By Nancy Lopez

Background

One objective of the insurance reform provisions of the health reform law was to continue the policy begun under the Health Insurance Portability and Accountability Act of 1996^[1] (HIPAA) to encourage individuals and their families to be more engaged in their health care and to adopt healthier lifestyles. HIPAA generally has allowed incentives for wellness program participation, subject to strict federal rules clarifying what constitutes a program of health promotion and disease prevention. During the reform debates, employer plan sponsors urged that such incentives be maintained, arguing that health care costs are driven, in part, by individual behavior and that providing incentives to employees to adopt healthy behaviors result in savings.^[2] At the same time, critics expressed concern that in some cases, these programs may unfairly penalize individuals who struggle and fail to meet the requirements of some workplace wellness programs.^[3]

HIPAA generally prohibits group health insurance plans or group health insurance issuers from charging similarly situated individuals different premium costs based on a health factor.^[4] However, premium discounts or rebates and modified copayments or deductibles are permitted to be offered to group insurance plan enrollees and employees if the individual adheres to a program of health promotion and disease prevention (wellness programs).^[5] These wellness programs, as clarified by the 2006 final regulations issued by the Departments of Labor, Treasury, and Health and Human Services,^[6] are developed by the employer plan sponsor and usually implemented with the help of health insurers to encourage employees to improve their health and well-being, to prevent disease from occurring, and as a means for decreasing health care costs and absenteeism.

Of the privately insured population in the United States, 58.5% is employer-sponsored.^[7] Those employers, concerned about addressing rising premiums, encourage employees to enroll in healthy lifestyle programs addressing issues such as high blood pressure, high cholesterol, obesity and diabetes. Indeed, health insurance expenditures are the fastest rising cost for employers, and in some cases rising faster than profits.^[8] Approximately 25%-30% of companies’ annual costs are spent on employees with excess health risks, specifically those at risk for heart disease and strokes.^[9] Obesity-related costs from medical expenses and absenteeism range from almost $400 to over $2,000 per obese employee per year.^[10] Thus, employers use wellness programs as a means to reduce these costs.

The 2006 final HIPAA regulations for group health plans prohibit discrimination with respect to an individual’s terms of enrollment or premiums based on health status; however, they set out two categories of wellness programs. The first category—programs that offer rewards not conditioned on the employee achieving a certain goal related to a health factor (e.g., going to a weight loss class or smoking cessation course, obtaining a gym membership, etc.)—are not covered by the HIPAA nondiscrimination standards.^[11] The other, programs that require employees to achieve a certain health standard (e.g., BMI under 35, quitting smoking, normal blood pressure, etc.) are subject to the following five additional requirements: the program must be reasonably designed for health promotion or disease prevention and not a subterfuge for discrimination based on health factor; the employee must be eligible to qualify for the reward each year; there must be a reasonable alternative for those employees that are unable to participate for medical reasons; the program must disclose a reasonable alternative standard; and prior to the health reform law, the reward to the employee (discounts on premiums, deductibles or co-pays), is limited to 20% of the cost of coverage.^[12] The health reform law makes minor modifications to the current HIPAA requirements for “bona fide” wellness programs.

Changes Made by the Health Reform Law
P.L. 111- 148, §1201(4), §4303, §10408, and §4402

• Incorporation of current HIPAA requirements — The health reform law incorporated the current HIPAA requirements, as set out in the existing regulations, into the statute as part of the Public Health Service Act.
• Existing Employer Health Promotion and Disease Prevention Programs – The health reform provisions do not apply to existing or “grandfathered” programs established prior to the date of the enactment as long as the programs are in compliance with existing HIPAA regulations.^[13]
• New Employer Health Promotion and Disease Prevention Programs – Effective January 1, 2014, the reward to the employee (e.g.. premium discounts, rebates, or cost-sharing waivers) for participation in a wellness program that requires the employee to meet a certain health standard increases to 30 percent (and gives the Secretary the authority to increase up to 50 percent) of the cost of coverage.^[14]
• Individual Market Demonstration and Program Authority — Requires the Secretary (in consultation with Secretaries of Treasury and Labor) to establish an initial ten state demonstration project by July 1, 2014, in which participating states will apply similar rewards as group health plans for participating in wellness programs in the individual insurance market, and to expand demonstrations in 2017 if the demonstration is deemed effective.^[15]
  • To participate in the demonstration project, the Secretary must find that the State’s project design meets certain requirements,^[16] including that the design will not decrease coverage and will not increase cost to Federal Government through providing credits under §36B of IRC of 1986 or cost-sharing assistance under §1402 of PPACA.^[17]
  • States that participate in the demonstration project must meet certain requirements,^[18] such as requiring health insurance issuers in the individual market to verify that premium discounts do not create undue burden to insured individual; do not result in cost-shifting; and do not create subterfuge for discrimination.^[19]
• Evaluations and Surveys
  • Requires the Secretary to submit a report no later than three years from the enactment of the PPACA on the effectiveness and impact of wellness programs.^[20]
  • Requires the Director of CDC (the Director) to provide employers with technical assistance, consultation and other resources to evaluate employer-based wellness programs.^[21]
  • Requires the Director to conduct a national worksite health policies and programs survey to assess employer-based health policies and programs. The survey must be conducted within two years following enactment of this provision and re-occur on a regular basis that is to be determined by the Director. After each study, the Director is required to submit a report to Congress which includes recommendations for implementation of effective employer-based health programs.^[22] However, none of the Director’s recommendations or assessments can be used to mandate requirements for workplace wellness programs.^[23]
  • Mandates that the Secretary evaluate federal health and wellness initiatives and report to Congress on reasons for successes or failures of the programs. Evaluations will include, but are not limited to, absenteeism of employees, productivity of employees, rate of workplace injury, and the medical costs incurred by employees and health conditions.^[24]
• Grants for Small Business Workplace Wellness Programs — Requires the Secretary to award grants to eligible employers to provide comprehensive workplace wellness programs. Starting in FY 2011, the law authorizes $200 million to be appropriated over five years, FY 2011 to FY 2015, for small businesses that provide comprehensive workplace wellness programs.^[25] The comprehensive programs will include initiatives to promote health awareness (e.g., preventative screenings) and change unhealthy behavior and lifestyle choices (e.g., counseling); and efforts to maximize participation. Eligible companies are those with fewer than 100 employees and those with wellness initiatives launched after the date the heath reform bill was enacted.^[26]
  • Requires the Secretary to determine program criteria for the comprehensive worksite wellness programs based on and consistent with evidence based research and best practices.^[27]

Implementation

Agency

The Department of Health and Human Services is responsible for overseeing the administration of small business grants under §10408 of the health reform law; for conducting the evaluation of federal health and wellness initiatives and reporting findings to Congress under §4402; and in consultation with the Secretary of Treasury and Secretary of Labor, for the establishment of the 10 state demonstration project under section §1201(4) and determining that a wellness program reward may increase to 50% of the cost of coverage.^[28]

The Centers for Disease Control and Prevention, an agency within the Department of Health and Human Services, is responsible for providing employers with technical assistance to evaluate employer wellness programs and conduct the national worksite health policies and programs survey under §4303 of the health reform law.

Key Dates

Key timetable dates are:

• 2011 – funding begins for small businesses eligible for grants to provide comprehensive workplace wellness programs.^[29]
• March 2012 – the year by which the Secretary must conduct a national survey on worksite health policies and programs.^[30]
• March 2013 – the year by which the Secretary (in consultation with Secretaries of Labor & Treasury) must submit a report on the effectiveness and impact of wellness programs to appropriate congressional committees.^[31]
• July 1, 2014 – the date by which the Secretary (in consultation with Secretaries of Labor & Treasury) must establish a 10-state demonstration project providing wellness programs in the individual insurance market.^[32]

Process

The health reform law does not provide specific direction to the Secretary of HHS or the Director of CDC regarding the administrative processes used to implement the law. However, in an omnibus Federal Register publication of June 28, 2010,^[33] the agencies were given authority under the Regulatory Flexibility Act^[34] to use a number of processes, including “interim final rules that they determine appropriate…” The agencies therefore have discretion to use a wide range of tools to implement the statute, such as publishing regulations in the Federal Register with a public notice and comment period, publishing such interim final regulations, or using other types of approaches including posted policy instructions, announcements of funding availability, official letters to affected entities, and posted rulings and notices. The Federal Register and agency websites can be regularly checked for updates.

Key Issues

§1201(4),adding §2705(j) to PHS Act: Programs of Health Promotion & Disease Prevention:

• Terms and Definitions: What criteria will the Secretaries of Labor, Health and Human Services, and Treasury (the Secretaries) use to determine whether to permit wellness plans to increase rewards from 30 percent to up to 50 percent of the cost of coverage?
• Will existing worksite wellness plans be permitted to increase the rewards to employees from 20 percent to 30 percent?
• What criteria will the Secretaries use to determine whether a demonstration project in the individual market is effective and thus worthy of expansion?
• Consumer protections: How will the Secretaries determine what is “unduly burdensome” to enrollees in the individual market?
• Evaluation and Reporting: How will the Secretaries evaluate the effectiveness of worksite wellness programs and the impact these programs have on participation, behavior and coverage? How will the Secretaries collect the data necessary to make such evaluations? What will the Secretaries deem “relevant information” to make such evaluations?

§4303 adding §399MM to PHS Act: CDC and Employer-Based Wellness Programs

• Terms and Definitions: What criteria will the Director use to evaluate employers’ worksite wellness programs? How will training of employers be implemented and who will conduct the training?
• Evaluation: What are the measures the Director will use to evaluate the participation in programs? What are the standardized measures used to evaluate the impact of wellness programs on behavior and health impact of employees? How will the Director implement a national survey to assess employer health policies and programs? Who will conduct the survey?

§4402: Effectiveness of Federal Health and Wellness Initiatives

• Evaluation: What are the measures used by the Secretary of HHS to evaluate the effectiveness of Federal health and wellness initiatives on productivity, health, medical costs and absenteeism of the federal workforce? What is the definition of a successful or unsuccessful program?

§10408: Grants for Small Businesses to Provide Comprehensive Workplace Wellness Programs

• Allocation of Funds: What criteria will the Secretary use to determine how funding is allocated to small businesses? Will there be any conditions attached to the recipients of funding? What happens when all the funds are expended?
• Terms and Definitions: What is a comprehensive workplace wellness program? When will the Secretary develop program criteria for comprehensive wellness programs? Who determines what the “best practices” are to determine the criteria? Are all the components required for a comprehensive workplace program going to be defined by the Secretary? What information and in what manner is the Secretary requiring the application for funding to be submitted?
• Participant protection: How does implementation of funding affect small business tax credits for those businesses eligible for the grant?

Recent Agency Action

None at the time of posting.

Authorized Funding Levels

Starting in 2011, the health reform law authorizes $200 million over five years in grants for small businesses that are starting new wellness programs.^[35]