HB Counsel Client Alert – Check-Up Time for Wellness Program Compliance: DOL Sues Employers with Impermissible Wellness Programs
The Department of Labor (“DOL”) has recently filed lawsuits against three employers administering wellness programs for employees. In these lawsuits the DOL has alleged the employers were administering wellness programs in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Health Insurance Portability and Accountability Act (“HIPAA”). Specifically the DOL has targeted employers who require certain health related outcomes to receive a reward, but do not provide a reasonable alternative for employees to receive a reward without meeting the health outcome. Employers administering wellness programs should be aware of this new, litigious stance of the DOL.
This alert provides a high-level overview of HIPAA compliance requirements for wellness programs, and an overview of the ERISA and HIPAA violations asserted by the DOL in recent litigation.
What is a Wellness Program?
First, let’s explore what an employer wellness program is. “Wellness program” is not a term defined by law, instead, legal guidance backs into a conclusion by providing that certain types of benefits may constitute wellness benefits, thereby creating a wellness plan or program.
While an employer may not have formally adopted a wellness plan, implementing products and services such as biometric screenings, smoking cessation programs, and weight loss programs generally may create a wellness program. Employers offering wellness programs and benefits to employees may be subject to numerous laws and regulations.
Most wellness programs are subject to ERISA. An ERISA plan is any plan, fund, or program established or maintained by an employer or employer organization that provides certain benefits. An administrative program need not be complicated, the ongoing provision of simple benefits to a few employees (even through an insurance policy under which the insurer performs all benefits administration) can qualify as a plan, fund, or program under the ERISA definition.
An ERISA plan providing medical benefits may be subject to the general compliance obligations applicable to all ERISA plans. An ERISA plan providing medical benefits may be subject to additional special ERISA requirements, as well as COBRA, HIPAA, and other federal mandates—including the ACA.
Employers may unwittingly create a wellness program that is an ERISA plan providing medical benefits by implementing biometric screenings, disease management and smoking cessation services, or individualized health coaching.
HIPAA Compliance Overview for Wellness Programs
You may have just realized that you offer a wellness program to your employees. What do you do next? It is important, for wellness program compliance, to understand what type of wellness program you offer pursuant to HIPAA. As we will discuss, the DOL has focused on employers’ compliance with HIPAA in recent litigation.
HIPAA regulations divide wellness programs into two main groups: participatory programs and outcome-based programs. Rewards such as tobacco/nontobacco rewards or penalties are outcome-based where the reward is only earned if the individual does not use tobacco or quits using tobacco.
In a participatory wellness program, participants are rewarded regardless of whether they satisfy a health factor. For example, a plan that requires all participants to watch an educational video on achieving a healthy lifestyle. All participants are rewarded for participating in the activity regardless of any health factor. Additionally, a participatory wellness program either offers no reward to participants, or none of the conditions for obtaining a reward are based on an individual satisfying a standard related to a health factor.
The requirement for a participatory program:
- Availability. The participatory program must be made available to all similarly situated individuals regardless of health status.
Standards Based (Outcome-Based) Programs
HIPAA regulations split standards based programs into two separate categories: activity only programs and outcome-based programs.
An activity based program requires the participant to complete an activity, but does not require a health outcome to be achieved. An outcome-based program requires a participant to attain or maintain a specific health outcome (for example, quitting smoking).
Requirements. The HIPAA non-discrimination rules set forth five requirements for standards based programs.
- Annual Qualification. At least once each year, participants must be offered the chance to qualify for the reward.
If a participant is provided a reasonable opportunity to enroll in a tobacco cessation program at the beginning of the plan year and qualify for the reward (such as avoiding a tobacco premium surcharge) under the program, the plan does not have to (but may) provide another opportunity to avoid the tobacco premium surcharge until renewal or reenrollment for coverage for the next plan year. Nothing, however, prevents a plan or issuer from allowing rewards (including pro-rated rewards) for mid-year enrollment in a wellness program for that plan year.
- Limit on Reward. The reward for tobacco cessation programs cannot exceed 50%. The reward for all other wellness programs cannot exceed 30%. The analysis is straight forward when an employer has only one of the two types of standards based wellness program described above. However, an employer with a tobacco cessation program and a non-tobacco wellness program must analyze its programs using both percentages. The analysis based on both percentages is best illustrated by an example.
Example. The employer offers employee-only health insurance coverage with an annual premium of $6,000. The employer offers its employees a health contingent wellness program unrelated to smoking or tobacco use. The reward for the non-tobacco health contingent wellness program is $600 annually. The employer also imposes a $2,000 annual premium surcharge on employees who have used tobacco within the last 12 months and who choose not to enroll in the tobacco cessation program.
|50% Test. All of the rewards must not exceed 50% of the employee-only coverage (or $3,000). Here, the total reward is $2,600 ($600 from the health contingent wellness program and $2,000 from the absence of the smoker surcharge). The total reward does not exceed $3,000. Therefore, this part of the analysis is satisfied.|
|30% Test. The contingent wellness program reward must not exceed 30% of the employee-only coverage (or $1,800). Here, the reward is $600 for the health contingent wellness program. The reward does not exceed $1,800; therefore, this part of the analysis is also satisfied.|
- Availability. The plan must offer the full reward to similarly situated individuals. The reward is considered available to all similarly situated individuals provided one requirement is satisfied. Any participant who fails to satisfy the original standard must be offered a reasonable alternative standard.
A reasonable alternative standard for tobacco users in a health contingent wellness program is completion of a tobacco cessation program. Note that the participant is not required to cease tobacco use, but only complete the cessation program.
- Promote Health. The program design must promote health or prevent disease in the participants.
- Notice. The plan must notify the participants of available reasonable alternatives in plan materials. Plan materials describing the terms of the premium differential (and any disclosure that an individual did not satisfy the wellness program standard) describe the availability of a reasonable alternative standard to qualify for the lower premium.
Recent DOL Wellness Program Litigation
We have reviewed what a wellness program is, and some potential compliance obligations applicable to wellness programs. Next we reviewed HIPAA rules for wellness programs and how the rules differ depending up on the type of wellness program offered.
Now we will review recent litigation filed by the DOL against employers alleging the employers administered impermissible wellness programs in violation of ERISA and HIPAA. Reviewing what the DOL asserts are compliance violations helps you, as an employer administering a wellness program, to identify potential wellness program compliance issues that need to be resolved.
Acosta v. Macy’s, Inc. Welfare Benefits Plan
Macy’s, Inc. Welfare Benefits Plan (“Macy’s”) administered a wellness program that imposed a premium surcharge on employees who certified tobacco use unless they further certified that they completed a reasonable alternative during the Plan year (presumably a tobacco cessation program) and either were tobacco-free or had stopped using tobacco products and were working toward being tobacco-free.
Tobacco users could not avoid the surcharge simply by satisfying the reasonable alternative standard; they also had to stop using tobacco products. As described in court documents, Macy’s Plan further stated that the additional premiums resulting from the surcharge would be deposited in the Health Plan Trust and used to pay benefits and Plan administration expenses.
The DOL raised several issues, these issues included an allegation that Macy’s wellness program, specifically the tobacco premium surcharge was in violation of HIPAA’s incentive rules for standards based programs.
Although third party service providers including Aetna and CIGNA assisted Macy’s in administration of the wellness program, Macy’s was determined to have ultimate control of the wellness program for purposes of litigation. Macy’s had control over determining which participants would receive the surcharge, collection and remittance of the surcharges from participants’ paychecks, and oversight and direction of the third parties regarding administration of the program.
The DOL has requested that Macy’s stop its HIPAA violations, reimburse participants who were charged the premium surcharge, revise its wellness program to comply with HIPAA’s incentive rules, and disgorge profits from its Trust related to the tobacco surcharge collection.
This case is still ongoing.
Acosta v. ChemStation International, Inc.
The employer, ChemStation International, Inc. (“ChemStation”), charged higher premiums to health plan participants who were not enrolled in the wellness program or who failed to maintain certain health outcomes, including cessation of tobacco use.
The DOL alleged that ChemStation did not provide a reasonable alternative standard for receiving discounted premiums in violation of HIPAA’s incentive rules for standards based programs.
ChemStation entered into a settlement with the DOL whereby ChemStation agreed to repay participants $59,190 as restitution for the surcharge participants had to pay in absence of a reasonable alternative standard.
Acosta v. Dorel Juvenile Group
Dorel Juvenile Group Inc. Welfare Benefit Plan (“Dorel”) required participants using tobacco to pay a tobacco surcharge as part of their group health insurance premium without providing the participants an option to complete a reasonable alternative standard.
The DOL and Dorel entered into a settlement agreement whereby Dorel agreed to repay $145,635 to 596 Dorel employees who paid the tobacco surcharge. In addition, the settlement required Dorel to “revise its Tobacco Surcharge Wellness Program to comply with ERISA, which prohibits group health plans from discriminating against individuals in eligibility and continued eligibility for benefits and in individual premium or contribution rates on the basis of any health-status related factor.”
What should Employers Learn from the Recent Case Law?
Employers administering a wellness program should realize that President Trump’s administration is willing to enforce the laws applicable to wellness programs and are actively stepping up enforcement efforts.
Employers should realize that now is the time for wellness program compliance check-ups! First, determine if you are offering a wellness program, then if the answer is yes, review the wellness program for compliance.
As we learned from the recent cases, an important compliance issue to review is whether or not you are offering a reasonable alternative standard for employees to qualify for a reward. Provide notice to participants of the availability of reasonable alternative standards for the wellness program. Then importantly ensure that any employee who completes a reasonable alternative standard actually receives the reward for the entire plan year.
The employers targeted by the DOL for compliance range in size and industry. No employers administering an impermissible wellness program are safe from compliance enforcement actions.
The content herein is provided for educational and informational purposes only and does not contain legal advice. Please contact our office if you have any questions about compliance requirements applicable to your wellness program.
Dated: July 24, 2019