HIPAA Common Questions: Administration (Part 1)

HIPAA Common Questions: Administration (Part 1)

by Clarke & Company Benefits Posted on: December 11, 2014Categories: HR & Compliance   

Under HIPAA, can a group health plan reward its employees by charging healthy employees less for health insurance?

Although HIPAA generally prohibits group health plans from charging an individual within a group of similarly situated individuals a different premium or contribution for coverage based upon that individual’s health factors, group health plans still have many opportunities to offer financial incentives in order to promote health and prevent disease.

Participatory Wellness Programs

Participatory wellness programs either do not require an individual to meet a health-related standard to obtain a reward or do not offer a reward at all. This type of wellness program is not subject to the nondiscrimination rules, as long as participation in the program is made available to all similarly-situated individuals. Examples of this type of wellness program include:

1. Rewarding employees for attending a free health education seminar;
2. Reimbursing employees for the cost of health club memberships, without regard to any health factors; and
3. Reimbursing employees for the cost of smoking cessation programs, without regard to whether the employee quits smoking.

Health-contingent Wellness Programs

Where a wellness program requires individuals to satisfy a standard related to a health factor in order to obtain a reward, the program must comply with certain nondiscrimination requirements.

Effective for plan years beginning on or after Jan. 1, 2014, the Affordable Care Act (ACA) adopts the HIPAA nondiscrimination requirements for health-contingent wellness programs, while also increasing the maximum reward that can be offered under these programs. On May 29, 2013, final regulations were released to implement the ACA’s requirements for health-contingent wellness programs. These final regulations, which are effective for 2014 plan years, retain HIPAA’s nondiscrimination requirements for wellness programs with some modifications.

Under the ACA’s final regulations, there are two types of health-contingent wellness programs:

• Activity-only wellness programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward (for example, walking, diet or exercise programs). Activity-only wellness programs do not require an individual to attain or maintain a specific health outcome.
• Outcome-based wellness programs require an individual to attain or maintain a certain health outcome in order to obtain a reward (for example, not smoking, attaining certain results on biometric screenings or meeting exercise targets). Generally, these programs have two tiers: (1) a measurement, test or screening as part of an initial standard; and (2) a larger program that then targets individuals who do not meet the initial standard with wellness activities. Outcome-based programs allow plans and issuers to target specific individuals (for example, those with high cholesterol for participation in cholesterol reduction programs, or individuals who use tobacco for participation in tobacco cessation programs), rather than the entire population of participants and beneficiaries, with the reward based on health outcomes or participation in reasonable alternatives.

To protect consumers from unfair practices, health-contingent wellness programs are required to follow certain standards related to nondiscrimination, including a standard that limits the maximum reward that can be offered.

Do the HIPAA nondiscrimination regulations prohibit a group health plan from treating individuals with adverse health factors more favorably?

No. Group health plans may establish more favorable rules for eligibility for individuals with an adverse health factor, such as a disability, than for individuals without an adverse health factor. For example, some group health plans contain provisions that allow disabled dependent children to continue to be eligible for coverage beyond the limiting age applied to dependent children that are not disabled.

 

Do health reimbursement arrangements (HRAs) that allow unused funds to be carried over from year to year violate the HIPAA nondiscrimination regulations?

In response to inquiries requesting clarification on the application of the HIPAA nondiscrimination regulations to HRAs that allow unused funds to be carried over from year to year, the final regulations included an example of an HRA plan that is not a violation:

Example: The health insurance coverage is made available to all current employees. Under the plan, the medical care expenses of each employee (and the employee’s dependents) are reimbursed up to an annual maximum amount. The maximum reimbursement amount with respect to an employee for a year is $1500 multiplied by the number of years the employee has participated in the plan, reduced by the total reimbursements for prior years.

This example clarifies that even though unused employer-provided medical care reimbursement amounts carried forward from year to year vary among employees within the same group of similarly situated individuals based upon prior claims experience, the HRA does not violate the HIPAA nondiscrimination regulations. Employees who have participated in the plan for the same length of time are eligible for the same total benefit over that length of time and the restriction on the maximum reimbursement amount is not directed any individual participants or beneficiaries based on any health factor.

What nondiscrimination requirements apply when a wellness program requires individuals to satisfy a standard related to a health factor in order to obtain a reward?

Limit on Reward

The total reward offered to an individual under an employer’s health-contingent wellness programs cannot exceed a specified percentage of the total cost of employee-only coverage under the plan. The total cost includes both employer and employee contributions towards the cost of coverage. If, in addition to employees, any class of dependents (such as spouses and dependent children) may participate in the health contingent wellness program, the reward cannot exceed the specified percentage of the total cost of the coverage in which the employee and any dependents are enrolled (such as family coverage or employee-plus-one coverage).

The final ACA regulations increase the maximum permissible reward from 20 percent to 30 percent of the cost of health coverage, effective for plan years beginning on or after Jan. 1, 2014. In addition, the regulations increase the maximum permissible reward to 50 percent of the cost of health coverage for health-contingent wellness programs designed to prevent or reduce tobacco use.

Reasonably Designed To Promote Good Health or Prevent Disease

Wellness programs must be designed to promote good health or prevent disease. If a wellness program has a reasonable chance of improving the health of participants and is not overly burdensome, is not a subterfuge for discriminating based upon a health factor and is not highly suspect in the method chosen to promote health and prevent disease, the wellness program will satisfy this requirement.

Annual Opportunity to Qualify for Reward

Wellness programs must give individuals an opportunity to qualify for the reward at least once a year.

Reasonable Alternative Standard

The final ACA regulations require that the full reward under a health-contingent wellness program, whether activity-only or outcome-based, be available to all similarly situated individuals. Under the final regulations, a health-contingent wellness program must, in certain circumstances:

• Provide a reasonable alternative standard (or waiver of the otherwise applicable standard); and
• Provide a different, reasonable means of qualifying for the reward, to the extent that a plan’s initial standard for obtaining a reward (or a portion of a reward) is based on the results of a measurement, test or screening that is related to a health factor (such as a biometric examination or a health risk assessment).

Disclosure Requirements  

All wellness program materials must include a description of the general standard and disclose the availability of a reasonable alternative standard.