The Patient Protection and Affordable Care Act (ACA) introduced new provisions that promote wellness programs. These include implementing nondiscrimination programs (in other words, programs that can benefit anyone, not just the sick) and increasing the maximum reward limit for group health plans. These changes went into effect this year. The new provisions are applicable to health plans that are grandfathered, as well as most non-grandfathered plans.
The ACA provisions continue to support two available reward categories. Participatory wellness programs which allow for rewards that do not consider the individual’s health status – such as fitness center membership discount. Conversely, health-contingent wellness programs which provide rewards based on meeting a specific standard relating to an individual’s health, for example tobacco use reduction.
These new provisions increase the maximum reward for health-contingent wellness programs to 30 percent of health coverage costs (up for 20 percent). These new regulations also cover what a reasonable alternative standard is for health-contingent programs. Employers are afforded some flexibility when forming reasonable alternative standards. For example, they now can communicate with an individual’s physician for recommendations on alternatives.
So how can employers benefit from these new provisions? Many will aim to modify major medical plan premiums, since they are the biggest voluntary income deductions of employees. However employers should also think about having flexible spending accounts (FSAs) and health reimbursement accounts (HRAs), which potentially could be more impactful. For instance, a $20 reward added to a major medical plan premium each month might go unnoticed as many employees are already making monthly contributions worth hundreds of dollars. However, adding extra money to a health FSA or HRA makes more money available for out-of-pocket expenses which generally get observed more than deductions from a paycheck.
Wellness programs also provide a good opportunity to cut down on medical plan costs. A review of the major health risk factors in a workforce can be performed. Then the employer can tailor their wellness program to concentrate on and address these factors. The employer can also evaluate their workforce’s progress and make beneficial adjustments along the way. A good wellness program includes both participatory and health-contingent components.
Economic incentives have been shown to motivate workforces. As the law sets now, any cash rewards are probably going to be seen as taxable income if not used directly for health. Therefore, placing part of the rewards into flexible benefits is something to be explored. When funding FSAs, don’t allow the option of getting cash (or other taxable benefit) and the reward won’t be a factor in the ACA salary deduction contribution limit (which as of 2014 is $2500). There are no such limits for HRAs.
When you incorporate a wellness reward into a health FSA or HRA, you need to take into account the four forms of nondiscrimination regulations:
As well as the limits for reward size, the regulations require that employees must qualify for a reward at a minimum of once per year. Employers need to make the reward uniformly available and provide a reasonable alternative standard if it is difficult for an employee to meet a set standard due to a medical condition. The employee should not have to pay for the alternative (the food costs associated with some diet programs are a notable exception). The program also has to be reasonably designed for health promotion or disease prevention. It cannot be used to discriminate against a particular health factor.
2) Americans with Disabilities Act (ADA)
In 1992, the Equal Employment Opportunity Commission (EEOC) declared that wellness programs need to be voluntary, but they did not elaborate on this. In 2012, when asked by the American Bar Association, the EEOC said they have not taken a position in regards to whether programs are made involuntary if financial incentives require disability-related inquiries or medical examinations. Information that is collected needs to meet ADA confidentiality rules. Discrimination against people with disabilities is not allowed.
3) Cafeteria plans
Under a cafeteria plan, a health FSA counts as a qualified benefit, but not an HRA. Funding a health FSA with a wellness reward may be problematic with the key employee concentration test, which does not allow cafeteria plan benefits for a key employee to exceed 25 percent of the benefits for the total number of employees. Assessing a reward in relation to these limits is necessary.
4) Self-insured plans
The benefits test for self-insured plans need to be considered. Take for example an employer who places $1000 into the health FSA or HRA of all their employees as an incentive; what if there are some highly compensated employees who meet the standard and some who don’t? This issue is not necessarily addressed by the current nondiscrimination rules, but the rules enable optional benefits if all eligible employees choose the option and everyone has the same contribution.
If an eligibility test is not met, then providing a wellness reward can increase the number of employees taking part in a health FSA. A wellness program can make flexible benefits more useful, which will lead to more participation in the program, which is a smart and healthy option for everyone. The information above was adapted from the SlideShare presentation below, please take a look for further information on this topic.