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Proposed regs on structuring wellness programs with incentive payments and premium discounts
A key part of the Patient Protection and Affordable Care Act (PPACA) is its emphasis on preventive care and wellness. To that end, in November 2012 the U.S. Department of Labor (DOL)
issued proposed regulations governing how employers can structure and run their wellness programs, including using incentive payments and premium discounts to encourage employees to improve their health. The
law increases the level of allowed incentives from 20 percent of the cost of coverage to 30 percent, with a maximum reward of 50 percent of the cost of coverage for those who participate in smoking cessation programs. In the latter case, if an employer wants to impose a premium surcharge for smokers, it must provide those individuals with smoking cessation programs in which smokers can participate to avoid that surcharge.
Many of elements of the proposed regulations are on the books already as part of existing laws, including the Health Insurance Portability and Accountability Act (HIPAA). “There is nothing shocking here; the proposed regulations just reinforce what is already out there,” said
Chantel Sheaks, a principal with Buck Consultants in Washington, D.C., to
SHRM Online. She noted that the proposed regulations clarify several issues, such as what is considered a reward versus a penalty.
Now that the PPACA regulations bring together and expand on existing regulations, employers will have more guidance as wellness programs expand and become more widespread. “The proposed regulations help to clarify boundaries around what employers can do with wellness,” explained Mike Thompson, a principal with PricewaterhouseCoopers Human Resource Solutions in New York. “The proposed regulations do not restrict employer activity beyond what was there before and, in many ways, open up new avenues for employers to explore.”
For example, employers that restricted wellness programs to completing a health risk assessment in order to get employees more engaged with their health status and aware of their risk factors can now move beyond that more confidently to offer incentives that reward significant changes in health status. “The rules clarify that these programs are okay and provide guidance on how far employers can take these programs,” said Thompson. “They certainly give employers more latitude in terms of how much of a financial stake to use.”
The regulations should be welcomed by employers that are investing more heavily in wellness programs and taking them beyond the basics. Mercer’s 2012
National Survey of Employer-Sponsored Health Plans found that the use of incentives and penalties to encourage wellness among employees increased from 33 percent in 2011 to 48 percent of large employers in 2012. That figure increases to 54 percent of large employers when nonfinancial incentives are included.
The survey found that the most common incentive offered by large employers for completing a health assessment is a reduction in the employee’s premium contribution by a median amount of $260 for employee-only coverage. At the same time, 18 percent of employers are offering incentives to employees who achieve, maintain or show progress toward specific health status targets, such as weight loss.
By providing parameters around which employers can structure premium-based incentives, employers can more readily create a tie between each employee’s health and the size of each employee’s premiums. “To get people engaged you need to catch their attention somehow and incentives tend to do that,” said Thompson. “We expect employers to increase their use of incentives to align people’s personal habits with how much they pay for their health care.”
Other changes could take hold, also, as employers explore their options. For example, because the proposed regulations allow employers to differentiate premiums based on tobacco use and to offer smoking cessation programs to give individuals a chance to avoid that higher premium, “I would not be surprised to see more employers do so,” said Thompson. “Not all employers today differentiate their health premiums based on tobacco use.”
This is one of the situations where the “reasonable alternative standard” included in the regulations comes into play. The proposed regulations require employers to offer reasonable alternatives to their current wellness programs to employees who cannot participate due to a medical condition or doctor’s advice. “Reasonable alternatives are necessary, because one size does not fit all,” said Sheaks. “Certain people require exceptions, because of health conditions and other reasons, but they still need to have the same opportunities to earn the incentives as others.”
The definition of reasonable alternative is open to interpretation. For example, Sheaks suggested that employers may need to provide different smoking cessation options or different weight loss programs based on medical advice. “You have to defer to the physician and that could lead to a lot of different reasonable alternatives,” she said.
In addition, the proposed regulations lay out the financial parameters for wellness programs. For example, if an employer requires employees to participate in an educational program to earn an incentive, those employees cannot be required to pay for the program. Similarly, if participation in a weight loss program is a requirement, the employee would not have to pay for the program itself but would have to pay for the food consumed under the program.
The Future of Wellness
If nothing else, the regulations give employers parameters for thinking about the role wellness can play in health benefit programs and enough detail to nurture the resulting conversations. “These proposed regulations define the outer boundaries of what you can do,” said Thompson. “However, there is always going to be a natural tug-of-war within organizations to define how far do they want to go within those parameters.”
Lowering risk factors to their theoretical minimums, if this were possible, would reduce average annual costs per working-age adult by 18.4 percent, according to
study results published in the January 2013 issue of the
Journal of Occupational & Environmental Medicine.
Employers who want to learn more about wellness programs can download the DOL’s research paper, “A Review of the U.S. Workplace Wellness Market,” which was released along with the proposed regulations. The paper discusses the wellness marketplace and the impact wellness programs have had on the companies offering them.
Joanne Sammer is a New Jersey-based business and financial writer.
Labor/Management Collaboration Led to Wellness Success,
SHRM Online Benefits, January 2013
Study: Preventing Health Risks Has Rapid Payoff,
SHRM Online Benefits, December 2012
Proposed Rules Issued on Guaranteed Coverage, Essential Benefits and Wellness Incentives,
SHRM Online Benefits, November 2012
Incentivizing Good Health: A Mid-Sized Firm's Success Story,
SHRM Online Benefits, October 2012
Study: Wellness Programs Saved $1 to $3 per Dollar Spent,
SHRM Online Benefits, September 2012
Use of Monetary Incentives to Promote Wellness Grows,
SHRM Online Benefits Discipline, August 2012
11th Circuit Upholds Wellness Program's Premium Incentive,
SHRM Online Benefits Discipline, August 2012
Guidance for Outcomes-Based Wellness Incentives,
SHRM Online Benefits Discipline, July 2012
Companies Increase Wellness Incentive Dollars,
SHRM Online Benefits Discipline, March 2012
SHRM Online Health Care Reform Resource Page
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