How Organizational Wellness Programs Impact ACA Affordability
This article was updated on July 26, 2018.
Many businesses have adopted organizational wellness programs in response to the Affordable Care Act (ACA), which amended Employee Retirement Income Security Act (ERISA) to allow health insurance plans to implement wellness program initiatives that make an employee's premium payments or cost-sharing contingent on their health status.
It is important, however, to note that, under IRS regulations, when determining whether an employee's cost of coverage is "affordable" (i.e. less than 9.5 percent of household income), the organization is generally not permitted to take into account the amount of any incentives offered under the auspices of these wellness programs. In other words, an organization must utilize the pre-incentive premium payment in its calculation. The lone exception to this rule is a non-smoking incentive, where the premium amount for non-smokers may be used in the calculation.
There are generally two different types of wellness programs: participatory wellness programs and health contingent wellness programs.
Participatory Wellness Programs
Participatory wellness programs are programs that either provide no reward at all or provide rewards that are not contingent on satisfying a goal related to a health factor. There are many examples of participatory wellness programs, including reimbursements for gym membership, diagnostic testing that rewards participants merely for participating (and not based on the results of the testing) and rewards for attending free health education seminars.
In order to qualify as a participatory wellness program, the program must be available to all employees regardless of health status.
Health Contingent Wellness Program
In contrast to participatory wellness programs, "health-contingent" wellness programs require an individual to satisfy a standard related to a health factor in order to obtain a reward.
There are two types of health contingent wellness programs:
1. Activity-only wellness program. The employee earns rewards by performing activities related to health factors to obtain a reward. An activity-only wellness program does not require the participant to attain or maintain a specific health outcome. Examples include walking, diet or exercise programs.
2. Outcome-based wellness program. The employee earns rewards by achieving a specified health status (i.e. quit smoking or receiving certain results on a biometric screening). All health-contingent wellness programs must comply with the following five requirements:
- All employees must be given the chance to qualify for the reward at least one time per year.
- The total reward offered under all health-contingent wellness programs may not exceed a specified percentage of the total cost of health coverage
- The program must be reasonably designed to encourage health or prevent disease.
- Rewards under the program must be available to all "similarly situated individuals" and must provide a reasonable alternative standard to certain employees
- The program must disclose to employees that a reasonable alternative standard could be available.
Americans With Disabilities Act
The Americans with Disabilities Act (ADA) places limits on an employer's ability to conduct physical examinations or make medical inquiries of its employees as part of their wellness programs, permitting them do so only if participation in the program is "voluntary," the information procured by the examination/inquiry is protected in accordance with the ADA's confidentiality requirements and the information is not used to discriminate against an employee.
The Equal Employment Opportunity Commission (EEOC) has taken the position that a wellness program is "voluntary" only if the "employer neither requires participation nor penalizes employees who do not participate." So far, the EEOC has yet to issue regulations further defining the term voluntary. Nonetheless, the EEOC has filed lawsuits against organizations for implementing programs that penalized employees for failing to participate in one of its organizational wellness programs.
Employers should be careful when adopting a wellness program. In general, it's safer for employers to offer positive incentives for wellness program participation rather than penalties for not taking part.
Additionally, employers sponsoring a wellness program should also be mindful of the ADA's reasonable accommodation obligations for employees with disabilities. As a result, wellness program communications should include language that any employee may contact their HR representative to request a reasonable accommodation if they believe they are unable to fulfill a requirement due to disability.
