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NSAC's TAX & ACCOUNTING CONFERENCE FOR COOPERATIVES: AFFORDABLE CARE ACT, HIPAA &WELLNESS
Amy Gordon
McDermott Will & Emery
December 3, 2013
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Summary of Our Discussion
Affordable Care Act 2013 Forward
HIPAA
Wellness
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The ACA is Here to Stay
Supreme Court Decision
June 28, 2012, the Supreme Court of the United States upheld the most significant provisions of the ACA
Individual Mandate was upheld under Congress’ taxing authority
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Small Business Tax Credit (Effective 2011)
Small Business Health Care Tax Credit
– New credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees
• The company must have fewer than 25 full-time equivalent employees (FTEs)
• 20 half-time employees are equivalent to 10 full-time workers
– Specifically targeted for those companies with low and moderately paid workers
• Employees must have average wages of less than $50,000 a year
• For tax years 2010-2013, the maximum credit is 35% for small business employers and 25% for small tax-exempt employers such as charities
• On Jan. 1, 2014, the rate will increase to 50% and 35%, respectively
– The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have
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Small Business Health Care Tax Credit
Small Business Health Care Tax Credit (how it works)
– If a small business employer did not owe tax during the year, the company can carry the credit back or forward to other tax years
– If the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit, thus both a credit and a deduction is applicable for employee premium payments
– Businesses that receive state health care tax credits may also qualify for the federal tax credit
• Dental and vision care qualify for the credit as well
– The maximum credit will be available to employers with 10 or fewer full-time equivalent employees and average annual wages of less than $25,000
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Small Business Health Options Program
Small businesses with up to 100 employees will have access to state-based Small Business Health Options Program (SHOP) Exchanges, which will expand their purchasing power
States are required to set up SHOP Exchanges
Federal Exchange currently delayed until November 2014
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Comparative Effectiveness Research Fee
For plan years beginning after September 30, 2012 through 2013, self-insured health plans and fully-insured health plans (through the insurer) will be assessed a $1 per participant fee to fund research regarding patient centered outcomes for medical treatment
The fee adjusts to $2 per participant for policy or plan years ending Oct. 1, 2013, through Sept. 30, 2014
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Health Flexible Spending Account Limits
$2,500 Maximum limit for health flexible spending accounts (FSA), effective for plan years on or after January 1, 2013
The $2,500 amount will be adjusted annually for inflation beginning in 2014
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Loss of Medicare Part D Subsidy Deduction (Effective 2013)
The deduction for the portion of health care expenses that are reimbursed to the employer through the Medicare Part D subsidy program will no longer be available
– The Retiree Drug Subsidy will remain in existence, however an employer’s ability to deduct the amount of the subsidy will end
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Itemized Medical Expenses on your Tax Return (Effective 2013)
Itemized medical expenses must be for over 10% of your income in order to be deductible. In the past, if you itemized deductions and your eligible medical expenses were over 7.5% of your adjusted income, they were deductible
This will only affect you if you are under age 65
For taxpayers who are 65 and older, the threshold remains at 7.5% of adjusted gross income through 2016
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FICA Medicare Tax Increase (Effective 2013)
The FICA Medicare tax rate will increase by 0.9% for wages over $200,000 ($250,000 for married couples filing jointly)
– FICA taxes are comprised of Social Security and Medicare taxes, thus this change increases the employee’s portion of the FICA Medicare tax from 1.45% to 2.35% for wages over $200,000 ($250,000 for married couples filing jointly)
– An employer will be required to collect the employee’s portion of this FICA Medicare tax
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Net Investment Income Tax (Effective 2013)
The 3.8% Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts
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Employer Pay or Play Mandate (New Effective Date 2015)
Only applies to plans with 50 or more full time employees (FTEs)
Non-deductible excise tax applies for no coverage offered or coverage offered to less than 95% of full-time employees
– Penalty if one FTE obtains a tax credit or cost sharing assistance is $2,000 per FTE in excess of 30 employees
Non-deductible excise tax for providing “unaffordable coverage” which means the employer offers health coverage, but at least one full-time employee receives a premium tax credit to help pay for coverage on an Exchange and the coverage was unaffordable to that employee
– Penalty of $3,000 per FTE who receives a federal subsidy capped at $2,000 per FTE in excess of 30 employees
– Unaffordable coverage means it exceeds 9.5% of the individual’s household income (proposed Regs. include a safe harbor)
– The employee falls within 100%-400% of the federal poverty level; and
– The plan’s share of allowed costs under the plan is less than 60%
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Employer Pay or Play Mandate
Source: CRS analysis of P.L. 111-148 and P.L. 111-152
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Employer Pay or Play Mandate
Definition of 50 or more full time employees (FTEs)
– A full-time employee is an individual employed on average at least 30 hours per week (so half-time would be 15 hours per week)
– Includes for profit, non-profit and government entity employers
– Employers average their number of employees across the months in the year to see whether they meet the large employer threshold
• The averaging can take into account fluctuations that many employers may experience in their work force across the year
– Companies that have a common owner or are otherwise related generally are combined together for purposes of determining whether or not they employ at least 50 full-time employees (or an equivalent combination of full-time and part-time employees)
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Employer Pay or Play Mandate
Counting Hours of Service
– The IRS has defined an hour of service to mean each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence
– The proposed regulations do not limit the number of paid non-work hours that must be taken into account
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Employer Pay or Play Mandate
Counting Hours of Service
– For employees paid on an hourly basis, an employer is required to calculate actual hours of service from records of hours worked and for non-worked hours for which payment is made or due (vacation, holiday, illness, incapacity, etc.)
– For employees not paid on an hourly basis, an employer must calculate hours of service using one of the following three methods:
• counting actual hours worked and non-worked hours for which payment is due, as described above;
• using a days-worked equivalency method (eight hours of service for each day for which the employee is entitled to pay for worked or non-worked time; or
• using a weeks-worked equivalency (40 hours of service per week for each week for which the employee is entitled to pay for worked or non-worked time)
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Employer Pay or Play Mandate
Determining Minimum Value
– The plan must cover at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan
– A minimum value calculator is available on the Department of Health and Human Services (HHS) website
– Employers can input certain information about their plan, such as deductibles and co-pays, into the calculator and get a determination as to whether the plan provides minimum value
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Overview of Exchanges
State-Based Exchange
The State/Exchange is responsible for all activities, although federal assistance may be available for:
• Premium tax credit and cost- sharing subsidy eligibility determinations
• Exemptions
A State can elect to:
• Perform risk adjustment, subject to use of a HHS-approved methodology
• Implement an additional reinsurance program
Partnership Exchange
State responsible for:
• QHP/Issuer management, and/or
• Consumer assistance
State can elect to perform Medicaid/CHIP eligibility assessment or determination
Federally-Facilitated Exchange
HHS is responsible for all activities
State can elect to perform Medicaid/CHIP eligibility assessment or determination
** States have the flexibility to transition between models annually
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Employer Pay or Play Mandate
Calculation of the excise tax penalty
For purposes of the excise tax calculation, a full-time employee does not include a full-time equivalent
For an employer that offers coverage for some months but not others during the calendar year, the payment is computed separately for each month for which coverage was not offered
– The amount of the payment for the month equals the number of full-time employees the employer employed for the month (minus up to 30) multiplied by 1/12 of $2,000
– If the employer is related to other employers then the 30-employee exclusion is allocated among all the related employers
– The payment for the calendar year is the sum of the monthly payments computed for each month for which coverage was not offered.
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Employer Pay or Play Mandate
Calculation of the excise tax penalty
If an employer offers coverage, but has one or more full-time employee who receive a premium tax credit, the payment is computed separately for each month
– The amount of the payment for the month equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,000
– The amount of the payment for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 30) multiplied by 1/12 of $2,000. (The cap ensures that the payment for an employer that offers coverage can never exceed the payment that employer would owe if it did not offer coverage)
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Subsidies (Effective 2014)
Individuals and families may qualify for a subsidy in the form of an advance tax credit if their household income is between 100% and 400% of the federal poverty level, are not eligible for coverage through a government-sponsored program like Medicaid or CHIP, and are not eligible for coverage offered by an employer or are eligible only for employer coverage that is unaffordable or that does not provide minimum value
Individual subsidies-
– For instance, a family of four with an income of 200% of the poverty level, or about $46,000 in 2012, will pay no more than $235 a month for health insurance
– Individuals with household incomes of less than 250% of the poverty level will also get subsidies to reduce their out-of-pocket costs, such as deductibles and coinsurance
– More information will be provided with the exchange
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Penalties for those without medical coverage (Effective 2014)
The penalty starts at $95, $285 per family, or 1% of income (whichever is greater)
It gradually increases until it hits 2.5% or $695, $2,085 per family (whichever is greater) by 2016
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The Role of Navigators and Brokers
ACA requires every state to have an exchange for individual consumers and small employers to purchase health insurance coverage
– If a state refuses to set up an exchange, a federal exchange will be the fallback
Intent of ACA was to create a financially “neutral” advisor for consumers making health insurance plan selections
– ACA requires every exchange to have a Navigator program to facilitate health plan enrollment
Agents and brokers are specifically listed by the law as one of the groups that may be Navigators
ACA specifically provides for state health insurance exchanges to choose to utilize the services of agents and brokers beyond the navigator program to help exchange customers both with enrollment in qualified plans and also with the premium tax credits
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Delivery of Navigator Services
Consumers will have access to assistance through services such as a call center
Customer service representatives will staff the call center and will provide referrals to the appropriate state or federal agencies, or other forms of assistance programs
– In-person assistance personnel
– Certified application counselors
– Agents and brokers
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HIPAA Wellness Incentive Cap Increase (Effective 2014)
The current cap on certain wellness incentives under is 20%
– General cap increases to 30%
– 50% for tobacco cessation programs
More details to follow
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Automatic Enrollment
Employers with more than 200 full time employees that offer at least one health plan benefit option must automatically enroll all new employees in a benefit option and continue the enrollment of current employees in a health benefit plan offered by the employer (the effective date on this is unclear, but we think it is likely to be 2014)
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Temporary Reinsurance Program Fee
Temporary Reinsurance Program Fee
– Health insurers and third party administrators on behalf of group health plans will be required to make contributions to a transitional reinsurance program to make reinsurance payments to health insurance issuers that cover high risk individuals in the individual market to reduce uncertainty and stabilize markets as the exchanges become operational
– The fee applies for a three-year period beginning January 1, 2014
– The fee is a per capita fee on any covered life under the plan (includes employee and dependents)
– The amount of the fee will is $63 per covered life for 2014 and $44 for the 2015
– This fee is passed onto employers by insurers (through higher premiums) and third party administrators
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Employer Reporting (Effective 2015)
Employer Reporting of Health Insurance Coverage- Every person who provides minimum essential coverage to an individual during a calendar year will have to file a special return
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Expanded Exchanges (Effective 2017)
Health insurance exchanges will be expanded to allow large employers- states will be able to permit large employers to purchase coverage through health insurance exchanges
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Cadillac Tax (Effective 2018)
A nondeductible 40% excise tax will be imposed on the value of high cost coverage in excess of $10,200 for single coverage and $27,500 for family coverage, indexed for inflation
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New HIPAA Rules for 2013
Direct regulation of BAs and subcontractors
Vicarious liability for health plans for acts of BA agents
New privacy notice distribution rules for plans with websites
Revised breach notification standards
Restriction on use of genetic information for underwriting purposes, except with respect to long-term care insurance
Expanded right to electronic access to PHI
Clarification of right to restriction of use and disclosure of PHI
PHI of deceased individuals
Increased HHS oversight, including mandatory investigation of willful neglect
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Protected Health Information (PHI)
Information that relates to the past, present, or future
– Physical or mental health condition;
– Payment for health care; or
– Provision of health care; and
Identifies or can be used to identify the individual, e.g., name, address, employer, date of birth, e-mail address, telephone and fax, social security number, photos, vehicle number, license number, date of death, etc.; and
Relates to an employer group health plan
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Core HIPAA Privacy Principles
A health plan may use or disclose PHI only as necessary to administer the plan or to comply with applicable law
Even when a use or disclosure is permitted, only the minimum necessary amount of information should be provided
All other uses and disclosures of PHI require the individual’s authorization
PHI must be safeguarded
Employer plan sponsors are expressly prohibited from using PHI for employment-related purposes, such as hiring, termination, and associate discipline
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Core HIPAA Privacy Principles
If unsecured PHI is improperly used or disclosed, affected individuals must be notified
Only employees with health plan administration responsibility may use and disclose PHI; employees must be trained on HIPAA
Individual rights with respect to PHI: (1) access, (2) amendment, (3) accounting, (4) restriction, and (5) confidential communication
Third party health plan vendors using, disclosing, or creating PHI must sign BA agreements
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Business Associates (BA)
A BA is a contractor or vendor that uses or discloses PHI to perform services for a health plan
– Certain HIPAA Privacy Rules will directly apply to BAs under new 2013 Regulations
– Penalties for HIPAA violations apply to BAs in the same way as to health plans
2013 Regulations clarify that data center operators, data storage facilities, cloud service vendors, and other vendors that maintain or transmit PHI are BAs even if they do not actively access the PHI
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Subcontractors
BAs must enter into BA agreements with its downstream service providers (subcontractors) that may create, use, or disclose PHI on behalf of the BA
Subcontractors must enter into BA agreements with their own service providers (subcontractors) that may create, use, or disclose PHI
Each agreement in the BA chain must be at least as stringent as the initial agreement between the health plan and the BA with respect to permitted uses and disclosures of PHI
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Vicarious Liability for Business Associate Violations
A health plan will be liable for BA HIPAA violations if the BA is acting as an “agent” of the health plan under federal common law
Labels in the BA agreement (e.g., a provision stating that the BA is an independent contractor and not an agent) are not controlling
Contract provisions that permit the health plan/plan sponsor to direct or control the BA’s conduct in performing services for the health plan could be evidence of an agency relationship
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Business Associate Agreements
Health plans/plan sponsors must sign an agreement with each BA before sharing PHI with the BA
All BA agreements must comply with the new final HIPAA regulations by September 23, 2013
For existing relationships with compliant BA agreements in place prior to January 25, 2013, the deadline for amendment is extended to September 23, 2014
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Revised Definition of Breach
Under the Final Rule, a Breach is presumed unless CE or BA demonstrates that there is a “low probability” that the privacy of PHI has been compromised based on a risk assessment considering at least the following factors:
– The nature and extent of the PHI involved, including the types of identifiers and the likelihood of re-identification
– The unauthorized person who used the PHI or to whom the disclosure was made
– Whether the PHI was actually acquired or viewed
– The extent to which the risk to the PHI has been mitigated
The Covered Entity or BA has the burden to prove that an unauthorized disclosure is not a Breach
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Statutory Exceptions to Breach
Final Rule preserves following statutory exceptions:
– Unintentional use by workforce member in good faith, within scope of authority and without further impermissible disclosures
– Inadvertent disclosures by a person authorized to access PHI to another person authorized to access PHI at the same CE or BA and without further impermissible disclosures
– Unauthorized recipient would not reasonably be able to retain PHI
Final Rule eliminates exception for unauthorized use or disclosure of data that excludes the 16 “Direct Identifiers,” date of birth and zip code, but such limited disclosure may present a “low probability” that PHI is compromised under risk assessment
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HIPAA Privacy Notice
Each health plan must distribute a privacy notice describing the plan’s use and disclosure of PHI
Must be provided at enrollment
Covered individuals must be reminded of the availability of the notice at least every three years
Notice must be revised and re-distributed when the plan’s policies and procedures are materially changed
Updated privacy notice for 2013 regulations must be distributed by September 23, 2013
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Restrictions on Use of Genetic Information
Under GINA and the 2013 Regulations, genetic information generally cannot be used or disclosed for underwriting purposes, even with an authorization
– Exception for long-term care insurance
Applies to all genetic information as of March 26, 2013, regardless of when or where the genetic information originated
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HIPAA Individual Rights
Access to or copies of PHI
Amendment of PHI in health plan records
Receive an accounting of certain disclosures of PHI made by the health plan
Restriction on the use and disclosure of PHI
Confidential communication of PHI
File complaints with the health plan’s privacy officer or the US Department of Health and Human Services
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Expanded Right to Access Electronic PHI
Access to PHI in paper or electronic format must be provided within 30 days of the request, even if off-site
A health plan must provide an electronic copy of any PHI in a designated record set that is maintained in electronic records systems
Information must be provided in the electronic form or format requested by the individual, if readily producible
An individual may direct that electronic PHI be provided directly to a person or entity designated by the individual
Limits on fees charged for the provision of electronic PHI
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Clarification of Right to Request Restriction
Generally, an individual’s requests for restriction do not have to be granted
HITECH created an exception - a covered entity must comply with a request for restriction on disclosure of PHI if:
– the disclosure is to a health plan for payment or health care operations reasons (and not for purposes of carrying out treatment); and
– the PHI pertains solely to a health care item or service for which the health care provider involved has been paid out-of-pocket in full
Regulators clarified that this requirement only applies to health care providers and not to health plans
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PHI of Deceased Individuals
Previously, PHI never lost protected status
Under the 2013 Regulations, a participant’s PHI remains protected for 50 years following death
Limited PHI may be disclosed to individuals who were involved in the participant’s care or payment for the participant’s health care prior to death
The executor or administrator of a participant’s estate is treated as the individual’s personal representative – all PHI can be shared with that person
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Expanded Enforcement of HIPAA
HHS must perform periodic audits of covered entities and BAs (previously, complaint-based)
2013 Regulations provide for mandatory HHS investigation of any complaint if a preliminary review of the complaint indicates a possible violation due to willful neglect
2013 Regulations give HHS discretion to proceed directly to formal enforcement action to impose penalties for violations
States may bring a civil action to enjoin further violation - damages up to $100 per violation, up to $25,000 for a year
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Potential Civil and Criminal Penalties
Civil penalties – can now be $50,000 or more for each violation, up to maximum of $1,500,000 for violations of the same requirement; penalty amount depends on circumstances – penalties are mandatory for willful neglect
Criminal penalties - $50,000 and/or one year in prison for wrongful disclosure, and up to $250,000 and/or ten years in prison for offenses committed with the intent to sell information
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Newly Issued Final Wellness Regulations
Published on June 3, 2013
Issued by Internal Revenue Service, United States Department of Labor and Centers for Medicare & Medicaid Services
Generally applies to self-insured and fully-insured group health plans for plan years beginning on or after January 1, 2014 (grandfathered and non-grandfathered)
Applies to individual health insurance issuers for policy years beginning on or after January 1, 2014
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Types of Wellness Programs
Divides wellness programs into two categories
– Participatory wellness programs; and
– Health contingent wellness programs are broken down into two categories
• Activity-only wellness programs, and
• Outcome-based wellness programs
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Participatory Wellness Programs
Either do not provide a reward or do not include any conditions for obtaining a reward that are based on an individual satisfying a standard that is related to a health factor
– Example, a program that reimburses all or a portion of the cost of membership in a fitness center
– Must be made available to all similarly situated individuals, regardless of health status
– Not required to meet the Five Factor Test
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Health Contingent Wellness Programs
Activity-only wellness programs
An individual is required to perform or complete an activity related to a health factor in order to obtain a reward
Activity-only wellness programs do not require an individual to attain or maintain a specific health outcome
– Examples, Exercise programs
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Health Contingent Wellness Programs
Outcome-Based Wellness Programs
An individual must attain or maintain a specific health outcome to obtain a reward
– Example, BMI in a particular range, not smoking, good cholesterol numbers
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Health Contingent Wellness Programs (5 Factors)
The reward may not exceed 30% of the cost of coverage and up to 50% for tobacco cessation programs
The program must be reasonably designed to promote health or prevent disease
The program must give eligible individuals the opportunity to qualify for the reward at least once a year
The reward must be made available to all similarly situated individuals (including making available a reasonable alternative standard)
The plan must disclose in all plan materials describing the terms of the program the availability of other means of qualifying for the reward or the possibility of waiver of the otherwise applicable standard
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Health Contingent Wellness Programs
Must offer a ‘‘reasonable alternative standard’’
– A reasonable alternative standard for obtaining the reward must be provided for any individual for whom, for that period, it is either unreasonably difficult due to a medical condition to meet the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard
– Can seek reasonable verification
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Health Contingent Wellness Programs
Notice of Availability of Reasonable Alternative Standard
– Require plans and issuers to disclose the availability of a reasonable alternative standard to qualify for the reward and possibility of waiver
– Must include contact information for obtaining alternative and a statement that recommendations of an individual’s personal physician will be accommodated
– For outcome based-wellness programs, this notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard
– Sample language now includes a statement that recommendations of an individual’s personal physician will be accommodated
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Questions