WELLNESS: Buying Your Way to Good Health

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WELLNESSBuying Your Way to Good Health
June 10, 2008
James R. GriffinJackson Walker L.L.P. 901 Main
Street, Suite 6000 Dallas, Texas
75202 214.953.5827 214.953.5822
(fax) jgriffin_at_jw.com
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HIPAA

• Health Insurance Portability and Accountability
  Act of 1996 (HIPAA)
• Nondiscrimination provisions
• Code 9802 ERISA 702 PHS Act 2702
• Final rules December 13, 2006
• Applicable on the first day of the plan year
  beginning on or after July 1, 2007 (January 1,
  2008 for calendar year plans)

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HIPAAs Nondiscrimination Rules

• Prohibit group health plans from
• Discriminating in eligibility, benefits or
  contributions based on health factors, e.g.
• Health status
• Medical condition
• Claims experience
• Disability

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HIPAAs Nondiscrimination Rules (contd)

• Exceptions
• Discrimination in favor of individuals on the
  basis of a health factor
• Wellness programs that meet certain requirements

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HIPAA and Wellness Programs

• Steps to determine if HIPAA applies
• Regardless of whether HIPAA applies, other laws
  likely implicated
• Compliance with HIPAA not determinative of
  compliance with ADA, ERISA or any other state or
  federal law

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Does HIPAA Apply?

• HIPAA applies to group health plans
• Plans (including self-funded plans) of, or
  contributed to by, an employer to provide health
  care to employees
• Wellness program must require eligible employees
  or their dependents to meet a health standard to
  obtain a group health plan-related reward
• E.g., premium reductions for meeting a health
  standard (such as a targeted BMI or quitting
  smoking)

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HIPAA Does Not Apply

• Program that reimburses all or part of a fitness
  center membership
• Diagnostic testing program providing a reward for
  participation not based on outcomes
• Program that encourages preventive care
• E.g., waives copayments or deductions under a
  group health plan for costs of well-baby visits

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HIPAA Does Not Apply (contd)

• Program that reimburses employees for the cost of
  smoking cessation programs, without regard to
  whether employee quits smoking
• Program that rewards employees for attending
  health education seminar
• Gift cards offered to employees who complete a
  health risk assessment (HRA)

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Examples

• Medical expense debit card to any employee who
  completes an HRA
• Not subject to HIPAA
• 10 group health plan premium reduction to
  nonsmokers
• Subject to HIPAA
• Must meet HIPAAs wellness program requirements
• Tied to group health plan (premium reductions)
• Contingent on meeting standard (not smoking)
• Based on health-related factor (nicotine
  addiction)

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HIPAA Applies

• Must Meet Five Requirements
• 1. Limited Reward
• Must not exceed 20 of the cost of plan coverage
• 20 based on cost of
• Employee-only coverage or coverage tier for
  employee and dependents
• Total amount of employer and employee
  contributions
• Can be in the form of discount, rebate, waiver,
  absence of a surcharge or value of a benefit not
  otherwise offered

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HIPAA Applies (contd)

• Must Meet Five Requirements
• 2. Reasonably designed to promote health or
  prevent disease
• Not overly burdensome, not a subterfuge for
  discriminating based on a health factor and not
  highly suspect in the method chosen
• Intended to be broad while prohibiting extreme
  requirements

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HIPAA Applies (contd)

• Must Meet Five Requirements
• 3. Opportunity to qualify for reward must be
  given at least once per year
• Any program reward or incentive resulting in
  permanent disqualification violates this
  requirement

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HIPAA Applies (contd)

• Must Meet Five Requirements
• 4. Reward must be available to similarly situated
  individuals
• Can treat participants as two or more distinct
  groups if distinction is based on a bona fide
  employment-based classification
• If an individuals health factor makes it
  inadvisable or difficult to reach goal, plan must
  offer a reasonable alternative standard or waive
• Plan can seek physician verification

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HIPAA Applies (contd)

• Must Meet Five Requirements
• 5. Disclose availability of alternative standard
• Materials describing wellness program reward must
  describe reasonable alternative standard or
  mention that one will be made available

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HIPAA Applies (contd)

• Model disclosure language
• If it is unreasonably difficult due to a medical
  condition for you to achieve the standards for
  the reward under this program, or if it is
  medically inadvisable for you to attempt to
  achieve the standards for the reward under this
  program, call us at insert telephone number and
  we will work with you to develop another way to
  qualify for the reward.

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Tax Issues

• Internal Revenue Code of 1986 (Code)
• Financial incentives like cash are taxable and
  subject to withholding
• Can exclude from gross income only if an employee
  achievement award or de minimis fringe benefit
• Group health plan-related incentives like
  contributions to HRAs, FSAs and HSAs not taxable
• Medical expense debit cards

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Penalties

• Violation of HIPAAs nondiscrimination rules
• IRS penalties excise tax of 100 per day for
  each individual to whom the violation relates
• Accrues on a daily basis until corrected
• Maximum and minimum apply
• DOL enforcement can sue to prevent an employer
  from implementing a program in violation
• Can assess a penalty of 110 per day for failure
  to provide wellness program documents (maximum
  assessment of 1,000 per request)

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WELLNESSBuying Your Way to Good Health
June 10, 2008
James R. GriffinJackson Walker L.L.P. 901 Main
Street, Suite 6000 Dallas, Texas
75202 214.953.5827 214.953.5822
(fax) jgriffin_at_jw.com