Wellness Programs

1. Navigating the Legal Issues in Wellness Programs Sponsored by the Payors, Plans, and Managed Care Practice Group September 8, 2010 12:00 – 1:00 pm Eastern Presenter: Heidi E. Garwood Senior Legal Counsel, Humana Inc. Miramar, FL hgarwood@humana.com 1

2. Wellness Programs • Programs featuring a reward to encourage healthier lifestyles are increasing in popularity. • Tied to “Consumerism” – driving greater health care responsibility to member • Can be key component in disease management and health promotion initiatives. “One element of cost is that where companies are able to take initiatives to make their employees healthier, to give them incentives and mechanisms to improve their wellness and to prevent disease, companies see their bottom lines improve.” • Remarks by President Obama after roundtable discussion with business leaders. (May 12, 2009) 2

3. Overview • Legal IssuesAffecting Wellness Programs • HIPAA Title I requirements • ADA: EEOC Guidance on Health Risk Assessments (HRAs) • Genetic Information Non-Discrimination Act (GINA) • HIPAA Privacy Laws • State Issues • Unfair and deceptive trade practice acts • Specific state laws relating to wellness • Federal Tax Issues 3

4. HIPAA Title I • Nondiscrimination provisions of HIPAA -- Regulations published by Departments of Labor, Treasury, and HHS on December 13, 2006 (29 CFR 2590.702) • Applicable to plan years beginning after July 1, 2007. • Generally prohibit a group health plan from • Denying an individual eligibility for benefits based on a health factor and • Charging an individual a higher premium than a similarly situated individual based on a health factor. • Wellness Plan Exception: plans may vary benefits (including cost-sharing) and premiums or contributions based on whether an individual has met the standards of a wellness program which complies with the regulation. 4

5. Nondiscrimination Provisions (cont.) • Two Basic Types of Wellness Programs: • Participation Based • None of the conditions for receiving a reward (if any) require satisfying a standard related to a health factor. • Participation must be available to all similarly situated individuals • Examples: • Rewarding individuals for attending a periodic health education seminar. • Reimbursement for cost of smoking cessation regardless of whether member quits. • Waiver of co-payment/deductible for well-baby visits. 5

6. Nondiscrimination Provisions (Cont.) • Standard Based Wellness Programs • One or more of the conditions for receiving a reward require satisfying a standard related to a health factor • Must satisfy five (5) conditions: • Limitation on reward: reward must not exceed 20% of the annual cost of coverage for an employee or family. Full cost of relevant coverage (employer and employee paid portions) is counted. • Program must be reasonably designed to promote good health or prevent disease. • Has a reasonable chance of improving health or preventing disease • Is not overly burdensome • Is not a subterfuge for discriminating based on a health factor; and • Is not highly suspect in the method chosen to promote health or prevent disease. • Individuals must be given one chance per year to qualify. • Reward must be available to all similarly situated individuals. • Program must have a reasonable alternative standard (or waive the standard) for participants for whom it is • Unreasonably difficult due to a medical condition to satisfy the standard • Medically inadvisable to attempt to meet the standard • Disclosure: availability of a reasonable alternative must be disclosed in all plan materials describing the program. 6

7. Nondiscrimination Provisions (cont.) • 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.” 7

8. Standard Based Wellness Programs • Examples: • Premium discount of 20% for individuals who have an annual cholesterol test and achieve a cholesterol level below 200. • Program must provide an alternative standard for those individuals who are medically unable to meet the standard or for whom it is medically inadvisable to attempt to meet the standard. This alternative must be disclosed in plan materials. • Waiver of a plan’s deductible (which is not more than 20% of cost of employee-only coverage) for individuals who have a body mass index within a specified range. • Program gives individuals medically unable or for whom it is medically inadvisable to meet standard alternative of walking for 20 minutes per day and permits individual accommodation for those medically unable to meet alternative standard. Alternatives described in plan materials 8

9. Health Reform Changes to Non-Discrimination Provisions • For plan years after January 1, 2014, the PPACA • Increases reward/incentive to up to 30% of the cost of coverage (for standard based wellness programs). • Authorizes the Secretaries of Labor, HHS and Treasury to increase the reward to up to 50% of the cost of coverage if determined appropriate by the Secretaries. • The HIPAA non-discrimination rules may apply to individual plans. • PPACA creates 10-state demonstration project to apply in the individual market. • Title IV – Prevention of Chronic Disease and Improving Public Health -- includes CDC study of employer-based wellness practices. 9

10. Americans with Disabilities Act (ADA) • The Americans with Disabilities Act (ADA) • Prohibits employers from asking disability-related questions or conducting medical examinations unless the inquiry is job-related and consistent with business necessity. • A Health Risk Assessment (“HRA”) containing medical questions usually does not meet this standard. • Allows voluntary post-employment medical exams or inquiries as part of an employee health program at the worksite. 10

11. ADA: EEOC’s Position • Equal Employment Opportunity Commission (EEOC)charged with enforcing ADA has not taken an official position on HRAs or other medical exams as party of a wellness program. • Under their informal guidance EEOC takes the following position on wellness plans: • HRAs required as part of HIPAA-compliant wellness plans are prohibited by the ADA unless they are voluntary. • The EEOC has not stated what level of inducement, or incentive for taking the HRA is permissible for the inquiry to be considered “voluntary”. 11

12. EEOC’s Position (cont.) • EEOC’s Office of Legal Counsel issued two informal letters on HRAs • March 2009 letter - ADA violated if employees are required to participate in an HRA to be eligible for health benefits • Reasoned that a medical exam or inquiry is not voluntary if a penalty attaches for not completing it. • Explains that where an employee loses the opportunity to obtain health benefits by not completing an HRA, the program is not voluntary since the employee is denied a benefit and thus penalized if he chooses not to participate. • August 2009 letter – HRA not voluntary if employer conditions reimbursements under a health reimbursement arrangement on whether HRA is completed. • Letter deals with an employer that conditioned reimbursements under a health reimbursement arrangement on whether the employee completed the HRA. • Reasoned that medical inquiry in the HRA was not voluntary because employee would not be entitled to reimbursement if she did not complete HRA. 12

13. Genetic Information Non-discrimination Act (“GINA”) • Under GINA, health plans cannot request, require, or purchase “genetic information” prior to enrollment or for “underwriting purposes”. • “Underwriting” defined in the interim final regulations (published October 2009) to include changing deductibles, providing discounts, rebates, payments-in kind or other premium differential mechanisms in return for completing an HRA or participating in a wellness program • “Genetic Information” defined to include family medical history • GINA regulations prohibit plan from asking family medical history questions if: • Information is requested in an HRA prior to enrollment in the plan or • Family medical history question is tied to any reward • Wellness programs that provide rewards for completing an HRA that requests genetic information (including family medical history) violate GINA • Even if incentives are not based on the outcome of the assessments • Regardless of amount. 13

14. GINA: Recent Developments • December 1, 2009 letter from HHS Secretary Sebelius to American Heart Association • Some indication that HHS may move off of its previous broad interpretation of GINA related to HRAs • Letter included the following: • “Under GINA a plan can continue to use financial incentives to encourage employees to complete an HRA, if the section of the form seeking family medical history includes a notice that completing that section is optional and that the reward will be received whether that section is completed or not.” • Final GINA Regulations have not yet been issued. 14

15. HIPAA Privacy Law Issues • Health Information gathered from HRA (i.e., whether employee is a smoker) would be considered PHI if HRA is administered as part of the plan benefit. • PHI must adhere to HIPAA privacy requirements such that in general it can only be used for payment, treatment and health plan operations. • If HRA is administered by health plan, the plan could not share PHI with employer for employment related purposes. • Wellness programs do not fall within definition of “marketing” under HIPAA • So long as they are operated by the covered entity or a business associate. • Considered covered entity’s own health related services. • Communication that promotes health in a general manner and does not promote a specific product or service from a particular provider is not “marketing” 15

16. HIPAA Privacy Law Issues • When does administration of a wellness program make an employer a covered entity? • Examples of situations where employer would not be considered a covered entity -- • Company offering a gift card to complete an HRA with no incentives provided through the group health plan and participation not limited to plan enrollees. • “Premium holiday” offered to non-smokers administered as reimbursement program outside of health plan benefit. • Employer as BA of health plan -- employer collecting smoking questionnaire during open enrollment with plan eligibility conditioned on completion 16

17. State issues • Unfair and Deceptive Trade Practice Acts • National Association of Insurance Commissioner's (NAIC) model provision considers it an unfair trade practice when an insurance plan pays, allows, gives, or offers to pay, allow or give, directly or indirectly, anything of value as an inducement to purchasing insurance coverage UNLESS the item of value is specified in the insurance policy. • This provision has been adopted in some form by all but 3 states: California, Mississippi & Utah. • Wellness Program laws • Approximately 22 states have specific legislation addressing and allowing wellness programs • Many of these laws specifically reference and are founded on federal HIPAA non-discrimination rules. • New Hampshire actually requires wellness programs for small groups having less than 1,000 covered lives. 17

18. Specific State Wellness laws • Colorado • Recent legislation similar to HIPAA Title I with following additional requirements: • Standard based reward programs must be reviewed and determined by a nationally recognized nonprofit wellness accreditation entity to meet the non-discrimination criteria. • The wellness program must be scientifically proven to improve health and the carrier cannot provide incentives based on an individual’s active health status 18

19. State Wellness Program Laws • Prior to implementation, specific state laws need to be reviewed to determine: • If wellness program complies with specific state laws pertaining to • Wellness programs • Discrimination prohibitions • Unfair and Deceptive Trade Practice Act • To ensure wellness program meets regulators approval, consider • Filing wellness program in certificate of coverage • Meet with state’s DOI to review wellness program 19

20. Federal Taxation • General Rule (IRC §61(a)) -- “gross income” is all income from whatever source derived, unless there’s an available exclusion. • No controlling guidance from the IRS on the taxation of rewards points (despite proliferation of rewards programs) • If reward is part of a health plan benefit may fall under health insurance benefit exclusion • Different type reward programs will require their own tax analysis 20

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