Reed Smith Client Alert

Authors: Allison Warden Sizemore

On May 29, 2013, the Internal Revenue Service and the Departments of Labor and Health & Human Services released final regulations regarding wellness programs integrated with employer-sponsored health plans. The new wellness program standards apply to insured and self-insured programs, grandfathered and non-grandfathered, and are effective for plan years beginning on and after January 1, 2014.


The Patient Protection and Affordable Care Act of 2010 (“ACA”) amended and codified the nondiscrimination rules previously applicable to employer-provided wellness programs. The final wellness program regulations are largely consistent with proposed rules under ACA issued November 20, 2012, but provide additional clarifications and explanations.

Overview of Final Wellness Program Regulations

The final regulations divide wellness programs into two basic categories—participatory wellness programs and health-contingent wellness programs.

Participatory Wellness Programs

Participatory wellness programs are programs available to all similarly situated individuals that either do not provide a reward or do not condition the reward on satisfying any standard that is related to a health factor. They must be made available to all similarly situated employees regardless of health status, but need not comply with the more onerous standards applicable to health-contingent wellness programs, described below.

Health-Contingent Wellness Programs

Health-contingent wellness programs are those that require the individual to satisfy a standard related to a health factor to obtain the reward. They are further subcategorized into “activity only” programs and “outcome-based” programs. Activity-only programs are those that require the individual to perform or complete an activity related to a health factor, such as attending a class or engaging in an exercise program. Outcome-based programs, on the other hand, require that the individual possess or achieve a specific health outcome, such as not smoking or obtaining specified cholesterol levels.

A health-contingent wellness program must:

  • Give individuals the opportunity to qualify for the reward at least once per year
  • Not provide a reward in excess of 30 percent (or 50 percent if the program is designed to prevent or reduce tobacco use) of the total cost of coverage under the employer’s health plan
  • Be reasonably designed to promote health or prevent disease
  • Make the full reward available to all similarly situated individuals, which requires provision of a reasonable alternative standard. An alternative standard is another path by which an individual may achieve the full reward. Alternative standards may be individualized or apply to an entire class of persons and may be themselves health-contingent, but they must be reasonable based on all facts and circumstances and the guidance in the regulations
    • For activity-only programs, the alternative must be provided to individuals for whom it is unreasonably difficult because of a medical condition or medically inadvisable to meet the standard
    • Outcome-based programs, on the other hand, must provide a reasonable alternative for anyone who does not meet the target, regardless of health status
  • Reasonably disclose the availability of the alternative standard in program materials

The final regulations include new details on alternative standards, such as provisions that require deference to the judgment of the individual’s personal physician (in some cases requiring provision of a second alternative standard recommended by the physician), and those addressing the cost and reasonableness of alternative standards. The ACA regulations do not address wellness programs’ compliance with the Americans with Disabilities Act (ADA) or Genetic Information Nondiscrimination Act of 2008 (GINA), which are regulated by the EEOC; but guidance is expected from EEOC in the near future.

Employers that sponsor wellness programs should evaluate their program in light of the new wellness program regulations before the end of 2013.


Client Alert 2013-160