FAQS ABOUT AFFORDABLE CARE ACT 
IMPLEMENTATION (PART XXV)  
 
April 16, 2015 
 
Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of 
the Affordable Care Act. These FAQs have been prepared jointly by the Departments of Labor 
(DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments). 
Like previously issued FAQs (available at http://www.dol.gov/ebsa/healthreform/ and 
http://www.cms.gov/cciio/resources/fact-sheets-and-faqs/index.html), these FAQs answer 
questions from stakeholders to help people understand the law and benefit from it, as intended. 
 
Wellness Programs 
 
Under Public Health Service Act (PHS Act) section 27051, Employee Retirement Income 
Security Act (ERISA) section 702, and Internal Revenue Code (the Code) section 9802 and the 
Departments implementing regulations, group health plans and health insurance issuers in the 
group and individual market are generally prohibited from discriminating against participants, 
beneficiaries, and individuals in eligibility, benefits, or premiums based on a health factor.2  An 
exception to this general prohibition allows premium discounts, rebates, or modification of 
otherwise applicable cost sharing (including copayments, deductibles, or coinsurance) in return 
for adherence to certain programs of health promotion and disease prevention, commonly 
referred to as wellness programs.  The wellness program exception applies to group health 
coverage, but not individual market coverage.3 
 
On June 3, 2013, the Departments issued final regulations4 under PHS Act section 2705 and the 
related provisions of ERISA and the Code that address the requirements for wellness programs 
provided in connection with group health coverage.  Among other things, these regulations set 
the maximum permissible reward under a health-contingent wellness program that is part of a 
                                                 
1 Section 1201 of the Affordable Care Act amended and moved the nondiscrimination and wellness provisions of the 
PHS Act from section 2702 to section 2705, and extended the nondiscrimination provisions to the individual market.  
The Affordable Care Act also added section 715(a)(1) to ERISA and section 9815(a)(1) to the Code to incorporate 
the provisions of part A of title XXVII of the PHS Act, including PHS Act section 2705, into ERISA and the Code 
and make them applicable to group health plans and group health insurance issuers.   
2 The statute and its implementing regulations set forth eight health status-related factors, which the 2006 regulations 
refer to as health factors for simplicity.  Under the statute and the regulations, the eight health factors are health 
status, medical condition (including both physical and mental illnesses), claims experience, receipt of health care, 
medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic 
violence), and disability. 71 FR 75014 (Dec. 13, 2006).  In the Departments view, [t]hese terms are largely 
overlapping and, in combination, include any factor related to an individuals health.  66 FR 1379 (Jan. 8, 2001). 
3 Note, however, that it is HHSs belief that participatory wellness programs in the individual market do not violate 
the nondiscrimination provisions provided that such programs are consistent with State law and available to all 
similarly situated individuals enrolled in the individual health insurance coverage. 78 FR 33167 (Jun. 3, 2013). 
4 See 78 FR 33158 (Jun. 3, 2013).  These regulations update earlier regulations implementing the nondiscrimination 
and wellness program provisions established under the Health Insurance Portability and Accountability Act of 1996 
(HIPAA) (the 2006 regulations). 71 FR 75014 (Dec. 13, 2006).  The Affordable Care Act amended the statutory 
nondiscrimination and wellness provisions to in large part reflect the 2006 regulations regarding wellness programs. 
   
group health plan (and any related health insurance coverage) at 30 percent of the cost of 
coverage (or 50 percent for wellness programs designed to prevent or reduce tobacco use).5  The 
wellness program regulations also address the reasonable design of health-contingent wellness 
programs and the reasonable alternatives that must be offered in order to avoid prohibited 
discrimination.  In the preamble to the wellness program regulations, the Departments stated that 
they anticipated issuing future subregulatory guidance as necessary. The following FAQs address 
several issues that have been raised since the publication of the wellness program regulations. 
 
Q1:  What does it mean that a health-contingent wellness program must be reasonably 
designed? 
 
Under section 2705 of the PHS Act and the wellness program regulations, a health-contingent 
wellness program must be reasonably designed to promote health or prevent disease.  A program 
complies with this requirement if it (1) has a reasonable chance of improving the health of, or 
preventing disease in, participating individuals; (2) is not overly burdensome; (3) is not a 
subterfuge for discrimination based on a health factor; and (4) is not highly suspect in the method 
chosen to promote health or prevent disease.6    
 
The determination of whether a health-contingent wellness program is reasonably designed is 
based on all the relevant facts and circumstances. The wellness program regulations are intended 
to allow experimentation in diverse and innovative ways for promoting wellness.  While 
programs are not required to be accredited or based on particular evidence-based clinical 
standards, practices such as those found in the Guide to Community Preventive Services or the  
United States Preventive Services Task Forces Guide to Clinical Preventive Services, may 
increase the likelihood of wellness program success and are encouraged.7     
 
Wellness programs designed to dissuade or discourage enrollment in the plan or program by 
individuals who are sick or potentially have high claims experience will not be considered 
reasonably designed under the Departments wellness program regulations.  A program that 
collects a substantial level of sensitive personal health information without assisting individuals 
to make behavioral changes such as stopping smoking, managing diabetes, or losing weight, may 
fail to meet the requirement that the wellness program must have a reasonable chance of 
improving the health of, or preventing disease in, participating individuals.  Programs that 
require unreasonable time commitments or travel may be considered overly burdensome.  Such 
programs will be scrutinized and may be subject to enforcement action by the Departments.  
 
The wellness program regulations also state that, in order to be reasonably designed, an outcome-
based wellness program must provide a reasonable alternative standard to qualify for the reward, 
                                                 
5 The cost of coverage is determined based on the total amount of employer and employee contributions towards the 
cost of coverage for the benefit package under which the employee is (or the employee and any dependents are) 
receiving coverage.  26 CFR 54.9802-1(f)(3)(ii) and (f)(4)(ii), 29 CFR 2590.702-1(f)(3)(ii) and (f)(4)(ii), and 45 
CFR 146.121(f)(3)(ii) and (f)(4)(ii).  
6 See PHS Act 2705(j)(3)(B).  See also 26 CFR 54.9802-1(f)(3)(iii) and (f)(4)(iii), 29 CFR 2590.702(f)(3)(iii) and 
(f)(4)(iii), and 45 CFR 146.121(f)(3)(iii) and (f)(4)(iii). 
7 See www.thecommunityguide.org/index.html and http://www.ahrq.gov/professionals/clinicians-
providers/guidelines-recommendations/guide/. 
 
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for all individuals who do not meet the initial standard that is related to a health factor. This 
approach is intended to ensure that outcome-based wellness programs are more than mere 
rewards in return for results in biometric screenings or responses to a health risk assessment, and 
are instead part of a larger wellness program designed to promote health and prevent disease, 
ensuring the program is not a subterfuge for discrimination or underwriting based on a health 
factor. 
 
Q2:  Is compliance with the Departments wellness program regulations determinative of 
compliance with other laws? 
 
No.  The fact that a wellness program that complies with the Departments wellness program 
regulations does not necessarily mean it complies with any other provision of the PHS Act, the 
Code, ERISA, (including the COBRA continuation provisions), or any other State or Federal 
law, such as the Americans with Disabilities Act or the privacy and security obligations of the 
Health Insurance Portability and Accountability Act of 1996, where applicable.  Satisfying the 
rules for wellness programs also does not determine the tax treatment of rewards provided by the 
wellness program.  The Federal tax treatment is governed by the Code.  For example, 
reimbursement for fitness center fees is generally considered an expense for general good health. 
Thus payment of the fee by the employer is not excluded from income as the reimbursement of a 
medical expense and should generally be added to the employee wages reported on the Form W-
2, Wage and Tax Statement.  In addition, although the Departments wellness program 
regulations generally do not impose new disclosure obligations on plans and issuers, compliance 
with the wellness program regulations is not determinative of compliance with any other 
disclosure laws, including those that require accurate disclosures and prohibit intentional 
misrepresentation.8 
 
 
                                                 
8 See 26 CFR 54.9802-1(h), 29 CFR 2590.702(h), and 45 CFR 146.121(h). 
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