HEALTH AND WELLNESS INCENTIVE PLANS: KEY LAWS TO CONSIDER
Health and wellness incentive programs have a number of major benefits both to employees health and to companies’ spending on health care. More and more companies are implementing health and wellness incentive programs every day. When implementing a health and wellness incentive program there are several key laws to consider:
The Patient Protection and Affordable Care Act
President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA) into law in 2010. PPACA is a federal statute and health care reform legislation. When you are planning your company’s health and wellness incentive program, it is important to consider how it will affect employees’ deductibles, copayments, coinsurance, or coverage for any of the services listed in the Summary of Benefits and Coverage (SBC). If your program causes them to vary in any way, that treatment scenario’s calculations must make the assumption that the individual is participating in the wellness program and it will be necessary to include additional language in the SBC.
The Age Discrimination in Employment Act
The Age Discrimination in Employment Act (ADEA) was signed into law by President Lyndon B. Johnson in 1967. ADEA forbids employers from engaging in age-based discrimination against employees and job applicants with respect to benefits. Protection under ADEA includes individuals who are at least 40 years old. As a result of ADEA’s protections, if a health and wellness program decreases rewards, terminates, or in any other way discriminates against employees who are over 40, the program could be found to be in violation of ADEA.
The Genetic Information Nondiscrimination Act
The Genetic Information Nondiscrimination Act (GINA) of 2008 is an Act of Congress which prohibits employers from discriminating against their employees in regard to compensation, conditions, terms, or privileges of employment on the basis of “genetic information”. GINA’s prohibitions include:
- An employer may not require, request, or purchase genetic information.
- An employer must maintain all genetic information as confidential medical records.
- Any disclosure of genetic information will be subject to strict limits.
The Health Insurance Portability and Accountability Act
The Health Insurance Portability and Accountability Act (HIPAA ) was signed into law signed by President Bill Clinton in August of 1996. When creating your health and wellness program there are two main elements to consider in regard to HIPAA. The two elements are the Non-Discrimination and Privacy & Security sections of HIPAA.
Health and wellness incentive programs are subject to the HIPAA nondiscrimination rules if they offer rewards that are related to a health plan that requires the completion of a particular health-related action in order to receive the program’s reward – this can include things such as exercise programs or diet plans. Group health plans are required under HIPAA nondiscrimination rules to ensure that they do not discriminate in health coverage among individuals on the basis of a “health factor,” in terms of eligibility, benefits or costs. When providing health coverage, there are eight “health factors” that cannot be used in order to discriminate against individuals:
- Health status
- Genetic information
- Receipt of health care
- Medical history
- Evidence of insurability
- Medical conditions such as physical or mental illness
- Claims experience
Privacy & Security is the second element of HIPAA that must be taken into consideration when planning your health and wellness incentive program. Many wellness programs will be subject to HIPAA’s Privacy and Security rules and regulations, with the exception of smaller health programs such as small business self-insured group health plans, which are established and maintained by the employer and have less than 50 eligible individuals.
The Employee Retirement Income Security Act
1974’s federal tax and labor law, the Employee Retirement Income Security Act (ERISA) established minimum standards for the majority of private industry’s voluntarily established pension and health plans in order to provide protection for the employees participating in these plans. Under ERISA employee welfare benefit plans are required to satisfy all of ERISA’s applicable compliance requirements, which include:
(1) There must be a plan document; (2) The plan terms must be followed and strict fiduciary standards shall be adhered to; (3) SPDs (SMMs and SMRs) must be provided to all the plan’s participants; (4) Form 5500 is required for annual filing (subject to certain exceptions); and (5) Claims procedures must be established and followed by all parties involved.
The Americans with Disabilities Act
The Americans with Disabilities Act (ADA) of 1990 was signed into law by President George H. W. Bush. Under ADA, there are two main areas of concern with regard to health and wellness incentive programs. Firstly, ADA forbids employers from discriminating against people with disabilities. A wellness program may discriminate against individuals who have a disability if the program provides a reward to participants based on a health condition. Even if the program is designed so that it complies with the HIPAA nondiscrimination requirements, this may cause a violation of ADA. Secondly, ADA limits when employers may conduct medical examinations or make medical inquiries.
Title VII of the Civil Rights Act
Title VII applies to health and wellness incentive programs in that it relates to the “terms, conditions, or privileges of employment,” which will usually include health and wellness incentive programs. As a result, a company’s health and wellness incentive program could be found in violation of Title VII if an employer discriminates or takes into account any plan participant’s religion, sex, race, color, or national original.
The Fair Labor Standards Act
The Fair Labor Standards Act (FLSA), a United States labor law established in 1938 created rules and regulations related to, among other things, overtime pay eligibility. Under FLSA, all nonexempt employees are required to be compensated for any time worked over 40 work hours in any given work week. Their compensation is to be at a rate of no less than time and one-half of the employee’s regular pay. It is important for employers to take FLSA into account when planning a health and wellness incentive program because, if the time an employee spends completing a health and wellness incentive program requirement is considered “compensable time,” it is possible that the employee may be owed overtime pay. However, it is not necessary to consider the time spent on health programs to be compensable time if four specific conditions are met: (1) if the program’s attendance is outside of the participating employee’s standard working hours; (2) if the program’s attendance is non-compulsory; (3) if the program’s class or lecture is not specifically related to the participating employee’s job; and (4) if the employee is not engaged in any form of productive work activities during the class or lecture.
The Consolidated Omnibus Budget Reconciliation Act
The Consolidated Omnibus Budget Reconciliation Act (COBRA) was signed into law by President Ronald Reagan in 1985. COBRA requires that insurance programs provide continuous health insurance coverage to certain employees after they have left their employment. Health and wellness incentive plans are required to comply with all applicable COBRA requirements. Some of the most significant COBRA obligations are as follows:
(1) A General Notice must be provided: When their coverage under the program starts, every participant and the participant’s spouse must be provided with a General Notice; (2) An Election Notice must be provided: An Election Notice must be provided to every Qualified Beneficiary, which must contain a notice of the Qualified Beneficiaries rights and obligations for a particular qualifying event, such as termination of employment, or a reduction in employment hours. It is notable that an employer may combine the Election Notice for the wellness program with the Election Notice for the employer’s major medical plan(s); (3) When applicable, a Notice of Unavailability must be provided: If an individual is expecting to receive a continuation of COBRA coverage, but are not actually entitled to receive that coverage, they must be provided with a Notice of Unavailability; (4) Provision of Coverage: if a Qualified Beneficiary under the wellness program elects COBRA continuation coverage, the beneficiary may, in general, receive coverage for a basic coverage period, which will be same period of time as in the case of any other COBRA continuation period. In addition, the Qualified Beneficiary would be entitled to the same incentives that are available to active employees and they would also be allowed to elect any other group health coverage that is offered to other employees during the open enrollment period; and (5) When applicable, an Early Termination Notice must be provided: If COBRA continuation is terminated before the end of the maximum coverage period, the Qualified Beneficiary must be provided with a Notice of Termination.
Tax Laws & Tax code
When creating your health and wellness incentive program, it is important to be aware of tax laws and codes because rewards that come in the form of cash, such as a cash bonus, or gift cards and other cash-equivalents are taxable. The rewards provided by employers to their employees, such as cash, rewards cards, or gift cards, will be considered taxable income and will be subject to wage withholding and employment taxes. For example, if all employees who complete a detailed personal health risk assessment are rewarded with a $30 prepaid card from their employer, all participating employees will have an additional $30 of their income that will be subject to wage withholding and employment taxes. According to Internal Revenue Code Section 132, employees will not own taxes on fringe benefits, which could include rewards such as mugs, clothing, some employee discounts, and various other rewards. The de minimis standard will not apply to any cash rewards received. To better understand what qualifies as de minimis fringe benefits, interested parties should refer to IRS Publication 15-B Employer’s Tax Guide to Fringe Benefits.
The Section 125 cafeteria plan regulations allow an employer to set up their company’s cafeteria plan to change a qualified employee’s salary reduction to reflect their reduced premium, providing the decrease in premium is considered to be “insignificant.” Under a Cafeteria Plan, employees are allowed to pay health insurance premiums and certain other qualified expenses on a pre-tax basis, which reduces the employee’s total taxable income. However, an employee may choose to have their salary reduction changed in order to reflect the premium decrease provided the premium decrease is deemed to be “significant.” Section 125 cafeteria plan regulations also allow mid-year changes if an employee loses a wellness reward and is now required to pay a higher monthly premium. If additional information is needed regarding the effect of cost changes on permissible salary reduction changes, it can be found in the Treasury Regulation Section 1.125-4(f)(2).
All of these various laws will apply in different degrees to the four main types of health and wellness incentive programs. Depending on the program, there may be more or less regulations to contend with. The four programs are:
Type 1: General Educational or Participatory & not Health Plan-Related
Type 2: Health Plan-Related Participatory Programs
Type 3: Health Plan-Related Activity-Only Programs-Based Programs
Type 4: Health Plan-Related Outcome-based Programs
General Educational and Participatory and not Health Plan-Related health and wellness programs have the least amount of regulations to take into account regarding how they are conducted. The main laws and regulations that apply to a type 1 program include The Fair Labor Standards Act, The Age Discrimination in Employment Act, Title VII, & Tax Laws. Additionally, if the program includes a medical examination or a disability-related inquiry, The Americans with Disabilities Act will be applicable – if the program does include a disability-related inquiry it must be voluntary and be reasonably designed to either preventing disease or promote health. The Genetic Information Nondiscrimination Act will apply if the program includes a Health Risk Assessment (HRA) which involves a self-administered questionnaire regarding employee health-related behaviors and risk factors. HRA’s may occasionally include clinical screenings to collect biomimetic data like height, and weight information, blood pressure, and blood sugar levels. Feedback must also be provided to an employee after they complete an HRA in order for it to be considered legally compliant.
Type 2 Health Plan-Related Participatory Programs must comply with a number of different regulations. As a general rule, type 2 programs must be in compliance with The Patient Protection and Affordable Care Act, Title VII, The Fair Labor Standards Act, The Age Discrimination in Employment Act, The Americans with Disabilities Act, Cafeteria plan, and various tax laws. If the type 2 program provides medical care to its participants it will need to be in compliance with Health Insurance Portability and Accountability Act, The Employee Retirement Income Security Act, and The Consolidated Omnibus Budget Reconciliation Act. Compliance with The Genetic Information Nondiscrimination Act will also be applied if a health risk assessment is offered by the program.
Type 3 Health Plan-Related Activity-Only Programs-Based Programs must comply with all of the requirements of a type 2 program. If the Type 3 Health Plan-Related Activity-Only Programs-Based Program provides medical care to its participants it will need to be in compliance with The Employee Retirement Income Security Act, Health Insurance Portability and Accountability Act, and The Consolidated Omnibus Budget Reconciliation Act. Additionally, if an HRA is offered, the program must comply with The Genetic Information Nondiscrimination Act. Regardless of provision or lack of provision of medical care, all type 3 health and wellness incentive programs must be in compliance with The Patient Protection and Affordable Care Act, Title VII, The Age Discrimination in Employment Act, The Americans with Disabilities Act, The Fair Labor Standards Act, Cafeteria plan regulations, and various tax laws.
Type 4 Health Plan-Related Outcome-Based Programs have the largest number of applicable regulations of the health and wellness incentive program types. Type 4 health and wellness incentive programs must be in compliance with the Health Insurance Portability and Accountability Act, The Genetic Information Nondiscrimination Act, The Patient Protection and Affordable Care Act, The Age Discrimination in Employment Act, The Employee Retirement Income Security Act, The Consolidated Omnibus Budget Reconciliation Act, The Americans with Disabilities Act, Title VII, The Fair Labor Standards Act, Cafeteria plan, and various tax laws – with particular attention paid to program incentive values.
No matter the type of health and wellness incentive program your company is planning to implement, it is important to seek legal counsel to ensure compliance will all applicable laws and regulations. When assembling your company’s health and wellness rewards program, working with experienced professionals who a knowledgeable regarding both program types, their various applicable legal requirements and the technology necessary to make them run smoothly. All Digital Rewards appreciates your company’s commitment to your employee’s health and wellness and understands the concerns and requirements associated with establishing a quality health and wellness rewards program. Our Healthy Choice Rewards, Living Well Reward ™ card, and robust Health and Wellness point’s based platform technology all of which can be fully branded and personalized, will allow you to quickly and effectively reward your health and wellness incentive program, participants. With our vast experience in offering rewards programs, we can customize a program that will be an excellent fit your company’s needs and meet all applicable legal requirements. Give our Health and Wellness Reward Program experts a call at 866-415-7703 or click the “Schedule a Demo” button below!