WELLNESS: Buying Your Way to Good Health

1. WELLNESS:Buying Your Way to Good Health June 10, 2008 James R. GriffinJackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 214.953.5827 214.953.5822 (fax) jgriffin@jw.com

2. HIPAA • Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) • Nondiscrimination provisions • Code § 9802; ERISA § 702; PHS Act § 2702 • Final rules – December 13, 2006 • Applicable on the first day of the plan year beginning on or after July 1, 2007 (January 1, 2008 for calendar year plans)

3. HIPAA’s Nondiscrimination Rules • Prohibit group health plans from: • Discriminating in eligibility, benefits or contributions based on health factors, e.g.: • Health status • Medical condition • Claims experience • Disability

4. HIPAA’s Nondiscrimination Rules (cont’d) • Exceptions: • Discrimination in favor of individuals on the basis of a health factor • Wellness programs that meet certain requirements

5. HIPAA and Wellness Programs • Steps to determine if HIPAA applies • Regardless of whether HIPAA applies, other laws likely implicated: • Compliance with HIPAA not determinative of compliance with ADA, ERISA or any other state or federal law

6. Does HIPAA Apply? • HIPAA applies to group health plans • Plans (including self-funded plans) of, or contributed to by, an employer to provide health care to employees • Wellness program must require eligible employees or their dependents to meet a health standard to obtain a group health plan-related reward • E.g., premium reductions for meeting a health standard (such as a targeted BMI or quitting smoking)

7. HIPAA Does Not Apply • Program that reimburses all or part of a fitness center membership • Diagnostic testing program providing a reward for participation not based on outcomes • Program that encourages preventive care • E.g., waives copayments or deductions under a group health plan for costs of well-baby visits

8. HIPAA Does Not Apply (cont’d) • Program that reimburses employees for the cost of smoking cessation programs, without regard to whether employee quits smoking • Program that rewards employees for attending health education seminar • Gift cards offered to employees who complete a health risk assessment (“HRA”)

9. Examples • Medical expense debit card to any employee who completes an HRA • Not subject to HIPAA • 10 % group health plan premium reduction to nonsmokers • Subject to HIPAA • Must meet HIPAA’s wellness program requirements: • Tied to group health plan (premium reductions) • Contingent on meeting standard (not smoking) • Based on health-related factor (nicotine addiction)

10. HIPAA Applies Must Meet Five Requirements 1. Limited Reward • Must not exceed 20 % of the cost of plan coverage • 20 % based on cost of: • Employee-only coverage or coverage tier for employee and dependents • Total amount of employer and employee contributions • Can be in the form of discount, rebate, waiver, absence of a surcharge or value of a benefit not otherwise offered

11. HIPAA Applies (cont’d) Must Meet Five Requirements 2. Reasonably designed to promote health or prevent disease • Not overly burdensome, not a subterfuge for discriminating based on a health factor and not highly suspect in the method chosen • Intended to be broad while prohibiting extreme requirements

12. HIPAA Applies (cont’d) Must Meet Five Requirements 3. Opportunity to qualify for reward must be given at least once per year • Any program reward or incentive resulting in permanent disqualification violates this requirement

13. HIPAA Applies (cont’d) Must Meet Five Requirements 4. Reward must be available to similarly situated individuals • Can treat participants as two or more distinct groups if distinction is based on a bona fide employment-based classification • If an individual’s health factor makes it inadvisable or difficult to reach goal, plan must offer a reasonable alternative standard or waive • Plan can seek physician verification

14. HIPAA Applies (cont’d) Must Meet Five Requirements 5. Disclose availability of alternative standard • Materials describing wellness program reward must describe reasonable alternative standard or mention that one will be made available

15. HIPAA Applies (cont’d) • Model disclosure language: 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.

16. Tax Issues • Internal Revenue Code of 1986 (“Code”) • Financial incentives like cash are taxable and subject to withholding • Can exclude from gross income only if an employee achievement award or de minimis fringe benefit • Group health plan-related incentives like contributions to HRAs, FSAs and HSAs not taxable • Medical expense debit cards

17. Penalties • Violation of HIPAA’s nondiscrimination rules • IRS penalties = excise tax of $100 per day for each individual to whom the violation relates • Accrues on a daily basis until corrected • Maximum and minimum apply • DOL enforcement: can sue to prevent an employer from implementing a program in violation • Can assess a penalty of $110 per day for failure to provide wellness program documents (maximum assessment of $1,000 per request)

18. WELLNESS:Buying Your Way to Good Health June 10, 2008 James R. GriffinJackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 214.953.5827 214.953.5822 (fax) jgriffin@jw.com