New FAQs Offer Relief for Employers Sponsoring Wellness Programs

The departments of Labor, Treasury, and Health and Human Services (HHS) have issued new joint guidance in the form of Frequently Asked Questions (FAQs) that offer some enforcement relief with respect to employer-sponsored wellness programs, in particular the administration of tobacco premium surcharges that may be a part of employer-sponsored health plans. Plan sponsors will welcome this guidance as it provides relief on certain issues of compliance that have long complicated the administration of these programs.

Background

Employer-sponsored health plans may charge tobacco users a greater premium for coverage as long as certain notice and reasonable alternative standard requirements are satisfied and participants have a reasonable opportunity to qualify for a reward, i.e., the premium that does not include a tobacco surcharge. Under such a “health-contingent” wellness program that is “outcome-based,” the reward is conditioned on an individual attaining or maintaining a specific health outcome, such as being tobacco-free, rather than merely participating in a health-related activity. Two complex issues that frequently arise in the administration of such programs include (1) the regulatory requirement that the full reward be available to all similarly situated individuals (in other words, retroactive relief in the form of premium refunds when a participant satisfies the applicable standard mid-year), and (2) the required notice of the availability of a reasonable alternative standard if the employee cannot achieve the specific health outcome, and specifically when such notice must be provided to employee participants.

FAQs

The “full reward” component of wellness program design has long been an administrative challenge for employers to the extent that employees who satisfy the criteria mid-year may be entitled to premium relief retroactively to the start of the plan year. In addition, related notice requirements may apply to any plan description that includes a reference to the availability of the wellness programs and associated premium relief.

The FAQs announce a new enforcement posture with respect to the first issue and a clarification with respect to the second, both of which should reduce the compliance burden for employers:

• First, the FAQs indicate that the departments will not take enforcement action against a plan for failing to provide a reward for satisfying a reasonable alternative standard under a health-contingent wellness program retroactive to the beginning of the plan year so long as the plan provides the reward for the remaining portion of the plan year after the reasonable alternative standard is satisfied. In other words, prospective premium relief for the rest of the plan year is sufficient to satisfy the “full reward” requirement for enforcement purposes.

• Second, the FAQs reiterate that under the applicable regulations, a plan must disclose the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the possibility of waiving the otherwise applicable standard) in all plan materials describing a health-contingent wellness program. The FAQs go on to clarify, however, that if plan materials merely mention that such a program is available, without describing its terms, this disclosure is not required. By way of example, the FAQs explain that if the summary of benefits and coverage that is required to be provided to plan participants under the Affordable Care Act notes that cost sharing may vary based on participation in an outcome-based wellness program but without describing the standards of such a program, the disclosure requirement would not be triggered.

Although it is important to note that the FAQs could not — nor do they purport to — change the underlying regulatory guidance, the exercise of enforcement discretion described in the FAQs should significantly simplify employer administration of wellness programs. On the other hand, employers should also be aware that litigation over wellness programs, including claims regarding the administration of wellness program rewards, continues to evolve and expand. Significantly, the enforcement posture announced in the FAQs with respect to “full rewards” does not necessarily have any impact on the feasibility of a plaintiff’s claim that administration of a wellness program has failed to comply with the applicable regulations.

If you have questions about employer-sponsored wellness programs and the effect of the new FAQs on the administration of such programs, please contact a member of our Employee Benefits & Executive Compensation team.