The Health Insurance Portability and Accountability Act (HIPAA) regulate how employers may use wellness programs to encourage healthy behavior in employees without discriminating against individuals based on health factors. These rules include limits on employee incentives (and penalties) based on participation in a health-contingent wellness program. The Affordable Care Act (ACA) increased these limits beginning in 2014, from 20 percent to 30 percent generally, and from 20 percent to 50 percent for smoking cessation programs. In addition, the ACA also changed the HIPAA wellness rules for operating a health-contingent program.  

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Wellness Program Rules

Summary: The Health Insurance Portability and Accountability Act (HIPAA) regulate how employers may use wellness programs to encourage healthy behavior in employees without discriminating against individuals based on health factors. These rules include limits on employee incentives (and penalties) based on participation in a health-contingent wellness program. The Affordable Care Act (ACA) increased these limits beginning in 2014, from 20 percent to 30 percent generally, and from 20 percent to 50 percent for smoking cessation programs. In addition, the ACA also changed the HIPAA wellness rules for operating a health-contingent program.

Additional information: the final regulations confirm two types of wellness programs:

  • Participatory wellness program: a wellness program that either does NOT offer a reward, or does NOT condition the reward upon a health factor, and
  • Health-contingent wellness program: A wellness program that DOES condition the reward upon a health factor.

    The final regulations further divide health-contingent programs into two sub-categories:

Activity-only wellness program:

Defined as a wellness program in which an individual is required 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 a specific health outcome. Examples include walking, diet or exercise programs.

Outcome-based wellness program:

Defined as a wellness program in which an individual must attain or maintain a specific health outcome in order to obtain a reward. Outcome-based programs generally have two parts:

  • A measurement, test, or screening to establish an initial standard
  • A program that targets individuals who do not meet the initial standard

These programs typically test for specific medical conditions or risk factors and provide a reward to employees identified as having a normal or healthy range, and may require employees outside the normal or healthy range to take additional steps to obtain the same reward. Examples include rewards for not smoking or attaining certain results on biometric screening.

If a wellness program falls within the health-contingent category, whether activity-based or outcome-based, the employer must comply with a series of additional requirements under HIPAA, an explanation of which is outside the scope of this analysis and of Ceridian’s services generally. Employers considering health-contingent wellness programs should consult with their advisors to ensure compliance with HIPAA and other applicable laws.

Effective date: Plan or policy years starting on or after Jan. 1, 2014.

Subject to the requirement: These rules generally apply to premiums for group health plans, including major medical, dental, vision, HFSA and HRA plans.

Size of employers subject: All.

Employer impact: Employers that sponsor wellness programs and that wish to incent or penalize certain behaviors should take action to ensure that any health-contingent wellness program penalties or incentives fall within these limits, and that any health-contingent programs meet the HIPAA wellness rules requirements.

View the final regulations.