Editor’s note: This post has been updated to describe (at the end of the post) a White House statement on preliminary information regarding insurer participation in the Affordable Care Act’s Health Insurance Marketplaces.

On May 29, 2013, the departments of Labor, Treasury, and Health and Human Services released their final regulations governing Affordable Care Act workplace wellness programs.  Everyone is in favor of wellness, but support for workplace wellness programs is far from universal.  Indeed health-contingent wellness programs have proven to be among the most controversial initiatives authorized by the ACA.

Wellness programs have been adopted enthusiastically by employers, who view them as a way to cut health insurance costs and absenteeism while improving the health of their employees.  Wellness is also itself big business.  According to a recent Reuters article, workplace wellness is a $6 billion industry, with 500 vendors offering wellness programs.  Many consumer advocates, however, are concerned that workplace wellness programs which use incentives or disincentives to encourage certain activities and outcomes may bring health status underwriting in through the back door; the ACA had otherwise promised to eliminate such underwriting.  Consumers also chafe at the paternalistic nature of wellness programs and the time-consuming obligations they can impose.

Even as wellness programs are increasing in popularity, recent research questions their effectiveness in bringing down health care costs (as opposed to simply shifting costs to employees).  A Rand study released by the agencies on May 29, 2013, in tandem with the final regulations reports that about half of us U.S. employers now offer wellness programs, most of which include wellness screenings and interventions.  Employee participation in wellness programs remains limited, however, with fewer than half of employees undergoing clinical screenings or completing a health risk assessment, and far fewer engaging in fitness, smoking cessation, or weight loss programs.

Rand’s analysis of a database of large employers comparing wellness program participants to nonparticipants found wellness programs were accompanied by statistically significant improvement in exercise frequency, smoking behavior, and weight control, though not cholesterol control.  But the changes are not overwhelming — over three years, the average weight loss is about a pound for the average employee, although long-term weight loss may be greater.  While most employers believe that their programs reduce costs, only half have actually evaluated the impact of their programs and only 2 percent report actual savings estimates.  Rand’s study found lower cost trends estimated at a reduction of 0.5 percent in the first year, increasing to 2.5 percent in the fourth year, but the decreases were not statistically significant.


Workplace wellness programs are only one of many prevention and wellness initiatives found throughout the ACA.  Medicare, for example, now covers an annual wellness visit and personal prevention plan.  The ACA authorized funds for small business wellness programs and a ten-state demonstration program for introducing wellness programs into the individual market (not yet implemented).  The ACA also requires insurers to report on their own initiatives to encourage wellness as part of their quality reporting obligations and allows them to count the expenses of their wellness programs together with their claims expenses for calculating their medical loss ratios (which is presumably why a nurse keeps calling me from my health insurer asking me how I am doing).

Wellness programs offered by employer-sponsored group health plans are permitted under an exception to the ACA’s prohibition on health status underwriting.  Although the ACA generally prohibits health insurers and employment-related group health plans from discriminating on the basis of health status, this prohibition does not apply to health-contingent premium or cost-sharing discounts, surcharges, or other incentives offered or imposed through a wellness program that meets specific requirements.

This is not a new exception.  The Health Insurance Portability and Accountability Act also permitted a wellness program exception to its prohibition on health status underwriting within group health plans.  The May 29 regulations replace the earlier HIPAA regulations.  They implement increases in wellness incentives permitted by the ACA (from the 20 percent permitted by HIPAA to 30 percent, or, where authorized by HHS, 50 percent), but also enhance the protections offered consumers that participate.

The regulation finalizes proposed regulations proposed, which I blogged about earlier.  The three agencies received approximately 5,000 comments on the proposed regulations, indicating the importance of these rules.  The final regulations do not change markedly the substance of the proposed version.  They do, however, significantly reorganize their content.  The rules apply to wellness programs in both insured and self-insured large and small-group employer plans.  Although the ACA wellness provision does not apply to grandfathered plans, HIPAA does, and since these rules implement HIPAA as well as the ACA, they apply to grandfathered plans as well.

The rules do not apply to the individual market, where health status-based wellness programs are prohibited (although participatory programs — see below — are permitted).  The wellness rules also do not affect the applicability of other laws such as the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, ERISA’s fiduciary provisions, or state law, which may impose further limitations on wellness programs.

The wellness rules are not intended to regulate all programs that could be labeled as wellness, disease management, case management, or similar programs, but are rather focused on programs that could violate the ACA prohibition against discrimination based on health status were it not for the wellness program exception.  The key is whether or not a program offers a “reward.”  A reward can be a premium discount or rebate, a waiver of all or part of cost sharing, an additional benefit, or some other financial or nonfinancial incentive. A reward could also, paradoxically, be the avoidance of a premium surcharge.

Even though the rules are limited to reward-based programs, there is great variety even among these programs.  The agencies note that they intend the rules to allow employers flexibility in designing their programs.  The agencies also intend, however, to monitor developments and issue subregulatory guidance as questions and problems arise.

The Taxonomy Of Wellness Programs

The final regulation, following the statute, the HIPAA regulations, and the proposed wellness regulations, divides wellness programs into participatory and health-contingent wellness programs.  Participatory programs either do not offer rewards or do not make rewards contingent on the individual meeting a health-factor-related standard.  Examples include paying for a gym membership or smoking cessation program or offering a reward for undergoing a diagnostic test or attending an educational seminar, with nothing turning on the outcome of the program or test.

The final regulations, however, unlike the proposed regulations, further divide health-contingent wellness programs into activity-only programs and outcome-based programs.  Activity-only programs offer rewards to individuals who perform or complete an activity — such as running, walking, diet, or exercise — if the activity is one that some individuals may not be able to participate in because of a health factor, such as asthma, pregnancy, or recent surgery.   Outcome-based programs offer a reward to an individual to attain or maintain a specific outcome, such as not smoking or attaining a biometric screening result, including specific body mass index (BMI), cholesterol, blood pressure, or glucose levels.  Outcome-based programs generally require a participant to submit to a test, screening, or measurement.  Individuals who meet the outcome standard are offered a reward, but individuals who fail to attain or maintain the standard must comply with additional program requirements to receive the reward.

Participatory programs need merely be made available to all employees regardless of health status.  Some commenters had asked that additional requirements be imposed on participatory programs, which can be quite burdensome if they, for example, require participation in educational activities outside of work hours.  The agencies concluded, however, that these concerns were unrelated to the purpose of the statute: limiting health status discrimination.

Requirements For Health-Contingent Programs

Health-contingent programs, however, must meet five additional requirements.  First, every individual eligible for the program must be given an opportunity to qualify for the reward once a year.

Second, the total reward offered for a health-contingent program cannot exceed 30 percent of the total cost of coverage of an employee under the plan, taking into account both the employer and employee contribution to the cost (and not just the employee’s premium or contribution).  If dependents, such as a spouse or children, can participate in the program, the percentage is applied to the total cost of coverage for the family or individual and spouse.  If one family member does not meet program requirements but others do, the plan or insurer has flexibility to determine what share of the cost of coverage should be attributed to that family member.  Plans and insurers can offer a total reward of 20 percent more, up to 50 percent, specifically for participation in tobacco cessation programs, which will offset the 50 percent premium surcharge allowed under the ACA in the small-group market for tobacco use, or similar surcharges in the large-group market.

Third, health-contingent wellness programs must be reasonably designed.  They must have a reasonable chance of improving health or preventing disease, not be overly burdensome or be a subterfuge for health status discrimination, and not be highly suspect in the method chosen to promote health or prevent disease.  The rules do not require programs to be evidence-based or accredited.  Plans and insurers may establish more favorable rules for persons with adverse health factors.

Fourth, the full reward under the program, be it activity- or outcome-based, must be available to all similarly situated individuals.  All health-contingent wellness programs must provide a reasonable alternative standard (or waiver of an otherwise applicable standard) for achieving the reward.  If it takes time to request, establish, and satisfy the reasonable alternative standard, the same full reward must still be offered as would have been offered had the individual attained the initial standard for the plan year.  This could mean a retroactive payment or pro rata payment over the rest of the year, but the reward cannot be delayed until the following year.

Plans and insurers do not need to design a reasonable alternative before an individual requests an alternative, and can provide alternatives to a class of individuals or on an individual-by-individual basis.  All facts and circumstances will be taken into account in determining if an alternative is reasonable, but:

  • If the alternative is an educational program, the plan or insurer must make it available and pay for it;
  • The time commitment for the alternative must be reasonable;
  • If the alternative is a diet program, the plan or insurer must pay any membership or participation fee, but not for the cost of the food;
  • If the individual’s personal physician says that the plan standard (including a recommendation for a plan’s medical professional) is not appropriate, the plan or insurer must provide an alternative in line with the personal physician’s recommendations; and
  • Adverse determinations on whether an individual is entitled to a reasonable alternative standard are subject to external, independent review.

The final rules recognize that wellness interventions are often not successful; it is hard to stop smoking or lose weight.  If the alternative standard is health-contingent, it itself must meet all five requirements, including the opportunity to try another alternative if the individual fails to meet the first alternative standard.

In general, the reasonable alternative rules apply to all health-contingent wellness programs. The rules, however, here distinguish between activity-only and outcome-only wellness programs.  Activity-only programs must allow reasonable alternative standards (or standard waivers) for individuals for whom it is unreasonably difficult to meet a standard or medically inadvisable to attempt to meet a standard.  Under activity-only programs, however, it is permissible for a plan to require verification of the difficulty or inadvisability, for example a statement from the individual’s personal physician.

Outcome-based programs, on the other hand, must provide an alternative to all individuals who fail to comply or maintain compliance with the outcome measure, without requiring verification that the failure to meet the standard is based on a medical condition.  By definition, outcome-based programs are health contingent, and anyone who fails to meet the requirement must be offered an alternative.  Moreover, the alternative standard may not be a requirement to meet a different level of the same standard without time to comply.  A BMI standard cannot simply be replaced by a higher BMI standard that must be met immediately.  A requirement to reduce BMI a realistic amount over a realistic period of time would be permissible.

An individual must also be allowed to comply with an alternative proposed by the individual’s personal physician, which can later be adjusted by the physician if the individual’s health condition requires adjustment. If the alternative proposed by the plan is an activity-based program (such as participation in a diet or exercise program for individuals who fail to meet a weight target), the plan or insurer can require verification if the individual claims that participation in the program is unreasonably difficult or medically inadvisable.

Fifth and finally, plans and insurers must disclose the availability of a reasonable alternative standard to qualify for the reward (or the possibility of a standard waiver) in all plan materials describing the health-contingent waiver program.  The disclosure must include contact information for obtaining an alternative and state that the recommendations of a personal physician will be accommodated.  This notice must be included in any disclosure by an outcome-based program that an individual did not satisfy an outcome-based standard.   The regulations include sample notice language.

Additional Developments: The “Three R’s” And Exchange Data Submission Requirements

In an earlier development, on May 24, 2013, the Department of Health and Human Services released a two Paperwork Reduction Act notices, one concerning Cooperative Agreements to Support Establishment of State-Operated Health Insurance Exchanges, the other on Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment. Paperwork Reduction Act notices are notices that describe and include reporting and data collection requirements that must be met for various programs and that estimate the work and expense involved in meeting those requirements.

According to the PRA estimate, the premium stabilization programs are not going to be cheap.  Although each program is going to involve extensive data collection costs (and cost estimates for the risk corridor program are not yet available), the greatest cost is going to be the in the collection and entry of enrollment, claims, and encounter data for the operation of the risk-adjustment program, which is estimated to take more than 10 million hours (although one would think that some of this data would have had to be entered in any event).  The risk-adjustment data collection process will be limited to 1800 insurers, but the collection of reinsurance-contribution information also will involve self-insured plans, for a total of almost 23,000 contributing entities.  The burden of information on contributing entities will, however, be minimal.

The State-Operated Health Insurance Exchange PRA notice details the various reports and data that state-operated exchanges that receive exchange-establishment grants must submit.  These include the grant application itself and various reports that must be filed during the development stage leading up to implementation, during the start-up year, and in subsequent years describing outcomes and performance.  The PRA notice lists eleven different forms or sets of forms that states must file over the three-year grant process, requiring a total of over 128,000 hours.

Only three of these forms are required at every stage of the development and implementation process. CMS projects that states will continue to move toward state-based exchanges as developments move forward.  The PRA estimates are based on a projection that at any one time 16 states will be in the start-up phase and 24 states in the development stage.

Competition And The Health Insurance Marketplaces

On May 30, 2013, the White House released a “Memorandum to Interested Parties” regarding  “Early Results: Competition, Choice, and Affordable Coverage in the Health Insurance Marketplace in 2014.”  HHS received filings from health insurers applying to offer qualified health plans in the federal exchange at the beginning of May.  These filings are still under negotiation and not yet public.  Nevertheless, the White House is evidently confident enough about the shape of the 2014 marketplace to issue a statement affirming that consumers will have choices in the 2014 exchange market and that the market will be competitive.

The statement begins by noting how little competition exists in today’s individual market.  In 11 states, two insurers cover more than 85 percent of individual market enrollees; in 29 states, one insurer covers more than 50 percent of the market.  In many states, moreover, enrollees are not able to leave their current insurer because no other insurer will take them without imposing a pre-existing condition bar.

According to the memorandum, the exchanges that will open for business on October 1, 2013, are attracting new competition into state individual insurance markets.  In about 75 percent of the states with an HHS-run exchange, at least one new insurer is entering the market.  One out of four insurers offering coverage next year in the HHS-run exchange will be a new entrant.  About 65 percent of these new insurer entrants will be in states where one insurer today dominates the market.  The Office of Personnel Management is currently reviewing 200 multi-state qualified health plan (QHP) options and expects to have multi-state plans in at least 31 states for 2014.  There has been little news from the OPM for some time, but the multi-state plan is apparently moving forward.

Nationwide, over 120 insurers have applied to offer QHPs in the HHS-run exchange.  About 90 percent of enrollees in HHS-run exchanges and in states that have publicly released data (representing 80 percent of the projected 7 million enrollees) will have a choice of five or more different insurers.  Consumers will have multiple choices in every tier of coverage.  On average, insurers plan to offer more than 15 QHPs per state, although some plans will only be offered in part of a state.