Notice of Proposed Rulemaking for Bona Fide Wellness Programs [01/08/2001]
Volume 66, Number 5, Page 1421-1435
[[Page 1421]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[REG-114084-00]
RIN 1545-AY34
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Part 2590
RIN 1210-AA77
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
45 CFR Part 146
RIN 0938-AK19
Notice of Proposed Rulemaking for Bona Fide Wellness Programs
AGENCIES: Internal Revenue Service, Department of the Treasury; Pension
and Welfare Benefits Administration, Department of Labor; Health Care
Financing Administration, Department of Health and Human Services.
ACTION: Notice of proposed rulemaking and request for comments.
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SUMMARY: This proposed rule would implement and clarify the term ``bona
fide wellness program'' as it relates to regulations implementing the
nondiscrimination provisions of the Internal Revenue Code, the Employee
Retirement Income Security Act, and the Public Health Service Act, as
added by the Health Insurance Portability and Accountability Act of
1996.
DATES: Written comments on this notice of proposed rulemaking are
invited and must be received by the Departments on or before April 9,
2001.
ADDRESSES: Written comments should be submitted with a signed original
and three copies (except for electronic submissions to the Internal
Revenue Service (IRS) or Department of Labor) to any of the addresses
specified below. Any comment that is submitted to any Department will
be shared with the other Departments.
Comments to the IRS can be addressed to: CC:M&SP:RU (REG-114084-
00), Room 5226, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044.
In the alternative, comments may be hand-delivered between the
hours of 8 a.m. and 5 p.m. to: CC:M&SP:RU (REG-114084-00), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW.,
Washington, DC 20224.
Alternatively, comments may be transmitted electronically via the
IRS Internet site at: http://www.irs.gov/tax_regs/regslist.html.
Comments to the Department of Labor can be addressed to: U.S.
Department of Labor Pension and Welfare Benefits Administration, 200
Constitution Avenue NW., Room C-5331, Washington, DC 20210, Attention:
Wellness Program Comments.
Alternatively, comments may be hand-delivered between the hours of
9 a.m. and 5 p.m. to the same address. Comments may also be transmitted
by e-mail to: Wellness@pwba.dol.gov.
Comments to HHS can be addressed to: Health Care Financing
Administration, Department of Health and Human Services, Attention:
HCFA-2078-P, P.O. Box 26688, Baltimore, MD 21207.
In the alternative, comments may be hand-delivered between the
hours of 8:30 a.m. and 5 p.m. to either:
Room 443-G, Hubert Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201
or
Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850
All submissions to the IRS will be open to public inspection and
copying in room 1621, 1111 Constitution Avenue, NW., Washington, DC
from 9 a.m. to 4 p.m.
All submissions to the Department of Labor will be open to public
inspection and copying in the Public Documents Room, Pension and
Welfare Benefits Administration, U.S. Department of Labor, Room N-1513,
200 Constitution Avenue, NW., Washington, DC from 8:30 a.m. to 5:30
p.m.
All submissions to HHS will be open to public inspection and
copying in room 309-G of the Department of Health and Human Services,
200 Independence Avenue, SW., Washington, DC from 8:30 a.m. to 5 p.m.
FOR FURTHER INFORMATION CONTACT: Russ Weinheimer, Internal Revenue
Service, Department of the Treasury, at (202) 622-6080; Amy J. Turner,
Pension and Welfare Benefits Administration, Department of Labor, at
(202) 219-4377; or Ruth A. Bradford, Health Care Financing
Administration, Department of Health and Human Services, at (410) 786-
1565.
SUPPLEMENTARY INFORMATION:
Customer Service Information
Individuals interested in obtaining additional information on
HIPAA's nondiscrimination rules may request a copy of the Department of
Labor's booklet entitled ``Questions and Answers: Recent Changes in
Health Care Law'' by calling the PWBA Toll-Free Publication Hotline at
1-800-998-7542 or may request a copy of the Health Care Financing
Administration's new publication entitled ``Protecting Your Health
Insurance Coverage'' by calling (410) 786-1565. Information on HIPAA's
nondiscrimination rules and other recent health care laws is also
available on the Department of Labor's website (http://www.dol.gov/dol/
pwba) and the Department of Health and Human Services' website (http://
hipaa.hcfa.gov).
I. Background
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), Public Law 104-191, was enacted on August 21, 1996. HIPAA
amended the Internal Revenue Code of 1986 (Code), the Employee
Retirement Income Security Act of 1974 (ERISA), and the Public Health
Service Act (PHS Act) to provide for, among other things, improved
portability and continuity of health coverage. HIPAA added section 9802
of the Code, section 702 of ERISA, and section 2702 of the PHS Act,
which prohibit discrimination in health coverage. However, the HIPAA
nondiscrimination provisions do not prevent a plan or issuer from
establishing discounts or rebates or modifying otherwise applicable
copayments or deductibles in return for adherence to programs of health
promotion and disease prevention. Interim final rules implementing the
HIPAA provisions were first made available to the public on April 1,
1997 (published in the Federal Register on April 8, 1997, 62 FR 16894)
(April 1997 interim rules).
In the preamble to the April 1997 interim rules, the Departments
invited comments on whether additional guidance was needed concerning,
among other things, the permissible standards for determining bona fide
wellness programs. The Departments also stated that they intend to
issue further regulations on the nondiscrimination rules and that in no
event would the Departments take any enforcement action against a plan
or issuer that had sought to comply in good faith with section 9802 of
the Code, section 702 of ERISA, and section 2702 of the PHS Act before
the additional guidance is provided. The new interim regulations
relating to the HIPAA nondiscrimination rules (published elsewhere in
this issue of the
[[Page 1422]]
Federal Register) do not include provisions relating to bona fide
wellness programs. Accordingly, the period for good faith compliance
continues with respect to those provisions until further guidance is
issued. Compliance with the provisions of these proposed regulations
constitutes good faith compliance with the statutory provisions
relating to wellness programs.
II. Overview of the Proposed Regulations
The HIPAA nondiscrimination provisions generally prohibit a plan or
issuer from charging similarly situated individuals different premiums
or contributions based on a health factor. In addition, under the
interim regulations published elsewhere in this issue of the Federal
Register, cost-sharing mechanisms such as deductibles, copayments, and
coinsurance are considered restrictions on benefits. Thus, they are
subject to the same rules as are other restrictions on benefits; that
is, they must apply uniformly to all similarly situated individuals and
must not be directed at individual participants or beneficiaries based
on any health factor of the participants or beneficiaries. However, the
HIPAA nondiscrimination provisions do not prevent a plan or issuer from
establishing premium discounts or rebates or modifying otherwise
applicable copayments or deductibles in return for adherence to
programs of health promotion and disease prevention. Thus, there is an
exception to the general rule prohibiting discrimination based on a
health factor if the reward, such as a premium discount or waiver of a
cost-sharing requirement, is based on participation in a program of
health promotion or disease prevention. The April 1997 interim rules,
the interim regulations published elsewhere in this issue of the
Federal Register, and these proposed regulations refer to programs of
health promotion and disease prevention allowed under this exception as
``bona fide wellness programs.'' In order to prevent the exception to
the nondiscrimination requirements for bona fide wellness programs from
eviscerating the general rule contained in the HIPAA nondiscrimination
provisions, these proposed regulations impose certain requirements on
wellness programs providing rewards that would otherwise discriminate
based on a health factor.
A wide range of wellness programs exist to promote health and
prevent disease. However, many of these programs are not subject to the
bona fide wellness program requirements. The requirements for bona fide
wellness programs apply only to a wellness program that provides a
reward based on the ability of an individual to meet a standard that is
related to a health factor, such as a reward conditioned on the outcome
of a cholesterol test. Therefore, without having to comply with the
requirements for a bona fide wellness program, a wellness program
could--
Provide voluntary testing of enrollees for specific health
problems and make recommendations to address health problems
identified, if the program did not base any reward on the outcome of
the health assessment;
Encourage preventive care through the waiver of the
copayment or deductible requirement for the costs of well-baby visits;
Reimburse employees for the cost of health club
memberships, without regard to any health factors relating to the
employees; or
Reimburse employees for the costs of smoking cessation
programs, without regard to whether the employee quits smoking.
A wellness program that provides a reward based on the ability of
an individual to meet a standard related to a health factor violates
the interim regulations published elsewhere in this issue of the
Federal Register unless it is a bona fide wellness program. Under these
proposed regulations, a wellness program must meet four requirements to
be a bona fide wellness program.
First, the total reward that may be given to an individual under
the plan for all wellness programs is limited. A reward can be in the
form of a discount, a rebate of a premium or contribution, or a waiver
of all or part of a cost-sharing mechanism (such as deductibles,
copayments, or coinsurance), or the absence of a surcharge. The reward
for the wellness program, coupled with the reward for other wellness
programs with respect to the plan that require satisfaction of a
standard related to a health factor, must not exceed a specified
percentage of the cost of employee-only coverage under the plan. The
cost of employee-only coverage is determined based on the total amount
of employer and employee contributions for the benefit package under
which the employee is receiving coverage.
The proposed regulations specify three alternative percentages: 10,
15, and 20. The Departments welcome comments on the appropriate level
for the percentage. Comments will be taken into account in determining
the standard for the final regulations.
Several commenters on the April 1997 regulations suggested that the
amount of a reward should be permitted if it is actuarially determined
based on the costs associated with the health factor measured under the
wellness program. However, in some cases, the resulting reward (or
penalty) might be so large as to have the effect of denying coverage to
certain individuals. The percentage limitation in the proposed
regulations is designed to avoid this result. The percentage limitation
also avoids the additional administrative costs of a reward based on
actuarial cost.
The Departments recognize that there may be some programs that
currently offer rewards, individually or in the aggregate, that exceed
the specified percentage. However, as noted below in the economic
analysis, data is scarce regarding practices of wellness programs.
Thus, the Departments specifically request comments on the
appropriateness of the specified percentage of the cost of employee-
only coverage under a plan as the maximum reward for a bona fide
wellness program, including whether a larger amount should be allowed
for wellness programs that include participation by family members
(i.e., the specified percentage of the cost of family coverage). Note
also that, as stated above, the period for good faith compliance
continues with respect to whether wellness programs satisfy the
statutory requirements. While compliance with these proposed
regulations constitutes good faith compliance with the statutory
provisions, it is possible that, based on all the facts and
circumstances, a plan's wellness program that provides a reward in
excess of the specified range of percentages of the cost of employee-
only coverage may also be found to meet the good faith compliance
standard.
Under these proposed regulations, the second requirement to be a
bona fide wellness program is that the program must be reasonably
designed to promote good health or prevent disease for individuals in
the program. This requirement prevents a program from being a
subterfuge for merely imposing higher costs on individuals based on a
health factor by requiring a reasonable connection between the standard
required under the program and the promotion of good health and disease
prevention. Among other things, a program is not reasonably designed to
promote good health or prevent disease unless the program gives
individuals eligible for the program the opportunity to qualify for the
reward under the program at least once per year. In contrast, a program
that imposes a
[[Page 1423]]
reward or penalty for the duration of the individual's participation in
the plan based solely on health factors present when an individual
first enrolls in a plan is not reasonably designed to promote health or
prevent disease (because, if the individual cannot qualify for the
reward by adopting healthier behavior after initial enrollment, the
program does not have any connection to improving health).
The third requirement to be a bona fide wellness program under
these proposed regulations is that the reward under the program must be
available to all similarly situated individuals. The April 1997 interim
rules provided that if, under the design of the wellness program,
enrollees might not be able to achieve a program standard due to a
health factor, the program would not be a bona fide wellness program.
These proposed regulations increase flexibility for plans by allowing
plans to make individualized adjustments to their wellness programs to
address the health factors of the particular individuals for whom it is
unreasonably difficult to qualify for the benefits under the program.
Specifically, the program must allow any individual for whom it is
unreasonably difficult due to a medical condition (or for whom it is
medically inadvisable to attempt) to satisfy the initial program
standard an opportunity to satisfy a reasonable alternative standard.
The examples clarify that a reasonable alternative standard must take
into account the relevant health factor of the individual who needs the
alternative. A program does not need to establish the specific
reasonable alternative standard before the program commences. To
satisfy this third requirement for being a bona fide wellness program,
it is sufficient to determine a reasonable alternative standard once a
participant informs the plan that it is unreasonably difficult for the
participant due to a medical condition to satisfy the general standard
(or that it is medically inadvisable for the participant to attempt to
achieve the general standard) under the program.
Many commenters asked how the bona fide wellness program
requirements apply to programs that provide a reward for not smoking.
An example in the proposed regulations clarifies that if it is
unreasonably difficult for an individual to stop smoking due to an
addiction to nicotine,\1\ the individual must be provided a reasonable
alternative standard to obtain the reward.
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\1\ Under the Diagnostic and Statistical Manual of Mental
Disorders, Fourth Edition, American Psychiatric Association, 1994
(DSM IV), nicotine addiction is a medical condition. See also Rev.
Rul. 99-28, 1999-25 I.R.B. 6 (June 21, 1999), citing a report of the
Surgeon General stating that scientists in the field of drug
addiction agree that nicotine, a substance common to all forms of
tobacco, is a powerfully addictive drug.
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The fourth requirement to be a bona fide wellness program under the
proposed regulations is that all plan materials describing the terms of
the program must disclose the availability of a reasonable alternative
standard. The proposed regulations include model language that can be
used to satisfy this requirement; examples also illustrate
substantially similar language that would satisfy the requirement.
The proposed regulations contain two clarifications of this fourth
requirement. First, plan materials are not required to describe
specific reasonable alternative standards. It is sufficient to disclose
that some reasonable alternative standard will be made available.
Second, any plan materials that describe the general standard would
also have to disclose the availability of a reasonable alternative
standard. However, if the program is merely mentioned (and does not
describe the general standard), disclosure of the availability of a
reasonable alternative standard is not required.
III. Economic Impact and Paperwork Burden
Summary--Department of Labor and Department of Health and Human
Services
Under the proposed regulation, health plans generally may vary
employee premium contributions or benefit levels across similarly
situated individuals based on health status factors only in connection
with bona fide wellness programs. The regulation establishes four
requirements for such bona fide wellness programs. It (1) limits the
permissible amount of variation in employee premium or benefit levels;
(2) requires that programs be reasonably designed to promote health or
prevent disease; (3) requires programs to permit plan participants who
for medical reasons would incur unreasonable difficulty to satisfy the
programs' initial wellness standards to satisfy reasonable alternative
standards instead; and (4) requires certain plan materials to disclose
the availability of such alternative standards. The Departments
carefully considered the costs and benefits attendant to these
requirements. The Departments believe that the benefits of these
requirements exceed their costs.
The Departments anticipate that the proposed regulation will result
in transfers of cost among plan sponsors and participants and in new
economic costs and benefits.
Economic benefits will flow from plan sponsors' efforts to maintain
wellness programs' effectiveness where discounts or surcharges are
reduced and from plans sponsors' provision of reasonable alternative
standards that help improve affected plan participants' health habits
and health. The result will be fewer instances where wellness programs
merely shift costs to high risk individuals and more instances where
they succeed at improving such individuals' health habits and health.
Transfers will arise because the size of some discounts and
surcharges will be reduced, and because some plan participants who did
not satisfy wellness programs' initial standards will satisfy
alternative standards. These transfers are estimated to total between
$18 million and $46 million annually. (The latter figure is an upper
bound, reflecting the case in which all eligible participants pursue
and satisfy alternative standards.)
New economic costs may be incurred if reductions in discounts or
surcharges reduce wellness programs' effectiveness, but this effect is
expected to be very small because reductions will be small and
relatively few plans and participants will be affected. Other new
economic costs will be incurred by plan sponsors to make available
reasonable alternative standards where required. The Departments were
unable to estimate these costs but are confident that these costs in
combination with the transfers referenced above will not exceed the
estimate of the transfers alone. Affected plan sponsors can satisfy the
proposed regulation's third requirement by making available any
reasonable standard they choose, including low cost alternatives. It is
unlikely that plan sponsors would choose alternative standards whose
cost, in combination with costs transferred from participants who
satisfy them, would exceed the cost of providing discounts or waiving
surcharges for all eligible participants.
Executive Order 12866--Department of Labor and Department of Health and
Human Services
Under Executive Order 12866, the Departments must determine whether
a regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million
[[Page 1424]]
or more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it has been
determined that this action raises novel policy issues arising out of
legal mandates. Therefore, this notice is ``significant'' and subject
to OMB review under Section 3(f)(4) of the Executive Order. Consistent
with the Executive Order, the Departments have assessed the costs and
benefits of this regulatory action. The Departments' assessment, and
the analysis underlying that assessment, is detailed below. The
Departments performed a comprehensive, unified analysis to estimate the
costs and benefits attributable to the interim regulation for purposes
of compliance with Executive Order 12866, the Regulatory Flexibility
Act, and the Paperwork Reduction Act.
Statement of Need for Proposed Action
These interim regulations are needed to clarify and interpret the
HIPAA nondiscrimination provisions (Prohibiting Discrimination Against
Individual Participants and Beneficiaries Based on Health Status) under
Section 702 of the Employee Retirement Income Security Act of 1974
(ERISA), Section 2702 of the Public Health Service Act, and Section
9802 of the Internal Revenue Code of 1986. The provisions are needed to
ensure that group health plans and group health insurers and issuers do
not discriminate against individuals, participants, and beneficiaries
based on any health factors with respect to health care premiums.
Additional guidance was required to define bona fide wellness programs.
Costs and Benefits
The Departments anticipate that the proposed regulation will result
in transfers of cost among plans sponsors and participants and in new
economic costs and benefits. The economic benefits of the regulation
will include a reduction in instances where wellness programs merely
shift costs to high risk individuals and an increase in instances where
they succeed at improving such individuals' health habits and health.
Transfers are estimated to total between $18 million and $46 million
annually. The Departments were unable to estimate new economic costs
but are confident that these costs in combination with the transfers
referenced above will not exceed the estimate of the transfers alone.
The Departments believe that the regulation's benefits will exceed its
costs. Their unified analysis of the regulation's costs and benefits is
detailed later in this preamble.
Regulatory Flexibility Act--Department of Labor and Department of
Health and Human Services
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency certifies that a proposed rule will
not have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires that the agency present an
initial regulatory flexibility analysis (IRFA) at the time of the
publication of the notice of proposed rulemaking describing the impact
of the rule on small entities and seeking public comment on such
impact. Small entities include small businesses, organizations and
governmental jurisdictions.
For purposes of analysis under the RFA, PWBA proposes to continue
to consider a small entity to be an employee benefit plan with fewer
than 100 participants. The basis of this definition is found in section
104(a)(2) of the Employee Retirement Income Security Act of 1974
(ERISA), which permits the Secretary of Labor to prescribe simplified
annual reports for pension plans which cover fewer than 100
participants. Under section 104(a)(3), the Secretary may also provide
for exemptions or simplified annual reporting and disclosure for
welfare benefit plans. Pursuant to the authority of section 104(a)(3),
the Department of Labor has previously issued at 29 CFR 2520.104-20,
2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain
simplified reporting provisions and limited exemptions from reporting
and disclosure requirements for small plans, including unfunded or
insured welfare plans covering fewer than 100 participants and which
satisfy certain other requirements.
Further, while some large employers may have small plans, in
general most small plans are maintained by small employers. Thus, PWBA
believes that assessing the impact of this proposed rule on small plans
is an appropriate substitute for evaluating the effect on small
entities. For purposes of their unified IFRA, the Departments adhered
to PWBA's proposed definition of small entities. The definition of
small entity considered appropriate for this purpose differs, however,
from a definition of small business which is based on size standards
promulgated by the Small Business Administration (SBA) (13 CFR 121.201)
pursuant to the Small Business Act (15 U.S.C. 631 et seq.). The
Departments therefore request comments on the appropriateness of the
size standard used in evaluating the impact of this proposed rule on
small entities.
Under this proposed regulation, health plans generally may vary
employee premium contributions or benefit levels across similarly
situated individuals based on health factors only in connection with
bona fide wellness programs. The regulation establishes four
requirements for such bona fide wellness programs.
The Departments estimate that 36,000 plans with fewer than 100
participants vary employee premium contributions or benefit levels
across similarly situated individuals based on health factors. While
this represents just 1 percent of all small plans, the Departments
nonetheless believe that it represents a substantial number of small
entities. The Departments also note that at least some premium
discounts or surcharges may be large. Premium discounts associated with
wellness programs are believed to range as high as $560 per affected
participant per year. Therefore, the Departments believe that the
impact of this regulation on at least some small entities may be
significant. Having reached these conclusions, the Departments carried
out an IRFA as part of their unified analysis of the costs and benefits
of the regulation. The reasoning and assumptions underlying the
Departments' unified analysis of the regulation's costs and benefits
are detailed later in this preamble.
The regulation's first requirement caps maximum allowable variation
in employee premium contribution and benefit levels. The Departments
estimate that 9,300 small plans will be affected by the cap. These
plans can comply with this requirement by reducing premiums (or
increasing benefits) by
[[Page 1425]]
$1.1 million on aggregate for those participants whose premiums are
higher (or whose benefits are lower) due to health factors. This would
constitute an ongoing, annual transfer of cost of $1.1 million, or $122
on average per affected plan. The regulation does not limit small
plans' flexibility to transfer this cost back evenly to all
participants in the form of small premium increases or benefit cuts.
The regulation's second requirement provides that wellness programs
must be reasonably designed to promote health or prevent disease.
Comments received by the Departments and available literature on
employee wellness programs suggest that existing wellness programs
generally satisfy this requirement. The requirement therefore is not
expected to compel small plans to modify existing wellness programs. It
is not expected to entail economic costs nor to prompt transfers.
The third requirement provides that rewards under wellness programs
must be available to all similarly situated individuals. In particular,
programs must allow individuals for whom it would be unreasonably
difficult due to a medical condition to satisfy initial program
standards an opportunity to satisfy reasonable alternative standards.
The Departments believe that some small plans' wellness programs do not
currently satisfy this requirement and will have to be modified.
The Departments estimate that 21,000 small plans' wellness programs
include initial standards that may be unreasonably difficult for some
participants to meet. These plans are estimated to include 18,000
participants for whom the standard is in fact unreasonably difficult to
meet. (Many small plans are very small, having fewer than 10
participants, and many will include no participant for whom the initial
standard is unreasonable difficult to meet for a medical reason.)
Satisfaction of alternative standards by these participants will result
in transfers of cost as they qualify for discounts or escape
surcharges. If all of these participants request and then satisfy an
alternative standard, the transfer would amount to $5 million annually.
If one-half request alternative standards and one-half of those meet
them, the transfer would amount to $1 million.
In addition to transfers, small plans will also incur new economic
costs to provide alternative standards. However, plans can satisfy this
requirement by providing inexpensive alternative standards, and have
the flexibility to select whatever reasonable alternative standard is
most desirable or cost efficient. Plans not wishing to provide
alternative standards also have the option of abolishing health-status
based variation in employee premiums. The Departments expect that the
economic cost to provide alternatives combined with the associated
transfer cost of granting discounts or waiving surcharges will not
exceed the transfer cost associated with granting discounts or waiving
surcharges for all participants who qualify for an alternative,
estimated here at $1 million to $5 million, or about $55 to $221 per
affected plan. Plans have the flexibility to transfer some or all of
this cost evenly to all participants in the form of small premium
increases or benefit cuts.
The fourth requirement provides that plan materials describing
wellness plan standards must disclose the availability of reasonable
alternative standards. This requirement will affect the 36,000 small
plans that apply discounts or surcharges. These plans will incur
economic costs to revise affected plan materials. The 5,000 to 18,000
small plan participants who will succeed at satisfying these
alternative standards will benefit from these disclosures. The
disclosures need not specify what alternatives are available, and the
regulation provides model language that can be used to satisfy this
requirement. Legal requirements other than this regulation generally
require plans and issuers to maintain accurate materials describing
plans. Plans and issuers generally update such materials on a regular
basis as part of their normal business practices. This requirement is
expected to represent a negligible fraction of the ongoing, normal cost
of updating plans' materials. This analysis therefore attributes no
cost to this requirement.
Special Analyses--Department of the Treasury
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also has
been determined that this notice of proposed rulemaking does not impose
a collection of information on small entities and is not subject to
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter
5). For these reasons, the Regulatory Flexibility Act (5 U.S.C. chapter
6) does not apply pursuant to 5 U.S.C. section 603(a), which exempts
from the Act's requirements certain rules involving the internal
revenue laws. Pursuant to section 7805(f) of the Internal Revenue Code,
this notice of proposed rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Paperwork Reduction Act
Department of Labor and Department of the Treasury
This Notice of Proposed Rulemaking includes a requirement that if
the plan materials describe the standard required to be met in order to
qualify for a reward such as a premium discount or waiver of a cost-
sharing requirement, they must also disclose the availability of a
reasonable alternative standard. However, plan materials are not
required to describe specific reasonable alternatives. The proposal
also includes examples of disclosures which would satisfy the
requirements of the proposed rule.
Plan administrators of group health plans covered under Title I of
ERISA are required to make certain disclosures about the terms of a
plan and material changes in terms through a Summary Plan Description
or Summary of Material Modifications pursuant to sections 101(a) and
102(a) of ERISA. Group health plans and issuers also typically make
other informational materials available to participants, either as a
result of state and local requirements, or as part of their usual
business practices in connection with the offer and promotion of health
care coverage to employees.
While this proposal may cause group health plans to modify
informational materials pertaining to wellness programs, the
Departments conclude that it creates no new information collection
requirements, and that the overall impact on existing information
collection activities will be negligible. First, as described earlier,
it is estimated that the proposed reasonable alternative requirements
for bona fide wellness programs will impact a maximum of 22,000 plans
and 229,000 participants. These numbers are very small in comparison
with the 2.5 million ERISA group health plans that cover 65 million
participants, and 175,500 state and local governmental plans that cover
11.5 million participants.
In addition, because model language is provided in the proposal,
these modifications are expected to require a minimal amount of effort,
such that they fall within the provision of OMB regulations in 5 CFR
1320.3(c)(2). This provision excludes from the definition of collection
of information language which is supplied by the Federal government for
disclosure purposes.
Finally, the Department of Labor's methodology in accounting for
the burden of the Summary Plan
[[Page 1426]]
Description (SPD) and Summary of Material Modifications (SMM), as
currently approved under OMB control number 1210-0039, incorporates an
assumption concerning a constant rate of revision in these disclosure
materials which is based on plans' actual reporting on the annual
report/return (Form 5500) of their rates of modification. This
occurrence of SPD revisions is generally more frequent than the minimum
time frames described in section 104(b) and related regulations. The
annual hour and cost burdens of the SMM/SPD information collection
request is currently estimated at 576,000 hours and $97 million.
Because the burden of modifying a wellness program's disclosures is
expected to be negligible, and readily incorporated in other revisions
made to plan materials on an ongoing basis, the methodology used
already accounts for this type of change. Therefore, the Department
concludes that the modification described in this proposal to the
information collection request is neither substantive nor material, and
accordingly it attributes no burden to this regulation.
Department of Health and Human Services
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
Section 146.121 Prohibiting discrimination against participants and
beneficiaries based on a health factor.
(f) Bona fide wellness programs Paragraph (1)(iv) requires the plan
or issuer to disclose in all plan materials describing the terms of the
program the availability of a reasonable alternative standard required
under paragraph (f)(1)(iii) of this section. However, in plan materials
that merely mention that a program is available, without describing its
terms, the disclosure is not required. This requirement will affect the
estimated 1,300 nonfederal governmental plans that apply premium
discounts or surcharges. The development of the materials is expected
to take 100 hours for nonfederal governmental plans. The corresponding
burden performed by service providers is estimated to be $38,000.
We have submitted a copy of this rule to OMB for its review of the
information collection requirements. These requirements are not
effective until they have been approved by OMB. A notice will be
published in the Federal Register when approval is obtained.
If you comment on any of these information collection and record
keeping requirements, please mail copies directly to the following:
Health Care Financing Administration, Office of Information Services,
Information Technology Investment Management Group, Division of HCFA
Enterprise Standards, Room C2-26-17, 7500 Security Boulevard,
Baltimore, MD 21244-1850, Attn: John Burke HCFA-2078-P,
and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn.: Allison Herron Eydt, HCFA-2078-P.
Small Business Regulatory Enforcement Fairness Act
The proposed rule is subject to the provisions of the Small
Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et
seq.) and, if finalized, will be transmitted to Congress and the
Comptroller General for review. The rule is not a ``major rule'' as
that term is defined in 5 U.S.C. 804, because it is not likely to
result in (1) an annual effect on the economy of $100 million or more;
(2) a major increase in costs or prices for consumers, individual
industries, or federal, State, or local government agencies, or
geographic regions; or (3) significant adverse effects on competition,
employment, investment, productivity, innovation, or on the ability of
United States-based enterprises to compete with foreign-based
enterprises in domestic or export markets.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Public
Law 104-4), as well as Executive Order 12875, this proposed rule does
not include any Federal mandate that may result in expenditures by
State, local, or tribal governments, nor does it include mandates which
may impose an annual burden of $100 million or more on the private
sector.
Federalism Statement--Department of Labor and Department of Health and
Human Services
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism, and requires the adherence to specific
criteria by federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, the relationship between the national government and States, or
on the distribution of power and responsibilities among the various
levels of government. Agencies promulgating regulations that have these
federalism implications must consult with State and local officials,
and describe the extent of their consultation and the nature of the
concerns of State and local officials in the preamble to the
regulation.
In the Departments' view, these proposed regulations do not have
federalism implications, because they do not have substantial direct
effects on the States, the relationship between the national government
and States, or on the distribution of power and responsibilities among
various levels of government. This is largely because, with respect to
health insurance issuers, the vast majority of States have enacted laws
which meet or exceed the federal standards in HIPAA prohibiting
discrimination based on health factors. Therefore, the regulations are
not likely to require substantial additional oversight of States by the
Department of Health and Human Services.
In general, through section 514, ERISA supersedes State laws to the
extent that they relate to any covered employee benefit plan, and
preserves State laws that regulate insurance, banking, or securities.
While ERISA prohibits States from regulating a plan as an insurance or
investment company or bank, HIPAA added a new preemption provision to
ERISA (as well as to the PHS Act) preserving the applicability of State
laws establishing requirements for issuers of group health insurance
coverage, except to the extent that these requirements prevent the
application of the portability, access, and renewability requirements
of HIPAA. The nondiscrimination provisions that are the subject of this
rulemaking are included among those requirements.
[[Page 1427]]
In enacting these new preemption provisions, Congress indicated its
intent to establish a preemption of State insurance requirements only
to the extent that those requirements prevent the application of the
basic protections set forth in HIPAA. HIPAA's Conference Report states
that the conferees intended the narrowest preemption of State laws with
regard to health insurance issuers. H.R. Conf. Rep. No. 736, 104th
Cong. 2d Session 205 (1996). Consequently, under the statute and the
Conference Report, State insurance laws that are more stringent than
the federal requirements are unlikely to ``prevent the application of''
the HIPAA nondiscrimination provisions.
Accordingly, States are given significant latitude to impose
requirements on health insurance issuers that are more restrictive than
the federal law. In many cases, the federal law imposes minimum
requirements which States are free to exceed. Guidance conveying this
interpretation was published in the Federal Register on April 8, 1997
and these regulations do not reduce the discretion given to the States
by the statute. It is the Departments' understanding that the vast
majority of States have in fact implemented provisions which meet or
exceed the minimum requirements of the HIPAA non-discrimination
provisions.
HIPAA provides that the States may enforce the provisions of HIPAA
as they pertain to issuers, but that the Secretary of Health and Human
Services must enforce any provisions that a State fails to
substantially enforce. When exercising its responsibility to enforce
the provisions of HIPAA, HCFA works cooperatively with the States for
the purpose of addressing State concerns and avoiding conflicts with
the exercise of State authority.\2\ HCFA has developed procedures to
implement its enforcement responsibilities, and to afford the States
the maximum opportunity to enforce HIPAA's requirements in the first
instance. HCFA's procedures address the handling of reports that States
may not be enforcing HIPAA's requirements, and the mechanism for
allocating enforcement responsibility between the States and HCFA. To
date, HCFA has had occasion to enforce the HIPAA non-discrimination
provisions in only two States.
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\2\ This authority applies to insurance issued with respect to
group health plans generally, including plans covering employees of
church organizations. Thus, this discussion of federalism applies to
all group health insurance coverage that is subject to the PHS Act,
including those church plans that provide coverage through a health
insurance issuer (but not to church plans that do not provide
coverage through a health insurance issuer). For additional
information relating to the application of these nondiscrimination
rules to church plans, see the preamble to regulations being
proposed elsewhere in this issue of the Federal Register regarding
section 9802(c) of the Code relating to church plans.
---------------------------------------------------------------------------
Although the Departments conclude that these proposed regulations
do not have federalism implications, in keeping with the spirit of the
Executive Order that agencies closely examine any policies that may
have federalism implications or limit the policy making discretion of
the States, the Department of Labor and HCFA have engaged in numerous
efforts to consult with and work cooperatively with affected State and
local officials.
For example, the Departments were aware that some States commented
on the way the federal provisions should be interpreted. Therefore, the
Departments have sought and received input from State insurance
regulators and the National Association of Insurance Commissioners
(NAIC). The NAIC is a non-profit corporation established by the
insurance commissioners of the 50 States, the District of Columbia, and
the four U.S. territories, that among other things provides a forum for
the development of uniform policy when uniformity is appropriate. Its
members meet, discuss, and offer solutions to mutual problems. The NAIC
sponsors quarterly meetings to provide a forum for the exchange of
ideas, and in-depth consideration of insurance issues by regulators,
industry representatives, and consumers. HCFA and Department of Labor
staff have attended the quarterly meetings consistently to listen to
the concerns of the State Insurance Departments regarding HIPAA issues,
including the nondiscrimination provisions. In addition to the general
discussions, committee meetings and task groups, the NAIC sponsors the
following two standing HIPAA meetings for members during the quarterly
conferences:
HCFA/DOL Meeting on HIPAA Issues (This meeting provides
HCFA and Labor the opportunity to provide updates on regulations,
bulletins, enforcement actions and outreach efforts regarding HIPAA.)
The NAIC/HCFA Liaison Meeting (This meeting provides HCFA
and the NAIC the opportunity to discuss HIPAA and other health care
programs.)
In their comments on the 1997 interim rules, the NAIC suggested
that the permissible standards for determining bona fide wellness
programs ensure that such programs are not used as a proxy for
discrimination based on a health factor. The NAIC also commented that
the nondiscrimination provisions of HIPAA ``are especially significant
in their impact on small groups, and particularly in small groups,
where there is a great potential for adverse selection and gaming.''
One State asked that the Departments' final nondiscrimination
provisions be as consumer-protective as possible. Finally, another
State described already-existing State regulation of issuers offering
wellness programs in that State and asked that standards for bona fide
wellness programs be left to the States.
The Departments considered these views very carefully when
formulating the wellness program proposal. While allowing plans a great
deal of flexibility in determining what kinds of incentives best
encourage the plan's own participants and beneficiaries to pursue a
healthier lifestyle, the Departments proposal ensures that individuals
have an opportunity to qualify for the premium discount or other
reward. If an individual is unable to satisfy a wellness program
standard due to a health factor, plans are required to make a
reasonable alternative standard available to the individual. In
addition, the Departments reiterate their position that State insurance
laws that are more stringent than the federal requirements are unlikely
to ``prevent the application of'' the federal law and therefore are
saved from preemption. Therefore, these more protective State laws
continue to apply for individuals receiving health insurance coverage
in connection with a group health plan.
The Departments welcome further comment on these issues from the
States in response to this proposal.
The Departments also cooperate with the States in several ongoing
outreach initiatives, through which information on HIPAA is shared
among federal regulators, State regulators, and the regulated
community. In particular, the Department of Labor has established a
Health Benefits Education Campaign with more than 70 partners,
including HCFA, NAIC and many business and consumer groups. HCFA has
sponsored four conferences with the States--the Consumer Outreach and
Advocacy conferences in March 1999 and June 2000, the Implementation
and Enforcement of HIPAA National State-Federal Conferences in August
1999 and 2000. Furthermore, both the Department of Labor and HCFA
websites offer links to important State websites and other resources,
facilitating coordination between the State and federal regulators and
the regulated community.
In conclusion, throughout the process of developing these
regulations, to the extent feasible within the specific preemption
provisions of HIPAA, the
[[Page 1428]]
Departments have attempted to balance the States' interests in
regulating health plans and health insurance issuers, and the rights of
those individuals that Congress intended to protect through the
enactment of HIPAA.
Unified Analysis of Costs and Benefits--Department of Labor and
Department of Health and Human Services
Introduction
Under the proposed regulation, health plans generally may vary
employee premium contributions or benefit levels across similarly
situated individuals based on health factors only in connection with
bona fide wellness programs. The regulation establishes four
requirements for such bona fide wellness programs.
A large body of literature, together with comments received by the
Departments, demonstrate that well-designed wellness programs can
deliver benefits well in excess of their costs. For example, the U.S.
Centers for Disease Control and Prevention estimate that implementing
proven clinical smoking cessation interventions can save one year of
life for each $2,587 invested. In addition to reduced mortality,
benefits of effective wellness programs can include reduced
absenteeism, improved productivity, and reduced medical costs. The
requirements contained in the proposed regulation were crafted to
accommodate and not impair such beneficial programs, while combating
discrimination in eligibility and premiums for similarly situated
individuals as intended by Congress.
Detailed Estimates
Estimation of the economic impacts of the four requirements is
difficult because data on affected plans' current practices are
incomplete, and because plans' approaches to compliance with the
requirements and the effects of those approaches will vary and cannot
be predicted. Nonetheless, the Departments undertook to consider the
impacts fully and to develop estimates based on reasonable assumptions.
Based on a 1993 survey of employers by the Robert Wood Johnson
Foundation, the Departments estimate that 1.6 percent of large plans
and 1.2 percent of small plans currently vary employee premium
contributions across similarly situated individuals and will be subject
to the four requirements for bona fide wellness programs. This amounts
to 32,000 plans covering 1.2 million participants. According to an
industry survey by Hewitt Associates, just more than one-third as many
plans vary benefit levels across similarly situated individuals as vary
premiums. This amounts to 11,000 plans covering 415,000 participants.
The Departments separately considered the effect of each of the four
requirements on these plans. For purposes of its estimates, the
Departments assumed that one-half of the plans in the latter group are
also included in the former, thereby estimating that 37,000 plans
covering 1.4 million participants will be subject to the four
requirements for bona fide wellness programs.
Limit on Dollar Amount--Under the first requirement, any discount
or surcharge, whether applicable to employee premiums or benefit
levels, must not exceed a specified percentage of the total premium for
employee-only coverage under the plan. The proposed regulations specify
three alternative percentages: 10, 15, and 20. For purposes of this
discussion, the Departments examine the midpoint of the three
alternative percentages, 15 percent.
The Departments lack representative data on the magnitude of the
discounts and surcharges applied by affected plans today. One leading
consultant practicing in this area believes that wellness incentive
premium discounts ranged from about $60 to about $480 annually in 1998,
averaging about $240 that year. Expressed as a percentage of average
total premium for employee-only coverage that year, this amounts to a
range of about 3 percent to 23 percent and an average of about 11
percent. This suggests that most affected plans, including some whose
discounts are somewhat larger than average, already comply with the
first requirement and will not need to reduce the size of the discounts
or surcharges they apply. It appears likely, however, that a sizeable
minority of plans--perhaps a few thousand plans covering a few hundred
thousand participants--will need to reduce the size of their discounts
or surcharges in order to comply with the first requirement. The table
below summarizes the Departments' assumptions regarding the size of
discounts and surcharges at year 2000 levels, expressed in annual
amounts.
The Departments considered the potential economic effects of
requiring these plans to reduce the size of their discounts or
surcharges. These effects are likely to include transfers of costs
among plan sponsors and participants, as well as new economic costs and
benefits.
------------------------------------------------------------------------
Percent Dollars
------------------------------------------------------------------------
Single employee total premium..................... ......... $2,448
Discount or Surcharge:
low............................................. 3 70
average......................................... 11 280
high............................................ 23 560
Cap on discount or surcharge...................... 15 367
------------------------------------------------------------------------
Transfers will arise as plans reduce discounts and surcharges. Plan
sponsors can exercise substantial control over the size and direction
of these transfers. Limiting the size of discounts and surcharges
restricts only the differential treatment of participants who satisfy
wellness program standards and those who do not. It does not, for
example, restrict plans sponsors' flexibility to determine the
respective employer and employee shares of base premiums. Possible
outcomes include a transfer of costs to plan sponsors from participants
who satisfy wellness program standards, from plan sponsors to
participants who do not satisfy the standards, from participants who
satisfy the standards to those who do not, or some combination of
these.
The Departments developed a very rough estimate of the total amount
of transfers that might derive from this requirement. The Departments'
estimate assumes that (1) all discounts and surcharges take the form of
employee premium discounts; (2) discounts are distributed evenly within
both the low-to-average range and the average-to-high range, and are
distributed across these ranges such that their mean equals the assumed
average; and (3) 70 percent of participants qualify for the discount.
This implies that just more than one-fourth of plans with discounts or
surcharges will be impacted by the cap, and that these plans' current
discounts and surcharges exceed the cap by $86 on average. The 9,600
affected plans could satisfy this requirement by reducing premiums for
the 106,000 participants who do not qualify by $86 annually, for an
aggregate, ongoing annual transfer of approximately $9 million. The
Departments solicit comments on their assumptions and estimate, and
would welcome information supportive of better estimates.
New economic costs and benefits may arise if changes in the size of
discounts or surcharges result in changes in participant behavior.
Net economic welfare might be lost if some wellness programs'
effectiveness is eroded, but the magnitude and incidence of such
effects is expected to be negligible. Consider a wellness program that
discounts premiums for
[[Page 1429]]
participants who take part in an exercise program. It is plausible
that, at the margin, a few participants who would take part in order to
obtain a discount of between $368 and $560 annually will not take part
to obtain a discount of $367. This might represent a net loss of
economic welfare. This effect is expected to be negligible, however.
Based on the assumptions specified above, just 248,000 participants now
qualifying for discounts would be affected. Reductions in discounts are
likely to average about $86 annually, which amounts to $7 per month or
$3 per biweekly pay period. Employee premiums are often deducted from
pay pre-tax, so the after tax value of these discounts may be even
smaller. Moreover, the proposed regulation caps only discounts and
surcharges applied to similarly situated individuals in the context of
a group health plans. It does not restrict plan sponsors from employing
other motivational tools to encourage participation in wellness
programs. According to the Hewitt survey, among 408 employers that
offered incentives for participation in wellness programs, 24 percent
offered awards or gifts and 62 percent varied life insurance premiums,
while just 14 percent varied medical premiums.
On the other hand, net economic welfare likely will be gained in
instances where large premium differentials would otherwise have served
to discourage enrollment in health plans by employees who did not
satisfy wellness program requirements. Consider a plan that provides a
very large discount for non-smokers. The very high employee premiums
charged to smokers might discourage some from enrolling in the plan at
all, and some of these might be uninsured as a result. It seems
unlikely that the plan sponsor would respond to the first requirement
of the proposed regulation by raising premiums drastically for all non-
smokers, driving many out of the plan. Instead, the plan sponsor would
reduce premiums for smokers, and more smokers would enroll. This would
result in transfers to newly enrolled smokers from the plan sponsor
(and possibly from non-smokers if the plan sponsor makes other changes
to compensation). But it would also result in net gains in economic
welfare from reduced uninsurance.
The Departments believe that the net economic gains from
prohibiting discounts and surcharges so large that they could
discourage enrollment based on health factors outweigh any net losses
that might derive from the negligible reduction of some employees'
incentive to participate in wellness programs. Comments are solicited
on the magnitude of these and any other effects and on the attendant
costs and benefits.
Reasonable Design--Under the second requirement, the program must
be reasonably designed to promote health or prevent disease. The
Departments believe that a program that is not so designed would not
provide economic benefits, but would serve merely to transfer costs
from plan sponsors to targeted individuals based on health factors.
This requirement therefore is not expected to impose economic costs but
might prompt transfers of costs from otherwise targeted individuals to
their plans' sponsors (or to other participants in their plans if plan
sponsors elect to pass these costs back evenly to all participants).
Comments received by the Departments and available literature on
employee wellness programs, however, suggest that existing wellness
programs generally satisfy this requirement. The requirement therefore
is not expected to compel plans to modify existing wellness programs.
It is not expected to entail economic costs nor to prompt transfers.
The Departments would appreciate comments on this conclusion and
information on the types of existing wellness programs (if any) that
would not satisfy requirement.
Uniform Availability--The third requirement provides that rewards
under the program must be available to all similarly situated
individuals. In particular, the program must allow any individual for
whom it would be unreasonably difficult due to a medical condition to
satisfy the initial program standard an opportunity to satisfy a
reasonable alternative standard. Comments received by the Departments
and available literature on employee wellness programs suggest that
some wellness programs do not currently satisfy this requirement and
will have to be modified. Based on the Hewitt survey, the Departments
estimate that among employers that provide incentives for employees to
participate in wellness programs, 18 percent require employees to
achieve a low risk behavior to qualify for the incentive, 79 percent
require a pledge of compliance, and 38 percent require participation in
a program. (These numbers sum to more than 100 percent because wellness
programs may apply more than one criterion.) Depending on the nature of
the wellness program, it might be unreasonably difficult due to a
medical condition for at least some plan participants to achieve the
behavior or to comply with or participate in the program.
The Departments identified three broad types of economic impact
that might arise from the third requirement. First, affected plans will
incur some economic cost to make available reasonable alternative
standards. Second, additional economic costs and benefits may arise
depending on the nature of alternatives provided, individuals' use of
these alternatives, and any changes in the affected individuals'
behavioral and health outcomes. Third, some costs may be transferred
from individuals who would fail to satisfy programs' initial standards,
but who will satisfy reasonable alternative standards once available
(and thereby qualify for associated discounts), to plan sponsors (or to
other participants in their plans if plan sponsors elect to pass these
costs back evenly to all participants).
The Departments note that some plans that apply different discounts
or surcharges to similarly situated individuals and are therefore
subject to the requirement may not need to provide alternative
standards. The requirement provides that alternative standards need not
be specified or provided until a participant for whom it is
unreasonably difficult due to a medical condition to satisfy the
initial standard seeks such an alternative. Some wellness programs'
initial standards may be such that no participant would ever find them
unreasonably difficult to satisfy due to a medical condition. The
Departments reviewed Hewitt survey data on wellness program standards
and criteria. Based on their review they estimate that 20,000 of the
35,000 potentially affected plans have initial wellness program
standards that might be unreasonably difficult for some participants to
satisfy due to a medical condition. Moreover, because alternatives need
not be made available until they are sought by qualified plan
participants, it might be possible for some of these plans to go for
years or even indefinitely without needing to make available an
alternative standard. This could be particularly likely for small
plans. The most common standards for wellness programs pertain to
smoking, blood pressure, and cholesterol levels, according to the
Hewitt Survey. Based on U.S. Centers for Disease Control and Management
data on the incidence of certain health habits and conditions in the
general population, the Departments estimate that among companies with
5 employees, about one-fourth probably employ no smokers, and about
one-third probably employ no one with high blood pressure or
cholesterol.
[[Page 1430]]
Approximately 96 percent of all plans with potentially difficult
initial wellness program standards have fewer than 100 participants.
How many participants might qualify for, seek, and ultimately
satisfy alternative standards? The Departments lack sufficient data to
estimate these counts with confidence. Rough estimates were developed
as follows. The Departments examined the Hewitt survey of wellness
program provisions and U.S. Centers for Disease Control and Prevention
statistics on the incidence of certain health habits and conditions in
the general population in order to discern how wellness programs'
initial standards might interact with plan participants' health habits
and health status. Based on these data, it appears that as many as 29
percent of participants in plans with discounts or surcharges, or
394,000 individuals, might fail to satisfy wellness programs' initial
standards. Of these, approximately 229,000 are in the 22,000 plans
which apply standards that might be unreasonably difficult due to a
medical condition for some plan participants to satisfy, the
Departments estimate. The standards would in fact be unreasonably
difficult to satisfy for some subset of these individuals--148,000 by
the Departments' estimate. The Departments lack any basis to estimate
how many of these will avail themselves of an alternative standard, or
how many that do will succeed in satisfying that standard. To estimate
the potential impact of this requirement, the Departments considered
two assumptions: an upper bound assumption under which all 148,000
individuals seek and satisfy alternative standards, and an alternative
assumption under which one-half (or 74,000) seek an alternative and
one-half of those (37,000) satisfy it.
Where plans are required to make available reasonable alternative
standards, what direct costs will they incur? The regulation does not
prescribe a particular type of alternative standard that must be
provided. Instead, it permits plan sponsors flexibility to provide any
reasonable alternative. The Departments expect that plans sponsors will
select alternatives that entail the minimum net costs (or, stated
differently, the maximum net benefits) that are possible. Plan sponsors
may select low-cost alternatives, such as requiring an individual for
whom it would be unreasonably difficult to quit smoking (and thereby
qualify for a non-smoker discount) to attend a smoking cessation
program that is available at little or no cost in the community, or to
watch educational videos or review educational literature. Plan
sponsors presumably will select higher-cost alternatives only if they
thereby derive offsetting benefits, such as a higher smoking cessation
success rate. The Departments also note that the number of plans with
initial wellness program standards that might be unreasonably difficult
for some participants to satisfy is probably small (having been
estimated at 22,000, or 1 percent of all plans), as is the number of
individuals who would take advantage of alternative standards
(estimated at between 74,000 and 148,00, or between 0.1 percent and 0.2
percent of all participants).
It seems reasonable to presume that the net cost plan sponsors will
incur in the provision of alternatives, including transfers as well as
new economic costs and benefits, will not exceed the transfer cost of
providing discounts (or waiving surcharges) for all plan participants
who qualify for alternatives, which is estimated below at between $9
million and $37 million. It is likely that many plan sponsors will find
more cost effective ways to satisfy this requirement, and that the true
net cost to them will therefore be much smaller than this. The
Departments have no basis for estimating the magnitude of the cost of
providing alternative standards or of potential offsetting benefits,
however, and therefore solicit comments from the public on this
question.
What other economic costs and benefits might arise where
alternative standards are made available? A large number of outcomes
are possible. Consider a program that provides premium discounts for
non-smokers.
It is possible that some individuals who would have quit smoking in
order to qualify for a discount will nonetheless find it unreasonably
difficult to quit and will obtain the discount while continuing to
smoke by satisfying an alternative standard. This would represent a net
loss of economic welfare from increased smoking.
On the other hand, consider individuals who, in the context of the
initial program, are unable or unwilling to quit smoking. It seems
likely that some of these individuals could quit with appropriate
assistance, and that some alternative standards provided by plan
sponsors will provide such assistance. In such cases, a program which
had the effect of shifting premium costs to smokers would be
transformed into one that successfully reduced smoking. This would
represent a net gain of economic welfare.
Which scenario is more likely? The Departments have no concrete
basis for answering this question, and therefore solicit comments on
it. However, the Departments note that plan sponsors will have strong
motivation to identify and provide alternative standards that have
positive net economic effects. They will be disinclined to provide
alternatives that undermine their overall wellness program and worsen
behavioral and health outcomes, or that make financial rewards
available absent meaningful efforts by participants to improve their
health habits and health. Instead they will be inclined to provide
alternatives that sustain or reinforce plan participants' incentive to
improve their health habits and health, and/or that help participants
make such improvements. It therefore seems likely that gains in
economic welfare from this requirement will equal or outweigh losses.
The Departments anticipate that the requirement to provide reasonable
alternative standards will reduce instances where wellness programs
serve only to shift costs to higher risk individuals and increase
instances where programs succeed at helping high risk individuals
improve their health habits and health.
What transfers of costs might derive from the availability of (and
participants' satisfaction of) alternative standards? The transfers
arising from this requirement may take the form of transfers to
participants who satisfy new alternative wellness program standards
from plan sponsors, to such participants from other participants, or
some combination of these. The Departments estimated potential
transfers as follows. Assuming average annual total premiums for
employee-only coverage of $2,448,\3\ the maximum allowable discount of
15 percent amounts to $367 per year. As noted earlier, discounts under
existing wellness programs appear to average about 11 percent (or $280
per year for a plan costing $2,448), ranging from 3 percent ($70) to 23
percent ($560). Reducing all discounts greater than $367 per year to
that amount will reduce the average, perhaps to about $251. Assuming
that the 37,000 to 148,000 participants who satisfy alternative
standards would not have satisfied the wellness programs' initial
standards, the transfers attributable to their discounts and hence to
this requirement would amount to between $9 million and $37 million.
The Departments solicit comments on their assumptions and estimates
regarding
[[Page 1431]]
transfers that may derive from this requirement.
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\3\ Average level based on the Kaiser Family Foundation/Health
Research and Education Trust Survey of Employer-Sponsored Health
benefits, 1999, projected by the Departments to 2000 levels.
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Disclosure of Alternatives' Availability--The fourth requirement
provides that plan materials describing wellness plan standards must
disclose the availability of reasonable alternative standards. This
requirement will affect the 37,000 plans that apply discounts or
surcharges. These plans will incur economic costs to revise affected
plan materials. The 37,000 to 148,000 participants who will succeed at
satisfying these alternative standards will benefit from these
disclosures. The disclosures need not specify what alternatives are
available, and the regulation provides model language that can be used
to satisfy this requirement. The Departments generally account
elsewhere for plans' cost of updating such materials to reflect changes
in plan provisions as required under various disclosure requirements
and as is part of usual business practice. This particular requirement
is expected to represent a negligible fraction of the ongoing cost of
updating plans' materials, and is not separately accounted for here.
List of Subjects
26 CFR Part 54
Excise taxes, Health care, Health insurance, Pensions, Reporting
and recordkeeping requirements.
29 CFR Part 2590
Employee benefit plans, Employee Retirement Income Security Act,
Health care, Health insurance, Reporting and recordkeeping
requirements.
45 CFR Part 146
Health care, Health insurance, Reporting and recordkeeping
requirements, and State regulation of health insurance.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 54 is proposed to be amended as follows:
PART 54--PENSION EXCISE TAXES
Paragraph 1. The authority citation for part 54 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 54.9802-1 is amended by adding text to paragraph
(b) to read as follows:
Sec. 54.9802-1 Prohibiting discrimination against participants and
beneficiaries based on a health factor.
* * * * *
(f) Bona fide wellness programs--(1) Definition. A wellness program
is a bona fide wellness program if it satisfies the requirements of
paragraphs (f)(1)(i) through (f)(1)(iv) of this section. However, a
wellness program providing a reward that is not contingent on
satisfying a standard related to a health factor does not violate this
section even if it does not satisfy the requirements of this paragraph
(f) for a bona fide wellness program.
(i) The reward for the wellness program, coupled with the reward
for other wellness programs with respect to the plan that require
satisfaction of a standard related to a health factor, must not exceed
(10/15/20) percent of the cost of employee-only coverage under the
plan. For this purpose, the cost of employee-only coverage is
determined based on the total amount of employer and employee
contributions for the benefit package under which the employee is
receiving coverage. A reward can be in the form of a discount, a rebate
of a premium or contribution, or a waiver of all or part of a cost-
sharing mechanism (such as deductibles, copayments, or coinsurance), or
the absence of a surcharge.
(ii) The program must be reasonably designed to promote good health
or prevent disease. For this purpose, a program is not reasonably
designed to promote good health or prevent disease unless the program
gives individuals eligible for the program the opportunity to qualify
for the reward under the program at least once per year.
(iii) The reward under the program must be available to all
similarly situated individuals. A reward is not available to all
similarly situated individuals for a period unless the program allows--
(A) A reasonable alternative standard to obtain the reward to any
individual for whom, for that period, it is unreasonably difficult due
to a medical condition to satisfy the otherwise applicable standard for
the reward; and
(B) A reasonable alternative standard to obtain the reward to any
individual for whom, for that period, it is medically inadvisable to
attempt to satisfy the otherwise applicable standard for the reward.
(iv) The plan must disclose in all plan materials describing the
terms of the program the availability of a reasonable alternative
standard required under paragraph (f)(1)(iii) of this section.
(However, in plan materials that merely mention that a program is
available, without describing its terms, this disclosure is not
required.) The following language, or substantially similar language,
can be used to satisfy this requirement: ``If it is unreasonably
difficult due to a medical condition for you to achieve the standards
for the reward under this program, or if it is medically inadvisable
for you to attempt to achieve the standards for the reward under this
program, call us at [insert telephone number] and we will work with you
to develop another way to qualify for the reward.'' In addition, other
examples of language that would satisfy this requirement are set forth
in Examples 4, 5, and 6 of paragraph (f)(2) of this section.
(2) Examples. The rules of this paragraph (f) are illustrated by
the following examples:
Example 1. (i) Facts. A group health plan offers a wellness
program to participants and beneficiaries under which the plan
provides memberships to a local fitness center at a discount.
(ii) Conclusion. In this Example 1, the reward under the program
is not contingent on satisfying any standard that is related to a
health factor. Therefore, there is no discrimination based on a
health factor under either paragraph (b) or (c) of this section and
the requirements for a bona fide wellness program do not apply.
Example 2. (i) Facts. An employer sponsors a group health plan.
The annual premium for employee-only coverage is $2,400 (of which
the employer pays $1,800 per year and the employee pays $600 per
year). The plan implements a wellness program that offers a $240
rebate on premiums to program enrollees.
(ii) Conclusion. In this Example 2, the program satisfies the
requirements of paragraph (f)(1)(i) of this section because the
reward for the wellness program, $240, does not exceed [10/15/20]
percent of the total annual cost of employee-only coverage, [$240/
$360/$480]. ($2,400 x [10/15/20]% = [$240/$360/$480].)
Example 3. (i) Facts. A group health plan gives an annual
premium discount of [10/15/20] percent of the cost of employee-only
coverage to participants who adhere to a wellness program. The
wellness program consists solely of giving an annual cholesterol
test to participants. Those participants who achieve a count under
200 receive the premium discount for the year.
(ii) Conclusion. In this Example 3, the program is not a bona
fide wellness program. The program fails to satisfy the requirement
of being available to all similarly situated individuals because
some participants may be unable to achieve a cholesterol count of
under 200 and the plan does not make available a reasonable
alternative standard for obtaining the premium discount. (In
addition, plan materials describing the program are required to
disclose the availability of the reasonable alternative standard for
obtaining the premium discount.) Thus, the premium discount violates
paragraph (c) of this section because it may require an individual
to pay a higher premium based on a health factor of the individual
than is required of a similarly situated individual under the plan.
Example 4. (i) Facts. Same facts as Example 3, except that if it
is unreasonably
[[Page 1432]]
difficult due to a medical condition for a participant to achieve
the targeted cholesterol count (or if it is medically inadvisable
for a participant to attempt to achieve the targeted cholesterol
count), the plan will make available a reasonable alternative
standard that takes the relevant medical condition into account. In
addition, all plan materials describing the terms of the program
include the following statement: ``If it is unreasonably difficult
due to a medical condition for you to achieve a cholesterol count
under 200, or if it is medically inadvisable for you to attempt to
achieve a count under 200, call us at the number below and we will
work with you to develop another way to get the discount.''
Individual D is unable to achieve a cholesterol count under 200. The
plan accommodates D by making the discount available to D, but only
if D complies with a low-cholesterol diet.
(ii) Conclusion. In this Example 5, the program is a bona fide
wellness program because it satisfies the four requirements of this
paragraph (f). First, the program complies with the limits on
rewards under a program. Second, it is reasonably designed to
promote good health or prevent disease. Third, the reward under the
program is available to all similarly situated individuals because
it accommodates individuals for whom it is unreasonably difficult
due to a medical condition to achieve the targeted count (or for
whom it is medically inadvisable to attempt to achieve the targeted
count) in the prescribed period by providing a reasonable
alternative standard. Fourth, the plan discloses in all materials
describing the terms of the program the availability of a reasonable
alternative standard. Thus, the premium discount does not violate
this section.
Example 5. (i) Facts. A group health plan will waive the $250
annual deductible (which is less than [10/15/20] percent of the
annual cost of employee-only coverage under the plan) for the
following year for participants who have a body mass index between
19 and 26, determined shortly before the beginning of the year.
However, any participant for whom it is unreasonably difficult due
to a medical condition to attain this standard (and any participant
for whom it is medically inadvisable to attempt to achieve this
standard) during the plan year is given the same discount if the
participant walks for 20 minutes three days a week. Any participant
for whom it is unreasonably difficult due to a medical condition to
attain either standard (and any participant for whom it is medically
inadvisable to attempt to achieve either standard during the year)
is given the same discount if the individual satisfies a reasonable
alternative standard that is tailored to the individual's situation.
All plan materials describing the terms of the wellness program
include the following statement: ``If it is unreasonably difficult
due to a medical condition for you to achieve a body mass index
between 19 and 26 (or if it is medically inadvisable for you to
attempt to achieve this body mass index) this year, your deductible
will be waived if you walk for 20 minutes three days a week. If you
cannot follow the walking program, call us at the number above and
we will work with you to develop another way to have your deductible
waived, such as a dietary regimen.''
(ii) Conclusion. In this Example 5, the program is a bona fide
wellness program because it satisfies the four requirements of this
paragraph (f). First, the program complies with the limits on
rewards under a program. Second, it is reasonably designed to
promote good health or prevent disease. Third, the reward under the
program is available to all similarly situated individuals because
it generally accommodates individuals for whom it is unreasonably
difficult due to a medical condition to achieve (or for whom it is
medically inadvisable to attempt to achieve) the targeted body mass
index by providing a reasonable alternative standard (walking) and
it accommodates individuals for whom it is unreasonably difficult
due to a medical condition (or for whom it is medically inadvisable
to attempt) to walk by providing an alternative standard that is
reasonable for the individual. Fourth, the plan discloses in all
materials describing the terms of the program the availability of a
reasonable alternative standard for every individual. Thus, the
waiver of the deductible does not violate this section.
Example 6. (i) Facts. In conjunction with an annual open
enrollment period, a group health plan provides a form for
participants to certify that they have not used tobacco products in
the preceding twelve months. Participants who do not provide the
certification are assessed a surcharge that is [10/15/20] percent of
the cost of employee-only coverage. However, all plan materials
describing the terms of the wellness program include the following
statement: ``If it is unreasonably difficult due to a medical
condition for you to meet the requirements under this program (or if
it is medically inadvisable for you to attempt to meet the
requirements of this program), we will make available a reasonable
alternative standard for you to avoid this surcharge.'' It is
unreasonably difficult for Individual E to stop smoking cigarettes
due to an addiction to nicotine (a medical condition). The plan
accommodates E by requiring E to participate in a smoking cessation
program to avoid the surcharge. E can avoid the surcharge for as
long as E participates in the program, regardless of whether E stops
smoking (as long as E continues to be addicted to nicotine).
(ii) Conclusion. In this Example 6, the premium surcharge is
permissible as a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the
reward under the program is available to all similarly situated
individuals because it accommodates individuals for whom it is
unreasonably difficult due to a medical condition (or for whom it is
medically inadvisable to attempt) to quit using tobacco products by
providing a reasonable alternative standard. Fourth, the plan
discloses in all materials describing the terms of the program the
availability of a reasonable alternative standard. Thus, the premium
surcharge does not violate this section.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
For the reasons set forth above, 29 CFR Part 2590 is proposed to be
amended as follows:
PART 2590 [AMENDED]--RULES AND REGULATIONS FOR HEALTH INSURANCE
PORTABILITY AND RENEWABILITY FOR GROUP HEALTH PLANS
1. The authority citation for Part 2590 continues to read as
follows:
Authority: Secs. 107, 209, 505, 701-703, 711-713, and 731-734 of
ERISA (29 U.S.C. 1027, 1059, 1135, 1171-1173, 1181-1183, and 1191-
1194), as amended by HIPAA (Public Law 104-191, 110 Stat. 1936),
MHPA and NMHPA (Public Law 104-204, 110 Stat. 2935), and WHCRA
(Public Law 105-277, 112 Stat. 2681-436), section 101(g)(4) of
HIPAA, and Secretary of Labor's Order No. 1-87, 52 FR 13139, April
21, 1987.
2. Section 2590.702 is proposed to be amended by adding text to
paragraph (b) to read as follows:
Sec. 2590.702 Prohibiting discrimination against participants and
beneficiaries based on a health factor.
* * * * *
(f) Bona fide wellness programs--(1) Definition. A wellness program
is a bona fide wellness program if it satisfies the requirements of
paragraphs (f)(1)(i) through (f)(1)(iv) of this section. However, a
wellness program providing a reward that is not contingent on
satisfying a standard related to a health factor does not violate this
section even if it does not satisfy the requirements of this paragraph
(f) for a bona fide wellness program.
(i) The reward for the wellness program, coupled with the reward
for other wellness programs with respect to the plan that require
satisfaction of a standard related to a health factor, must not exceed
[10/15/20] percent of the cost of employee-only coverage under the
plan. For this purpose, the cost of employee-only coverage is
determined based on the total amount of employer and employee
contributions for the benefit package under which the employee is
receiving coverage. A reward can be in the form of a discount, a rebate
of a premium or contribution, or a waiver of all or part of a cost-
sharing mechanism (such as deductibles, copayments, or coinsurance), or
the absence of a surcharge.
(ii) The program must be reasonably designed to promote good health
or
[[Page 1433]]
prevent disease. For this purpose, a program is not reasonably designed
to promote good health or prevent disease unless the program gives
individuals eligible for the program the opportunity to qualify for the
reward under the program at least once per year.
(iii) The reward under the program must be available to all
similarly situated individuals. A reward is not available to all
similarly situated individuals for a period unless the program allows--
(A) A reasonable alternative standard to obtain the reward to any
individual for whom, for that period, it is unreasonably difficult due
to a medical condition to satisfy the otherwise applicable standard for
the reward; and
(B) A reasonable alternative standard to obtain the reward to any
individual for whom, for that period, it is medically inadvisable to
attempt to satisfy the otherwise applicable standard for the reward.
(iv) The plan or issuer must disclose in all plan materials
describing the terms of the program the availability of a reasonable
alternative standard required under paragraph (f)(1)(iii) of this
section. (However, in plan materials that merely mention that a program
is available, without describing its terms, this disclosure is not
required.) The following language, or substantially similar language,
can be used to satisfy this requirement: ``If it is unreasonably
difficult due to a medical condition for you to achieve the standards
for the reward under this program, or if it is medically inadvisable
for you to attempt to achieve the standards for the reward under this
program, call us at [insert telephone number] and we will work with you
to develop another way to qualify for the reward.'' In addition, other
examples of language that would satisfy this requirement are set forth
in Examples 4, 5, and 6 of paragraph (f)(2) of this section.
(2) Examples. The rules of this paragraph (f) are illustrated by
the following examples:
Example 1. (i) Facts. A group health plan offers a wellness
program to participants and beneficiaries under which the plan
provides memberships to a local fitness center at a discount.
(ii) Conclusion. In this Example 1, the reward under the program
is not contingent on satisfying any standard that is related to a
health factor. Therefore, there is no discrimination based on a
health factor under either paragraph (b) or (c) of this section and
the requirements for a bona fide wellness program do not apply.
Example 2. (i) Facts. An employer sponsors a group health plan.
The annual premium for employee-only coverage is $2,400 (of which
the employer pays $1,800 per year and the employee pays $600 per
year). The plan implements a wellness program that offers a $240
rebate on premiums to program enrollees.
(ii) Conclusion. In this Example 2, the program satisfies the
requirements of paragraph (f)(1)(i) of this section because the
reward for the wellness program, $240, does not exceed [10/15/20]
percent of the total annual cost of employee-only coverage, [$240/
$360/$480]. ($2,400 x [10/15/20]% = [$240/$360/$480].)
Example 3. (i) Facts. A group health plan gives an annual
premium discount of [10/15/20] percent of the cost of employee-only
coverage to participants who adhere to a wellness program. The
wellness program consists solely of giving an annual cholesterol
test to participants. Those participants who achieve a count under
200 receive the premium discount for the year.
(ii) Conclusion. In this Example 3, the program is not a bona
fide wellness program. The program fails to satisfy the requirement
of being available to all similarly situated individuals because
some participants may be unable to achieve a cholesterol count of
under 200 and the plan does not make available a reasonable
alternative standard for obtaining the premium discount. (In
addition, plan materials describing the program are required to
disclose the availability of the reasonable alternative standard for
obtaining the premium discount.) Thus, the premium discount violates
paragraph (c) of this section because it may require an individual
to pay a higher premium based on a health factor of the individual
than is required of a similarly situated individual under the plan.
Example 4. (i) Facts. Same facts as Example 3, except that if it
is unreasonably difficult due to a medical condition for a
participant to achieve the targeted cholesterol count (or if it is
medically inadvisable for a participant to attempt to achieve the
targeted cholesterol count), the plan will make available a
reasonable alternative standard that takes the relevant medical
condition into account. In addition, all plan materials describing
the terms of the program include the following statement: ``If it is
unreasonably difficult due to a medical condition for you to achieve
a cholesterol count under 200, or if it is medically inadvisable for
you to attempt to achieve a count under 200, call us at the number
below and we will work with you to develop another way to get the
discount.'' Individual D is unable to achieve a cholesterol count
under 200. The plan accommodates D by making the discount available
to D, but only if D complies with a low-cholesterol diet.
(ii) Conclusion. In this Example 4, the program is a bona fide
wellness program because it satisfies the four requirements of this
paragraph (f). First, the program complies with the limits on
rewards under a program. Second, it is reasonably designed to
promote good health or prevent disease. Third, the reward under the
program is available to all similarly situated individuals because
it accommodates individuals for whom it is unreasonably difficult
due to a medical condition to achieve the targeted count (or for
whom it is medically inadvisable to attempt to achieve the targeted
count) in the prescribed period by providing a reasonable
alternative standard. Fourth, the plan discloses in all materials
describing the terms of the program the availability of a reasonable
alternative standard. Thus, the premium discount does not violate
this section.
Example 5. (i) Facts. A group health plan will waive the $250
annual deductible (which is less than [10/15/20] percent of the
annual cost of employee-only coverage under the plan) for the
following year for participants who have a body mass index between
19 and 26, determined shortly before the beginning of the year.
However, any participant for whom it is unreasonably difficult due
to a medical condition to attain this standard (and any participant
for whom it is medically inadvisable to attempt to achieve this
standard) during the plan year is given the same discount if the
participant walks for 20 minutes three days a week. Any participant
for whom it is unreasonably difficult due to a medical condition to
attain either standard (and any participant for whom it is medically
inadvisable to attempt to achieve either standard during the year)
is given the same discount if the individual satisfies a reasonable
alternative standard that is tailored to the individual's situation.
All plan materials describing the terms of the wellness program
include the following statement: ``If it is unreasonably difficult
due to a medical condition for you to achieve a body mass index
between 19 and 26 (or if it is medically inadvisable for you to
attempt to achieve this body mass index) this year, your deductible
will be waived if you walk for 20 minutes three days a week. If you
cannot follow the walking program, call us at the number above and
we will work with you to develop another way to have your deductible
waived, such as a dietary regimen.''
(ii) Conclusion. In this Example 5, the program is a bona fide
wellness program because it satisfies the four requirements of this
paragraph (f). First, the program complies with the limits on
rewards under a program. Second, it is reasonably designed to
promote good health or prevent disease. Third, the reward under the
program is available to all similarly situated individuals because
it generally accommodates individuals for whom it is unreasonably
difficult due to a medical condition to achieve (or for whom it is
medically inadvisable to attempt to achieve) the targeted body mass
index by providing a reasonable alternative standard (walking) and
it accommodates individuals for whom it is unreasonably difficult
due to a medical condition (or for whom it is medically inadvisable
to attempt) to walk by providing an alternative standard that is
reasonable for the individual. Fourth, the plan discloses in all
materials describing the terms of the program the availability of a
reasonable alternative standard for every individual. Thus, the
waiver of the deductible does not violate this section.
Example 6. (i) Facts. In conjunction with an annual open
enrollment period, a group health plan provides a form for
participants to certify that they have not used tobacco products in
the preceding twelve months.
[[Page 1434]]
Participants who do not provide the certification are assessed a
surcharge that is [10/15/20] percent of the cost of employee-only
coverage. However, all plan materials describing the terms of the
wellness program include the following statement: ``If it is
unreasonably difficult due to a health factor for you to meet the
requirements under this program (or if it is medically inadvisable
for you to attempt to meet the requirements of this program), we
will make available a reasonable alternative standard for you to
avoid this surcharge.'' It is unreasonably difficult for Individual
E to stop smoking cigarettes due to an addiction to nicotine (a
medical condition). The plan accommodates E by requiring E to
participate in a smoking cessation program to avoid the surcharge. E
can avoid the surcharge for as long as E participates in the
program, regardless of whether E stops smoking (as long as E
continues to be addicted to nicotine).
(ii) Conclusion. In this Example 6, the premium surcharge is
permissible as a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the
reward under the program is available to all similarly situated
individuals because it accommodates individuals for whom it is
unreasonably difficult due to a medical condition (or for whom it is
medically inadvisable to attempt) to quit using tobacco products by
providing a reasonable alternative standard. Fourth, the plan
discloses in all materials describing the terms of the program the
availability of a reasonable alternative standard. Thus, the premium
surcharge does not violate this section.
* * * * *
Signed at Washington, DC this 28th day of December, 2000.
Leslie B. Kramerich,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S.
Department of Labor.
For the reasons set forth above, we propose to amend 45 CFR Part
146 as follows:
PART 146 [AMENDED]--RULES AND REGULATIONS FOR HEALTH INSURANCE
PORTABILITY AND RENEWABILITY FOR GROUP HEALTH PLANS
1. The authority citation for Part 146 continues to read as
follows:
Authority: Secs. 2701 through 2763, 2791 and 2792 of the Public
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91,
300gg-92 as amended by HIPAA (Public Law 104-191, 110 Stat. 1936),
MHPA and NMHPA (Public Law 104-204, 110 Stat. 2935), and WHCRA
(Public Law 105-277, 112 Stat. 2681-436), and section 102(c)(4) of
HIPAA.
2. We propose to amend Sec. 146.121 by adding text to paragraph (b)
to read as follows:
Sec. 146.121 Prohibiting discrimination against participants and
beneficiaries based on a health factor.
* * * * *
(f) Bona fide wellness programs--(1) Definition. A wellness program
is a bona fide wellness program if it satisfies the requirements of
paragraphs (f)(1)(i) through (f)(1)(iv) of this section. However, a
wellness program providing a reward that is not contingent on
satisfying a standard related to a health factor does not violate this
section even if it does not satisfy the requirements of this paragraph
(f) for a bona fide wellness program.
(i) The reward for the wellness program, coupled with the reward
for other wellness programs with respect to the plan that require
satisfaction of a standard related to a health factor, must not exceed
[10/15/20] percent of the cost of employee-only coverage under the
plan. For this purpose, the cost of employee-only coverage is
determined based on the total amount of employer and employee
contributions for the benefit package under which the employee is
receiving coverage. A reward can be in the form of a discount, a rebate
of a premium or contribution, or a waiver of all or part of a cost-
sharing mechanism (such as deductibles, copayments, or coinsurance), or
the absence of a surcharge.
(ii) The program must be reasonably designed to promote good health
or prevent disease. For this purpose, a program is not reasonably
designed to promote good health or prevent disease unless the program
gives individuals eligible for the program the opportunity to qualify
for the reward under the program at least once per year.
(iii) The reward under the program must be available to all
similarly situated individuals. A reward is not available to all
similarly situated individuals for a period unless the program allows--
(A) A reasonable alternative standard to obtain the reward to any
individual for whom, for that period, it is unreasonably difficult due
to a medical condition to satisfy the otherwise applicable standard for
the reward; and (B) A reasonable alternative standard to obtain the
reward to any individual for whom, for that period, it is medically
inadvisable to attempt to satisfy the otherwise applicable standard for
the reward.
(iv) The plan or issuer must disclose in all plan materials
describing the terms of the program the availability of a reasonable
alternative standard required under paragraph (f)(1)(iii) of this
section. (However, in plan materials that merely mention that a program
is available, without describing its terms, this disclosure is not
required.) The following language, or substantially similar language,
can be used to satisfy this requirement: ``If it is unreasonably
difficult due to a medical condition for you to achieve the standards
for the reward under this program, or if it is medically inadvisable
for you to attempt to achieve the standards for the reward under this
program, call us at [insert telephone number] and we will work with you
to develop another way to qualify for the reward.'' In addition, other
examples of language that would satisfy this requirement are set forth
in Examples 4, 5, and 6 of paragraph (f)(2) of this section.
(2) Examples. The rules of this paragraph (f) are illustrated by
the following examples:
Example 1. (i) Facts. A group health plan offers a wellness
program to participants and beneficiaries under which the plan
provides memberships to a local fitness center at a discount.
(ii) Conclusion. In this Example 1, the reward under the program
is not contingent on satisfying any standard that is related to a
health factor. Therefore, there is no discrimination based on a
health factor under either paragraph (b) or (c) of this section and
the requirements for a bona fide wellness program do not apply.
Example 2. (i) Facts. An employer sponsors a group health plan.
The annual premium for employee-only coverage is $2,400 (of which
the employer pays $1,800 per year and the employee pays $600 per
year). The plan implements a wellness program that offers a $240
rebate on premiums to program enrollees.
(ii) Conclusion. In this Example 2, the program satisfies the
requirements of paragraph (f)(1)(i) of this section because the
reward for the wellness program, $240, does not exceed [10/15/20]
percent of the total annual cost of employee-only coverage, [$240/
$360/$480]. ($2,400 x [10/15/20]% = [$240/$360/$480].)
Example 3. (i) Facts. A group health plan gives an annual
premium discount of [10/15/20] percent of the cost of employee-only
coverage to participants who adhere to a wellness program. The
wellness program consists solely of giving an annual cholesterol
test to participants. Those participants who achieve a count under
200 receive the premium discount for the year.
(ii) Conclusion. In this Example 3, the program is not a bona
fide wellness program. The program fails to satisfy the requirement
of being available to all similarly situated individuals because
some participants may be unable to achieve a cholesterol count of
under 200 and the plan does not make available a reasonable
alternative standard for obtaining the premium discount. (In
addition, plan materials describing the program are required to
disclose the availability of the reasonable alternative standard for
obtaining the premium
[[Page 1435]]
discount.) Thus, the premium discount violates paragraph (c) of this
section because it may require an individual to pay a higher premium
based on a health factor of the individual than is required of a
similarly situated individual under the plan.
Example 4. (i) Facts. Same facts as Example 3, except that if it
is unreasonably difficult due to a medical condition for a
participant to achieve the targeted cholesterol count (or if it is
medically inadvisable for a participant to attempt to achieve the
targeted cholesterol count), the plan will make available a
reasonable alternative standard that takes the relevant medical
condition into account. In addition, all plan materials describing
the terms of the program include the following statement: ``If it is
unreasonably difficult due to a medical condition for you to achieve
a cholesterol count under 200, or if it is medically inadvisable for
you to attempt to achieve a count under 200, call us at the number
below and we will work with you to develop another way to get the
discount.'' Individual D is unable to achieve a cholesterol count
under 200. The plan accommodates D by making the discount available
to D, but only if D complies with a low-cholesterol diet.
(ii) Conclusion. In this Example 4, the program is a bona fide
wellness program because it satisfies the four requirements of this
paragraph (f). First, the program complies with the limits on
rewards under a program. Second, it is reasonably designed to
promote good health or prevent disease. Third, the reward under the
program is available to all similarly situated individuals because
it accommodates individuals for whom it is unreasonably difficult
due to a medical condition to achieve the targeted count (or for
whom it is medically inadvisable to attempt to achieve the targeted
count) in the prescribed period by providing a reasonable
alternative standard. Fourth, the plan discloses in all materials
describing the terms of the program the availability of a reasonable
alternative standard. Thus, the premium discount does not violate
this section.
Example 5. (i) Facts. A group health plan will waive the $250
annual deductible (which is less than [10/15/20] percent of the
annual cost of employee-only coverage under the plan) for the
following year for participants who have a body mass index between
19 and 26, determined shortly before the beginning of the year.
However, any participant for whom it is unreasonably difficult due
to a medical condition to attain this standard (and any participant
for whom it is medically inadvisable to attempt to achieve this
standard) during the plan year is given the same discount if the
participant walks for 20 minutes three days a week. Any participant
for whom it is unreasonably difficult due to a medical condition to
attain either standard (and any participant for whom it is medically
inadvisable to attempt to achieve either standard during the year)
is given the same discount if the individual satisfies a reasonable
alternative standard that is tailored to the individual's situation.
All plan materials describing the terms of the wellness program
include the following statement: ``If it is unreasonably difficult
due to a medical condition for you to achieve a body mass index
between 19 and 26 (or if it is medically inadvisable for you to
attempt to achieve this body mass index) this year, your deductible
will be waived if you walk for 20 minutes three days a week. If you
cannot follow the walking program, call us at the number above and
we will work with you to develop another way to have your deductible
waived, such as a dietary regimen.''
(ii) Conclusion. In this Example 5, the program is a bona fide
wellness program because it satisfies the four requirements of this
paragraph (f). First, the program complies with the limits on
rewards under a program. Second, it is reasonably designed to
promote good health or prevent disease. Third, the reward under the
program is available to all similarly situated individuals because
it generally accommodates individuals for whom it is unreasonably
difficult due to a medical condition to achieve (or for whom it is
medically inadvisable to attempt to achieve) the targeted body mass
index by providing a reasonable alternative standard (walking) and
it accommodates individuals for whom it is unreasonably difficult
due to a medical condition (or for whom it is medically inadvisable
to attempt) to walk by providing an alternative standard that is
reasonable for the individual. Fourth, the plan discloses in all
materials describing the terms of the program the availability of a
reasonable alternative standard for every individual. Thus, the
waiver of the deductible does not violate this section.
Example 6. (i) Facts. In conjunction with an annual open
enrollment period, a group health plan provides a form for
participants to certify that they have not used tobacco products in
the preceding twelve months. Participants who do not provide the
certification are assessed a surcharge that is [10/15/20] percent of
the cost of employee-only coverage. However, all plan materials
describing the terms of the wellness program include the following
statement: ``If it is unreasonably difficult due to a health factor
for you to meet the requirements under this program (or if it is
medically inadvisable for you to attempt to meet the requirements of
this program), we will make available a reasonable alternative
standard for you to avoid this surcharge.'' It is unreasonably
difficult for Individual E to stop smoking cigarettes due to an
addiction to nicotine (a medical condition). The plan accommodates E
by requiring E to participate in a smoking cessation program to
avoid the surcharge. E can avoid the surcharge for as long as E
participates in the program, regardless of whether E stops smoking
(as long as E continues to be addicted to nicotine).
(ii) Conclusion. In this Example 6, the premium surcharge is
permissible as a bona fide wellness program because it satisfies the
four requirements of this paragraph (f). First, the program complies
with the limits on rewards under a program. Second, it is reasonably
designed to promote good health or prevent disease. Third, the
reward under the program is available to all similarly situated
individuals because it accommodates individuals for whom it is
unreasonably difficult due to a medical condition (or for whom it is
medically inadvisable to attempt) to quit using tobacco products by
providing a reasonable alternative standard. Fourth, the plan
discloses in all materials describing the terms of the program the
availability of a reasonable alternative standard. Thus, the premium
surcharge does not violate this section.
* * * * *
Dated: June 22, 2000.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
Approved: August 29, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 01-107 Filed 1-5-01; 8:45 am]
BILLING CODE 4120-01-P; 4510-29-P; 4830-01-P
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