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How Are Wellness Programs Regulated?


There is no doubt that workplace wellness programs are popular with employers and employees alike. As of 2019, 84% of employers with at least 200 employees were offering wellness programs for their workers.1

These programs are designed to encourage healthy habits, such as walking more and learning effective stress management techniques, or discourage unhealthy habits, such as tobacco use.

Despite their popularity, there are concerns that wellness programs are not particularly effective in reducing costs for employers or improving employees’ overall health.2 But they do tend to improve employee satisfaction with the overall benefits package.

There are also concerns that wellness programs, even when thoughtfully designed, can potentially discriminate against people with disabilities or significant medical conditions.

Although the effectiveness and fairness of wellness programs continue to be a source of controversy, there are regulations in place to protect workers. These rules ensure that, as much as possible, wellness programs are nondiscriminatory.

This article explains the regulations that apply to wellness programs.

Laws That Apply to Wellness Programs

A variety of federal laws and regulations are designed to protect employees and prevent discrimination in the workplace. They include:

Employee Retirement Income Security Act (ERISA)

Americans with Disabilities Act (ADA) and applicable guidance from the Equal Employment Opportunities Commission (EEOC)

Genetic Information Nondiscrimination Act (GINA)

Health Insurance Portability and Accountability Act (HIPAA)

Affordable Care Act (ACA)

There was already a wide range of ERISA, ADA/EEOC, GINA, and HIPAA rules to prevent discrimination and protect employees’ privacy. But the ACA added additional regulations specific to wellness programs. And the rules have changed over time for certain wellness programs that are subject to ADA and GINA regulations.

ACA Rules

Under the ACA, wellness programs are categorized as participatory or health-contingent. Participatory wellness programs reward employees for simply participating in the program.

On the other hand, health-contingent wellness programs require more from the employee: either active participation in something (such as taking a certain number of steps in a day) or the achievement of a specific health target (such as having a body mass index under a certain threshold).

Both types of wellness programs are allowed, but if an employer offers a health-contingent wellness program, they must provide a reasonable alternative to employees who are unable to complete the program.

Essentially, all employees must be given an opportunity to earn the rewards associated with the wellness program, even if they’re unable to complete the necessary activities or achieve the required health outcomes.3

For participatory-only wellness programs, the ACA does not limit the incentives that employers can offer. But there are caps on how much an employee could be rewarded under a health-contingent wellness program (or penalized for not participating in the wellness program).

The maximum reward/penalty for tobacco-related wellness programs is 50% of the total cost of group health coverage under the employer’s health plan. And for all other health-contingent wellness programs, the maximum reward/penalty is 30% of the total cost of health coverage.4

ADA, GINA, and EEOC Rules

There were concerns, however, that requiring employees to answer disability-related questions or undergo health screenings—even as part of a participatory-only wellness program—could run afoul of discrimination protections in the ADA and GINA.

The ADA and GINA require participation in any wellness program to be voluntary. In 2016, AARP sued the EEOC, alleging that wellness programs that included biometric screening or health risk assessments were a potential invasion of privacy.

They also noted that participation was not really “voluntary” if employees could face substantial financial penalties for opting out of the wellness program.

In 2017, a judge ruled in favor of AARP.5 Although the EEOC initially asked for three years to write new rules, the judge vacated the existing rules as of January 2019 for wellness programs subject to the ADA and GINA.6

Although other wellness programs were not affected, the ruling meant that the maximum penalty/incentive of 30% of health plan premiums would not apply to wellness programs that included biometric screening or health risk assessments.

The safest route for employers as of 2019 was to avoid penalties/incentives for wellness programs that included biometric screening or health risk assessments, and only use penalties/incentives for other wellness programs that aren’t subject to the ADA or GINA.7

In early 2021, the EEOC proposed new rules for wellness programs subject to the ADA or GINA. The new rules called for these wellness programs to only have de minimus (minimal) incentives, such as water bottles or T-shirts.

Within weeks, though, the proposed rules were withdrawn, and it may be mid-2022 before new rules are put forth. Thus, for the time being, there are no official EEOC guidelines in terms of how penalties and incentives can be structured for wellness programs that include biometric screening or health risk assessments.

But the rules that were temporarily proposed by the EEOC in early 2021 provide insight into how the agency is likely to regulate wellness programs in the future. They will likely require participation incentives to be very small for wellness programs to retain their “voluntary” status if they’re subject to the ADA or GINA.8

How Wellness Programs Interact With Health Insurance Affordability Determinations

Under the Affordable Care Act, large employers are required to provide health coverage to their full-time employees who work 30 or more hours per week. And the coverage has to provide minimum value (i.e., be fairly comprehensive) and be considered affordable.

Wellness programs often include a financial incentive tied to the cost of an employee’s health insurance. So there were questions about how wellness programs would interact with the calculation to determine whether an employer’s health plan would be considered affordable.

In 2015, the IRS issued guidelines addressing this.9 In short, the rules say that for a nondiscriminatory tobacco-related wellness program (such as attending tobacco cessation classes), the employer can use the cost of the coverage after accounting for wellness program compliance to determine whether the health plan meets the affordability rules.

But for wellness programs that aren’t related to tobacco use, the employer must use the regular cost of the health plan (i.e., without any discounts earned by participation in the wellness program) to determine whether the health plan is considered affordable.

This is important since wellness programs can reduce the cost of an employee’s health coverage. If employers were allowed to calculate affordability based on the assumption that all eligible employees would successfully participate in any available wellness program, it could present a skewed impression of the affordability of the employer’s health plan.

Employers can make that assumption with regards to nondiscriminatory tobacco-related wellness programs. But for other wellness programs, employers must base affordability calculations on the regular health insurance premium without factoring in any discount that might be earned via the wellness program.

If an employee participates in the wellness program and gets a lower health insurance premium as a result, that’s a bonus. But the employer would have to ensure that the health coverage is affordable even without the wellness program or risk a penalty under the employer mandate.