Wellness Program Rewards Expanded Under Affordable Care Act

McGuireWoods Healthcare Reform Guide: Installment No. 26

December 6, 2012

This is the 26th in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act). This article focuses on the Act provisions that would expand the incentives available under wellness programs. These provisions are now a step closer to implementation.

Recently the Treasury, Labor and Health and Human Services departments, the three agencies primarily responsible for healthcare reform implementation, jointly issued proposed regulations about incentives that can be offered under wellness programs (the Regulations). The Regulations would clarify the existing rules, issued in 2006, for nondiscriminatory wellness programs. The major change under the Regulations would be implementation of the expanded incentives included in the Act. The Regulations would also provide additional guidance on the structure of a qualifying wellness program.

Expanded Incentives

Expanded incentives are the major change in the Regulations. Following the Act, the Regulations would increase the maximum reward available under a “health-contingent” wellness program (see below) as a percentage of the total cost of the coverage (the total premium for coverage, including both the employer and the employee portions) in two ways:

  • The prior general limit for a wellness incentive of 20 percent would be increased to 30 percent.
  • The maximum incentive would be 50 percent for a program designed to prevent or reduce tobacco use.

Participatory vs. Health-Contingent Programs

The 2006 wellness program rules distinguish between two types of wellness programs. That distinction is continued and clarified in the Regulations and the two types of programs are given names.

  • A participatory wellness program is one without a reward or where the reward is not tied to a health factor. Examples of participatory programs include a program that reimburses for the cost of a fitness club membership or that provides a reward for participating in a diagnostic test that has no requirements based on the outcome of the test.
  • A health-contingent wellness program has a reward based on satisfaction of a standard related to a health factor. Examples of health-contingent wellness programs include a program that includes a premium surcharge based on tobacco usage and a program that provides a discounted premium for employees who are identified through a health risk assessment to be within a normal or healthy range for certain biometrics (for example, cholesterol or glucose levels) while requiring other employees not meeting the health standard to take additional measures (meeting with a health coach or following a health improvement plan, for example) to qualify for the reward.

Health-contingent wellness programs must continue to satisfy several requirements originally outlined in the 2006 rules. Participatory wellness programs are not subject to these additional requirements.

Requirements for Health-Contingent Wellness Programs

Under the Regulations, the general requirements for a health-contingent wellness program would be the same five factors outlined under the current rules:

  • The opportunity to qualify must be at least annual.
  • The size of the reward must be limited (as noted above).
  • The reward must be available to all similarly situated individuals.
  • The program must be reasonably designed to promote health or prevent disease.
  • Notice of availability of other means of qualifying for the reward (or the possibility of waiver of the otherwise applicable standard) must be given.

Within these requirements, the Regulations would make some modifications:

  • Factors are provided to be taken into consideration in determining if an alternative standard is reasonable. For example, requiring a participant to attend an educational program is reasonable, but requiring the participant to find a suitable educational program and to pay for the program is not.
  • If a reward is based on passing a test, such as a cholesterol level, there must be a reasonable alternative standard for a person who fails the test to obtain the reward. The reward cannot be withheld for failure to achieve the designated goal as long as the person follows the alternative standard.
  • The program would not have to establish a particular alternative standard unless an individual specifically requests an alternative. The reasonable alternative standard may need to accommodate recommendations made by the individual’s medical provider with regard to medical appropriateness.
  • The required notice of the availability of alternatives to obtain the reward has been revised and new examples of alternative notices are provided.


The Regulations would apply to all group health plans, both insured and self-funded. Also, plans that are grandfathered under the Act would also be covered by the Regulations.

Effective Date

The Regulations would be effective Jan. 1, 2014, if adopted. Therefore, the higher limits on rewards would not take effect before that date.

Other Laws

The Regulations do not address other laws that may impact the design or operation of wellness programs. These laws include the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act of 2008, the tax requirements for cafeteria plans, the Fair Labor Standards Act, the Age Discrimination in Employment Act and Title VII of the Civil Rights Act of 1964.

For further information on structuring a wellness program, please contact either of the authors or any other member of the McGuireWoods employee benefits team.