Released November 28, 2012 I Download as a PDF

Wellness Programs  

As background, the ACA enhances rules relating to wellness programs.  These provisions become applicable for plan years beginning on or after January 1, 2014. 

Last week, the governing ACA Agencies (HHS, DOL and IRS) issued proposed implementing regulations, together with a fact sheet, relating to wellness programs.  These proposed regulations suggest that the wellness rules will apply to both grandfathered and non-grandfathered plans.

In general, these regulations follow the rules previously established for wellness programs under the HIPAA law, with one noteworthy exception – the financial incentive or deterrent is significantly increased, as more fully described below.

Generally, there are two types of wellness programs: a participation-only program and an outcome-based/health-contingent program. 

A participation-only wellness program rewards individuals for participating in the program.  Neither the HIPAA law nor the ACA imposes particular standards on participation-only programs, except that the program must be available to all similarly situated individuals.  Examples of such programs include:

• Cost or fees for a fitness center membership.
• A reward for participation in a diagnostic testing program, as long as the reward is not outcome-based.
• A program to encourage preventive care through waiver of deductible or co-pays such as prenatal care or well-baby visits.  Note, however, non-grandfathered plans are required to provide certain preventive health services without the imposition of cost sharing.
• A program for reimbursement of a smoking cessation program, as long as it is not outcome-based.
• A reward for attending monthly health education seminars.

An outcome-based wellness program, also known as a health-contingent wellness program, requires that a certain health-related standard be achieved.  This type of program, both under the HIPAA law and ACA, must meet five criteria.  The only real distinction between the HIPAA and ACA criteria is that the financial incentive can be as much as 30% beginning January 1, 2014; or, if the program relates to tobacco free standards, the incentive can be as much as 50 percent.  It is important to note that if an outcome-based/health contingent wellness program combines both types of incentives, the maximum reward or penalty cannot exceed 50% of the cost of coverage.  Conversely, if a wellness program combines a participation-only component (as described above) and an outcome-based/health contingent component, then no restriction applies to the participation-only portion.  Therefore, the maximum incentive could exceed the 30% or 50% threshold as long as the portion of the program that is contingent falls within these standards.

In addition to the financial incentive, there are four additional criteria for an outcome-based/health contingent wellness program; they are:

1. The program must be reasonably designed to promote health or prevent disease, and cannot be overly burdensome.  The program cannot be designed in a way that would cause it to be suspect, or be a subterfuge to evade the purposes of the law.
2. The program must give individuals the ability to qualify for the program, at least once annually.
3. The program must be available to all individuals and offer reasonable alternative methods of compliance for those who cannot comply because of health reasons.  The program may request proof of the inability to comply.   Following are examples of reasonable alternative standards:

To the extent a plan's initial standard for obtaining the full or a portion of a reward is based on the results of a measurement, test, or screening relating to a health factor, such as a biometric examination or a health risk assessment, then the plan must provide a reasonable means of qualifying for the reward to those individuals unable to meet the standard.  

4. In any plan material that describes wellness programs, the availability of alternative standards must be described.  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. If plan materials merely mention that a program is available, without describing its terms, then this disclosure is not required.  Following is some model language that can be used to satisfy the notice requirement:

“Your health plan is committed to helping you achieve your best health status. Rewards for participating in a wellness program are available to all employees. If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert contact information] and we will work with you to find a wellness program with the same reward that is right for you in light of your health status.''

The regulations provide additional model language that could further describe aspects of the program, such as programs aimed at cholesterol reduction, fitness programs, and smoking cessation programs.

Essential Health Benefits

For plan years beginning on or after January 1, 2014, the ACA requires certain plans to include coverage for an “essential health benefits package” to cover 10 specific categories of benefits.  This definition of essential benefits is important in that it provides a standardized framework of benefit coverage that must be included in health plans.  The 10 categories are:

1. Ambulatory patient services.
2. Emergency services.
3. Hospitalization.
4. Maternity and newborn care.
5. Mental health and substance use disorder services, including behavioral health treatment.
6. Prescription drugs.
7. Rehabilitative and habilitative services and devices.
8. Laboratory services.
9. Preventive and wellness services and chronic disease management.
10. Pediatric services, including oral and vision care.

On November 26, 2012, the Department of Health and Human Services issued proposed regulations relating to the essential health benefits package.  As provided in prior guidance (see Defining Essential Benefits in this CBIZ Health Reform Bulletin), as well as in these proposed regulations, states can utilize one of several plan design categories for defining essential benefits.  The CCIIO website has posted a list of the various state-selected benchmark plans, as well as the default benchmark plan in the event that a state fails to select one.

States may require qualified health plans offered through an exchange to offer certain benefits in addition to essential health benefits.  A base-benchmark plan that does not include items or services within one or more categories must be supplemented, in accordance to HHS criteria.

Affected Plans

The proposed regulations clarify that only individual and small insured plans, and plans offered through the exchange, must comply with essential health benefit package requirement.  To the extent that self-funded plans and large insured plans offered outside the exchange offer essential health benefits, these essential benefits cannot be subject to annual and lifetime limits. 

Cost-sharing Requirements

The regulations clarify certain provisions relating to cost-share requirements.  Generally, the law provides that cost-sharing restrictions, such as deductible and out-of-pocket limits will be imposed on plans.

For plan years beginning on or after January 1, 2014, the annual deductible cannot exceed $2,000 for self-only coverage, or $4,000 for coverage other than self-only. These regulations clarify that the deductible restrictions only apply to individual and small group health plans, and plans offered through the exchange.  These deductible limits do not apply to large plans offered outside the exchange or to self-funded plans. 

The annual out of pocket limits must match those limits applicable to health savings accounts (HSA).  While we do not know the HSA limits for 2014 yet, the high-deductible health plan annual out-of-pocket limit for self-only coverage in 2013 is $6,250; $12,500 for family coverage.  The out of pocket limits apply to all types of plans; though, with the exception of emergency services, these restrictions only apply to in-network services.

For subsequent years, the deductible and out-of-pocket limits may be adjusted annually to reflect cost increases.

Actuarial valuation calculation for determining level of coverage

The proposed regulations include some clarifications relating to calculation of actuarial valuation.  Actuarial value (AV) refers to a percentage measurement of expected health care costs covered by the plan and used to determine an overall measurement of the plan’s generosity.  For example, a plan with an 80% AV would be expected to pay, on average, 80% of expected medical expenses for the essential health benefits. The individuals covered by the plan would be expected to pay, on average, the remaining 20% of the expected expenses in the form of deductibles, co-payments, and coinsurance. The law defines AV relative to coverage of the essential health benefits for a standard population. 

Qualified health plans offered to individuals and small employer group markets both in and outside an exchange must meet the bronze, silver, gold, or platinum actuarial levels of benefits and coverage. A bronze plan is required to have an AV of 60%; a silver plan, 70%; a gold plan, 80%; and a platinum plan, 90%.

The CCIIO has released a proposed actuarial value calculator, together with an AV Methodology for purposes of determining whether a plan’s AVs is based on a national standard population. 

Determining Minimum Value

Under the law, a plan fails to provide minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of such costs.  Determining minimum value is important to employers, particularly those employing 50 or more full-time equivalent employees, in that if the employer plan fails the minimum value test, or is unaffordable, a shared responsibility tax may be triggered.  For the purposes of determining whether an employer’s group health plan provides a minimum value of benefits, the plan can utilize a minimum value calculator or safe harbor to be established by HHS/IRS, or the plan can seek an appropriate actuarial certification.

Rating Restrictions, and Guaranteed Availability and Renewability Rules

Similar to the HIPAA insurance market reforms, the ACA expands on certain provisions relating to fair health insurance premiums, guaranteed availability, guaranteed renewability, risk pools, and catastrophic plans.  The Department of Health and Humans Services issued Health Insurance Market Reform regulations to implement the ACA’s reform mechanisms.  These provisions do not apply to grandfathered plans.  Following are highlights of these market reform rules.

Fair Health Insurance Premiums

For plan years beginning on or after January 1, 2014, insurers issuing individual and small group health plans covering 100 or fewer employees, may only vary premium rates based upon:

• Individual or family coverage;
• The rating area;
• Age.  Certain variations of age bands are permissible, i.e., one band for under age 21; a yearly band for those aged 21 to 63; and a single band for those aged 64 and above; and
• Tobacco use.  Rates can’t vary by more than 1.5:1 for like individuals who vary in tobacco usage. 

States imposing narrower ratio parameters relating to coverage, rating areas, age or tobacco usage must be approved by CMS.

While these restrictions generally do not apply to large group health plans, they would apply to a large health plan offered through the exchange.

Guaranteed Availability of Coverage

Similar to the HIPAA guaranteed availability provision, the ACA requires insurers offering health insurance coverage in the individual and group market to offer all approved products to individuals and employers.  Beginning January 1, 2014, insurers are required to accept any individual or employer applying for coverage under these products, regardless of health status, risk, or medical claims and costs, with limited exceptions.  ACA expands the guaranteed availability requirement beyond the small group market to include the individual and large group market as well. 

In addition, the regulations establish new open and special enrollment periods in addition to those required under HIPAA.  The proposed regulations require insurers to maintain a year-round enrollment period for employers to purchase group coverage.  In the individual market, plans would have open enrollment periods consistent with those required by qualified health plans offered through an exchange.  Insurers are also required to establish special enrollment periods in connection with events that would trigger eligibility for COBRA continuation coverage.  In this instance, the current HIPAA 30 calendar day election period would extend to 60 calendar days, consistent with the exchange standard.

Guaranteed Renewability of Coverage

The proposed ACA regulations relating to guaranteed renewability of coverage are similar to those imposed under HIPAA.  However, the ACA rules apply to both individual policies and contracts issued to both small and large groups.  Specifically, renewal of contracts can only be denied in the following instances:

1. Failure to pay premium;
2. Fraud or intentional misrepresentation by the employer or employee;
3. Material noncompliance with contract terms such as contribution or participation requirements;
4. The insurer terminates the plan, i.e., ceases to do business within a geographic area;
5. In the case of a network plan, there are no enrollees residing or working within the network service area; or
6. An employer's membership in the bona fide association ceases, but only if the coverage is terminated uniformly without regard to any health status-related factor relating to any covered individual.

Conclusion

While these regulations are just proposed at this point, they do give some indication as to how the government is viewing implementation of the law.  The comment periods relating to these proposed regulations ends soon (December 26, 2012 for regulations relating to essential health benefits and market reform provisions; January 26, 2013 for the proposed wellness regulations). Hopefully, more definitive guidance will be provided shortly thereafter.  In the meantime, these rules can be used as a roadmap for making plan design decisions in the interim.

About the Author:  Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law.  Ms. McLeese is based in the CBIZ Leawood, Kansas office.

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation.

The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.