Workplace Wellness Program

A workplace wellness program is, in the words of the governing regulation at 29 CFR 2590.702(f), "a program of health promotion or disease prevention" offered by an employer. The regulation exists because a group health plan is otherwise forbidden to charge different people different amounts based on a health factor; a wellness program that meets the regulation's conditions is the exception that lets a plan vary a premium, a deductible or a copayment according to what an employee does about their health.

Everything practical about these programs follows from a single split. If none of the conditions for obtaining the reward is based on satisfying a standard related to a health factor, the program is participatory and the rules are light: it simply has to be available to all similarly situated individuals. If the reward does depend on a health-related standard, the program is health-contingent and five separate requirements attach, including a cap on the size of the reward.

The two categories, with the regulation's own examples. A participatory program is one where the reward turns on nothing health-related, and 29 CFR 2590.702(f)(1)(ii) lists what that looks like: reimbursing gym membership, a diagnostic testing program that rewards participation without regard to outcomes, waiving a copayment for prenatal or well-baby visits, rewarding participation in a smoking cessation program without regard to whether the employee quits, rewarding attendance at a health seminar, and rewarding completion of a health risk assessment with no further action required.

A health-contingent program requires the individual to satisfy a standard related to a health factor, and it comes in two shapes. An activity-only program requires an activity, such as a walking, diet or exercise program, which some people cannot complete because of asthma, pregnancy or recent surgery. An outcome-based program requires attaining or maintaining an actual result, such as not smoking or a biometric screening reading in a stated range.

The reward cap, and what it is a percentage of. 29 CFR 2590.702(f)(5)(i) sets it out: "the applicable percentage is 30 percent, except that the applicable percentage is increased by an additional 20 percentage points (to 50 percent) to the extent that the additional percentage is in connection with a program designed to prevent or reduce tobacco use." The base is the total cost of employee-only coverage — employer and employee contributions combined — or, where dependents may participate, the total cost of the coverage the employee and dependents are actually enrolled in. Two points people get wrong: the cap applies to health-contingent programs only, so a participatory reward is not counted against it, and a penalty counts as a reward. The regulation defines "reward" to include avoiding a surcharge, which is why a tobacco surcharge is measured under the same ceiling as a discount.

The reasonable alternative standard is the requirement with teeth, and it is wider for outcome-based programs than for activity-only ones. Under 2590.702(f)(3)(iv), an activity-only program must allow a reasonable alternative standard, or waive the standard, for anyone for whom it is unreasonably difficult due to a medical condition or medically inadvisable to attempt. Under 2590.702(f)(4)(iv), an outcome-based program must allow one for any individual who does not meet the initial standard, whether or not they have a medical reason for missing it, and 2590.702(f)(4)(iv)(E) adds that it is not reasonable to demand a physician's statement as the price of getting one. So someone whose cholesterol reading misses the target, or who has not stopped smoking, is entitled to a second route to the same reward simply by asking. The plan does not have to name the alternative in advance, but it must furnish one on request. It must make an educational program available rather than sending the employee to find one, and may not charge for it; for a diet program it need not pay for food but must pay the membership or participation fee; and where an individual's own physician says the plan's standard is not medically appropriate, the alternative must accommodate that recommendation. Every plan material that describes the program's terms has to disclose that an alternative is available, with contact information, and an outcome-based program must repeat that disclosure in any notice telling someone they did not meet the standard.

The disability and genetic-information layer sits on top, and it changed. A wellness program that asks disability-related questions or conducts medical examinations is also governed by the Americans with Disabilities Act, and one that asks about family medical history is governed by the Genetic Information Nondiscrimination Act. The Equal Employment Opportunity Commission issued rules in 2016 putting a 30 percent incentive limit on both. In AARP v. EEOC, No. 16-2113, the U.S. District Court for the District of Columbia vacated the incentive section effective January 1, 2019, and on December 20, 2018 the Commission published two companion final rules removing the disability and genetic-information incentive paragraphs from the Code of Federal Regulations. Today 29 CFR 1630.14(d)(3) and 29 CFR 1635.8(b)(2)(iii) both read "[Reserved]".

What the removal did not do is leave those statutes with nothing to say, and this is the point most summaries get wrong in one direction or the other. Still in force at 29 CFR 1630.14(d):

• (d)(1) — the program must be reasonably designed to promote health or prevent disease. A program that collects health information without providing results, follow-up or advice is not reasonably designed, unless the information is actually used to design a program addressing the conditions found. Nor is one that exists mainly to shift costs to targeted employees based on their health, or to help the employer estimate future health care costs.
• (d)(2) — participation must be voluntary, which means the employer does not require participation, does not deny group health coverage or a benefits package for non-participation, does not retaliate or coerce, and gives a written notice describing what medical information will be collected, why, who will see it, and how it will be kept from improper disclosure.
• (d)(4) — medical information must be kept on separate forms in separate files as a confidential record, and may generally reach the employer only in aggregate terms that do not identify anyone. An employee may not be required to agree to the sale or disclosure of medical information, or to waive confidentiality protections, as a condition of participating or earning an incentive.

And on the genetics side, 29 CFR 1635.8(b)(2)(ii) still bars an employer from offering any inducement for an individual to provide genetic information, while permitting an inducement for completing a health risk assessment that happens to contain family-history questions — provided the employer makes clear, in language people will understand, that the inducement is available whether or not those particular questions are answered.

So the accurate summary is narrow. The 30 and 50 percent caps under the health-plan rules are intact. The separate incentive caps under the disability and genetics rules are gone from the Code of Federal Regulations. The voluntariness, design, notice and confidentiality requirements under those statutes are not.

1. Classify the program. If the reward turns on nothing health-related, it is participatory and only has to be available to all similarly situated employees.

2. If it is health-contingent, find the total cost of coverage. Employer contributions plus employee contributions for the tier you are enrolled in.

3. Apply the applicable percentage. Thirty percent of that total for health-contingent rewards generally, and up to fifty percent where the extra twenty points relate to tobacco.

4. Check for the reasonable alternative standard. It must be offered, and its availability must be disclosed in the materials describing the program.

5. Check the disability and genetics layer separately. Voluntariness, the written notice, the confidentiality rules, and the bar on inducements for genetic information all apply regardless of the reward's size.

A hypothetical illustration of the two ceilings. Marcus's employer-only coverage costs $7,200 a year in total, of which the employer pays most and Marcus pays the rest through payroll. His plan runs two health-contingent programs: a biometric target worth $1,000, and a tobacco-free requirement enforced as a surcharge.

The general ceiling is 7,200 × 0.30 = $2,160, and the non-tobacco reward of $1,000 sits well under it. The combined ceiling, counting the tobacco program, is 7,200 × 0.50 = $3,600. So the tobacco surcharge Marcus avoids by not smoking can be worth at most 3,600 − 1,000 = $2,600.

Two details decide whether this is lawful. First, the surcharge counts as a reward: the regulation defines a reward to include avoiding a penalty, so a $2,600 surcharge and a $2,600 discount are measured identically. Second, a tobacco-free requirement is outcome-based, so the plan must offer a reasonable alternative standard — a cessation program, typically — to every smoker who does not meet it, not only to those with a medical reason, and must disclose that in the materials and again in any notice that Marcus did not meet the standard. All figures are illustrative.

Pros

• A participatory program is genuinely free money for something you may be doing anyway, and the rules are light because nothing is conditioned on your health.
• The reasonable alternative standard means a health-contingent reward is reachable even by someone who cannot meet the stated target, provided they ask.
• The disclosure requirement puts the alternative in the plan materials, so it can be found without a negotiation.
• The confidentiality rules restrict what the employer sees to aggregate information in most circumstances.

Cons

• A surcharge is legally the same thing as a discount, so a program presented as a reward can be a penalty for everyone who does not qualify.
• The cap is measured against the total cost of coverage, including the employer's share, so the maximum swing can be much larger than an employee's own payroll deduction suggests.
• The alternative standard usually has to be requested rather than offered, and an employee who does not know to ask will not get it.
• Participation typically means handing biometric or health-history data to a third-party vendor, and the protections are procedural rather than a bar on collection.
• The removal of the separate disability-law incentive cap leaves the size question governed only by the health-plan rules, which reach only programs tied to the group health plan.