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HIPAA generally prohibits health plans from discriminating against individuals based on a health factor –such as nicotine addiction, high blood pressure, or diabetes. Under current guidance, a wellness program is not treated as discriminatory if it meets certain requirements. PPACA codified those requirements, with some modifications. In May 2013, the DOL, HHS, and IRS jointly issued final HIPAA regulations that incorporate the changes made by PPACA, along with some general updates to the wellness program rules.

Consistent with current guidance, the final regulations include different requirements depending on whether the wellness program is “participatory” or “health-contingent.” A participatory program either does not provide rewards (or impose penalties), or does not base rewards (or penalties) on whether the individual satisfies a standard related to a health factor. For example, a program that pays gym membership fees is a participatory program. In order to satisfy the HIPAA nondiscrimination rules, a participatory program must be made available to all similarly situated individuals.

A “health-contingent” program does provide a reward (or impose a penalty) based on whether the individual satisfied a standard related to a health factor. For example, a program that rewards a participant for quitting smoking is a health-contingent program. Under current guidance, health-contingent wellness programs have to meet the five requirements listed below. The final regulations retain those requirements with some adjustments, the more significant of which are briefly noted below.

1. The program must be reasonably designed to promote health or prevent disease.

2. Individuals eligible to participate in the program must be given the opportunity to qualify for the full reward at least once each year.

3. The reward for premiums generally cannot exceed the applicable percentage of the total cost of coverage. Pursuant to PPACA, the final regulations raise the applicable percentage from 20% to 30% (or 50%, for programs that are related to tobacco use).

4. The reward must be available to all similarly situated participants.

5. The program must offer a reasonable alternative standard for obtaining the reward.Under the final regulations, this requirement applies differently to programs that are “activity-only” versus “outcome-based.” An “activity-only” program rewards individuals who complete an activity related to a health factor, without regard to whether the individual obtains a specific health outcome – for example, a diet, walking or exercise program that simply requires the participant complete the program in order to obtain the reward.1  An “outcome-based” program does condition the reward on a particular health outcome – for example, a diet program that conditions the reward on achieving weight loss. Activity-only programs need to offer a reasonable alternative standard only to individuals for whom it is medically inadvisable or unreasonably difficult due to a medical condition to satisfy the initial standard. By contrast, an outcome-based program must offer a reasonable alternative standard to everyone who does not meet the initial standard, regardless of the reason.

The final regulations apply to all group health plans (including grandfathered plans), effective for plan years beginning in 2014 and later.2  The final regulations deviate from current guidance in a myriad of ways, and this bulletin provides only a broad overview of the more significant differences. Thus, all wellness programs should be carefully reviewed for consistency with the final regulations. Click here for a copy of the final regulations.

A note of caution regarding the ADA…

Wellness programs that involve disability-related inquiries and/or require medical examinations violate the Americans with Disability Act (“ADA”) if they are “involuntary.” The EEOC has informally advised that imposing a penalty (or perhaps even offering a reward) may make a wellness program involuntary. After PPACA affirmed that certain levels of rewards and penalties are permissible under HIPAA (see requirement #3, above), employers hoped that the EEOC would interpret the ADA similarly. So far, the EEOC has said that it “has taken no position” on this issue. See ABA-JCEB-2012-EEOC-Final and   However, in May 2013 the EEOC convened a “Wellness Commission” and heard testimony from a panel of experts, and so may be taking a closer look at wellness programs under the ADA.

Also, case law issued thus far is favorable to wellness programs: In 2012, the Eleventh Circuit Court of Appeals affirmed a lower court’s decision that a wellness program did not violate the ADA by penalizing employees who did not participate.3  While this case provides some reassurance, employers should bear in mind that it does not bind the EEOC or courts outside the Eleventh Circuit.

Not Intended As Legal Advice.


  1. Under current guidance, the standard practice has been to treat these types of programs as participatory wellness programs, as they only require participation in order to obtain a reward. However, under the final regulations, a program that only requires participation is a health-contingent wellness program (specifically, an “activity-only” program) if the individual may not be able to participate in the activity due to a health factor. For example, a walking program is an “activity-only” health-contingent program because an individual may be unable to participate due to a recent surgery or pregnancy, or due to severe asthma. By contrast, a program that conditions its reward on attending a health seminar is a participatory program because attending a health seminar is not an activity related to a health factor.
  2. The regulations also apply to insurers, effective for policy years beginning in 2014 and later.
  3. Under the program, employees who did not complete a health risk assessment and biometric screening paid an increased health insurance premium. The employees sued, claiming that penalty made the program “involuntary” under the ADA. Unexpectedly, the lower court did not address whether the program was “involuntary.” Instead, it looked to an ADA safe harbor for “bona fide benefit plans,” which are plans based on underwriting, classifying or administering risks and which are not a subterfuge for discrimination. The court found that the wellness program qualified as a “bona fide benefit plan” because it was part of the employer’s group health plan. The Eleventh Circuit agreed.  Click here for a copy of the Eleventh Circuit’s opinion.