Wellness Programs Are Win-Win

Having a healthy workforce benefits your workers and your business. In short, workers have a better life and the company gains productivity. The Affordable Care Act carefully delineates what you can do with wellness programs if you want to write off the costs of sponsoring these programs while avoiding legal hassles.

Here's what you need to know.

A company can pay for wellness programs and deduct the costs as long as the programs adhere to government regulations. These regulations require that access to programs is nondiscriminatory (i.e., not limited to owners or other key people). The regulations also group wellness programs into two categories: participatory wellness programs and health-contingent wellness programs; each has its own rules.
Participatory wellness programs
These are programs that do not provide a reward that is based on an individual's satisfying a standard that is related to a health factor. Additionally, participatory wellness programs may not include conditions related to an individual's health or wellness.
  • Programs that reimburse all or part of the cost of membership at a fitness center (regardless of how often an employee uses the facility)
  • Diagnostic testing programs that reward for participation without regard to outcome
  • Programs that reward attendance at a monthly no-cost education seminars
Health-contingent wellness programs
These are programs that require an individual to satisfy a requirement related to a health factor in order to obtain a reward. The requirement for the same reward may vary by individual based on particular health factors.  This standard may be met by performing or completing an activity relating to a health factor, or it may be fulfilled by attaining or maintaining a specific health outcome.
Health-contingent wellness programs are divided into two categories: activity-only wellness programs (where employees must perform or complete an activity to receive a reward) and outcome-based wellness programs (where employees must obtain or maintain a specific health outcome to receive a reward). Both of these types of health-contingent wellness programs are permissible only if they comply with the federal regulations.
Examples of activity-only wellness programs:
Walking, diet, or exercise programs.
Examples of outcome-based wellness programs:
Programs that test employees for specified medical conditions or risk factors (e.g., high cholesterol, high blood pressure, abnormal BMI, or high glucose level) and provide a reward to employees identified as within a normal or healthy range (or to those at low risk for certain medical conditions), while requiring employees who are identified as outside the normal or healthy range to take additional steps (e.g., meeting with a health coach, taking a health or fitness course, adhering to a health improvement action plan, or complying with a health care provider's plan of care) to receive the same reward.

What you need to know

The government has issued final rules on wellness programs. The rules are lengthy and rather complex. Here are the key takeaways:
Health-contingent programs must meet all five requirements:
  1. Those eligible for the program must be given the opportunity to qualify for the reward at least once per year.
  2. The total reward offered cannot exceed the applicable percentage (usually 30%, or 50% for tobacco cessation programs) of the total cost of employee-only coverage under the plan. This takes into account both employer and employee contributions towards the cost of coverage for the benefit package under which the employee and/or any dependents are receiving coverage.
  3. The programs must be reasonably designed to promote health or prevent disease (rather than being punitive).
  4. The programs must offer uniform availability and reasonable alternative standards so all eligible employees have an opportunity to qualify for the reward. Activity-only wellness programs must offer a reasonable alternative to accommodate any individual for whom it is either unreasonably difficult or inadvisable, due to a medical condition, to attempt to satisfy the applicable standard. Outcome-based wellness programs must provide a reasonable alternative standard to all individuals who do not initially meet the targeted standard, to ensure that the program is reasonably designed to improve health, as opposed to being a subterfuge for underwriting or reducing benefits based on health status.
  5. A disclosure of a reasonable alternative standard to qualify for the reward must be placed in all plan materials, along with the possibility of a waiver of the standard, if applicable. This must include contact information for obtaining the alternative and a statement that recommendations of an individual's personal physician will be accommodated. For outcome-based wellness programs, the notice must be included in any disclosure that an individual did not satisfy an initial outcome-based standard.
Participatory wellness programs must be offered on a nondiscriminatory basis to be deductible and comply with federal law.
There is no safe harbor that you can use to avoid full compliance. If you have a wellness program that doesn't comply with the rules, you face several penalties:
  • You may be sued by an employee or other person offered a wellness program if it turns out that yours is discriminatory.
  • The IRS can impose an excise tax of $100 per day of noncompliance for each affected individual.
  • The U.S. Department of Labor can bring a civil action against you to enforce the rules.
  • The EEOC has yet to say what wellness programs violate the Americans with Disabilities Act, so a potential minefield awaits.
Bottom line: Wellness programs can serve a number of business purposes. However, it's essential to discuss any proposed wellness program with a benefits expert before you offer one.

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