Employers Get Relief on Retroactive Wellness Rewards

Federal agencies are giving employers breathing room on a long-standing question involving tobacco surcharges and wellness programs, saying employers will not face federal enforcement for failing to retroactively reimburse workers for health insurance premium surcharges incurred before they satisfy a wellness program requirement. 

The U.S. departments of Labor, Health and Human Services, and Treasury on Aug. 26 issued new guidance addressing health-contingent wellness programs under the Affordable Care Act and the Health Insurance Portability and Accountability Act. These laws generally allow employers to offer incentives to workers who take steps to improve their health, including addressing substance use, improving nutrition, losing weight, and quitting tobacco. 

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The guidance comes as employers with tobacco-surcharge programs face a wave of class-action lawsuits challenging the programs under federal benefits law. Previously, guidance stated that employees who complete a reasonable alternative standard could be entitled to the full wellness reward retroactively. But the rule itself did not explicitly require employers to provide the reward retroactively, according to the new guidance. 

At issue is what happens when an employee who initially does not satisfy a tobacco-related wellness requirement later completes a “reasonable alternative standard,” such as a smoking-cessation program. 

In the FAQ guidance, the agencies said they had no intention of taking enforcement action against plans or issuers that do not retroactively provide a wellness award if an employee completes a reasonable alternative standard.  

“Until further guidance or regulations are issued, the departments will not take enforcement action against plans or issuers that do not give employees the wellness program reward retroactively to the beginning of the plan year after the employee completes a reasonable alternative standard,” the guidance stated. “Under the terms of the enforcement relief in these FAQs, plans and issuers only need to provide the reward prospectively, from the point where the employee completes the alternative standard, if retroactive rewards are not otherwise provided.” 

The FAQs also address plans’ and issuers’ disclosure obligations related to health-contingent wellness programs. 

“The experimental nature of wellness programs enables them to drive significant and clinically meaningful health maintenance and improvements,” Assistant Secretary for Employee Benefits Security Daniel Aronowitz said in a statement. “This guidance makes clear to sponsors and issuers that, as long as they are offering reasonably designed, and otherwise non-discriminatory wellness programs, they will not be penalized for wanting to help motivate the people they cover to make efforts to improve their health.” 

Still, the guidance notes that any wellness program “must be reasonably designed” and cannot be a “subterfuge for discrimination or underwriting based on a health factor.” The agencies also said plans must provide sufficient time for participants to complete a reasonable alternative standard and receive a reward.