What You Need to Know About Employee Wellness Plans October 27, 2015

What You Need to Know About

Employee Wellness Plans

October 27, 2015

Background – Rationale for Wellness Programs

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Keep healthy employees healthy

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Encourage employees with at-risk health factors to make

better lifestyle choices (smoking, obesity, high cholesterol)

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Direct employees with chronic conditions to disease

management programs (hypertension, diabetes, asthma)

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Some challenge effectiveness of wellness programs,

particularly those involving penalties or surcharges for

non-compliance

Background – Categories of Wellness Programs

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Laws regulating wellness program will be affected by status

of program as a group health plan

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Wellness programs as an employer’s group health plan

 Programs providing “medical care”  Primary focus of this presentation

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Wellness programs offered outside a group health plan

 Examples: Subsidizing healthy food choices in employee lounge/cafeteria; giving pedometers to all employees to encourage walking; charging a fine for smoking on the job

Background – Primary Legal Issues

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HIPAA Wellness Rules

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Income and Employment Tax Issues

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Americans with Disabilities Act (“ADA”)

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Genetic Information and Nondiscrimination Act

(“GINA”)

Background – Enforcement

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Employee lawsuit

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Agency enforcement via excise tax or administrative action

 Variety of agencies may be involved

 Treasury Department/IRS

 Department of Labor

 Department of Health and Human Services

 EEOC

 State agency

 Agencies may not have same perspective: Rules may

have conflicting goals (promoting wellness plans versus

protecting against discrimination)

HIPAA Wellness Regulations

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Since 1996, HIPAA has prohibited a group health plan from

discriminating in eligibility, benefits or premiums on the

basis of a health factor (e.g., health status, medical

condition or medical history)

 Consequence of violating: IRS-imposed excise tax; self reported on Form 8928

 Form 8928 has been around since 2009 (first filed to self-report violations in 2010)

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Tax personnel often not involved in wellness programs, but

violation can give rise to excise tax; HR/tax must coordinate

Group Health Plan Nondiscrimination Rules and

Excise Taxes (cont.)

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ACA updated and codified HIPAA wellness program

regulations

 IRS, HHS, and DOL issued updated regulations effective January 1, 2014

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Different rules in place for different programs:

 Participatory programs

Types of Wellness Programs

WELLNESS PROGRAM

Participatory _Contingent

Health-

Participatory Programs

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Passive in nature; either no incentive, or incentive

conditioned solely on participation rather than achieving

health target

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Not discriminatory if available to all similarly situated

individuals, regardless of health status

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No limit on financial incentives

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Examples:

 Reimbursing employees for gym membership

 Reimbursing cost of weight loss or smoking cessation program (regardless of outcome)

 Rewarding employees for completing health risk assessment without any further action needed

Health-Contingent Programs

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Must satisfy health standard to obtain reward/avoid penalty

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Two sub-categories: Activity-only and Outcome-based

 Activity-only: Requires performance/completion of activity related to health factor in order to obtain reward, without needing to attain or maintain specific outcome

 Examples: Rewarding employee/dependents for walking 5 miles per week, or completing diet program regardless of outcome

 Outcome-based: Requires employee/dependent to attain or maintain specific health outcome in order to obtain reward

 Examples: Reduced health plan premiums (or surcharges) based on tobacco use, waist circumference, etc.; gift card for

Health-Contingent Programs: 5 Safeguards

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Health-contingent programs often do discriminate based on

health factor, which regulations permit if 5 safeguards met

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(1) Total rewards for all health-contingent programs do not

exceed 30% of total cost of coverage (increased to 50% if

program designed to prevent or reduce tobacco use)

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(2) Provide opportunity to qualify at least annually

 Caution: Potential cafeteria plan issue if mid-year change in pre-tax premiums

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(3) Reasonably designed to promote health or prevent disease

 Outcome-based program: Must offer reasonable alternative standard to anyone who fails to meet initial standard (tobacco-free, waist circumference, BMI, etc.)

Health-Contingent Programs: 5 Safeguards

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(4) Available to all similarly-situated individuals

 Activity-only program: Must offer reasonable alternative

standard or waiver if (1) unreasonably difficult due to

medical condition to satisfy standard, or (2) medically

inadvisable to attempt to satisfy standard (may require

doctor note/verification, if reasonable)

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(5) Disclose availability of alternative standard in all

plan materials describing program’s terms, and certain

other disclosures (regulations provide model language)

Wellness Programs: Examples

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Plan provides annual 55% premium discount to employees

who attend a monthly health seminar

 Permissible; participatory program, so 5 standards (30% / 50% limit) N/A

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Plan offers 2 wellness programs

 (1) 30% annual premium discount if cholesterol count < 200; alternative standard available

 (2) Reimbursement of cost of a monthly gym membership

 First program is health-contingent and subject to 5 standards; second program is participatory

HIPAA Wellness Regulations – Tax Penalties for

Noncompliance

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Potential penalty for violating: Excise tax (Code § 4980D)

 $100 per day, per affected individual (subject to limits)

 Employer s

elf-reports and pays using IRS Form 8928

 Filed by due date for employer’s income tax return for year (without regard to extensions)

 Statute of limitations does not run until Form 8928 is filed!!!

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Participant cause of action under ERISA

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Tax personnel need to be involved in design, implementation,

and operation of wellness programs to ensure compliance and

mitigate employer’s risk and financial/excise tax exposure

Income and Employment Tax Issues

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Tax 101: Reward/incentive is taxable income and wages

unless specifically excludable

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Potential tax-free incentives

 Contribution to Health FSA, HRA or HSA

 Subject to nondiscrimination rules; comparable contribution requirements for HSAs not offered through cafeteria plan

 Reduced health plan deductible/cost-sharing

 Reduced employee premium/contribution (not actually “tax free” for most employees)

 Flex credits employee can use on “qualified” cafeteria plan benefits

Income and Employment Tax Issues (cont.)

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Potential tax-free incentives (cont.)

 On-site athletic facilities, if operated by employer and

substantially used by employees and spouses/dependents  Employee discounts on goods/services sold by employer

 Subject to limits under Code §132(c)

 De minimis fringe benefits

 Caution: Potential cafeteria plan issues

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Incentives that are or may be subject to income tax

 Cash payments, regardless of amount  Gift cards

Income and Employment Tax Issues (cont.)

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Gift cards are generally taxable, regardless of amount

 May be tax free if use is limited to medical expenses (gift card “HRA” subject to detailed rules)

 “Statutory employer” issues for insured group coverage

 If insurer administers program that provides taxable benefit

(e.g., gift cards), issues can arise as to which party is “employer” for information reporting and withholding obligations

 Which party has “control of payment” under fact-specific analysis

 May need to coordinate with insurers

 Ex: Group health insurer determines eligibility, provides funding, etc.; insurer, not common law employer, may be responsible for reporting incentive on Form W-2 (not 1099)

Disability Discrimination under the ADA

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ADA: Employer may not require medical exam or inquire as to employee’s disability (or nature or severity thereof) unless job-related and consistent with business necessity

 Health risk assessments and other wellness screenings generally are not job-related and consistent with business necessity

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ADA safe harbor: Employer can establish, sponsor, observe or administer “bona fide benefit plan” based on underwriting,

classifying, or administering risks, if consistent with state law, and not used as a subterfuge to evade ADA’s purposes

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EEOC guidance: “Voluntary wellness program” does not violate ADA if medical records kept confidential and separate from

ADA Issues – Voluntary Wellness Programs

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Can monetary incentives make a program not

“voluntary”?

 January 2009 EEOC discussion letter: “Voluntary” if

incentive not > 20% of cost of coverage, consistent with

then-applicable (pre-ACA) wellness rule; rescinded two

months later because EEOC “continuing to examine”

 April 16, 2015: EEOC proposed regulations

 Attempt to be consistent with ACA/HIPAA rules; several inconsistencies and open issues remain

ADA Issues – Insurance Safe Harbor

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Employer may establish, sponsor, observe, or administer

terms of “bona fide benefit plan” based on underwriting,

classifying, or administering risks, if consistent with state

law and not a subterfuge to evade purposes of ADA

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Seff v. Broward County: Biometric screening and health risk

assessment; state governmental employer added $20 per

pay period to premiums for employees who opted out

 11

th

_{Circuit: Wellness program did not violate ADA; was}

within ADA insurance safe harbor, thus bypassing EEOC

“voluntary” analysis entirely

ADA – Open Issues

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Outstanding EEOC litigation (“voluntary” wellness

programs)

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Legislative Response to EEOC Cases

 Congressional hearings: Lawmakers expressed concern with EEOC’s litigation efforts and position

 House and Senate bills introduced this year would clarify interaction of ACA wellness rules and ADA (and GINA), retroactive to 3/23/10

 No violation of ADA (or GINA) if wellness program meets ACA requirements

 No GINA violation if wellness programs collect info about manifested diseases or disorders of employees’ family members who participate in wellness program

GINA

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GINA prohibits group health plans from:

 Restricting enrollment or adjusting premiums for similarly situated individuals, based on their genetic info

 Requesting or requiring individual (or family member) to undergo a genetic test

 Requesting, requiring, or “buying” genetic info (1) prior to or in connection with enrollment, or (2) any time for underwriting

 Issues often arise in the context of health risk assessments

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Genetic info defined broadly; includes genetic tests or

services for employee and family, and family medical

history

GINA (cont,)

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Examples:

 A plan may not solicit or collect genetic/family medical history info (e.g., as part of a health risk assessment) before the

employee’s enrollment date, nor in connection with the employee’s enrollment or eligibility

 A plan may not offer financial rewards at any time in return for providing genetic/family medical history info (e.g., as part of a health risk assessment)

 Exception for incidental collection in certain cases

 Beware of open-ended questions (“Is there anything else relevant to your health that you would like us to know or discuss with you?”)

GINA (cont.)

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HRA options in light of GINA:

 Include family medical history questions on a voluntary HRA distributed after and unrelated to enrollment, and provide no reward for completing

 Offer a reward for completing an HRA that does not solicit any genetic/family medical history info, and states explicitly that such info should not be provided

 Bifurcated approach with two HRAs

 Current DOL guidance does not appear to permit en employer to bifurcate a single HRA

GINA (cont.)

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Other (non-HRA) options in light of GINA

 Reward participation in an annual physical, even if doctor asks for family medical history information

 Provide more favorable cost-sharing for genetic screenings  Reward participation in a voluntary disease management or

prevention program

Miscellaneous

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ERISA

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COBRA

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ACA

 “Market reforms” (e.g., extending to children up to age 26)  Impact on employer shared responsibility (“pay-or-play”) rules

 Affordability and actuarial value determinations

 “Cadillac tax” calculation

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HIPAA Privacy and Security

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Fair Labor Standards Act (“FLSA”)

Questions?

For more information, please contact:

Garrett Fenton 202.626.5562