Many employers implement wellness programs into their employee health plan offering. Wellness programs have varying designs but commonly offer premium discounts to participants who are tobacco-free or achieve certain biometric thresholds encouraging healthy living (LDL cholesterol, glucose, blood pressure, BMI). Non-compliant programs have become a frequent target for plaintiffs’ lawyers, arguing certain designs violate nondiscrimination requirements of the Health Insurance Portability and Accountability Act (“HIPAA”). Bass Pro Shops recently settled a lawsuit for nearly $5 million, but employers of all sizes are at risk.
HIPAA generally prohibits charging higher premiums based on a health factor (like tobacco use or the health metrics mentioned above). A safe-harbor exception permits premium discounts/surcharges for programs that promote good health and disease prevention. Health-contingent, outcomes-based wellness programs, which require participants to meet certain health outcomes to earn the discount, must satisfy multiple requirements under HIPAA:
- Eligible individuals must be able to qualify for the reward at least once per year.
- The reward may not exceed a certain percentage of the employee-only premium (generally 30%, but 50% for tobacco-cessation programs).
- The program must be reasonably designed to promote health or prevent disease.
- The conditions must be waived or an alternative standard must be offered if a health factor makes it unreasonably difficult for the individual to satisfy the conditions.
- The plan must disclose the reasonable alternative standard or possibility of waiver in all plan materials describing the program.
The last two requirements are frequently overlooked, and plaintiffs are catching on. Many programs fail to waive the standard or offer a reasonable alternative for employees who cannot satisfy the standard. The alternative is typically an educational program on healthy lifestyles or smoking cessation. It’s generally not reasonable to require verification that the person cannot satisfy the standard (such as a doctor’s note). Importantly, this means the program cannot require participants to be tobacco free — either the standard must be waived or must allow the participant to attend a tobacco cessation course and still earn the reward without being tobacco-free.
The availability of the waiver or alternative standard must be disclosed in all plan materials describing the program and in any notice to the participant that the original standard was not met. The notice must provide the employer’s contact information for details about the alternative standard and that recommendations from the participant’s personal doctor will be accommodated. Simply mentioning the program and not describing its terms is insufficient, although the actual alternative standards (as opposed to their availability) need only be provided upon request. The Department of Labor has model language for this.
Finally, the reward cannot only be available prospectively. Even if a participant satisfies the original or alternative conditions mid-year, the reward for the entire year must be provided.
While these HIPAA requirements are in the spotlight now, wellness programs must also comply with other laws like the ADA and ERISA, and the size of the reward must be analyzed considering the ACA employer shared responsibility payment rules.
This article appeared in the June 20, 2025, issue of The Journal Record. It is reproduced with permission from the publisher.
