Wellness Program Design and Compliance

1. This UBA Employer Webinar Series is brought to you by United Benefit Advisorsin conjunction with Jackson Lewis For a copy of this presentation, please go to www.UBAbenefits.com. Go to the Wisdom tab and scroll down to HR Webinar Series and click. Under Employer Series click the Registration and Presentation link. Click the red Presentation button to see the slides.

2. Presented by: Joseph Lynett, Esq.LynettJ@jacksonlewis.com Joseph J. Lazzarotti, Esq., CIPPLazzarottiJ@jacksonlewis.com Wellness Program Design and Compliance

3. About the Firm Represents management exclusively in every aspect of employment, benefits, labor, and immigration law and related litigation. 750 attorneys in 55 locations nationwide. Current caseload of over 6,500 litigations and approximately 415 class actions. Founding member of L&E Global.

4. Strategically Located Throughout the Nation to Serve Employers’ Needs 54 Locations Nationwide

5. Disclaimer This presentation provides general information regarding its subject and explicitly may not be construed as providing any individualized advice concerning particular circumstances. Persons needing advice concerning particular circumstances must consult counsel concerning those circumstances.  Indeed, health care reform law is highly complicated and it supplements and amends an existing expansive and interconnected body of statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, ADA, GINA, etc.).  The solutions to any given business’s health care reform compliance and design issues depend on too many varied factors to list, including but not limited to, the size of the employer (which depends on complex business ownership and employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether its employees work full time or part time, the importance of group health coverage to the employer’s recruitment and retention goals,  whether the employer has a collectively-bargained workforce, whether the employer has leased employees, the cost of the current group health coverage and extent to which employees must pay that cost, where the employer/employees are located, whether the employer is a religious organization, what the current plan covers and whether that coverage meets minimum requirements, and many other factors. 

6. Agenda When the HIPAA nondiscrimination rules apply Analyze different approaches to health-contingent programs Limits on allowable wellness incentives, how to calculate them, and penalties Satisfying “reasonable alternative requirements” Whether you can have smoker and non-smoker rates without a formal wellness program Impact of GINA, ADA and other laws on wellness programs Taxation of wellness incentives

7. Employers are Spending More on Wellness Programs • 2013 Survey by the National Business Group on Health (NBGH) indicates: • Employers planned to spend 15% more on wellness programs per employee in 2014 compared to 2013. • 95 percent of companies plan to offer some kind of health improvement program, with 74% offering incentives to participate, an increase from 57 percent in 2009. • 93 percent of companies plan to expand or maintain funding for their program over the next three to five years • 4 out of 10 employers plan to extend programs to spouses and domestic partners http://www.fidelity.com/inside-fidelity/employer-services/health-care-survey-finds-spending

8. Meanwhile … Wellness Programs are Increasingly Regulated

9. Wellness Programs -- On the Brink of Major Changes? • May 8, 2013: EEOC announces wellness programs must be reviewed to avoid discrimination: • “To date, the Commission has not spoken clearly and definitely on the myriad of legal issues that can arise under these laws for wellness programs.” EEOC Commissioner Chai Feldblum • May 29, 2013: Obama Administration issues Final Regulations governing wellness programs under Affordable Care Act. • May 23, 2014: EEOC announces plans to issue regulations concerning wellness program • August 20, 2014: EEOC files first lawsuit against employer concerning wellness program

10. ACA/HIPAA:To which wellness programs do these rules apply?

11. HIPAA Non-Discrimination • Historical perspective (2006-2012): HIPAA, ADA, GINA, PPACA. • Basic Nondiscrimination Rule: Group health plans and issuers cannot discriminate with regard to eligibility or benefits on the basis of a health factor (health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, disability). • Practice Tip – A program not connected to the company’s group health plan (or itself a group health plan) not subject to HIPAA.

12. HIPAA Non-Discrimination • Wellness programs subject to HIPAA: • Health plan premium discount for non-smokers • Deductible under health plan eliminated for persons who satisfy certain biometric measurements • Wellness programs NOT subject to HIPAA: • Biggest loser competition with cash reward for winner. • Points-based program where participants earn points for participating in certain activities and redeem for products, services, gift certificates • Practice Tip – When HIPAA does not apply, program is not subject to 30/50% limitation on rewards, but ADA and state law concerns remain.

13. HIPAA: Basic Regulatory Approach • Effective plan years beginning on or after 1-1-14 • Two program types: participatory and health contingent • Two types of health contingent programs: • Activity-only (reasonable alternative under old rules) • Outcome-based (reasonable alternative for all) • Incentive limit: 30% employee-only premium; 50% for tobacco prevention programs. • Updated reasonable alternative notice • Practice Tip – Participatory programs not subject to incentive limits.

14. What program do we have:Participatory, Activity-only, or Outcome-based programs

15. “Participatory” Programs Under the ACA/HIPAA Definition: Programs that either do not provide a reward or do not include any conditions for obtaining a reward that are based satisfying a standard related to a health factor. Participatory programs must be made available to all similarly situated individuals, regardless of health status. Distinctions between individuals must be based on bona fide employment-based classifications consistent with employer’s usual practice (e.g., geographical).

16. “Participatory” Programs • Examples: • Reimburses cost for membership in a fitness center. • Reward for participation in diagnostic testing regardless of outcomes. • Waiver of co-payment or deductible to encourage preventive care (e.g., prenatal care or well-baby visits). • Reimburses costs of smoking cessation programs regardless of outcomes. • Reward for attending monthly health education seminar. • NEW: Reward for completing a health risk assessment regarding current health status, without any further action (educational or otherwise) required by the employee with regard to the health issues identified as part of the assessment.

17. Health Contingent Programs: Activity-Only • Definition: Program that requires an individual to perform or complete an activity related to a health factor in order to obtain a reward, but does not require the individual to attain or maintain a specific health outcome. • Examples: • Walking, diet, or exercise programs. • Some individuals may be unable to participate in or complete (or have difficulty participating in or completing) program due to a health factor, such as severe asthma, pregnancy, or a recent surgery.

18. Health Contingent Programs: Outcome-based • Definition: Program that requires an individual to attain or maintain a specific health outcome in order to obtain a reward. • Examples: • Stop smoking, satisfy “healthy” ranges for certain biometric screenings, being identified to work with a health coach. • Typically two-tiers: • Tier one. Measurement, test, or screening is applied and, if satisfied, individual earns reward. If not, individual moves to tier two… • Tier two. Individual takes additional steps to earn the same reward, such as meeting health coach, taking health/fitness course, complying with a walking or exercise program, or complying with a health care provider’s plan of care.

19. Applying these definitions… Participatory Programs: Health Contingent: “Activity-Only” Programs Participating in an exercise program, regardless of outcomes Keep up with all recommended preventive care Participating in a diet program, regardless of outcomes • Joining a fitness center • Receiving preventive care • Attending monthly nutrition education seminar

20. Applying these definitions…

21. HIPAA/ACA Requirements: Activity-Only Programs • Requirements: • Annual qualification: Provide opportunity to qualify at least 1x/year. • Reward limit: 30% taking into account all health contingent programs; 50% for tobacco prevention programs. • Reasonably designed: (i) reasonable chance of improving health or preventing disease, (ii) not overly burdensome, (iii) is not a subterfuge for health factor discrimination, and (iv) is not highly suspect in method chosen. Facts and circumstances determination. • Uniform availability to similarly situated individuals: Provide a reasonable alternative standard or waiver for individuals who have difficulty meeting the standard due to a medical condition. • Program description: All plan materials describing the program must disclose the existence of reasonable alternative standard or waiver. Sample language included in regulations.

22. HIPAA/ACA Requirements: Outcome-based Programs • Requirements: • Annual qualification: Same as activity-only. • Reward limit: Same as activity-only. • Reasonably designed: Same as activity-only, except a reasonable alternative also must be provided to any individual who does not meet the initial standard (tier one) based on a measurement, test, or screening that is related to a health factor. • Uniform availability to similarly situated individuals: Same as activity-only, except provide a reasonable alternative standard (or waiver) as described above. • Program description: All plan materials describing the program must disclose the existence of reasonable alternative standard or waiver.

23. “Reasonably Designed” “Activity-Only” Program “Outcome-Based” Program “This determination is based on all the relevant facts and circumstances. To ensure that an outcome-based wellness program is reasonably designed to improve health and does not act as a subterfuge for underwriting or reducing benefits based on a health factor, a reasonable alternative standard to qualify for the reward must be provided to any individual who does not meet the initial standard based on a measurement, test, or screening that is related to a health factor, as explained in paragraph (f)(4)(iv) of this section.” “This determination is based on all the relevant facts and circumstances.”

24. Rewards, Incentives Penalties

25. Application of New Reward Limits • Not applicable to participatory programs • No more than 30%/50% of cost of applicable premium • Practice Tip – Consider effect of incentive on ACA minimum value and affordability requirements. • Example for employee-only program: • Annual premium (ER and EE portion) for employee-only tier of coverage = $6,000. • Employer’s wellness program has 3 components: • participatory on-line assessment - $500 annual reward • outcome-based biometric screening program - $600 annual reward • tobacco prevention program - $2,000 annual reward • Total annual reward - $3,100

26. Application of New Reward Limits Result: • Reward limit – 50% of annual premium = $3,000 per year. • Does total reward ($3,100) exceed 50% limit? • NO – rewards for participatory programs (here, $500) not included in calculation. Total reward for purposes of the reward limit is $2,600. • Because • total reward for biometric screening and tobacco prevention program ($2,600) is less than 50% reward limit ($3,000), and • total reward for biometric screening program ($600) is less than 30% reward limit ($1,800) • reward limit requirement is satisfied.

27. Application of New Reward Limits • Example for employee and spouse program: • Annual premium (ER and EE portion) for family tier of coverage = $12,000. • Employer’s wellness program has 3 components: • participatory on-line assessment - $500 annual reward each • outcome-based biometric screening program - $300 annual reward per person per metric for meeting a healthy cholesterol level and a healthy BMI level, total reward $1,200 • tobacco prevention program - $4,000 annual reward if neither smokes. If one smokes, no reward. • Total annual reward - $6,200

28. Application of New Reward Limits • Reward limit – 50% of annual premium = $6,000 per year. • Does total reward ($6,200) exceed 50% limit? • NO – rewards for participatory programs (here, $1,000) not included in calculation. Total reward for purposes of the reward limit is $5,200. • Because • total reward for biometric screening and tobacco prevention program ($5,200) is less than 50% reward limit ($6,000), and • total reward for biometric screening program ($1,200) is less than 30% reward limit ($3,600) • reward limit requirement is satisfied. • Consider allocation of reward for tobacco prevention program, reasonable methods permitted.

29. Speaking of Penalties… • Non-compliant programs could be subject to penalties under the Internal Revenue Code or the Public Health Services Act of up to $100 per day. • Department of Labor has updated its group health plan audit inquiries to include wellness programs.

30. Reasonable Alternatives

31. Reasonable Alternative: Activity-Only • Must give individuals opportunity to meet a reasonable alternative standard (or waive standard) if: • due to a medical condition, it is unreasonably difficult for individual to meet the wellness program standard, or • it is medically inadvisable to attempt to meet the standard • Plan sponsor may seek verification from individual’s physician • Practice Tip – Be prepared to allow multiple attempts to meet standard, have different alternatives ready to go.

32. Reasonable Alternative: Activity-Only • When is “reasonable alternative” reasonable? • “Facts and circumstances” determination, including the following: • Education program alternatives – program must pay for and provide or assist individual in finding program. • Diet program alternatives – program must pay for program or membership fee, but not food. • Time commitment – must be reasonable. • Personal physician’s recommendations – must be taken into account if physician determines standard is medically inappropriate. • If alternative also is an “activity-only” program, it too must meet these requirements.

33. Reasonable Alternative: Outcome-Based Must provide an alternative for any individual who does not meet the initial standard based on a measurement, test or screening that is related to a health factor, regardless of health condition. Plan sponsor may NOT seek verification from individual’s physician For reasonableness of alternative, follow same rules as activity-only

34. What if “Reasonable Alternative” is another Outcome-based Program? • Alternative must meet basic requirements for outcome-based programs, PLUS: • If it is a different level of same standard, program must provide additional time to comply, taking into account the individual’s circumstances. • Give individual opportunity to comply with his Dr.’s recommendations as a second alternative to meeting the plan’s reasonable alternative, but only if the Dr. “joins in the request.” Individuals can inject Dr.’s recommendations at any time, and Dr. can adjust recommendations any time, as medically appropriate. • May notseek physician verification, unless the reasonable alternative is activity-only.

35. ERISA and Tax Issues

36. ERISA Considerations • General rule: ERISA applies to plans established or maintained by employers to provide, among other things, medical, surgical, or hospital care or benefits. • A wellness program can be: • part of an ERISA group health plan; or • an ERISA plan itself. • If subject to or part of an ERISA plan, basic ERISA rules apply, as well as HIPAA and ACA implications.

37. ERISA Issues ERISA preemption can blunt state laws relating to the group health plan/wellness program, but watch fully insured plans. ERISA Section 510 prohibits employers from disciplining, discharging or discriminating against a plan participant for the purpose of interfering with the participant’s right to attain a benefit under the plan.

38. IRS: No Freebies • Wellness program rewards outside of group health plan context are taxable under IRS “fringe benefit” rule unless… • De minimis: • Occasional or unusual in frequency; • Of little value; • Cannot be disguised compensation. • IRS de minimis standard difficult to meet (http://www.irs.gov/Government-Entities/Federal,-State-&-Local-Governments/De-Minimis-Fringe-Benefits)

39. ADA and GINA:Impacts on Wellness Programs

40. Theories of Potential ADA Violations • Disparate treatment: • Under “actual disability” “record of” or “regarded as” theories. Consider potential coverage of hypertension, diabetes, obesity, heart disease, cancer, and nicotine addiction under the ADAAA. • Disparate impact. • Failing to provide reasonable accommodations. • Unlawful medical inquiries or medical examinations. • Breach of medical confidentiality. • Could be broad, class action claims.

41. EEOC Opinion Letter on Meaning of “Voluntary” • January 6, 2009 Informal Opinion Letter: • Voluntary = HIPAA’s 20%. • March 6, 2009 Informal Opinion Letter: • 20% rule rescinded; • Confirms can’t condition receipt of coverage on completion of HRA. • May 8, 2013 EEOC Public Meeting: • Confirmed there are viable claims under the ADA; • EEOC may issue guidance but may also wait for courts to resolve.

42. ADA Wildcard • ADA Section 501(c). • Title V – “Miscellaneous Provisions.” • Safe Harbor for Insurance: • Equal access is key goal; • If insurance plan contains “disability-based distinctions”, employers must show that distinctions are justified by generally accepted principles of risk classifications and are not a “subterfuge” to evade purposes of the ADA.

43. ADA Litigation • Seff v. Broward County*: • ADA class action challenging surcharge for health risk appraisal; • Summary judgment granted to employer; • Affirmed on appeal to 11th Circuit. *Steff v. Broward County, 778 F. Supp. 2d 1370 (S.D. Fla. 2011), aff’d, 691 F.3D 1221 (11th Cir. 2012)

44. GINA Title II of GINA, enforced by EEOC, prohibits discrimination on basis of genetic information. Genetic information includes family medical history, including medical history of spouse and adopted children. Generally bars acquisition of genetic information about applicants and employees. Imposes strict confidentiality requirements regarding genetic information.

45. GINA’s Wellness Exception “Genetic information” may be acquired as part of a “voluntary” wellness program. “Voluntary” means no incentives for genetic information (Title I of GINA has similar rule) and other safeguards must be observed. EEOC Public Meeting on May 8, 2013, confirmed potential challenges to financial incentives rewarding spousal participation in wellness programs.

46. Other Issues:Title VII/EEO Risks

47. Potential Disparate Treatment Challenges • Multiple theories of claims: • Disparate treatment; • Disparate impact. • Multiple protected-classes potentially embraced: • Title VII race and gender-based challenges; • ADEA age-based challenges; • Equal Pay Act claims.

48. EEOC Meeting on Wellness Programs • Diverse panelists: • EEOC Office of Legal Counsel; • National Partnership for Women and Families; • Consortium for Citizens with Disabilities; • ERISA Industry Committee (ERIC); • Kaiser Family Foundation; • Leslie Silverman, Former EEOC Vice Chair (2002-2008); • American Benefits Council (ABC). • Meeting transcript available at http://www.eeoc.gov/eeoc/meetings/5-8-13/index.cfm • What’s clear: Employee representatives have set their sights on wellness programs.

49. Federal Contractors Beware • Challenges to wellness programs also possible by OFCCP: • Executive Order 11246; • Section 503. • Agency is uniquely situated to investigate because compliance reviews are not complaint driven. • Be careful about providing specific leave and wellness policies, handbook table of contents, or entire handbook to the OFCCP. • Remember that OFCCP has a work-sharing agreement with EEOC!

50. EEOC Lawsuits This year the EEOC filed two lawsuits challenging whether participation in wellness programs was truly voluntary. Both lawsuits initiated by the EEOC’s Chicago district office. ADA prohibits medical examination and medical inquiries in connection with a wellness program, only if participation in the program is voluntary. If the medical examination or medical inquiries are not part of a voluntary wellness program, then they must be job-related and consistent with business necessity to be lawful under the ADA. EEOC’s position is that a wellness program is “voluntary” if it neither requires participation nor penalizes an employee for not participating. Standard is elusive, but seems to focus on the size of the reward for participating as the cases illustrate.