors.” The U.S. Department of Health and Human Services recently issued regulations that clarify what wellness programs can and cannot do in terms of varying the benefits made available to group health plan participants in conjunction with wellness programs.

“Health Factors” Plans. Under the regulations, health factor-based reward programs that pass the following five-part test do not run afoul of federal non-discrimination requirements:

· Rewards must not exceed 20% of the total cost of the health insurance for the participant or 20% of the total cost of health insurance for the participant and the participant’s dependents, if the wellness program is available to them. The reward may be in almost any form (premium discount or rebate, cost waiver, additional benefit, etc.).

· The wellness program must be reasonably designed to promote health or prevent disease. It cannot be overly burdensome or a subterfuge for discrimination on the basis of a health factor.

· The wellness program must provide an employee the opportunity to qualify for the reward at least once per year.

· The reward must be available to all similarly situated individuals. To meet this requirement, the program must provide reasonable alternatives to persons for whom it is unreasonably difficult to meet the standard due to a medical condition or for whom it is medically inadvisable to meet the standard. Instead of providing a reasonable alternative standard, the plan or issuer may waive the standard altogether. The plan or issuer may seek verification that it is unreasonably difficult or medically inadvisable for the individual to meet the standard.

· The plan or issuer must disclose the terms of the program and the reasonable alternative standards or availability of a waiver.

Wellness programs that, for example, offer a discounted copay or deductible if the participant maintains a healthy cholesterol level, body mass index, or does not smoke, can easily be structured to satisfy the five-part test. The key to satisfying non-discrimination requirements and to avoid liability is to ensure that anyone who cannot satisfy your wellness standard can qualify for a waiver and still receive the benefit. Or they could have an alternative standard they can realistically satisfy to qualify for the benefit.

Non-Health Factor Plans. The second type of plan raises the fewest compliance concerns because, by definition, they do not “discriminate” against individuals based on a health factor. These programs: