Vol. 77 Monday, 

No. 227 November 26, 2012 

Part IV 

Department of the Treasury 

Internal Revenue Service 

26 CFR Part 54 

Department of Labor 

Employee Benefits Security Administration 

29 CFR Part 2590 

Department of Health and Human Services 

45 CFR Parts 146 and 147 

Incentives for Nondiscriminatory Wellness Programs in Group Health Plans; 

Proposed Rule 

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70620 Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 

1The term ‘‘group health plan’’ is used in title 

XXVII of the PHS Act, part 7 of ERISA, and chapter 

100 of the Code, and is distinct from the term 

‘‘health plan,’’ as used in other provisions of title 

I of the Affordable Care Act. The term ‘‘health plan’’ 

does not include self-insured group health plans. 

2The HIPAA nondiscrimination provisions set 

forth eight health status-related factors, which the 

December 13, 2006 final regulations on 

nondiscrimination and wellness programs refer to 

as ‘‘health factors.’’ Under HIPAA and the 2006 

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. See 66 FR 1379, January 8, 2001. 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 54 

[REG–122707–12] 

RIN 1545–BL07 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2590 

RIN 1210–AB55 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Parts 146 and 147 

[CMS–9979–P] 

RIN 0938–AR48 

Incentives for Nondiscriminatory 

Wellness Programs in Group Health 

Plans 

AGENCY: Internal Revenue Service, 

Department of the Treasury; Employee 

Benefits Security Administration, 

Department of Labor; Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document proposes 

amendments to regulations, consistent 

with the Affordable Care Act, regarding 

nondiscriminatory wellness programs in 

group health coverage. Specifically, 

these proposed regulations would 

increase the maximum permissible 

reward under a health-contingent 

wellness program offered in connection 

with a group health plan (and any 

related health insurance coverage) from 

20 percent to 30 percent of the cost of 

coverage. The proposed regulations 

would further increase the maximum 

permissible reward to 50 percent for 

wellness programs designed to prevent 

or reduce tobacco use. These regulations 

also include other proposed 

clarifications regarding the reasonable 

design of health-contingent wellness 

programs and the reasonable 

alternatives they must offer in order to 

avoid prohibited discrimination. 

DATES: Comments are due on or before 

January 25, 2013. 

ADDRESSES: Written comments may be 

submitted to the Department of Labor as 

specified below. Any comment that is 

submitted will be shared with the other 

Departments and will also be made 

available to the public. Warning: Do not 

include any personally identifiable 

information (such as name, address, or 

other contact information) or 

confidential business information that 

you do not want publicly disclosed. All 

comments may be posted on the Internet 

and can be retrieved by most Internet 

search engines. No deletions, 

modifications, or redactions will be 

made to the comments received, as they 

are public records. Comments may be 

submitted anonymously. 

Comments, identified by ‘‘Wellness 

Programs’’, may be submitted by one of 

the following methods: 

Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Mail or Hand Delivery: Office of 

Health Plan Standards and Compliance 

Assistance, Employee Benefits Security 

Administration, Room N–5653, U.S. 

Department of Labor, 200 Constitution 

Avenue NW., Washington, DC 20210, 

Attention: Wellness Programs. 

Comments received will be posted 

without change to www.regulations.gov 

and www.dol.gov/ebsa, and available for 

public inspection at the Public 

Disclosure Room, N–1513, Employee 

Benefits Security Administration, 200 

Constitution Avenue NW., Washington, 

DC 20210, including any personal 

information provided. 

FOR FURTHER INFORMATION CONTACT: 

Amy Turner or Beth Baum, Employee 

Benefits Security Administration, 

Department of Labor, at (202) 693–8335; 

Karen Levin, Internal Revenue Service, 

Department of the Treasury, at (202) 

622–6080; or Jacob Ackerman, Centers 

for Medicare & Medicaid Services, 

Department of Health and Human 

Services, at (410) 786–1565. 

Customer Service Information: 

Individuals interested in obtaining 

information from the Department of 

Labor concerning employment-based 

health coverage laws may call the EBSA 

Toll-Free Hotline at 1–866–444–EBSA 

(3272) or visit the Department of Labor’s 

Web site (www.dol.gov/ebsa). In 

addition, information from HHS on 

private health insurance for consumers 

can be found on the Centers for 

Medicare & Medicaid Services (CMS) 

Web site (www.cciio.cms.gov/) and 

information on health reform can be 

found at www.HealthCare.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Introduction 

The Patient Protection and Affordable 

Care Act, Public Law 111–148, was 

enacted on March 23, 2010; the Health 

Care and Education Reconciliation Act, 

Public Law 111–152, was enacted on 

March 30, 2010 (these are collectively 

known as the ‘‘Affordable Care Act’’). 

The Affordable Care Act reorganizes, 

amends, and adds to the provisions of 

part A of title XXVII of the Public 

Health Service Act (PHS Act) relating to 

group health plans and health insurance 

issuers in the group and individual 

markets. The term ‘‘group health plan’’ 

includes both insured and self-insured 

group health plans.1 The Affordable 

Care Act adds section 715(a)(1) to the 

Employee Retirement Income Security 

Act (ERISA) and section 9815(a)(1) to 

the Internal Revenue Code (the Code) to 

incorporate the provisions of part A of 

title XXVII of the PHS Act into ERISA 

and the Code, and to make them 

applicable to group health plans and 

health insurance issuers providing 

health insurance coverage in connection 

with group health plans. The PHS Act 

sections incorporated by these 

references are sections 2701 through 

2728. 

B. Wellness Exception to HIPAA 

Nondiscrimination Provisions 

Prior to the enactment of the 

Affordable Care Act, Titles I and IV of 

the Health Insurance Portability and 

Accountability Act of 1996 (HIPAA), 

Public Law 104–191, added section 

9802 of the Code, section 702 of ERISA, 

and section 2702 of the PHS Act 

(HIPAA nondiscrimination and 

wellness provisions). These provisions 

generally prohibit group health plans 

and group health insurance issuers from 

discriminating against individual 

participants and beneficiaries in 

eligibility, benefits, or premiums based 

on a health factor.2 An exception to the 

general rule allows premium discounts 

or rebates or modification to otherwise 

applicable cost sharing (including 

copayments, deductibles or 

coinsurance) in return for adherence to 

certain programs of health promotion 

and disease prevention. The 

Departments of Labor, Health and 

Human Services (HHS), and the 

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Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 70621 

3See 26 CFR 54.9802–1; 29 CFR 2590.702; 45 

CFR 146.121. Prior to issuance of the final 2006 

regulations, the Departments published interim 

final regulations with request for comment 

implementing the HIPAA nondiscrimination 

provisions on April 8, 1997 at 62 FR 16894, 

followed by proposed regulations regarding 

wellness programs on January 8, 2001 at 66 FR 

1421. 

4See paragraph (f)(1) of the 2006 regulations. See 

also 26 CFR 54.9802–1(d), 29 CFR 2590.702(d), and 

45 CFR 146.121(d), which provide that, generally, 

distinctions among groups of similarly situated 

participants in a health plan must be based on bona 

fide employment-based classifications consistent 

with the employer’s usual business practice. A plan 

may also distinguish between beneficiaries based 

on, for example, their relationship to the plan 

participant (such as spouse or dependent child) or 

based on the age of dependent children. 

Distinctions are not permitted to be based on any 

of the health factors noted earlier. 

5The Treasury and the IRS note that satisfying the 

rules for wellness programs does not determine the 

tax treatment of benefits provided by the wellness 

program. For example, fitness center fees are 

generally considered expenses for general good 

health and thus payment of the fee by the employer 

is not excluded from income as the reimbursement 

of a medical expense. 

6Note that section 2713 of the PHS Act, as added 

by the Affordable Care Act, and the Departments’ 

interim final regulations at 26 CFR 54.9815–2713T, 

29 CFR 2590.715–2713, and 45 CFR 147.130 require 

non-grandfathered group health plans and health 

insurance issuers offering non-grandfathered group 

or individual health insurance coverage to provide 

benefits for certain preventive health services 

without the imposition of cost sharing. See also 26 

CFR 54.9815–1251T, 29 CFR 2590.715–1251, and 

45 CFR 147.140 (regarding the definition of 

grandfathered health plan coverage). 

7See 26 CFR 54.9802–1(b)(2)(ii) and (c)(3); 29 

CFR 2590.702(b)(2)(ii) and (c)(3); and 45 CFR 

146.121(b)(2)(ii) and (c)(3). 

8Section 1201 of the Affordable Care Act also 

moved the guaranteed availability provisions that 

were previously codified in PHS Act section 2711 

to PHS Act section 2702, and extended those 

requirements to the individual market. 

9See 26 CFR 54.9815–1251T, 29 CFR 2590.715– 

1251, and 45 CFR 147.140 (75 FR 34538, June 17, 

2010), as amended (75 FR 70114, November 17, 

2010). See also Q5 of Affordable Care Act 

Implementation FAQs Part II (October 8, 2010), 

available at http;//www.dol.gov/ebsa/faqs/faqaca2.html and http://cciio.cms.gov/resources/

factsheets/aca_implementation_faqs2.html. 

Treasury (collectively, the Departments) 

have implemented this exception by 

allowing benefits (including cost 

sharing), premiums, or contributions to 

vary based on participation in a 

wellness program if such a program 

adheres to certain conditions set forth in 

regulations. 

The Departments published joint final 

regulations on December 13, 2006 at 71 

FR 75014 (the 2006 regulations) 

regarding the HIPAA nondiscrimination 

and wellness provisions.3 The 2006 

regulations divide wellness programs 

into two general categories. The first 

category is programs that either do not 

require an individual to meet a standard 

related to a health factor in order to 

obtain a reward or that do not offer a 

reward at all (‘‘participatory wellness 

programs’’). Participatory wellness 

programs comply with the 

nondiscrimination requirements 

without having to satisfy any additional 

standards if participation in the program 

is made available to all similarly 

situated individuals.4 Examples of 

participatory wellness programs in the 

2006 regulations include a fitness center 

reimbursement program,5 a diagnostic 

testing program that does not base any 

reward on test outcomes, a program that 

waives cost sharing for prenatal or wellbaby visits,6 a program that reimburses 

employees for the costs of smoking 

cessation programs regardless of 

whether the employee quits smoking, 

and a program that provides rewards for 

attending a free health education 

seminar. There is no limit on the 

financial incentives for participatory 

wellness programs. 

The second category of wellness 

programs under the 2006 regulations 

consists of programs that require 

individuals to satisfy a standard related 

to a health factor in order to obtain a 

reward (‘‘health-contingent wellness 

programs’’). This category includes 

wellness programs that require an 

individual to attain or maintain a 

certain health outcome in order to 

obtain a reward (such as not smoking, 

attaining certain results on biometric 

screenings, or meeting targets for 

exercise). As outlined in the 2006 

regulations,7 plans and issuers may vary 

benefits (including cost-sharing 

mechanisms), premiums, or 

contributions based on whether an 

individual has met the standards of a 

wellness program that meets the 

requirements of paragraph (f). Paragraph 

(f)(2) of the 2006 regulations prescribes 

the following consumer-protection 

conditions for health-contingent 

wellness programs: 

1. The total reward for such wellness 

programs offered by a plan sponsor does 

not exceed 20 percent of the total cost 

of coverage under the plan. 

2. The program is reasonably designed 

to promote health or prevent disease. 

For this purpose, it must have a 

reasonable chance of improving health 

or preventing disease, not be overly 

burdensome, not be a subterfuge for 

discriminating based on a health factor, 

and not be highly suspect in method. 

3. The program gives eligible 

individuals an opportunity to qualify for 

the reward at least once per year. 

4. The reward is available to all 

similarly situated individuals. For this 

purpose, a reasonable alternative 

standard (or waiver of the otherwise 

applicable standard) must be made 

available to any individual for whom it 

is unreasonably difficult due to a 

medical condition to satisfy the 

otherwise applicable standard during 

that period (or for whom it is medically 

inadvisable to attempt to satisfy the 

otherwise applicable standard). 

5. In all plan materials describing the 

terms of the program, the availability of 

a reasonable alternative standard (or the 

possibility of waiver of the otherwise 

applicable standard) is disclosed. 

C. Amendments Made by the Affordable 

Care Act 

The Affordable Care Act (section 

1201) amended the nondiscrimination 

and wellness program provisions of the 

PHS Act (but not of ERISA section 702 

or Code section 9802). (Affordable Care 

Act section 1201 also moved those 

provisions from PHS Act section 2702 to 

PHS Act section 2705). As amended by 

the Affordable Care Act, the 

nondiscrimination and wellness 

provisions of PHS Act section 2705 

largely reflect the 2006 regulations 

(except as discussed later in this 

preamble), and extend the 

nondiscrimination protections to the 

individual market.8 The wellness 

program exception to the prohibition on 

discrimination under PHS Act section 

2705 applies with respect to group 

health plans (and any health insurance 

coverage offered in connection with 

such plans). Section 2705(l) separately 

provides for a 10-State wellness 

program demonstration project in the 

individual market, to be established not 

later than July 1, 2014 (as such, this 

proposed rule does not include wellness 

program policy for the individual 

market). 

D. Application to Grandfathered Plans 

Section 1251 of the Affordable Care 

Act provides that certain amendments 

made by the Affordable Care Act 

generally do not apply to plans or health 

insurance coverage that are in effect on 

the date of enactment (and that are not 

changed in ways specified in 

implementing regulations),9 except as 

specified in section 1251(a)(3) and (4) of 

the Affordable Care Act. Specifically, 

section 1251(a)(2) of the Affordable Care 

Act provides that subtitles A and C of 

title I of the Affordable Care Act, and 

the amendments made by such subtitles, 

‘‘shall not apply’’ to such grandfathered 

health plans. 

Because the amendments made to the 

PHS Act in section 1201 of the 

Affordable Care Act do not apply to 

grandfathered health plans, the version 

of PHS Act section 2702 in effect at the 

time of enactment of the Affordable Care 

Act (and the 2006 regulations under that 

section) continues to apply to 

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10See 26 CFR 54.9815–1251T(c)(2), 29 CFR 

2590.715–1251(c)(2), and 45 CFR 147.140(c)(2), 

providing that a grandfathered health plan must 

comply with the requirements of the PHS Act, 

ERISA, and the Code applicable prior to the 

changes enacted by the Affordable Care Act, to the 

extent not inconsistent with the rules applicable to 

a grandfathered health plan (75 FR 34538, June 17, 

2010). 

11 26 CFR 54.9802–1(b)(2)(ii) and (c)(3); 29 CFR 

2590.702(b)(2)(ii) and (c)(3); and 45 CFR 

146.121(b)(2)(ii) and (c)(3). 

12Until these proposed regulations are finalized 

and effective, the provisions of the 2006 

regulations, at 26 CFR 54.9802–1(f), 29 CFR 

2590.702(f), and 45 CFR 146.121(f) generally remain 

applicable to group health plans and group health 

insurance issuers. 

grandfathered health plans, while the 

provisions of the new PHS Act section 

2705 apply to non-grandfathered health 

plans for plan years (in the individual 

market, policy years) beginning on or 

after January 1, 2014.10 ERISA section 

702 and Code section 9802 continue to 

govern all group health plans, including 

grandfathered health plans, and, for 

plan years beginning on or after January 

1, 2014, ERISA section 715(a)(1) and 

Code section 9815(a)(1) will also apply 

new PHS Act section 2705 to nongrandfathered health plans. 

However, because the Departments 

believe that the provisions of these 

proposed regulations would be 

authorized under either HIPAA or the 

Affordable Care Act, the Departments 

are proposing in this rulemaking to 

apply the same set of standards to both 

grandfathered and non-grandfathered 

health plans. As noted, PHS Act section 

2705(j) largely adopts the wellness 

program provisions of the 2006 

regulations with some modification and 

clarification. Consistent with the 

statutory approach, these proposed 

regulations would apply the rules of 

PHS Act section 2705, governing 

rewards for adherence to certain 

wellness programs, to grandfathered 

health plans by regulation under 

authority in the HIPAA 

nondiscrimination and wellness 

provisions as was done in the 2006 

regulations. This approach is intended 

to avoid inconsistency across group 

health coverage and to provide 

grandfathered plans the same flexibility 

to promote health and prevent disease 

as non-grandfathered plans. 

II. Overview of the Proposed Rule 

These regulations generally propose 

standards for group health plans and 

health insurance issuers offering group 

health insurance coverage with respect 

to wellness programs. These proposed 

regulations would replace the wellness 

program provisions of paragraph (f) of 

the 2006 regulations and would apply to 

both grandfathered and nongrandfathered group health plans and 

group health insurance coverage for 

plan years beginning on or after January 

1, 2014. These regulations also propose 

to implement the nondiscrimination 

provisions made applicable to the 

individual market by section 1201 of the 

Affordable Care Act. This rulemaking 

does not propose to modify provisions 

of the 2006 regulations other than 

paragraph (f). 

A. Two Categories of Wellness Programs 

Consistent with the 2006 regulations 

and PHS Act section 2705(j), these 

proposed regulations would continue to 

divide wellness programs into two 

categories: ‘‘Participatory wellness 

programs’’, which are a majority of 

wellness programs (as noted below) and 

‘‘health-contingent wellness programs.’’ 

Participatory wellness programs are 

programs that are made available to all 

similarly situated individuals and that 

either do not provide a reward or do not 

include any conditions for obtaining a 

reward that are based on an individual 

satisfying a standard that is related to a 

health factor. Several examples of 

participatory wellness programs are 

provided in these proposed regulations, 

including: (1) A program that 

reimburses for all or part of the cost of 

membership in a fitness center; and (2) 

a program that provides a reward to 

employees for attending a monthly, nocost health education seminar. 

Participatory programs are not required 

to meet the five requirements applicable 

to health-contingent wellness programs. 

In contrast, health-contingent 

wellness programs require an individual 

to satisfy a standard related to a health 

factor to obtain a reward (or require an 

individual to do more than a similarly 

situated individual based on a health 

factor in order to obtain the same 

reward). Like the 2006 regulations, these 

proposed regulations would continue to 

permit rewards to be in the form of a 

discount or rebate of a premium or 

contribution, a waiver of all or part of 

a cost-sharing mechanism (such as 

deductibles, copayments, or 

coinsurance), the absence of a 

surcharge, the value of a benefit that 

otherwise would not be provided under 

the plan, or other financial or 

nonfinancial incentives or 

disincentives. Examples of healthcontingent wellness programs in these 

proposed regulations are: (1) A program 

that imposes a premium surcharge 

based on tobacco use; and (2) a program 

that uses a biometric screening or a 

health risk assessment to identify 

employees with specified medical 

conditions or risk factors (such as high 

cholesterol, high blood pressure, 

abnormal body mass index, or high 

glucose level) and provides a reward to 

employees identified as within a normal 

or healthy range (or at low risk for 

certain medical conditions), while 

requiring employees who are identified 

as outside the normal or healthy range 

(or at risk) to take additional steps (such 

as 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 obtain the same reward. 

Under paragraphs (b)(2)(ii) and (c)(3) of 

the 2006 regulations (which remain 

unchanged),11 health-contingent 

wellness programs are permissible only 

if they comply with the provisions of 

paragraph (f)(3), which are proposed to 

be amended in this rulemaking.12

The Departments believe that 

appropriately designed wellness 

programs have the potential to 

contribute importantly to promoting 

health and preventing disease. Even 

after the issuance of the 2006 

regulations and the enactment of the 

Affordable Care Act wellness 

provisions, however, stakeholder 

feedback suggests that there continues 

to be a degree of confusion regarding the 

scope of the rules governing wellness 

programs. The Departments hope that 

these proposed regulations will help 

dispel the confusion by reiterating that 

the five regulatory requirements relating 

to frequency of opportunity to qualify, 

size of reward, uniform availability and 

reasonable alternative standards, 

reasonable design, and notice of other 

means of qualifying for the reward 

(summarized below and contained in 

paragraph (f)(3) of the proposed 

regulations) apply only to those 

wellness programs that meet the 

definition of ‘‘health-contingent’’ 

programs. As discussed above, these are 

wellness programs that both provide a 

reward and condition the reward on 

satisfying a standard that is related to a 

health factor. Many wellness programs 

(those characterized in these regulations 

as ‘‘participatory wellness programs’’) 

do not both provide a reward and 

condition the reward on satisfying a 

standard that is related to a health 

factor. Accordingly, as noted, 

participatory wellness programs are not 

required to meet the five enumerated 

requirements applicable to healthcontingent wellness programs, but they 

are required to be made available to all 

similarly situated individuals. 

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13See 71 FR at 75018. 

14Small group market means the health insurance 

market under which individuals obtain health 

insurance coverage (directly or through any 

arrangement) on behalf of themselves (and their 

dependents) through a group health plan 

maintained by a small employer. See PHS Act 

section 2791(e)(5); 45 CFR 144.103. For plan years 

beginning on or after January 1, 2014, amendments 

made by the Affordable Care Act provide that the 

term ‘‘small employer’’ means, in connection with 

a group health plan with respect to a calendar year 

and a plan year, an employer who employed an 

average of at least 1 but not more than 100 

employees on business days during the preceding 

calendar year and who employs at least 1 employee 

on the first day of the plan year. See PHS Act 

section 2791(e)(4). In the case of plan years 

beginning before January 1, 2016, a State may elect 

to substitute ‘‘50 employees’’ for ‘‘100 employees’’ 

in its definition of a small employer. See section 

1304(b)(3) of the Affordable Care Act. 

B. Requirements for Health-Contingent 

Wellness Programs 

Consistent with the 2006 regulations, 

these proposed regulations generally 

would maintain the five requirements 

for health-contingent wellness programs 

with one significant modification 

relating to the size of the reward. In 

addition, several regulatory provisions 

have been re-ordered, and clarifications 

are proposed to address questions and 

issues raised by stakeholders since the 

2006 regulations were issued and to be 

consistent with the amendments made 

by the Affordable Care Act, as discussed 

below. 

(1) Frequency of Opportunity to 

Qualify. 

These proposed regulations would, 

consistent with the 2006 regulations and 

the amendments made by the Affordable 

Care Act, require health-contingent 

wellness programs to give individuals 

eligible for the program the opportunity 

to qualify for the reward at least once 

per year. As stated in the preamble to 

the 2006 regulations, the once-per-year 

requirement was included as a brightline standard for determining the 

minimum frequency that is consistent 

with a reasonable design for promoting 

good health or preventing disease.13

(2) Size of Reward. 

Like the 2006 regulations, these 

proposed regulations would continue to 

limit the total amount of the reward for 

health-contingent wellness programs 

with respect to a plan, whether offered 

alone or coupled with the reward for 

other health-contingent wellness 

programs. Specifically, the total reward 

offered to an individual under an 

employer’s health-contingent wellness 

programs could not exceed a specified 

percentage (referred to as the 

‘‘applicable percentage’’ in the proposed 

regulations) of the total cost of 

employee-only coverage under the plan, 

taking into account both employer and 

employee contributions towards the cost 

of coverage. If, in addition to employees, 

any class of dependents (such as 

spouses, or spouses and dependent 

children) may participate in the healthcontingent wellness program, the 

reward could not exceed the applicable 

percentage of the total cost of the 

coverage in which the employee and 

any dependents are enrolled (such as 

family coverage or employee-plus-one 

coverage). 

Some stakeholders have raised 

questions about health-contingent 

wellness programs that allow 

dependents to participate, and what 

portion of the reward should be 

attributable to each participating 

dependent. If a class of dependents may 

participate in a health-contingent 

wellness program, some have suggested 

that there be a maximum reward 

attributable to the employee’s 

participation in the wellness program, 

such as an amount that does not exceed 

the applicable percentage of the cost of 

employee-only coverage. The proposed 

regulation being issued 

contemporaneously by HHS proposes 

that, to comply with PHS Act section 

2701, with respect to family coverage, 

any premium variation for tobacco use 

must be applied to the portion of 

premium attributable to each family 

member. The Departments invite 

comments on apportionment of rewards 

in health-contingent wellness programs 

(which may involve tobacco use and/or 

other health factors)—for example, 

should the reward be prorated if only 

one family member fails to qualify for it. 

The 2006 regulations specify 20 

percent as the maximum permissible 

reward for participation in a healthcontingent wellness program. PHS Act 

section 2705(j)(3)(A), effective for plan 

years beginning on or after January 1, 

2014, increases the maximum reward to 

30 percent and authorizes the 

Departments to increase the maximum 

reward to as much as 50 percent if the 

Departments determine that such an 

increase is appropriate. In these 

proposed regulations, the increase in the 

applicable percentage from 20 percent 

to 30 percent, which is effective for plan 

years beginning on or after January 1, 

2014, conforms to the new PHS Act 

section 2705(j)(3)(A). In addition, the 

Departments have determined that an 

increase of an additional 20 percentage 

points (to 50 percent) for healthcontingent wellness programs designed 

to prevent or reduce tobacco use is 

warranted to conform to the new PHS 

Act section 2701, to avoid inconsistency 

across group health coverage, whether 

insured or self-insured, or offered in the 

small group or large group market, and 

to provide grandfathered plans the same 

flexibility to promote health and 

prevent disease as non-grandfathered 

plans. 

Specifically, PHS Act section 2701, 

the ‘‘fair health insurance premium’’ 

provision, sets forth the factors that 

issuers may use to vary premium rates 

in the individual or small group 

market.14 PHS Act section 

2701(a)(1)(A)(iv) provides that issuers in 

the individual and small group markets 

cannot vary rates for tobacco use by 

more than a ratio of 1.5 to 1 (that is, 

allowing up to a 50 percent premium 

surcharge for tobacco use). 

Contemporaneously with the 

publication of these proposed wellness 

program regulations, HHS is publishing 

a proposed regulation that would 

implement PHS Act section 2701. HHS 

proposes that a health insurance issuer 

in the small group market would be able 

to implement the tobacco use surcharge 

under PHS Act section 2701 to 

employees only in connection with a 

wellness program meeting the standards 

of PHS Act section 2705(j) and its 

implementing regulations. As discussed 

in the preamble to the proposed 

regulation implementing PHS Act 

section 2701, HHS is proposing in that 

rule that the definition of ‘‘tobacco use’’ 

for purposes of section 2701 be 

consistent with the approach taken with 

respect to health-contingent wellness 

programs designed to prevent or reduce 

tobacco use under section 2705(j). 

Comments are solicited in the preamble 

to the proposed rules implementing 

section 2701 on possible definitions of 

‘‘tobacco use’’ that would be applied for 

purposes of PHS Act sections 2701 and 

2705(j). 

To coordinate these proposed 

regulations with the tobacco use rating 

provisions of PHS Act section 2701, as 

proposed by HHS, these proposed 

wellness program regulations would use 

the new authority in PHS Act section 

2705(j)(3)(A) (and, with respect to 

grandfathered health plans, the 

preexisting authority in the HIPAA 

nondiscrimination and wellness 

provisions) to increase the applicable 

percentage for determining the size of 

the reward for participating in a healthcontingent wellness program by an 

additional 20 percentage points (to 50 

percent) to the extent that the additional 

percentage is attributed to tobacco use 

prevention or reduction. Applying these 

proposed regulations to all group health 

plans would provide consistency across 

markets, giving large, self-insured, and 

grandfathered employment-based health 

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70624 Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 

15See 71 FR 75019. 

16 Id. 

17As stated in the preamble to the Departments’ 

regulations on internal claims and appeals and 

external review processes, adverse benefit 

determinations based on whether a participant or 

beneficiary is entitled to a reasonable alternative 

standard for a reward under a plan’s wellness 

program are situations in which a claim is 

considered to involve medical judgment and 

therefore is eligible for Federal external review. See 

76 FR 37216. 

plans the same added flexibility to 

promote tobacco-free workforces as 

small, insured, non-grandfathered 

health plans. 

Examples included in these proposed 

regulations illustrate how to calculate 

the applicable percentage. The 

Departments invite comments on the 

proposed approach in general and other 

ideas for coordinating the 

implementation of the tobacco rating 

factor under PHS Act section 2701 with 

the nondiscrimination and wellness 

program provisions. The Departments 

also invite comments as to whether 

additional rules or examples would be 

helpful to demonstrate compliance with 

the limitation on the size of the reward 

when the amount of the reward is 

variable and is not determinable at the 

time the reward is established (for 

example, when the reward is waiver of 

a copayment for outpatient office visits, 

the frequency of which will not be 

predictable for any particular 

participant or beneficiary under the 

plan). 

(3) Uniform Availability and 

Reasonable Alternative Standards. 

A critical element of these proposed 

regulations is the requirement that the 

reward under a health-contingent 

wellness program be available to all 

similarly situated individuals. To meet 

this requirement, a ‘‘reasonable 

alternative standard’’ (or waiver of the 

otherwise applicable standard) for 

obtaining the reward must be provided 

for any individual for whom, for that 

period, it is either unreasonably difficult 

due to a medical condition to meet the 

otherwise applicable standard, or for 

whom it is medically inadvisable to 

attempt to satisfy the otherwise 

applicable standard. That is, the same, 

full reward must be available to 

individuals who qualify by satisfying a 

reasonable alternative standard as is 

provided to individuals who qualify by 

satisfying the program’s otherwise 

applicable standard. These proposed 

regulations would generally reiterate the 

requirements set forth in the 2006 

regulations and codified in PHS Act 

section 2705(j), and provide several 

additional clarifications. 

First, under these proposed 

regulations, as under the 2006 

regulations, in lieu of providing a 

reasonable alternative standard, a plan 

or issuer may always waive the 

otherwise applicable standard and 

provide the reward. The plan or issuer 

may waive the otherwise applicable 

standard and provide a reward for an 

entire class of individuals or may do so 

on an individual-by-individual basis 

based on the facts and circumstances 

presented. 

Second, these proposed regulations 

would not require plans and issuers to 

establish a particular alternative 

standard in advance of an individual’s 

specific request for one. However, a 

reasonable alternative standard would 

have to be provided by the plan or 

issuer (or the condition for obtaining the 

reward would be required to be waived) 

upon an individual’s request. In this 

connection, the Departments note that, 

as stated in the preamble to the 2006 

regulations with respect to tobacco 

cessation, ‘‘overcoming an addiction 

sometimes requires a cycle of failure 

and renewed effort.’’ 15 Plans and 

issuers cannot cease to provide a 

reasonable alternative standard merely 

because one was not successful before; 

they must continue to offer a reasonable 

alternative standard, whether it is the 

same standard or a new reasonable 

alternative standard (such as a new 

weight-loss class or a new nicotine 

replacement therapy).16

All the facts and circumstances would 

be taken into account in determining 

whether a plan or issuer has provided 

a reasonable alternative standard, 

including but not limited to the 

following proposed factors: 

• If the reasonable alternative 

standard is completion of an 

educational program, the plan or issuer 

must make the educational program 

available instead of requiring an 

individual to find such a program 

unassisted, and may not require an 

individual to pay for the cost of the 

program. 

• If the reasonable alternative 

standard is a diet program, the plan or 

issuer is not required to pay for the cost 

of food but must pay any membership 

or participation fee. 

• If the reasonable alternative 

standard is compliance with the 

recommendations of a medical 

professional who is an employee or 

agent of the plan or issuer, and an 

individual’s personal physician states 

that the medical professional’s 

recommendations are not medically 

appropriate for that individual, the plan 

or issuer must provide a reasonable 

alternative standard that accommodates 

the recommendations of the individual’s 

physician with regard to medical 

appropriateness.17 Plans and issuers 

may impose standard cost sharing under 

the plan or coverage for medical items 

and services furnished in accordance 

with the physician’s recommendations. 

The Departments intend that these 

clarifications with respect to offering 

reasonable alternative standards will 

help prevent health-contingent wellness 

programs that provide little to no 

support to enrollees to improve 

individuals’ health. In addition, as 

explained later in this preamble, 

clarifications are proposed to ensure 

that a health-contingent wellness 

program is reasonably designed to 

improve health and is not a subterfuge 

for underwriting or reducing benefits 

based on health status. Comments are 

invited on these provisions, as well as 

whether other facts and circumstances 

should be specifically addressed. For 

example, the Departments seek 

comment on whether any additional 

rules or clarifications are needed with 

respect to the process for determining a 

reasonable alternative standard. 

Finally, the 2006 regulations provided 

that it is permissible for a plan or issuer 

to seek verification, such as a statement 

from the individual’s personal 

physician, that a health factor makes it 

unreasonably difficult for the individual 

to satisfy, or medically inadvisable for 

the individual to attempt to satisfy, the 

otherwise applicable standard. The 

Affordable Care Act amendments 

codified this provision with one 

modification: PHS Act section 

2705(j)(3)(D)(ii) makes clear that 

physician verification may be required 

by a plan or issuer ‘‘if reasonable under 

the circumstances.’’ These proposed 

regulations clarify that it would not be 

reasonable for a plan or issuer to seek 

verification of a claim that is obviously 

valid based on the nature of the 

individual’s medical condition that is 

known to the plan or issuer. Plans and 

issuers are permitted under the 

proposed regulations to seek verification 

of claims that require the use of medical 

judgment to evaluate. The Departments 

solicit comments on whether additional 

clarifications would be helpful 

regarding the reasonableness of 

physician verification. 

(4) Reasonable Design. 

Consistent with the 2006 regulations 

and PHS Act section 2705(j), these 

proposed regulations would continue to 

require that health-contingent wellness 

programs be reasonably designed to 

promote health or prevent disease, not 

be overly burdensome, not be a 

subterfuge for discrimination based on a 

health factor, and not be highly suspect 

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Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 70625 

18 71 FR 75018. 

19 71 FR 75019. 

in the method chosen to promote health 

or prevent disease. The preamble to the 

2006 regulations stated that the 

‘‘reasonably designed’’ standard was 

designed to prevent abuse, but 

otherwise was ‘‘intended to be an easy 

standard to satisfy * * *. There does not 

need to be a scientific record that the 

method promotes wellness to satisfy 

this standard. The standard is intended 

to allow experimentation in diverse 

ways of promoting wellness.’’ 18 The 

preamble also stated that the 

Departments did not ‘‘want plans and 

issuers to be constrained by a narrow 

range of programs * * * but want plans 

and issuers to feel free to consider 

innovative programs for motivating 

individuals to make efforts to improve 

their health.’’ 19 These proposed 

regulations would continue to provide 

plans and issuers flexibility and 

encourage innovation. Also, as 

discussed later in this preamble, the 

regulations include several clarifications 

to ensure against subterfuge and 

discrimination. Comments are welcome 

on whether certain standards, including 

evidence- or practice-based standards, 

are needed to ensure that wellness 

programs are reasonably designed to 

promote health or prevent disease. The 

Departments also welcome comments 

on best practices guidance regarding 

evidence- and practice-based strategies 

in order to increase the likelihood of 

wellness program success. Resources for 

employers and plans include the 

Healthier Worksite Initiative of the 

Centers for Disease Control and 

Prevention (CDC) at http:// 

www.cdc.gov/nccdphp/dnpao/hwi/. 

Under the proposed regulations, the 

determination of whether a healthcontingent wellness program is 

reasonably designed is based on all the 

relevant facts and circumstances. To 

ensure that programs are not a 

subterfuge for discrimination or 

underwriting based on health factors 

such as weight, blood pressure, glucose 

levels, cholesterol levels, or tobacco use 

with no or insufficient support to 

improve individuals’ health, the 

Departments propose that, to the extent 

a plan’s initial standard for obtaining a 

reward (or a portion of a reward) is 

based on results of a measurement, test, 

or screening that is related to a health 

factor (such as a biometric examination 

or a health risk assessment), the plan is 

not reasonably designed unless it makes 

available to all individuals who do not 

meet the standard based on the 

measurement, test, or screening a 

different, reasonable means of 

qualifying for the reward. Accordingly, 

the general approach that was adopted 

in the 2006 regulations is preserved, 

which allows plans and issuers to 

conduct screenings and employ 

measurement techniques in order to 

target wellness programs effectively. For 

example, plans and issuers could target 

individuals with high cholesterol for 

participation in cholesterol reduction 

programs, or individuals who use 

tobacco for participation in tobacco 

cessation programs, rather than the 

entire population of participants and 

beneficiaries if individuals who do not 

meet a plan’s target biometrics (or 

similar standards) are provided a 

different, reasonable means of 

qualifying for the same reward. The 

Departments invite comments on this 

approach, including on ways to ensure 

that employees will not be subjected to 

an unreasonable ‘‘one-size-fits-all’’ 

approach to designing the different 

means of qualifying for the reward that 

would fail to take an employee’s 

circumstances into account to the extent 

that, as a practical matter, they would 

make it unreasonably difficult for the 

employee to access those different 

means of qualifying. Comments also are 

invited on whether any other consumer 

protections are needed to ensure that 

wellness programs are reasonably 

designed to promote health or prevent 

disease. 

(5) Notice of Other Means of 

Qualifying for the Reward. 

These proposed regulations, 

consistent with the 2006 regulations and 

the amendments made by the Affordable 

Care Act, would require plans and 

issuers to disclose the availability of 

other means of qualifying for the reward 

or the possibility of waiver of the 

otherwise applicable standard in all 

plan materials describing the terms of a 

health-contingent wellness program. If 

plan materials merely mention that a 

program is available, without describing 

its terms, this disclosure is not required. 

For example, a summary of benefits and 

coverage (SBC) required under section 

2715 of the PHS Act that notes that cost 

sharing may vary based on participation 

in a diabetes wellness program, without 

describing the standards of the program, 

would not trigger this disclosure. 

The 2006 regulations provided sample 

language that could be used to satisfy 

this requirement in both the regulatory 

text and in several examples. However, 

feedback and experience since the 2006 

regulations were published have 

indicated that the sample language was 

complicated and confusing to some 

individuals and may have led fewer 

individuals to seek a reasonable 

alternative standard than were eligible. 

Accordingly, these proposed regulations 

provide new sample language in the 

regulatory text and in examples that is 

intended to be simpler for individuals to 

understand and to increase the 

likelihood that those who qualify for a 

different means of obtaining a reward 

will contact the plan or issuer to request 

it. The Departments invite comment on 

the sample language in both the 

regulatory text and in the examples. 

C. Application to the Individual Health 

Insurance Market 

PHS Act sections 2705(a) and (b), as 

added by section 1201 of the Affordable 

Care Act, apply the HIPAA 

nondiscrimination requirements to 

health insurance issuers in the 

individual health insurance market. 

Accordingly, the HHS proposed 

regulations include a new § 147.110 

which applies the nondiscrimination 

protections of the 2006 regulations to 

non-grandfathered, individual health 

insurance coverage, effective for policy 

years beginning on or after January 1, 

2014. By their terms, the wellness 

program provisions of PHS Act section 

2705(j), however, do not apply to health 

insurance coverage in the individual 

market. Accordingly, the wellness 

program provisions of § 146.121(f) apply 

only to group health plans and group 

health insurance coverage, not 

individual market coverage. 

D. Applicability Date 

These proposed regulations would 

apply for plan years (in the individual 

market, policy years) beginning on or 

after January 1, 2014, consistent with 

the statutory effective date of PHS Act 

section 2705, as well as PHS Act section 

2701. Comments are invited on this 

proposed applicability date. 

III. Economic Impact and Paperwork 

Burden 

A. Executive Orders 12866 and 13563— 

Department of Labor and Department of 

Health and Human Services 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects; distributive impacts; and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, 

reducing costs, harmonizing rules, and 

promoting flexibility. The Office of 

Management and Budget (OMB) has 

determined that this proposed rule is a 

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70626 Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 

20For a discussion of PHS Act section 2701 and 

the HHS proposed regulation being published 

contemporaneously with these proposed 

regulations, see section II.B.2. of this preamble. 

‘‘significant regulatory action’’ under 

section 3(f)(4) of Executive Order 12866, 

because it raises novel legal or policy 

issues arising from the President’s 

priorities. Accordingly, the rule has 

been reviewed by the OMB. 

TABLE 1—Accounting Table 

Benefits ................................ Quantified: Minimal due to low expected use of higher reward limits. 

Qualitative: Benefits include the ability to increase the reward based on a health factor to incentivize individuals to 

meet a health standard associated with improved health, which could reduce health care costs. Improved 

standards could reduce the use of wellness programs as a subterfuge for discrimination based on a health factor. 

Costs .................................... Quantified: Minimal since employers are expected to create or expand wellness programs only if the expected 

benefit exceeds the cost as well as due to low expected use of higher reward limits. 

Qualitative: Costs of the rule include clarifications regarding what costs individuals may pay as part of an alternative means of complying with the health standard. To the extent an individual faces an increased cost for not 

meeting a health standard, the individual would have reduced resources to use for other purposes. 

Transfers .............................. Quantified: Minimal due to low expected use of higher reward limits. 

Qualitative: Transfers resulting from the rule include transfers from those who do not meet a health standard to 

those who do meet the standard or the associated alternative standard. 

Based on the Departments’ review of 

the most recent literature and studies 

regarding wellness programs, the 

Departments reached the conclusion 

that the impact of the benefits, costs, 

and transfers associated with the 

proposed rules will be minimal. As 

discussed in this analysis, few healthcontingent wellness programs today 

come close to meeting the 20 percent 

limit (based on the data, the usual 

reward percentage ranges from three to 

11 percent); therefore, the Departments 

do not believe that expanding the limit 

to 30 percent (or 50 percent for 

programs designed to prevent or reduce 

tobacco use) will result in significantly 

higher participation of employers in 

such programs. The Departments 

provide a qualitative discussion below 

and cite the survey data used to 

substantiate this conclusion. Moreover, 

most wellness programs appear to be 

participatory programs that do not 

require an individual to meet a standard 

related to a health factor in order to 

obtain a reward. As stated earlier in this 

preamble, these participatory wellness 

programs are not required to meet the 

five requirements that apply to healthcontingent wellness programs, but they 

are required to be made available to all 

similarly situated individuals. 

Although the Departments believe few 

plans will expand the reward 

percentage, the Departments provide a 

qualitative discussion regarding the 

sources of benefits, costs, and transfers 

that could occur if plans were to expand 

the reward beyond the current 

maximum of 20 percent. Currently, 

insufficient broad-based evidence makes 

it difficult to definitively assess the 

impact of workplace wellness programs 

on health outcomes and cost, although, 

overall, employers largely report that 

workplace wellness programs in general 

(participatory programs and healthcontingent programs) are delivering on 

their intended benefit of improving 

health and reducing costs. 

The one source of potential additional 

cost discussed in the impact analysis is 

the clarification that plans must provide 

a reasonable alternative means of 

satisfying the otherwise applicable 

standard. The Departments present 

evidence that currently employers not 

only allow a reasonable alternative 

standard, but that most employers 

already pay for these alternatives. The 

Departments do not have an estimate of 

how many plans are not currently 

paying for alternatives consistent with 

the clarifications set forth in the 

proposed regulations, but the number 

appears to be small. The Departments 

also employ economic logic to conclude 

that employers will create or expand 

their wellness program and provide 

reasonable alternatives only if the 

expected benefits exceed the expected 

costs. Therefore, the Departments 

believe that the benefits of the proposed 

rule will justify the costs. The 

Departments invite comments on these 

conclusions and request input for 

improving the analysis, including 

additional data, surveys, or studies. 

B. Background and Need for Regulatory 

Action—Department of Labor and 

Department of Health and Human 

Services 

As discussed earlier in this preamble, 

on December 13, 2006, the Departments 

issued joint final regulations regarding 

the HIPAA nondiscrimination and 

wellness provisions. The 2006 

regulations set forth the requirements 

for wellness programs that provide a 

reward to individuals who satisfy a 

standard related to a health factor or 

provide a reward to individuals to do 

more than a similarly situated 

individual based on a health factor. See 

section I.B. of this preamble for a 

detailed discussion of the HIPAA 

nondiscrimination and wellness 

provisions and the 2006 regulations. 

PHS Act section 2705 largely reflects 

the provisions of the 2006 regulations 

with some modification and 

clarification. Most notably, it increased 

the maximum reward that can be 

provided under a health-contingent 

wellness program from 20 percent to 30 

percent of the total cost of coverage 

under the plan and authorized the 

Departments to increase this percentage 

to as much as 50 percent of the total cost 

of coverage under the plan, if the 

Departments determine that such an 

increase is appropriate. Accordingly, as 

discussed in section II.B of this 

preamble, these proposed regulations 

increase the applicable percentage for 

the maximum reward from 20 percent to 

30 percent, with an additional increase 

of 20 percentage points (to 50 percent) 

for health-contingent wellness programs 

designed to prevent or reduce tobacco 

use. The additional increase is 

warranted to conform to PHS Act 

section 2701, to avoid inconsistency 

across group health coverage, whether 

insured or self-insured, or offered in the 

small group or large group market, and 

to provide grandfathered plans the same 

flexibility to promote health and 

prevent disease as non-grandfathered 

plans.20

C. Regulatory Alternatives—Department 

of Labor and Department of Health and 

Human Services 

As stated earlier in this preamble, the 

2006 regulations prescribed several 

requirements for health-contingent 

wellness programs, including a 

limitation on the maximum reward of 

20 percent of the total cost of coverage 

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Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 70627 

21See section I.B, earlier in this preamble. 

22On behalf of the Departments, RAND 

researchers did a review of the current literature on 

this topic. ‘‘A Review of the U.S. Workplace 

Wellness Market’’ February 2012. The report can be 

found at http://www.dol.gov/ebsa/pdf/workplace

wellnessmarketreview2012.pdf. 

23 Kaiser Family Foundation, Employer Health 

Benefits: 2011 Annual Survey. 2011, The Kaiser 

Family Foundation, Menlo Park, CA; Health 

Research & Educational Trust, Chicago, IL. 

24Nyce, S. Boosting Wellness Participation 

Without Breaking the Bank. TowersWatson Insider. 

July, 2010:1–9. 25 Kaiser Family Foundation, Employer Health 

Benefits: 2010 Annual Survey. 2010, The Kaiser 

Family Foundation, Menlo Park, CA; Health 

Research & Educational Trust, Chicago, IL. 26Buck Consultants, Working Well: A Global 

Survey of Health Promotion and Workplace 

Wellness Strategies. 2010, Buck Consultants: San 

Francisco, CA. 

under the plan.21 PHS Act section 2705 

largely reflects the requirements for 

wellness programs from the 2006 

regulations with some modification and 

clarification. Most notably, it increased 

the maximum reward that can be 

provided under a health-contingent 

wellness program from 20 percent to 30 

percent of the total cost of coverage 

under the plan and authorized the 

Departments to increase this percentage 

to as much as 50 percent, if the 

Departments determine that such an 

increase is appropriate. 

PHS Act section 2701(a)(1)(A)(iv) 

provides that issuers in the individual 

and small group markets cannot vary 

rates for tobacco use by more than a 

ratio of 1.5 to 1 (that is, allowing up to 

a 50 percent rating factor for tobacco 

use) for non-grandfathered plans. PHS 

Act section 2701 applies to the 

individual market and the small group 

market, but does not apply in the large 

group market or to self-insured plans. 

Contemporaneously with the 

publication of these proposed 

regulations, HHS is publishing a 

proposed rule that would provide that 

an issuer in the small group market 

would not be able to impose the tobacco 

rating factor on an individual in the 

plan under PHS Act section 2701 unless 

it was imposed as part of a wellness 

program meeting the standards of PHS 

Act section 2705(j) and its 

implementing regulations. 

An important policy goal of the 

Departments is to provide the large 

group market and self-insured plans and 

grandfathered health plans with the 

same flexibility as non-grandfathered 

plans in the small group market to 

promote tobacco-free workforces. The 

Departments considered several 

regulatory alternatives to meet this 

objective, including the following: 

(1) Stacking premium differentials. 

One alternative considered was to 

permit a 50 percent premium 

differential for tobacco use in the small 

group market under PHS Act section 

2701 without requiring a reasonable 

alternative standard. Under PHS Act 

section 2705, an additional 30 percent 

premium differential would also be 

permitted if the five criteria for a healthcontingent wellness program are met 

(including the offering of a reasonable 

alternative standard). Under this option, 

an 80 percent premium differential 

would have been allowable in the small 

group market based on factors related to 

health status. Large and self-insured 

plans would have been limited to the 30 

percent maximum reward. Allowing 

such a substantial difference between 

what was permissible in the small group 

market and the large group market was 

not in line with the Departments’ policy 

goal of providing consistency in 

flexibility for plans. 

(2) Concurrent premium differentials 

with no reasonable alternative required 

to be offered for tobacco use. Another 

alternative would be to read sections 

2701 and 2705 together such that, for 

non-grandfathered health plans in the 

small group market, up to a 50 percent 

premium differential would be 

permitted based on tobacco use, as 

authorized under PHS Act section 

2701(a)(1)(A)(iv), with no reasonable 

alternative standard required for the 

tobacco use program. With respect to 

non-tobacco-related wellness programs, 

a reward could be offered only to the 

extent that a tobacco use wellness 

program were less than 30 percent of the 

cost of coverage because the two 

provisions apply concurrently, and a 

reward would not be permitted under 

PHS Act section 2705 if the maximum 

reward already were exceeded by virtue 

of PHS Act section 2701. Thus, the 50 

percent tobacco surcharge under PHS 

Act section 2701 would be available 

only to non-grandfathered, insured, 

small group plans. The chosen approach 

is intended to avoid inconsistency and 

to provide grandfathered plans the same 

flexibility to promote health and 

prevent disease as non-grandfathered 

plans. 

D. Current Use of Wellness Programs 

and Economic Impacts—Department of 

Labor and Department of Health and 

Human Services 

The current use of wellness programs 

and economic impacts of these 

proposed regulations are discussed in 

this analysis. 

Wellness programs 22 have become 

common among employers in the 

United States. The 2012 Kaiser/HRET 

survey indicates that 63 percent of all 

employers who offered health benefits 

also offered at least one wellness 

program.23 The uptake of wellness 

programs continues to be more common 

among large employers. For example, 

the 2012 Kaiser/HRET survey found that 

health risk assessments are offered by 38 

percent of large employers offering 

health benefits, but only 18 percent of 

employers with fewer than 200 workers. 

The Kaiser/HRET survey indicates 

that 29 percent of all firms and 53 

percent of large firms offered weight 

loss programs, while 30 percent and 64 

percent, respectively, offered gym 

memberships or on-site exercise 

facilities. Meanwhile, 32 percent of all 

employers and 63 percent of large 

employers offered smoking cessation 

resources. Despite widespread 

availability, actual participation of 

employees in wellness programs 

remains limited. While no nationally 

representative data exist, a 2010 nonrepresentative survey suggests that 

typically less than 20 percent of eligible 

employees participate in wellness 

interventions such as smoking 

cessation.24

Currently, insufficient broad-based 

evidence makes it difficult to 

definitively assess the impact of 

workplace wellness on health outcomes 

and cost. Yet, overall, employers largely 

report that workplace wellness 

programs are delivering on their 

intended benefit of improving health 

and reducing costs. According to the 

2011 Kaiser/HRET survey, 65 percent of 

respondents that offered wellness 

programs stated that these programs 

improved employee health, and 53 

percent believed that they reduced 

costs. Larger firms (defined as those 

with more than 200 workers in the 

Kaiser/HRET survey) were significantly 

more positive, as 74 percent affirmed 

that workplace wellness programs 

improved health and 65 percent said 

that it reduced cost, as opposed to 65 

percent and 52 percent, respectively, 

among smaller firms.25 Forty percent of 

respondents to a survey by Buck 

Consultants indicated that they had 

measured the impact of their wellness 

program on the growth trend of their 

health care costs, and of these, 45 

percent reported a reduction in that 

growth trend. The majority of these 

employers, 61 percent, reported that the 

reduction in growth trend of their health 

care costs was between two and five 

percentage points per year.26 There are 

numerous accounts of the positive 

impact of workplace wellness programs 

in many industries, regions, and types 

of employers. For example, a recent 

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70628 Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 

27Berry, L., A. Mirabito, and W. Baun, What’s the 

Hard Return on Employee Wellness Programs? 

Harvard Business Review, 2010. 88(12): p. 104. 

28Heirich, M. and C.J. Sieck, Worksite 

cardiovascular wellness programs as a route to 

substance abuse prevention. J Occup Environ Med, 

2000. 42(1): p. 47–56; 40; McMahon, S.D. and L.A. 

Jason, Social support in a worksite smoking 

intervention. A test of theoretical models. Behav 

Modif, 2000. 24(2): p. 184–201; Okechukwu, C.A., 

et al., MassBuilt: Effectiveness of an apprenticeship 

site-based smoking cessation intervention for 

unionized building trades workers. Cancer Causes 

Control, 2009. 20(6): p. 887–94; Sorensen, G., et al., 

A comprehensive worksite cancer prevention 

intervention: Behavior change results from a 

randomized controlled trial (United States). J Public 

Health Policy, 2003. 24(1): p. 5–25. 

29 Gold, D.B., D.R. Anderson, and S.A. Serxner, 

Impact of a telephone-based intervention on the 

reduction of health risks. Am J Health Promot, 

2000. 15(2): p. 97–106; Herman, C.W., et al., 

Effectiveness of an incentive-based online physical 

activity intervention on employee health status. 

Journal of Occupational and Environmental 

Medicine, 2006. 48(9): p. 889–895; Ozminkowski, 

R.J., et al., The impact of the Citibank, NA, health 

management program on changes in employee 

health risks over time. J Occup Environ Med, 2000. 

42(5): p. 502–11. 

30Heirich, M. and C.J. Sieck, Worksite 

cardiovascular wellness programs as a route to 

substance abuse prevention. J Occup Environ Med, 

2000. 42(1): p. 47–56; McMahon, S.D. and L.A. 

Jason, Social support in a worksite smoking 

intervention. A test of theoretical models. Behav 

Modif, 2000. 24(2): p. 184–201. 

31Heirich, M. and C.J. Sieck, Worksite 

cardiovascular wellness programs as a route to 

substance abuse prevention. J Occup Environ Med, 

2000. 42(1): p. 47–56; Okechukwu, C.A., et al., 

MassBuilt: Effectiveness of an apprenticeship sitebased smoking cessation intervention for unionized 

building trades workers. Cancer Causes Control, 

2009. 20(6): p. 887–94. 

32 In the study, 42% of participants reduced their 

risk for tobacco use. See Gold, D.B., D.R. Anderson, 

and S.A. Serxner, Impact of a telephone-based 

intervention on the reduction of health risks. Am 

J Health Promot, 2000. 15(2): p. 97–106. 

33 Kechukwu, C.A., et al., MassBuilt: 

Effectiveness of an apprenticeship site-based 

smoking cessation intervention for unionized 

building trades workers. Cancer Causes Control, 

2009. 20(6): p. 887–94. 

34Buck Consultants, Working Well: A Global 

Survey of Health Promotion and Workplace 

Wellness Strategies. 2010, Buck Consultants: San 

Francisco, CA. 

35Mercer, National Survey of EmployerSponsored Health Plans: 2009 Survey Report. 2010, 

Mercer. 

36 ‘‘Employer Survey on Purchasing Value in 

Health Care,’’ 17th Annual Towers Watson/National 

Business Group on Health Employer Survey on 

Purchasing Value in Health Care. 

37 ‘‘Guidance for a Reasonably Designed, 

Employer-Sponsored Wellness Program Using 

Outcomes-Based Incentives,’’ joint consensus 

statement of the Health Enhancement Research 

Organization, American College of Occupational 

and Environmental Medicine, American Cancer 

Society and American Cancer Society Cancer 

Action Network, American Diabetes Association, 

and American Heart Association. 

38Mercer, National Survey of EmployerSponsored Health Plans: 2009 Survey Report. 2010, 

Mercer. 

article published by the Harvard 

Business Review cited positive 

outcomes reported by private-sector 

employers along several different 

dimensions, including health care 

savings, reduced absenteeism, and 

employee satisfaction.27

Several studies that looked at the 

impact of smoking cessation programs 

found significantly higher quit rates or 

less tobacco use.28 29 Smoking cessation 

programs typically offered education 

and counseling to increase social 

support.30 Two studies reported that 

individuals in the intervention group 

quit smoking at a rate approximately 10 

percentage points higher than those in 

the control group, and another reported 

that participants were almost four times 

as likely as nonparticipants to reduce 

tobacco use.31 32 However, these effects 

should be interpreted with caution. One 

study showed significant differences in 

smoking rates at a one-month follow-up, 

but showed no significant differences in 

quit rates at six months, highlighting the 

importance of long-term follow-up to 

investigate the sustainability of 

results.33

While employer sponsors generally 

are satisfied with the results, more than 

half stated in a recent survey that they 

do not know their programs’ return on 

investment.34 The peer-reviewed 

literature, while predominantly 

positive, covers only a small proportion 

of the universe of programs, limiting the 

generalizability of the reported findings. 

Evaluating such complex interventions 

is difficult and poses substantial 

methodological challenges that can 

invalidate findings. 

Overall, surveys suggest that a 

relatively small percentage of employers 

use incentives, dollar or otherwise, for 

wellness programs, although incentive 

use is more prevalent among larger 

employers. Data from the 2011 Kaiser/ 

HRET Survey of Employer Health 

Benefits indicate that 14 percent of all 

employers offered cash, gift cards, 

merchandise, or travel as incentives for 

wellness program participation. Among 

large firms (greater than 200 workers), 

only 27 percent offered these kinds of 

incentives. Mercer Consulting’s 2009 

National Survey of Employer-Sponsored 

Health Plans found similar patterns, 

estimating that six percent of all firms 

and 21 percent of those with 500 or 

more employees provided financial 

incentives for participating in at least 

one program.35 Employers are also 

looking to continue to add incentives to 

their wellness programs, for example 17 

percent intend to add a reward or 

penalty based on tobacco-use status.36

The use of incentives to promote 

employee engagement remains poorly 

understood, so it is not clear how type 

(e.g., cash or non-cash), direction 

(reward versus penalty), and strength of 

incentive are related to employee 

engagement and outcomes. The Health 

Enhancement Research Organization 

and associated organizations also 

recognized this deficiency and provided 

seven questions for future research.37

There are also no data on potential 

unintended effects, such as 

discrimination against employees based 

on their health or health behaviors. 

Currently, the most commonly 

incentivized program appears to be 

associated with completion of a health 

risk assessment. According to the 2009 

Mercer survey, 10 percent of all firms 

and 23 percent of large employers that 

offered a health risk assessment 

provided an incentive for completing 

the assessment. For other types of health 

management programs that the survey 

assessed, only two to four percent of all 

employers and 13 to 19 percent of large 

employers offered incentives.38 The 

2011 Kaiser/HRET survey found that 10 

percent of all employers and 42 percent 

of large firms that offered a health risk 

assessment provided a financial 

incentive to employees who completed 

it. 

Incentives are offered in a variety of 

forms, such as cash, gift cards, 

merchandise, time off, awards, 

recognition, raffles or lotteries, reduced 

health plan premiums and co-pays, and 

contributions to flexible spending or 

health savings accounts. As noted 

previously, the Kaiser/HRET 2011 

survey reported that among firms 

offering health benefits with more than 

200 workers, 27 percent offered cash or 

cash equivalent incentives (including 

gift cards, merchandise, or travel 

incentives). In addition, 11 percent of 

these firms offered lower employee 

health plan premiums to wellness 

participants, two percent offered lower 

deductibles, and 11 percent offered 

higher health reimbursement account or 

health savings account contributions. 

Meanwhile, 13 percent of firms with 

fewer than 200 workers offered cash or 

equivalent incentives, and each of the 

other types of incentives were offered by 

only two percent or less of firms. 

Cash and cash-equivalent incentives 

remain the most popular incentive for 

completion of a health risk assessment. 

The Kaiser/HRET 2011 survey reports 

that among employers incentivizing 

completion of a health risk assessment, 

41 percent offered cash, gift cards, 

merchandise or travel, 23 percent 

allowed workers to pay a smaller 

proportion of premiums, 12 percent 

offered lower deductibles, and one 

percent offered lower coinsurance. 

Among large employers, 57 percent 

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39Mercer, National Survey of EmployerSponsored Health Plans: 2009 Survey Report. 2010, 

Mercer. 

40TowersWatson, Raising the Bar on Health Care: 

Moving Beyond Incremental Change. 

41Mercer, National Survey of EmployerSponsored Health Plans: 2009 Survey Report. 2010, 

Mercer. 

42Linnan, L., et al., Results of the 2004 national 

worksite health promotion survey. American 

Journal of Public Health, 2008. 98(8): p. 1503–1509. 

43 Kaiser Family Foundation, Employer Health 

Benefits: 2010 Annual Survey. 

44See section II.B, earlier in this preamble for a 

more detailed discussion of these requirements. 

utilized cash incentives, 34 percent 

offered smaller premiums, six percent 

provided lower deductibles, and three 

percent provided lower coinsurance. 

Findings from Mercer’s 2009 survey 

suggest similar trends, with five percent 

of all employers and ten percent of 

those with 500 or more workers 

providing cash incentives for 

completion of a health risk assessment; 

one percent and two percent, 

respectively, offering lower cost sharing; 

and two percent and seven percent, 

respectively, offering lower premium 

contributions.39 Note that in the Mercer 

survey, the results cited reflect the 

incentives provided by all firms that 

offer a health risk assessment, while the 

Kaiser/HRET results previously 

mentioned reflect only firms that 

incentivize completion of a health risk 

assessment. 

Incentives may be triggered by a range 

of different levels of employee 

engagement. The simplest incentives are 

triggered by program enrollment—that 

is, by merely signing up for a wellness 

program. At the next level, incentives 

are triggered by program participation— 

for instance, attending a class or 

initiating a program, such as a smoking 

cessation intervention. Other incentive 

programs may require completion of a 

program, whether or not any particular 

health-related goals are achieved, to 

earn an incentive. The health-contingent 

incentive programs require successfully 

meeting a specific health outcome (or an 

alternative standard) to trigger an 

incentive, such as verifiably quitting 

smoking. There is little representative 

data indicating the relative prevalence 

of these different types of triggers. The 

most common form of outcome-based 

incentives is reportedly awarded for 

smoking cessation. The 2010 survey by 

NBGH and TowersWatson indicated 

that while 25 percent of responding 

employers offered a financial incentive 

for employees to become tobacco-free, 

only four percent offered financial 

incentives for maintaining a BMI within 

target levels, three percent did so for 

maintaining blood pressure within 

targets, and three percent for 

maintaining targeted cholesterol 

levels.40

The value of incentives can vary 

widely. Estimates from representative 

surveys of the average value of 

incentives per year range between 

$152 41 and $557,42 or between three 

and 11 percent of the $5,049 average 

cost of individual coverage in 2010,43

among employees who receive them. 

This suggests that companies typically 

are not close to reaching the 20 percent 

of the total cost of coverage threshold 

set forth in the 2006 regulations. These 

findings indicate that based on currently 

available data, increasing the maximum 

reward for particpating in a healthcontingent wellness program to 30 

percent (and the Departments’ decision 

to propose an additional 20 percentage 

points for programs designed to prevent 

or reduce tobacco use) is unlikely to 

have a significant impact. Additionally, 

as discussed earlier in this preamble, 

today most incentive-based wellness 

programs are associated with 

completion of a health risk assessment 

irrespective of the results, and therefore 

are not subject to the limitation, because 

such programs are not health-contingent 

wellness programs. 

The Departments lack sufficient 

information to assess how firms that 

currently are at the 20 percent limit will 

respond to the increased limits and 

welcome public comments regarding 

this issue. If firms already viewed the 

current 20 percent reward limit as 

sufficient, then the Depatments would 

not expect that increasing the limit 

would provide an incentive for program 

design changes. 

It is possible that the increased 

wellness program reward limits will 

incentivize firms without healthcontingent wellness programs to 

establish them. The Departments, 

however, do not expect a significant 

number of new programs to be created 

as a result of this change because firms 

without health-contingent wellness 

programs could already have provided 

rewards up to the 20 percent limit 

before the enactment of the Affordable 

Care Act, but did not. 

Two critical elements of these 

proposed regulations are (1) the 

standard that the reward under a healthcontingent wellness program be 

available to all similarly situated 

individuals and (2) the standard that a 

program be reasonably designed to 

promote health or prevent disease.44

As discussed earlier in this preamble, 

the regulation does not prescribe a 

particular type of alternative standard 

that must be provided. Instead, it 

permits plan sponsors flexibility to 

provide any reasonable alternative. The 

Departments expect that plan sponsors 

will select alternatives that entail the 

minimum net costs (or, stated 

differently, the maximum net benefits) 

that are possible to achieve derive 

offsetting benefits, such as a higher 

smoking cessation success rate. 

It seems reasonable to presume that 

the net cost plan sponsors will incur in 

the provision of alternatives, including 

transfers as well as new economic costs 

and benefits, will not exceed the 

transfer cost of waiving surcharges for 

all plan participants who qualify for 

alternatives. The Departments expect 

that many plan sponsors will find more 

cost effective ways to satisfy this 

requirement, should they exercise the 

option to provide incentives through a 

health-contingent wellness program and 

that the true net cost to them will 

therefore be much smaller than the 

transfer cost of waiving surcharges for 

all plan participants who qualify for 

alternatives. The Departments have no 

basis for estimating the magnitude of the 

cost of providing alternative standards 

or of potential offsetting benefits, 

however, and therefore solicit 

comments from the public on this 

question. 

The Departments note that plan 

sponsors will have strong motivation to 

identify and provide alternative 

standards that have positive net 

economic effects. Plan sponsors will be 

disinclined to provide alternatives that 

undermine their overall wellness 

program and worsen behavioral and 

health outcomes, or that make financial 

rewards available absent meaningful 

efforts by participants to improve their 

health habits and overall health. Instead 

plan sponsors will be inclined to 

provide alternatives that sustain or 

reinforce plan participants’ incentive to 

improve their health habits and overall 

health, and/or that help participants 

make such improvements. It therefore 

seems likely that gains in economic 

welfare from this requirement will equal 

or outweigh losses. The Departments 

intend that the requirement to provide 

reasonable alternatives will reduce 

instances where wellness programs 

serve only to shift costs to higher risk 

individuals and increase instances 

where programs succeed at helping high 

risk individuals improve their health. 

The Departments solicit comments on 

its assumption. 

In considering the transfers that might 

derive from the availability of (and 

participants’ satisfaction with) 

alternative means of qualifying for the 

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70630 Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 

45Under ERISA section 104(a)(2), the Secretary 

may also provide exemptions or simplified 

reporting and disclosure requirements for pension 

plans. Pursuant to the authority of ERISA section 

104(a)(3), the Department of Labor has previously 

issued at 29 CFR 2520.104–20, 2520.104–21, 

2520.104–41, 2520.104–46, and 2520.104b–10 

certain simplified reporting provisions and limited 

exemptions from reporting and disclosure 

requirements for small plans, including unfunded 

or insured welfare plans, that cover fewer than 100 

participants and satisfy certain other requirements. 

46 Kaiser Family Foundation, Employer Health 

Benefits: 2011 Annual Survey. 2011, The Kaiser 

Family Foundation, Menlo Park, CA; Health 

Research & Educational Trust, Chicago, IL. 

reward, the transfers arising from this 

requirement may take the form of 

transfers to participants who satisfy new 

alternative wellness program standards 

from plan sponsors, to such participants 

from other participants, or some 

combination of these. The existence of 

a wellness program with a reward 

contingent on meeting a standard 

related to a health factor creates a 

transfer from those who do not meet the 

standard to those who do meet the 

standard. Allowing individuals to meet 

an alternative standard to receive the 

reward is a transfer to those who use the 

alternative standard from everyone else 

in the risk pool. 

The reward associated with the 

wellness program is an incentive to 

encourage individuals to meet health 

standards associated with better or 

improved health, which in turn is 

associated with lower health care costs. 

If the rewards are effective, health care 

costs will be reduced as an individual’s 

health improves. Some of these lower 

health care costs could translate into 

lower premiums paid by employers and 

employees, which could offset some of 

the transfers. To the extent larger 

rewards are more effective at improving 

health and lowering costs, these 

proposed regulations would produce 

more benefits than the current 

regulations. 

Rewards also could create costs to 

individuals and to the extent the new 

larger rewards create more costs than 

smaller rewards, these proposed 

regulations could increase the costs 

relative to the existing regulations. To 

the extent an individual does not meet 

a standard or satisfy an alternative 

standard, they could face higher costs, 

for example in the case of a surcharge 

for smoking they could face up to a 50 

percent increase in their premiums. 

Based on the foregoing discussion, the 

Departments expect the benefits, costs, 

and transfers associated with these 

proposed regulations to be minimal. 

However, the Departments are not able 

to provide aggregate estimates, because 

they do not have sufficent data to 

estimate the number of plans that will 

take advantage of the new limits. 

E. Regulatory Flexibility Act— 

Department of Labor and Department of 

Health and Human Services 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) applies to most 

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act (5 U.S.C. 551 et seq.). 

Unless an agency certifies that such a 

rule will not have a significant 

economic impact on a substantial 

number of small entities, section 603 of 

the RFA requires the agency to present 

an initial regulatory flexibility analysis 

at the time of the publication of the 

notice of proposed rulemaking 

describing the impact of the rule on 

small entities. Small entities include 

small businesses, organizations and 

governmental jurisdictions. 

For purposes of analysis under the 

RFA, the Departments propose to 

continue to consider a small entity to be 

an employee benefit plan with fewer 

than 100 participants. The basis of this 

definition is found in section 104(a)(3) 

of ERISA, which permits the Secretary 

of Labor to prescribe simplified annual 

reports for welfare benefit plans that 

cover fewer than 100 participants.45

Further, while some large employers 

may have small plans, in general, small 

employers maintain most small plans. 

Thus, the Departments believe that 

assessing the impact of these proposed 

regulations on small plans is an 

appropriate substitute for evaluating the 

effect on small entities. 

The definition of small entity 

considered appropriate for this purpose 

differs, however, from a definition of 

small business that is based on size 

standards promulgated by the Small 

Business Administration (SBA) (13 CFR 

121.201) pursuant to the Small Business 

Act (15 U.S.C. 631 et seq.). The 

Departments therefore request 

comments on the appropriateness of the 

size standard used in evaluating the 

impact of these proposed regulations on 

small entities. The Departments have 

consulted with the SBA Office of 

Advocacy concerning use of this 

participant count standard for RFA 

purposes. See 13 CFR 121.902(b)(4). 

The Departments expect that these 

proposed regulations will affect few 

small plans. While a large number of 

small plans offer a wellness program, 

the 2011 Kaiser/HRET survey reported 

that only 13 percent of employers with 

fewer than 200 employees had a 

wellness program that offered cash or 

cash equivalent incentives (including 

gift cards, merchandise, or travel 

incentives).46 In addition, only two 

percent of these firms offered lower 

employee health plan premiums to 

wellness participants, one percent 

offered lower deductibles, and one 

percent offered higher health 

reimbursement account or health 

savings account contributions. 

Therefore, the Departments expect that 

few small plans will be affected by 

increasing the rewards threshold from 

20 percent to 30 percent (50 percent for 

programs targeting tobacco use 

prevention or reduction), because a 

small percentage of plans have rewardsbased wellness programs. Moreover, as 

discussed in the Economic Impacts 

section earlier in this preamble, few 

plans that offer rewards-based wellness 

programs come close to reaching the 20 

percent limit, and most incentive-based 

wellness programs are associated with 

completing the health risk assessment 

irrespective of the results, which are not 

subject to the limitation. 

The Kaiser/HRET survey also reports 

that about 88 percent of small plans had 

their wellness programs provided by the 

health plan provider. Industry experts 

indicated to the Departments that when 

wellness programs are offered by the 

health plan provider, they typically 

supply alternative education programs 

and offer them free of charge. This 

finding indicates that the requirement in 

the proposed rule for rewards-based 

wellness programs to provide and pay 

for a reasonable alternative standard for 

individuals for whom it is either 

unreasonably difficult or medically 

inadvisable to meet the original 

standard will impose little new costs or 

transfers to the affected plans. 

Based on the foregoing, the 

Departments herby certify that these 

proposed regulations will not have a 

significant economic impact on a 

substantial number of small entities. 

F. Paperwork Reduction Act— 

Department of Labor and Department of 

the Treasury 

The 2006 final regulations regarding 

wellness programs did not include an 

information collection request (ICR). 

These proposed regulations, like the 

2006 final regulations, provide that if a 

plan’s wellness program requires 

individuals to meet a standard related to 

a health factor in order to qualify for a 

reward and if the plan materials 

describe this standard, the materials 

must also disclose the availability of 

other means of qualifying for the reward 

or the possibility of waiver of the 

otherwise applicable standard. If plan 

materials merely mention that a 

program is available, the disclosure 

relating to alternatives is not required. 

These proposed regulations include 

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47 In 2012, that threshold level is approximately 

$139 million. 

samples of disclosures that could be 

used to satisfy this requirement. 

In concluding that these proposed 

regulations did not include an ICR, the 

Departments reasoned that much of the 

information required was likely already 

provided as a result of state and local 

requirements or the usual business 

practices of group health plans and 

group health insurance issuers in 

connection with the offer and 

promotion of health care coverage. In 

addition, the sample disclosures would 

enable group health plans to make any 

necessary modifications with minimal 

effort. 

Finally, although the proposed 

regulations do not include an ICR, the 

regulations could be interpreted to 

require a revision to an existing 

collection of information. 

Administrators of group health plans 

covered under Title I of ERISA are 

generally required to make certain 

disclosures about the terms of a plan 

and material changes in terms through 

a Summary Plan Description (SPD) or 

Summary of Material Modifications 

(SMM) pursuant to sections 101(a) and 

102(a) of ERISA and related regulations. 

The ICR related to the SPD and SMM is 

currently approved by OMB under OMB 

control number 1210–0039, which is 

currently scheduled to expire on April 

30, 2013. While these materials may in 

some cases require revisions to comply 

with the proposed regulations, the 

associated burden is expected to be 

negligible, and is already accounted for 

in the SPD, SMM, and the ICR by a 

burden estimation methodology, which 

anticipates ongoing revisions. Based on 

the foregoing, the Departments do not 

expect that any change to the existing 

ICR arising from these proposed 

regulations will be substantive or 

material. Accordingly, the Departments 

have not filed an application for 

approval of a revision to the existing 

ICR with OMB in connection with these 

proposed regulations. 

G. Paperwork Reduction Act— 

Department of Health and Human 

Services 

Under the Paperwork Reduction Act 

of 1995, the Department is required to 

provide 60-day notice in the Federal 

Register and solicit public comment 

before a collection of information 

requirement is submitted to OMB for 

review and approval. In order to fairly 

evaluate whether an information 

collection should be approved by OMB, 

section 3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires the 

Department to solicit comment on the 

following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

techniques. 

Section 146.121(f)(1)(iv) stipulates 

that the plan or issuer disclose in all 

plan materials describing the terms of 

the program the availability of a 

reasonable alternative standard to 

qualify for the reward under a wellness 

program. However, for plan materials 

that merely mention that a program is 

available, without describing its terms, 

the disclosure is not required. The 

burden associated with this requirement 

was previously approved under OMB 

control number 0938–0819. We are not 

seeking reinstatement of the information 

collection request under the 

aforementioned OMB control number, 

since we believe that much of the 

information required is likely already 

provided as a result of state and local 

requirements or the usual business 

practices of group health plans and 

group health insurance issuers in 

connection with the offer and 

promotion of health care coverage. In 

addition, the sample disclosures would 

enable group health plans to make any 

necessary modifications with minimal 

effort. 

H. Special Analyses—Department of the 

Treasury 

For purposes of the Department of the 

Treasury it has been determined that 

this notice of proposed rulemaking is 

not a significant regulatory action as 

defined in Executive Order 12866. 

Therefore, a regulatory assessment is not 

required. It has also been determined 

that section 553(b) of the Administrative 

Procedure Act (5 U.S.C. chapter 5) does 

not apply to these proposed regulations, 

and, because these proposed regulations 

do not impose a collection of 

information on small entities, a 

Regulatory Flexibility Analysis under 

the Regulatory Flexibility Act (5 U.S.C. 

chapter 6) is not required. Pursuant to 

section 7805(f) of the Code, this notice 

of proposed rulemaking has been 

submitted to the Small Business 

Administration for comment on its 

impact on small business. 

I. Congressional Review Act 

These proposed regulations are 

subject to the Congressional Review Act 

provisions of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (5 U.S.C. 801 et seq.) and, if 

finalized, will be transmitted to 

Congress and the Comptroller General 

for review. These regulations, do not 

constitute a ‘‘major rule,’’ as that term 

is defined in 5 U.S.C. 804 because they 

are unlikely to result in (1) an annual 

effect on the economy of $100 million 

or more; (2) a major increase in costs or 

prices for consumers, individual 

industries, or federal, State or local 

government agencies, or geographic 

regions; or (3) significant adverse effects 

on competition, employment, 

investment, productivity, innovation, or 

on the ability of United States-based 

enterprises to compete with foreignbased enterprises in domestic or export 

markets. 

J. Unfunded Mandates Reform Act 

For purposes of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), as well as Executive Order 

12875, these proposed regulations do 

not include any federal mandate that 

may result in expenditures by state, 

local, or tribal governments, nor does it 

include mandates which may impose an 

annual burden of $100 million, adjusted 

for inflation,47 or more on the private 

sector. 

K. Federalism Statement—Department 

of Labor and Department of Health and 

Human Services 

Executive Order 13132 outlines 

fundamental principles of federalism, 

and requires the adherence to specific 

criteria by federal agencies in the 

process of their formulation and 

implementation of policies that have 

‘‘substantial direct effects’’ on the 

States, the relationship between the 

national government and States, or on 

the distribution of power and 

responsibilities among the various 

levels of government. Federal agencies 

promulgating regulations that have 

these federalism implications must 

consult with State and local officials, 

and describe the extent of their 

consultation and the nature of the 

concerns of State and local officials in 

the preamble to the regulation. 

In the Departments’ view, these 

proposed regulations have federalism 

implications, however, in the 

Departments’ view, the federalism 

implications of these final regulations 

are substantially mitigated because, 

with respect to health insurance issuers, 

the vast majority of States have enacted 

laws, which meet or exceed the federal 

HIPAA standards prohibiting 

discrimination based on health factors. 

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70632 Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 

48This authority applies to insurance issued with 

respect to group health plans generally, including 

plans covering employees of church organizations. 

Thus, this discussion of federalism applies to all 

group health insurance coverage that is subject to 

the PHS Act, including those church plans that 

provide coverage through a health insurance issuer 

(but not to church plans that do not provide 

coverage through a health insurance issuer). 

Therefore, the regulations are not likely 

to require substantial additional 

oversight of States by the Department of 

HHS. 

In general, through section 514, 

ERISA supersedes State laws to the 

extent that they relate to any covered 

employee benefit plan, and preserves 

State laws that regulate insurance, 

banking, or securities. While ERISA 

prohibits States from regulating a plan 

as an insurance or investment company 

or bank, HIPAA added a new 

preemption provision to ERISA (as well 

as to the PHS Act) narrowly preempting 

State requirements for group health 

insurance coverage. With respect to the 

HIPAA nondiscrimination provisions, 

States may continue to apply State law 

requirements except to the extent that 

such requirements prevent the 

application of the portability, access, 

and renewability requirements of 

HIPAA, which include HIPAA’s 

nondiscrimination requirements 

provisions. HIPAA’s Conference Report 

states that the conferees intended the 

narrowest preemption of State laws with 

regard to health insurance issuers (H.R. 

Conf. Rep. No. 736, 104th Cong. 2d 

Session 205, 1996). State insurance laws 

that are more stringent than the federal 

requirements are unlikely to ‘‘prevent 

the application of’’ the HIPAA 

nondiscrimination provisions, and 

therefore are not preempted. 

Accordingly, States have significant 

latitude to impose requirements on 

health insurance issuers that are more 

restrictive than the federal law. 

Guidance conveying this 

interpretation was published in the 

Federal Register on April 8, 1997 (62 FR 

16904) and on December 30, 2004 (69 

FR 78720), and these proposed 

regulations clarify and implement the 

statute’s minimum standards and do not 

significantly reduce the discretion given 

the States by the statute. Moreover, the 

Departments understand that the vast 

majority of States have requirements 

that meet or exceed the minimum 

requirements of the HIPAA 

nondiscrimination provisions. 

HIPAA provides that the States may 

enforce the provisions of HIPAA as they 

pertain to issuers, but that the Secretary 

of HHS must enforce any provisions that 

a State chooses not to or fails to 

substantially enforce. When exercising 

its responsibility to enforce provisions 

of HIPAA, HHS works cooperatively 

with the State for the purpose of 

addressing the State’s concerns and 

avoiding conflicts with the exercise of 

State authority.48 HHS has developed 

procedures to implement its 

enforcement responsibilities, and to 

afford the States the maximum 

opportunity to enforce HIPAA’s 

requirements in the first instance. In 

compliance with Executive Order 

13132’s requirement that agencies 

examine closely any policies that may 

have federalism implications or limit 

the policy making discretion of the 

States, DOL and HHS have engaged in 

numerous efforts to consult with and 

work cooperatively with affected State 

and local officials. 

In conclusion, throughout the process 

of developing these regulations, to the 

extent feasible within the specific 

preemption provisions of HIPAA, the 

Departments have attempted to balance 

the States’ interests in regulating health 

plans and health insurance issuers, and 

the rights of those individuals that 

Congress intended to protect through 

the enactment of HIPAA. 

IV. Statutory Authority 

The Department of the Treasury 

regulations are proposed to be adopted 

pursuant to the authority contained in 

sections 7805 and 9833 of the Code. 

The Department of Labor regulations 

are proposed to be adopted pursuant to 

the authority contained in 29 U.S.C. 

1027, 1059, 1135, 1161–1168, 1169, 

1181–1183, 1181 note, 1185, 1185a, 

1185b, 1185d, 1191, 1191a, 1191b, and 

1191c; sec. 101(g), Public Law 104–191, 

110 Stat. 1936; sec. 401(b), Public Law 

105–200, 112 Stat. 645 (42 U.S.C. 651 

note); sec. 512(d), Public Law 110–343, 

122 Stat. 3881; sec. 1001, 1201, and 

1562(e), Public Law 111–148, 124 Stat. 

119, as amended by Public Law 111– 

152, 124 Stat. 1029; Secretary of Labor’s 

Order 3–2010, 75 FR 55354 (September 

10, 2010). 

The Department of Health and Human 

Services regulations are proposed to be 

adopted, with respect to 45 CFR part 

146, pursuant to the authority contained 

in sections 2702 through 2705, 2711 

through 2723, 2791, and 2792 of the 

PHS Act (42 U.S.C. 300gg–1 through 

300gg–5, 300gg–11 through 300gg–23, 

300gg–91, and 300gg–92) prior to the 

amendments made by the Affordable 

Care Act and sections 2701 through 

2763, 2791, and 2792 of the Public 

Health Service Act (42 U.S.C. 300gg 

through 300gg–63, 300gg–91, and 

300gg–92), as amended by the 

Affordable Care Act; with respect to 45 

CFR part 147, pursuant to the authority 

contained in sections 2701 through 

2763, 2791, and 2792 of the PHS Act (42 

U.S.C. 300gg through 300gg–63, 300gg– 

91, and 300gg–92), as amended by the 

Affordable Care Act. 

List of Subjects 

26 CFR Part 54 

Excise taxes, Health care, Health 

insurance, Pensions, Reporting and 

recordkeeping requirements. 

29 CFR Part 2590 

Continuation coverage, Disclosure, 

Employee benefit plans, Group health 

plans, Health care, Health insurance, 

Medical child support, Reporting and 

recordkeeping requirements. 

45 CFR Parts 146 and 147 

Health care, Health insurance, 

Reporting and recordkeeping 

requirements, and State regulation of 

health insurance. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement, Internal Revenue Service. 

Signed this 8th day of November, 2012. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

Dated: August 1, 2012. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Dated: August 7, 2012. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

Department of the Treasury 

Internal Revenue Service 

26 CFR Chapter I 

Accordingly, 26 CFR part 54 is 

proposed to be amended as follows: 

PART 54—PENSION EXCISE TAXES 

Paragraph 1. The authority citation 

for Part 54 is amended by adding an 

entry for § 54.9815–2705 in numerical 

order to read in part as follows: 

Authority: 26 U.S.C. 7805. * * * 

Section 54.9815–2705 also issued under 26 

U.S.C. 9833. 

Par. 2. In § 54.9802–1, paragraph (f) is 

revised to read as follows: 

§ 54.9802–1 Prohibiting discrimination 

against participants and beneficiaries 

based on a health factor. 

* * * * * 

(f) Nondiscriminatory wellness 

programs—in general. A wellness 

program is a program of health 

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promotion or disease prevention. 

Paragraphs (b)(2)(ii) and (c)(3) of this 

section provide exceptions to the 

general prohibitions against 

discrimination based on a health factor 

for plan provisions that vary benefits 

(including cost-sharing mechanisms) or 

the premium or contribution for 

similarly situated individuals in 

connection with a wellness program 

that satisfies the requirements of this 

paragraph (f). If a wellness program is a 

participatory wellness program, as 

defined in paragraph (f)(1) of this 

section, that paragraph also makes clear 

that the wellness program does not 

violate this section if participation in 

the program is made available to all 

similarly situated individuals. If a 

wellness program is a health-contingent 

wellness program, as defined in 

paragraph (f)(2) of this section, the 

wellness program does not violate this 

section if the requirements of paragraph 

(f)(3) of this section are met. Except 

where expressly provided otherwise, 

references in this section to an 

individual obtaining a reward include 

both obtaining a reward (such as a 

premium discount or rebate, a waiver of 

all or part of a cost-sharing mechanism, 

an additional benefit, or any financial or 

other incentive) and avoiding a penalty 

(such as the absence of a premium 

surcharge, or other financial or 

nonfinancial disincentive). References 

in this section to a plan providing a 

reward include both providing a reward 

(such as a premium discount or rebate, 

a waiver of all or part of a cost-sharing 

mechanism, an additional benefit, or 

any financial or other incentive) and 

imposing a penalty (such as a surcharge 

or other financial or nonfinancial 

disincentive). 

(1) Participatory wellness programs 

defined. If none of the conditions for 

obtaining a reward under a wellness 

program is based on an individual 

satisfying a standard that is related to a 

health factor (or if a wellness program 

does not provide a reward), the wellness 

program is a participatory wellness 

program and, if participation in the 

program is made available to all 

similarly situated individuals, does not 

violate this section. Examples of 

participatory wellness programs are: 

(i) A program that reimburses all or 

part of the cost for membership in a 

fitness center. 

(ii) A diagnostic testing program that 

provides a reward for participation and 

does not base any part of the reward on 

outcomes. 

(iii) A program that encourages 

preventive care through the waiver of 

the copayment or deductible 

requirement under a group health plan 

for the costs of, for example, prenatal 

care or well-baby visits. (Note that, with 

respect to non-grandfathered plans, 

§ 54.9815–2713T requires benefits for 

certain preventive health services 

without the imposition of cost sharing.) 

(iv) A program that reimburses 

employees for the costs of participating, 

or that otherwise provides a reward for 

participating, in a smoking cessation 

program without regard to whether the 

employee quits smoking. 

(v) A program that provides a reward 

to employees for attending a monthly 

no-cost health education seminar. 

(vi) A program that provides a reward 

to employees who complete a health 

risk assessment regarding current health 

status, without any further action 

(educational or otherwise) required by 

the employee with regard to the health 

issues identified as part of the 

assessment. (See also § 54.9802–3T for 

rules prohibiting collection of genetic 

information). 

(2) Health-contingent wellness 

programs defined. If any of the 

conditions for obtaining a reward under 

a wellness program is based on an 

individual satisfying a standard that is 

related to a health factor, the wellness 

program is a health-contingent wellness 

program and the program is permissible 

under this section only if all of the 

requirements of paragraph (f)(3) of this 

section are satisfied. Examples of 

health-contingent wellness programs 

are: 

(i) A program that imposes a premium 

surcharge based on tobacco use. 

(ii) A program that uses a biometric 

screening or a health risk assessment to 

identify employees with specified 

medical conditions or risk factors (such 

as high cholesterol, high blood pressure, 

unhealthy body mass index, or high 

glucose level) and provides a reward to 

employees identified as within a normal 

or healthy range for biometrics (or at 

low risk for certain medical conditions), 

while requiring employees who are 

identified as outside the normal or 

healthy range (or at risk) to take 

additional steps (such as 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 obtain the same reward. 

(3) Requirements for healthcontingent wellness programs. A healthcontingent wellness program does not 

violate this section if all of the following 

requirements are satisfied: 

(i) Frequency of opportunity to 

qualify. The program must give 

individuals eligible for the program the 

opportunity to qualify for the reward 

under the program at least once per 

year. 

(ii) Size of reward. The reward for a 

health-contingent wellness program, 

together with the reward for other 

health-contingent wellness programs 

with respect to the plan, must not 

exceed the applicable percentage of the 

total cost of employee-only coverage 

under the plan, as defined in this 

paragraph (f)(3)(ii). However, if, in 

addition to employees, any class of 

dependents (such as spouses, or spouses 

and dependent children) may 

participate in the wellness program, the 

reward must not exceed the applicable 

percentage of the total cost of the 

coverage in which an employee and any 

dependents are enrolled. For purposes 

of this paragraph (f)(3)(ii), the cost of 

coverage is determined based on the 

total amount of employer and employee 

contributions for the benefit package 

under which the employee is (or the 

employee and any dependents are) 

receiving coverage. 

(A) Applicable percentage. For 

purposes of this paragraph (f)(3)(ii), the 

applicable percentage is 30 percent, 

except that the applicable percentage is 

increased an additional 20 percentage 

points (to 50 percent) to the extent that 

the additional percentage is in 

connection with a program designed to 

prevent or reduce tobacco use. 

(B) Examples. The rules of this 

paragraph (f)(3)(ii) are illustrated by the 

following examples: 

Example 1. (i) Facts. An employer sponsors 

a group health plan. The annual premium for 

employee-only coverage is $6,000 (of which 

the employer pays $4,500 per year and the 

employee pays $1,500 per year). The plan 

offers employees a health-contingent 

wellness program focused on exercise, blood 

sugar, weight, cholesterol, and blood 

pressure. The reward for compliance is an 

annual premium rebate of $600. 

(ii) Conclusion. In this Example 1, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because the reward for the 

wellness program, $600, does not exceed 30 

percent of the total annual cost of employeeonly coverage, $1,800. ($6,000 × 30% = 

$1,800.) 

Example 2. (i) Facts. Same facts as 

Example 1, except the wellness program is 

exclusively a tobacco prevention program. 

Employees who have used tobacco in the last 

12 months and who are not enrolled in the 

plan’s tobacco cessation program are charged 

a $1,000 premium surcharge (in addition to 

their employee contribution towards the 

coverage). (Those who participate in the 

plan’s tobacco cessation program are not 

assessed the $1,000 surcharge.) 

(ii) Conclusion. In this Example 2, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because the reward for the 

wellness program (absence of a $1,000 

surcharge), does not exceed 50 percent of the 

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total annual cost of employee-only coverage, 

$3,000. ($6,000 × 50% = $3,000.) 

Example 3. (i) Facts. Same facts as 

Example 1, except that, in addition to the 

$600 reward for compliance with the healthcontingent wellness program, the plan also 

imposes an additional $2,000 tobacco 

premium surcharge on employees who have 

used tobacco in the last 12 months and who 

are not enrolled in the plan’s tobacco 

cessation program. (Those who participate in 

the plan’s tobacco cessation program are not 

assessed the $2,000 surcharge.) 

(ii) Conclusion. In this Example 3, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because both: The total of 

all rewards (including absence of a surcharge 

for participating in the tobacco program) is 

$2,600 ($600 + $2,000 = $2,600), which does 

not exceed 50 percent of the total annual cost 

of employee-only coverage ($3,000); and, 

tested separately, the $600 reward for the 

wellness program unrelated to tobacco use 

does not exceed 30 percent of the total 

annual cost of employee-only coverage, 

$1,800. 

Example 4. (i) Facts. An employer sponsors 

a group health plan. The total annual 

premium for employee-only coverage 

(including both employer and employee 

contributions towards the coverage) is 

$5,000. The plan provides a $250 reward to 

employees who complete a health risk 

assessment, without regard to the health 

issues identified as part of the assessment. 

The plan also offers a Healthy Heart program, 

which is a health-contingent wellness 

program under paragraph (f)(2) of this 

section, with an opportunity to earn a $1,500 

reward. 

(ii) Conclusion. In this Example 4, the plan 

satisfies the requirements of this paragraph 

(f)(3)(ii). Even though the total reward for all 

wellness programs under the plan is $1,750 

($250 + $1,500 = $1,750, which exceeds 30 

percent of the cost of the annual premium for 

employee-only coverage ($5,000 × 30% = 

$1,500)), only the reward offered for 

compliance with the health-contingent 

wellness program ($1,500) is taken into 

account in determining whether the rules of 

this paragraph (f)(3)(ii) are met. (The $250 

reward is offered in connection with a 

participatory wellness program and therefore 

is not taken into account under this 

paragraph (f)(3)(ii)). The health-contingent 

wellness program offers a reward that does 

not exceed 30 percent of the total annual cost 

of employee-only coverage. 

(iii) Uniform availability and 

reasonable alternative standards. The 

reward under the program must be 

available to all similarly situated 

individuals. 

(A) Under this paragraph (f)(3)(iii), a 

reward under a program is not available 

to all similarly situated individuals for 

a period unless the program meets both 

of the following requirements: 

(1) The program allows a reasonable 

alternative standard (or waiver of the 

otherwise applicable standard) for 

obtaining the reward for any individual 

for whom, for that period, it is 

unreasonably difficult due to a medical 

condition to satisfy the otherwise 

applicable standard; and 

(2) The program allows a reasonable 

alternative standard (or waiver of the 

otherwise applicable standard) for 

obtaining the reward for any individual 

for whom, for that period, it is 

medically inadvisable to attempt to 

satisfy the otherwise applicable 

standard. 

(B) While plans are not required to 

determine a particular alternative 

standard in advance of an individual’s 

request for one, if an individual is 

described in either paragraph 

(f)(3)(iii)(A)(1) or (2) of this section, a 

reasonable alternative standard must be 

furnished by the plan upon the 

individual’s request or the condition for 

obtaining the reward must be waived. 

All the facts and circumstances are 

taken into account in determining 

whether a plan has furnished a 

reasonable alternative standard, 

including but not limited to the 

following: 

(1) If the reasonable alternative 

standard is completion of an 

educational program, the plan must 

make the educational program available 

instead of requiring an individual to 

find such a program unassisted, and 

may not require an individual to pay for 

the cost of the program. 

(2) If the reasonable alternative 

standard is a diet program, plans are not 

required to pay for the cost of food but 

must pay any membership or 

participation fee. 

(3) If the reasonable alternative 

standard is compliance with the 

recommendations of a medical 

professional who is an employee or 

agent of the plan, and an individual’s 

personal physician states that the plan’s 

recommendations are not medically 

appropriate for that individual, the plan 

must provide a reasonable alternative 

standard that accommodates the 

recommendations of the individual’s 

personal physician with regard to 

medical appropriateness. Plans may 

impose standard cost sharing under the 

plan or coverage for medical items and 

services furnished pursuant to the 

physician’s recommendations. 

(C) If reasonable under the 

circumstances, a plan may seek 

verification, such as a statement from an 

individual’s personal physician, that a 

health factor makes it unreasonably 

difficult for the individual to satisfy, or 

medically inadvisable for the individual 

to attempt to satisfy, the otherwise 

applicable standard. It would not be 

reasonable, for example, for a plan to 

seek verification of a claim that is 

obviously valid based on the nature of 

the individual’s medical condition that 

is known to the plan. However, plans 

may seek verification in the case of 

claims for which it is reasonable to 

determine that medical judgment is 

required to evaluate the validity of the 

claim. 

(iv) Reasonable design. The program 

must be reasonably designed to promote 

health or prevent disease. A program 

satisfies this standard if it has a 

reasonable chance of improving the 

health of, or preventing disease in, 

participating individuals and it is not 

overly burdensome, is not a subterfuge 

for discriminating based on a health 

factor, and is not highly suspect in the 

method chosen to promote health or 

prevent disease. This determination is 

based on all the relevant facts and 

circumstances. To the extent a plan’s 

initial standard for obtaining a reward 

(including a portion of a reward) is 

based on the results of a measurement, 

test, or screening relating to a health 

factor (such as a biometric examination 

or a health risk assessment), the plan 

must make available to any individual 

who does not meet the standard based 

on the measurement, test, or screening 

a different, reasonable means of 

qualifying for the reward. 

(v) Notice of availability of other 

means of qualifying for the reward. (A) 

The plan must disclose in all plan 

materials describing the terms of the 

program the availability of other means 

of qualifying for the reward or the 

possibility of waiver of the otherwise 

applicable standard. If plan materials 

merely mention that a program is 

available, without describing its terms, 

this disclosure is not required. 

(B) The following language, or 

substantially similar language, can be 

used to satisfy the notice requirement of 

this paragraph (f)(3)(v): ‘‘Your health 

plan is committed to helping you 

achieve your best health status. Rewards 

for participating in a wellness program 

are available to all employees. If you 

think you might be unable to meet a 

standard for a reward under this 

wellness program, you might qualify for 

an opportunity to earn the same reward 

by different means. Contact us at [insert 

contact information] and we will work 

with you to find a wellness program 

with the same reward that is right for 

you in light of your health status.’’ 

Additional sample language is provided 

in the examples of paragraph (f)(4) of 

this section. 

(4) Examples. The rules of paragraphs 

(f)(3)(iii), (iv), and (v) of this section are 

illustrated by the following examples: 

Example 1. (i) Facts. A group health plan 

provides a reward to individuals who 

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participate in a reasonable specified walking 

program. If it is unreasonably difficult due to 

a medical condition for an individual to 

participate (or if it is medically inadvisable 

for an individual to participate), the plan will 

waive the walking program requirement and 

provide the reward. All materials describing 

the terms of the walking program disclose the 

availability of the waiver. 

(ii) Conclusion. The program satisfies the 

requirements of paragraph (f)(3)(iii) of this 

section because the reward under the 

program is available to all similarly situated 

individuals because it accommodates 

individuals who cannot participate in the 

walking program due to a medical condition 

(or for whom it would be medically 

inadvisable to attempt to participate) by 

providing them the reward even if they do 

not participate in the walking program (that 

is, by waiving the condition). The program 

satisfies the requirements of paragraph 

(f)(3)(iv) of this section because the walking 

program is reasonably designed to promote 

health and prevent disease. Last, the plan 

complies with the disclosure requirement of 

paragraph (f)(3)(v) of this section. Thus, the 

plan satisfies paragraphs (f)(3)(iii), (iv), and 

(v) of this section. 

Example 2. (i) Facts. A group health plan 

offers a reward to individuals who achieve a 

count under 200 on a cholesterol test. If a 

participant does not achieve the targeted 

cholesterol count, the plan will make 

available a different, reasonable means of 

qualifying for the reward. In addition, all 

plan materials describing the terms of the 

program include the following statement: 

‘‘Your health plan wants to help you take 

charge of your health. Rewards are available 

to all employees who participate in our 

Cholesterol Awareness Wellness Program. If 

your cholesterol count is under 200, you will 

receive the reward. If not, you will still have 

an opportunity to qualify for the reward. We 

will work with you to find a Health Smart 

program that is right for you.’’ Individual D 

is identified as having a cholesterol count 

above 200. The plan partners D with a nurse 

who makes recommendations regarding diet 

and exercise, with which it is not 

unreasonably difficult due to a medical 

condition of D or medically inadvisable for 

D to comply, and which is otherwise 

reasonably designed, based on all the 

relevant facts and circumstances. In addition, 

the plan makes available to all other 

individuals who do not meet the cholesterol 

standard a different, reasonable means of 

qualifying for the reward which is not 

unreasonably burdensome or impractical. D 

will qualify for the discount if D follows the 

recommendations regardless of whether D 

achieves a cholesterol count that is under 

200. 

(ii) Conclusion. In this Example 2, the 

program satisfies the requirements of 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. The program’s initial standard for 

obtaining a reward is dependent on the 

results of a cholesterol screening, which is 

related to a health factor. However, the 

program is reasonably designed under 

paragraphs (f)(3)(iii) and (iv) of this section 

because the plan makes available to all 

individuals who do not meet the cholesterol 

standard a different, reasonable means of 

qualifying for the reward and because the 

program is otherwise reasonably designed 

based on all the relevant facts and 

circumstances. The plan also discloses in all 

materials describing the terms of the program 

the opportunity to qualify for the reward 

through other means. Thus, the program 

satisfies paragraphs (f)(3)(iii), (iv), and (v) of 

this section. 

Example 3. (i) Facts. Same facts as 

Example 2, except that, following diet and 

exercise, D again fails to achieve a cholesterol 

count that is under 200, and the program 

requires D to visit a doctor and follow any 

additional recommendations of D’s doctor 

with respect to D’s cholesterol. The program 

permits D to select D’s own doctor for this 

purpose. D visits D’s doctor, who determines 

D should take a prescription medication for 

cholesterol. In addition, the doctor 

determines that D must be monitored through 

periodic blood tests to continually reevaluate 

D’s health status. The plan accommodates D 

by making the discount available to D, but 

only if D actually follows the advice of D’s 

doctor’s regarding medication and blood 

tests. 

(ii) Conclusion. In this Example 3, the 

program’s requirements to follow up with, 

and follow the recommendations of, D’s 

doctor do not make the program 

unreasonable under paragraph (f)(3)(iii) or 

(iv) of this section. The program continues to 

satisfy the conditions of paragraph (f)(3)(iii), 

(iv), and (v) of this section. 

Example 4. (i) Facts. A group health plan 

will provide a reward to participants who 

have a body mass index (BMI) that is 26 or 

lower, determined shortly before the 

beginning of the year. Any participant who 

does not meet the target BMI is given the 

same discount if the participant complies 

with an exercise program that consists of 

walking 150 minutes a week. Any participant 

for whom it is unreasonably difficult due to 

a medical condition to comply with this 

walking program (and any participant for 

whom it is medically inadvisable to attempt 

to comply with the walking program) during 

the year is given the same discount if the 

individual satisfies an alternative standard 

that is reasonable taking into consideration 

the individual’s medical situation, is not 

unreasonably burdensome or impractical to 

comply with, and is otherwise reasonably 

designed based on all the relevant facts and 

circumstances. All plan materials describing 

the terms of the wellness program include 

the following statement: ‘‘Fitness is Easy! 

Start Walking! Your health plan cares about 

your health. If you are overweight, our Start 

Walking program will help you lose weight 

and feel better. We will help you enroll. (** If 

your doctor says that walking isn’t right for 

you, that’s okay too. We will develop a 

wellness program that is.)’’ Individual is 

unable to achieve a BMI that is 26 or lower 

within the plan’s timeframe and is also not 

reasonably able to comply with the walking 

program. E proposes a program based on the 

recommendations of E’s physician. The plan 

agrees to make the discount available to E, 

but only if E actually follows the physician’s 

recommendations. 

(ii) Conclusion. In this Example 4, the 

program satisfies the requirements of 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. The program’s initial standard for 

obtaining a reward is dependent on the 

results of a BMI screening, which is related 

to a health factor. However, the plan 

complies with the requirements of paragraph 

(f)(3)(iv) of this section because it makes 

available to all individuals who do not satisfy 

the BMI standard a different reasonable 

means of qualifying for the reward (a walking 

program that is not unreasonably 

burdensome or impractical for individuals to 

comply with and that is otherwise reasonably 

designed based on all the relevant facts and 

circumstances). In addition, the plan 

complies with the requirements of paragraph 

(f)(3)(iii) of this section because, if there are 

individuals for whom it is unreasonably 

difficult due to a medical condition to 

comply, or for whom it is medically 

inadvisable to attempt to comply, with the 

walking program, the plan provides a 

reasonable alternative to those individuals. 

Moreover, the plan satisfies the requirements 

of paragraph (f)(3)(v) of this section because 

it discloses, in all materials describing the 

terms of the program, the availability of other 

means of qualifying for the reward or the 

possibility of waiver of the otherwise 

applicable standard. Thus, the plan satisfies 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. 

Example 5. (i) Facts. In conjunction with 

an annual open enrollment period, a group 

health plan provides a premium differential 

based on tobacco use, determined using a 

health risk assessment. The following 

statement is included in all plan materials 

describing the tobacco premium differential: 

‘‘Stop smoking today! We can help! If you are 

a smoker, we offer a smoking cessation 

program. If you complete the program, you 

can avoid this surcharge.’’ The plan 

accommodates participants who smoke by 

facilitating their enrollment in a smoking 

cessation program that requires participation 

at a time and place that are not unreasonably 

burdensome or impractical for participants, 

and that is otherwise reasonably designed 

based on all the relevant facts and 

circumstances. The plan pays the cost of the 

program. Any participant can avoid the 

surcharge by participating in the program, 

regardless of whether the participant stops 

smoking. 

(ii) Conclusion. In this Example 5, the 

premium differential satisfies the 

requirements of paragraphs (f)(3)(iii), (iv), 

and (v) of this section. The program’s initial 

standard for obtaining a reward is dependent 

on the results of a health risk assessment, 

which is a screening. However, the plan is 

reasonably designed under paragraph 

(f)(3)(iv) because the plan provides a 

different, reasonable means of qualifying for 

the reward to all tobacco users. The plan 

discloses, in all materials describing the 

terms of the program, the availability of other 

means of qualifying for the reward. Thus, the 

plan satisfies paragraphs (f)(3)(iii), (iv), and 

(v) of this section. 

Example 6. (i) Facts. Same facts as 

Example 5, except the plan does not facilitate 

F’s enrollment in any program. Instead the 

plan advises F to find a program, pay for it, 

and provide a certificate of completion to the 

plan. 

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70636 Federal Register / Vol. 77, No. 227 / Monday, November 26, 2012 / Proposed Rules 

(ii) Conclusion. In this Example 6, the 

requirement for F to find and pay for F’s own 

smoking cessation program means that the 

alternative program is not reasonable. 

Accordingly, the plan has not offered a 

reasonable alternative standard that complies 

with paragraphs (f)(3)(iii) and (iv) of this 

section and the premium differential violates 

paragraph (c) of this section. 

* * * * * 

Par. 3. Section 54.9815–2705 is added 

to read as follows: 

§ 54.9815–2705 Prohibiting discrimination 

against participants and beneficiaries 

based on a health factor. 

(a) In general. A group health plan 

and a health insurance issuer offering 

group health insurance coverage must 

comply with the requirements of 

§ 54.9802–1. Accordingly, with respect 

to health insurance issuers offering 

group health insurance coverage, the 

issuer is subject to the requirements of 

§ 54.9802–1 to the same extent as a 

group health plan. 

(b) Applicability date. This section is 

applicable to group health plans and 

health insurance issuers offering group 

health insurance coverage for plan years 

beginning on or after January 1, 2014. 

See § 54.9815–1251T, which provides 

that the rules of this section do not 

apply to grandfathered health plans. 

Department of Labor 

Employee Benefits Security 

Administration 

29 CFR Chapter XXV 

29 CFR Part 2590 is proposed to be 

amended as follows: 

PART 2590—RULES AND 

REGULATIONS FOR GROUP HEALTH 

PLANS 

1. The authority citation for Part 2590 

continues to read as follows: 

Authority: 29 U.S.C. 1027, 1059, 1135, 

1161–1168, 1169, 1181–1183, 1181 note, 

1185, 1185a, 1185b, 1185d, 1191, 1191a, 

1191b, and 1191c; sec. 101(g), Pub. L. 104– 

191, 110 Stat. 1936; sec. 401(b), Pub. L. 105– 

200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 

12(d), Pub. L. 110–343, 122 Stat. 3881; sec. 

1001, 1201, and 1562(e), Pub. L. 111–148, 

124 Stat. 119, as amended by Pub. L. 111– 

152, 124 Stat. 1029; Secretary of Labor’s 

Order 3–2010, 75 FR 55354 (September 10, 

2010). 

Subpart B—Health Coverage 

Portability, Nondiscrimination, and 

Renewability 

2. Section 2590.702 is amended by 

revising paragraph (f) to read as follows: 

§ 2590.702 Prohibiting discrimination 

against participants and beneficiaries 

based on a health factor. 

* * * * * 

(f) Nondiscriminatory wellness 

programs—in general. A wellness 

program is a program of health 

promotion or disease prevention. 

Paragraphs (b)(2)(ii) and (c)(3) of this 

section provide exceptions to the 

general prohibitions against 

discrimination based on a health factor 

for plan provisions that vary benefits 

(including cost-sharing mechanisms) or 

the premium or contribution for 

similarly situated individuals in 

connection with a wellness program 

that satisfies the requirements of this 

paragraph (f). If a wellness program is a 

participatory wellness program, as 

defined in paragraph (f)(1) of this 

section, that paragraph also makes clear 

that the wellness program does not 

violate this section if participation in 

the program is made available to all 

similarly situated individuals. If a 

wellness program is a health-contingent 

wellness program, as defined in 

paragraph (f)(2) of this section, the 

wellness program does not violate this 

section if the requirements of paragraph 

(f)(3) of this section are met. Except 

where expressly provided otherwise, 

references in this section to an 

individual obtaining a reward include 

both obtaining a reward (such as a 

premium discount or rebate, a waiver of 

all or part of a cost-sharing mechanism, 

an additional benefit, or any financial or 

other incentive) and avoiding a penalty 

(such as the absence of a premium 

surcharge, or other financial or 

nonfinancial disincentive). References 

in this section to a plan providing a 

reward include both providing a reward 

(such as a premium discount or rebate, 

a waiver of all or part of a cost-sharing 

mechanism, an additional benefit, or 

any financial or other incentive) and 

imposing a penalty (such as a surcharge 

or other financial or nonfinancial 

disincentive). 

(1) Participatory wellness programs 

defined. If none of the conditions for 

obtaining a reward under a wellness 

program is based on an individual 

satisfying a standard that is related to a 

health factor (or if a wellness program 

does not provide a reward), the wellness 

program is a participatory wellness 

program and, if participation in the 

program is made available to all 

similarly situated individuals, does not 

violate this section. Examples of 

participatory wellness programs are: 

(i) A program that reimburses all or 

part of the cost for membership in a 

fitness center. 

(ii) A diagnostic testing program that 

provides a reward for participation and 

does not base any part of the reward on 

outcomes. 

(iii) A program that encourages 

preventive care through the waiver of 

the copayment or deductible 

requirement under a group health plan 

for the costs of, for example, prenatal 

care or well-baby visits. (Note that, with 

respect to non-grandfathered plans, 

section 2590.715–2713 of this Part 

requires benefits for certain preventive 

health services without the imposition 

of cost sharing.) 

(iv) A program that reimburses 

employees for the costs of participating, 

or that otherwise provides a reward for 

participating, in a smoking cessation 

program without regard to whether the 

employee quits smoking. 

(v) A program that provides a reward 

to employees for attending a monthly 

no-cost health education seminar. 

(vi) A program that provides a reward 

to employees who complete a health 

risk assessment regarding current health 

status, without any further action 

(educational or otherwise) required by 

the employee with regard to the health 

issues identified as part of the 

assessment. (See also § 2590.702–1 for 

rules prohibiting collection of genetic 

information). 

(2) Health-contingent wellness 

programs defined. If any of the 

conditions for obtaining a reward under 

a wellness program is based on an 

individual satisfying a standard that is 

related to a health factor, the wellness 

program is a health-contingent wellness 

program and the program is permissible 

under this section only if all of the 

requirements of paragraph (f)(3) of this 

section are satisfied. Examples of 

health-contingent wellness programs 

are: 

(i) A program that imposes a premium 

surcharge based on tobacco use. 

(ii) A program that uses a biometric 

screening or a health risk assessment to 

identify employees with specified 

medical conditions or risk factors (such 

as high cholesterol, high blood pressure, 

unhealthy body mass index, or high 

glucose level) and provides a reward to 

employees identified as within a normal 

or healthy range for biometrics (or at 

low risk for certain medical conditions), 

while requiring employees who are 

identified as outside the normal or 

healthy range (or at risk) to take 

additional steps (such as 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 obtain the same reward. 

(3) Requirements for healthcontingent wellness programs. A healthcontingent wellness program does not 

violate this section if all of the following 

requirements are satisfied: 

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(i) Frequency of opportunity to 

qualify. The program must give 

individuals eligible for the program the 

opportunity to qualify for the reward 

under the program at least once per 

year. 

(ii) Size of reward. The reward for a 

health-contingent wellness program, 

together with the reward for other 

health-contingent wellness programs 

with respect to the plan, must not 

exceed the applicable percentage of the 

total cost of employee-only coverage 

under the plan, as defined in this 

paragraph (f)(3)(ii). However, if, in 

addition to employees, any class of 

dependents (such as spouses, or spouses 

and dependent children) may 

participate in the wellness program, the 

reward must not exceed the applicable 

percentage of the total cost of the 

coverage in which an employee and any 

dependents are enrolled. For purposes 

of this paragraph (f)(3)(ii), the cost of 

coverage is determined based on the 

total amount of employer and employee 

contributions for the benefit package 

under which the employee is (or the 

employee and any dependents are) 

receiving coverage. 

(A) Applicable percentage. For 

purposes of this paragraph (f)(3)(ii), the 

applicable percentage is 30 percent, 

except that the applicable percentage is 

increased an additional 20 percentage 

points (to 50 percent) to the extent that 

the additional percentage is in 

connection with a program designed to 

prevent or reduce tobacco use. 

(B) Examples. The rules of this 

paragraph (f)(3)(ii) are illustrated by the 

following examples: 

Example 1. (i) Facts. An employer sponsors 

a group health plan. The annual premium for 

employee-only coverage is $6,000 (of which 

the employer pays $4,500 per year and the 

employee pays $1,500 per year). The plan 

offers employees a health-contingent 

wellness program focused on exercise, blood 

sugar, weight, cholesterol, and blood 

pressure. The reward for compliance is an 

annual premium rebate of $600. 

(ii) Conclusion. In this Example 1, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because the reward for the 

wellness program, $600, does not exceed 30 

percent of the total annual cost of employeeonly coverage, $1,800. ($6,000 × 30% = 

$1,800.) 

Example 2. (i) Facts. Same facts as 

Example 1, except the wellness program is 

exclusively a tobacco prevention program. 

Employees who have used tobacco in the last 

12 months and who are not enrolled in the 

plan’s tobacco cessation program are charged 

a $1,000 premium surcharge (in addition to 

their employee contribution towards the 

coverage). (Those who participate in the 

plan’s tobacco cessation program are not 

assessed the $1,000 surcharge.) 

(ii) Conclusion. In this Example 2, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because the reward for the 

wellness program (absence of a $1,000 

surcharge), does not exceed 50 percent of the 

total annual cost of employee-only coverage, 

$3,000. ($6,000 × 50% = $3,000.) 

Example 3. (i) Facts. Same facts as 

Example 1, except that, in addition to the 

$600 reward for compliance with the healthcontingent wellness program, the plan also 

imposes an additional $2,000 tobacco 

premium surcharge on employees who have 

used tobacco in the last 12 months and who 

are not enrolled in the plan’s tobacco 

cessation program. (Those who participate in 

the plan’s tobacco cessation program are not 

assessed the $2,000 surcharge.) 

(ii) Conclusion. In this Example 3, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because: Both the total of 

all rewards (including absence of a surcharge 

for participating in the tobacco program) is 

$2,600 ($600 + $2,000 = $2,600), which does 

not exceed 50 percent of the total annual cost 

of employee-only coverage ($3,000); and, 

tested separately, the $600 reward for the 

wellness program unrelated to tobacco use 

does not exceed 30 percent of the total 

annual cost of employee-only coverage, 

$1,800. 

Example 4. (i) Facts. An employer sponsors 

a group health plan. The total annual 

premium for employee-only coverage 

(including both employer and employee 

contributions towards the coverage) is 

$5,000. The plan provides a $250 reward to 

employees who complete a health risk 

assessment, without regard to the health 

issues identified as part of the assessment. 

The plan also offers a Healthy Heart program, 

which is a health-contingent wellness 

program under paragraph (f)(2) of this 

section, with an opportunity to earn a $1,500 

reward. 

(ii) Conclusion. In this Example 4, the plan 

satisfies the requirements of this paragraph 

(f)(3)(ii). Even though the total reward for all 

wellness programs under the plan is $1,750 

($250 + $1,500 = $1,750, which exceeds 30 

percent of the cost of the annual premium for 

employee-only coverage ($5,000 × 30% = 

$1,500)), only the reward offered for 

compliance with the health-contingent 

wellness program ($1,500) is taken into 

account in determining whether the rules of 

this paragraph (f)(3)(ii) are met. (The $250 

reward is offered in connection with a 

participatory wellness program and therefore 

is not taken into account under this 

paragraph (f)(3)(ii)). The health-contingent 

wellness program offers a reward that does 

not exceed 30 percent of the total annual cost 

of employee-only coverage. 

(iii) Uniform availability and 

reasonable alternative standards. The 

reward under the program must be 

available to all similarly situated 

individuals. 

(A) Under this paragraph (f)(3)(iii), a 

reward under a program is not available 

to all similarly situated individuals for 

a period unless the program meets both 

of the following requirements: 

(1) The program allows a reasonable 

alternative standard (or waiver of the 

otherwise applicable standard) for 

obtaining the reward for any individual 

for whom, for that period, it is 

unreasonably difficult due to a medical 

condition to satisfy the otherwise 

applicable standard; and 

(2) The program allows a reasonable 

alternative standard (or waiver of the 

otherwise applicable standard) for 

obtaining the reward for any individual 

for whom, for that period, it is 

medically inadvisable to attempt to 

satisfy the otherwise applicable 

standard. 

(B) While plans and issuers are not 

required to determine a particular 

alternative standard in advance of an 

individual’s request for one, if an 

individual is described in either 

paragraph (f)(3)(iii)(A)(1) or (2) of this 

section, a reasonable alternative 

standard must be furnished by the plan 

or issuer upon the individual’s request 

or the condition for obtaining the 

reward must be waived. All the facts 

and circumstances are taken into 

account in determining whether a plan 

or issuer has furnished a reasonable 

alternative standard, including but not 

limited to the following: 

(1) If the reasonable alternative 

standard is completion of an 

educational program, the plan or issuer 

must make the educational program 

available instead of requiring an 

individual to find such a program 

unassisted, and may not require an 

individual to pay for the cost of the 

program. 

(2) If the reasonable alternative 

standard is a diet program, plans and 

issuers are not required to pay for the 

cost of food but must pay any 

membership or participation fee. 

(3) If the reasonable alternative 

standard is compliance with the 

recommendations of a medical 

professional who is an employee or 

agent of the plan or issuer, and an 

individual’s personal physician states 

that the plan’s recommendations are not 

medically appropriate for that 

individual, the plan or issuer must 

provide a reasonable alternative 

standard that accommodates the 

recommendations of the individual’s 

personal physician with regard to 

medical appropriateness. Plans and 

issuers may impose standard cost 

sharing under the plan or coverage for 

medical items and services furnished 

pursuant to the physician’s 

recommendations. 

(C) If reasonable under the 

circumstances, a plan or issuer may seek 

verification, such as a statement from an 

individual’s personal physician, that a 

health factor makes it unreasonably 

difficult for the individual to satisfy, or 

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medically inadvisable for the individual 

to attempt to satisfy, the otherwise 

applicable standard. It would not be 

reasonable, for example, for a plan and 

issuer to seek verification of a claim that 

is obviously valid based on the nature 

of the individual’s medical condition 

that is known to the plan or issuer. 

However, plans and issuers may seek 

verification in the case of claims for 

which it is reasonable to determine that 

medical judgment is required to 

evaluate the validity of the claim. 

(iv) Reasonable design. The program 

must be reasonably designed to promote 

health or prevent disease. A program 

satisfies this standard if it has a 

reasonable chance of improving the 

health of, or preventing disease in, 

participating individuals and it is not 

overly burdensome, is not a subterfuge 

for discriminating based on a health 

factor, and is not highly suspect in the 

method chosen to promote health or 

prevent disease. This determination is 

based on all the relevant facts and 

circumstances. To the extent a plan’s 

initial standard for obtaining a reward 

(including a portion of a reward) is 

based on the results of a measurement, 

test, or screening relating to a health 

factor (such as a biometric examination 

or a health risk assessment), the plan 

must make available to any individual 

who does not meet the standard based 

on the measurement, test, or screening 

a different, reasonable means of 

qualifying for the reward. 

(v) Notice of availability of other 

means of qualifying for the reward. (A) 

The plan or issuer must disclose in all 

plan materials describing the terms of 

the program the availability of other 

means of qualifying for the reward or 

the possibility of waiver of the 

otherwise applicable standard. If plan 

materials merely mention that a 

program is available, without describing 

its terms, this disclosure is not required. 

(B) The following language, or 

substantially similar language, can be 

used to satisfy the notice requirement of 

this paragraph (f)(3)(v): ‘‘Your health 

plan is committed to helping you 

achieve your best health status. Rewards 

for participating in a wellness program 

are available to all employees. If you 

think you might be unable to meet a 

standard for a reward under this 

wellness program, you might qualify for 

an opportunity to earn the same reward 

by different means. Contact us at [insert 

contact information] and we will work 

with you to find a wellness program 

with the same reward that is right for 

you in light of your health status.’’ 

Additional sample language is provided 

in the examples of paragraph (f)(4) of 

this section. 

(4) Examples. The rules of paragraphs 

(f)(3)(iii), (iv), and (v) of this section are 

illustrated by the following examples: 

Example 1. (i) Facts. A group health plan 

provides a reward to individuals who 

participate in a reasonable specified walking 

program. If it is unreasonably difficult due to 

a medical condition for an individual to 

participate (or if it is medically inadvisable 

for an individual to participate), the plan will 

waive the walking program requirement and 

provide the reward. All materials describing 

the terms of the walking program disclose the 

availability of the waiver. 

(ii) Conclusion. The program satisfies the 

requirements of paragraph (f)(3)(iii) of this 

section because the reward under the 

program is available to all similarly situated 

individuals because it accommodates 

individuals who cannot participate in the 

walking program due to a medical condition 

(or for whom it would be medically 

inadvisable to attempt to participate) by 

providing them the reward even if they do 

not participate in the walking program (that 

is, by waiving the condition). The program 

satisfies the requirements of paragraph 

(f)(3)(iv) of this section because the walking 

program is reasonably designed to promote 

health and prevent disease. Last, the plan 

complies with the disclosure requirement of 

paragraph (f)(3)(v) of this section. Thus, the 

plan satisfies paragraphs (f)(3)(iii), (iv), and 

(v) of this section. 

Example 2. (i) Facts. A group health plan 

offers a reward to individuals who achieve a 

count under 200 on a cholesterol test. If a 

participant does not achieve the targeted 

cholesterol count, the plan will make 

available a different, reasonable means of 

qualifying for the reward. In addition, all 

plan materials describing the terms of the 

program include the following statement: 

‘‘Your health plan wants to help you take 

charge of your health. Rewards are available 

to all employees who participate in our 

Cholesterol Awareness Wellness Program. If 

your cholesterol count is under 200, you will 

receive the reward. If not, you will still have 

an opportunity to qualify for the reward. We 

will work with you to find a Health Smart 

program that is right for you.’’ Individual D 

is identified as having a cholesterol count 

above 200. The plan partners D with a nurse 

who makes recommendations regarding diet 

and exercise, with which it is not 

unreasonably difficult due to a medical 

condition of D or medically inadvisable for 

D to comply, and which is otherwise 

reasonably designed, based on all the 

relevant facts and circumstances. In addition, 

the plan makes available to all other 

individuals who do not meet the cholesterol 

standard a different, reasonable means of 

qualifying for the reward which is not 

unreasonably burdensome or impractical. D 

will qualify for the discount if D follows the 

recommendations regardless of whether D 

achieves a cholesterol count that is under 

200. 

(ii) Conclusion. In this Example 2, the 

program satisfies the requirements of 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. The program’s initial standard for 

obtaining a reward is dependent on the 

results of a cholesterol screening, which is 

related to a health factor. However, the 

program is reasonably designed under 

paragraphs (f)(3)(iii) and (iv) of this section 

because the plan makes available to all 

individuals who do not meet the cholesterol 

standard a different, reasonable means of 

qualifying for the reward and because the 

program is otherwise reasonably designed 

based on all the relevant facts and 

circumstances. The plan also discloses in all 

materials describing the terms of the program 

the opportunity to qualify for the reward 

through other means. Thus, the program 

satisfies paragraphs (f)(3)(iii), (iv), and (v) of 

this section. 

Example 3. (i) Facts. Same facts as 

Example 2, except that, following diet and 

exercise, D again fails to achieve a cholesterol 

count that is under 200, and the program 

requires D to visit a doctor and follow any 

additional recommendations of D’s doctor 

with respect to D’s cholesterol. The program 

permits D to select D’s own doctor for this 

purpose. D visits D’s doctor, who determines 

D should take a prescription medication for 

cholesterol. In addition, the doctor 

determines that D must be monitored through 

periodic blood tests to continually reevaluate 

D’s health status. The plan accommodates D 

by making the discount available to D, but 

only if D actually follows the advice of D’s 

doctor’s regarding medication and blood 

tests. 

(ii) Conclusion. In this Example 3, the 

program’s requirements to follow up with, 

and follow the recommendations of, D’s 

doctor do not make the program 

unreasonable under paragraphs (f)(3)(iii) or 

(iv) of this section. The program continues to 

satisfy the conditions of paragraphs (f)(3)(iii), 

(iv), and (v) of this section. 

Example 4. (i) Facts. A group health plan 

will provide a reward to participants who 

have a body mass index (BMI) that is 26 or 

lower, determined shortly before the 

beginning of the year. Any participant who 

does not meet the target BMI is given the 

same discount if the participant complies 

with an exercise program that consists of 

walking 150 minutes a week. Any participant 

for whom it is unreasonably difficult due to 

a medical condition to comply with this 

walking program (and any participant for 

whom it is medically inadvisable to attempt 

to comply with the walking program) during 

the year is given the same discount if the 

individual satisfies an alternative standard 

that is reasonable taking into consideration 

the individual’s medical situation, is not 

unreasonably burdensome or impractical to 

comply with, and is otherwise reasonably 

designed based on all the relevant facts and 

circumstances. All plan materials describing 

the terms of the wellness program include 

the following statement: ‘‘Fitness is Easy! 

Start Walking! Your health plan cares about 

your health. If you are overweight, our Start 

Walking program will help you lose weight 

and feel better. We will help you enroll. (**If 

your doctor says that walking isn’t right for 

you, that’s okay too. We will develop a 

wellness program that is.)’’ Individual E is 

unable to achieve a BMI that is 26 or lower 

within the plan’s timeframe and is also not 

reasonably able to comply with the walking 

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program. E proposes a program based on the 

recommendations of E’s physician. The plan 

agrees to make the discount available to E, 

but only if E actually follows the physician’s 

recommendations. 

(ii) Conclusion. In this Example 4, the 

program satisfies the requirements of 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. The program’s initial standard for 

obtaining a reward is dependent on the 

results of a BMI screening, which is related 

to a health factor. However, the plan 

complies with the requirements of paragraph 

(f)(3)(iv) of this section because it makes 

available to all individuals who do not satisfy 

the BMI standard a different reasonable 

means of qualifying for the reward (a walking 

program that is not unreasonably 

burdensome or impractical for individuals to 

comply with and that is otherwise reasonably 

designed based on all the relevant facts and 

circumstances). In addition, the plan 

complies with the requirements of paragraph 

(f)(3)(iii) of this section because, if there are 

individuals for whom it is unreasonably 

difficult due to a medical condition to 

comply, or for whom it is medically 

inadvisable to attempt to comply, with the 

walking program, the plan provides a 

reasonable alternative to those individuals. 

Moreover, the plan satisfies the requirements 

of paragraph (f)(3)(v) of this section because 

it discloses, in all materials describing the 

terms of the program, the availability of other 

means of qualifying for the reward or the 

possibility of waiver of the otherwise 

applicable standard. Thus, the plan satisfies 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. 

Example 5. (i) Facts. In conjunction with 

an annual open enrollment period, a group 

health plan provides a premium differential 

based on tobacco use, determined using a 

health risk assessment. The following 

statement is included in all plan materials 

describing the tobacco premium differential: 

‘‘Stop smoking today! We can help! If you are 

a smoker, we offer a smoking cessation 

program. If you complete the program, you 

can avoid this surcharge.’’ The plan 

accommodates participants who smoke by 

facilitating their enrollment in a smoking 

cessation program that requires participation 

at a time and place that are not unreasonably 

burdensome or impractical for participants, 

and that is otherwise reasonably designed 

based on all the relevant facts and 

circumstances. The plan pays the cost of the 

program. Any participant can avoid the 

surcharge by participating in the program, 

regardless of whether the participant stops 

smoking. 

(ii) Conclusion. In this Example 5, the 

premium differential satisfies the 

requirements of paragraphs (f)(3)(iii), (iv), 

and (v) of this section. The program’s initial 

standard for obtaining a reward is dependent 

on the results of a health risk assessment, 

which is a screening. However, the plan is 

reasonably designed under paragraph 

(f)(3)(iv) because the plan provides a 

different, reasonable means of qualifying for 

the reward to all tobacco users. The plan 

discloses, in all materials describing the 

terms of the program, the availability of other 

means of qualifying for the reward. Thus, the 

plan satisfies paragraphs (f)(3)(iii), (iv), and 

(v) of this section. 

Example 6. (i) Facts. Same facts as 

Example 5, except the plan does not facilitate 

F’s enrollment in any program. Instead the 

plan advises F to find a program, pay for it, 

and provide a certificate of completion to the 

plan. 

(ii) Conclusion. In this Example 6, the 

requirement for F to find and pay for F’s own 

smoking cessation program means that the 

alternative program is not reasonable. 

Accordingly, the plan has not offered a 

reasonable alternative standard that complies 

with paragraphs (f)(3)(iii) and (iv) of this 

section and the premium differential violates 

paragraph (c) of this section. 

* * * * * 

Subpart C—Other Requirements 

3. Section 2590.715–2705 is added to 

read as follows: 

§ 2590.715–2705 Prohibiting 

discrimination against participants and 

beneficiaries based on a health factor. 

(a) In general. A group health plan 

and a health insurance issuer offering 

group health insurance coverage must 

comply with the requirements of 

§ 2590.702. 

(b) Applicability date. This section is 

applicable to group health plans and 

health insurance issuers offering group 

health insurance coverage for plan years 

beginning on or after January 1, 2014. 

See § 2590.715–1251, which provides 

that the rules of this section do not 

apply to grandfathered health plans. 

Department of Health and Human 

Services 

45 CFR Subtitle A 

For the reasons stated in the 

preamble, the Department of Health and 

Human Services proposes to amend 45 

CFR Parts 146 and 147 as follows: 

PART 146—REQUIREMENTS FOR THE 

GROUP HEALTH INSURANCE 

MARKET 

1. The authority citation for Part 146 

continues to read as follows: 

Authority: Secs. 2702 through 2705, 2711 

through 2723, 2791, and 2792 of the PHS Act 

(42 U.S.C. 300gg–1 through 300gg–5, 300gg– 

11 through 300gg–23, 300gg–91, and 300gg– 

92) (1996). 

Section 146.121 is also issued under secs. 

2701 through 2763, 2791, and 2792 of the 

Public Health Service Act (42 U.S.C. 300gg 

through 300gg–63, 300gg–91, and 300gg–92), 

as amended (2010). 

2. In § 146.121, paragraph (f) is 

revised to read as follows: 

§ 146.121 Prohibiting discrimination 

against participants and beneficiaries 

based on a health factor. 

* * * * * 

(f) Nondiscriminatory wellness 

programs—in general. A wellness 

program is a program of health 

promotion or disease prevention. 

Paragraphs (b)(2)(ii) and (c)(3) of this 

section provide exceptions to the 

general prohibitions against 

discrimination based on a health factor 

for plan provisions that vary benefits 

(including cost-sharing mechanisms) or 

the premium or contribution for 

similarly situated individuals in 

connection with a wellness program 

that satisfies the requirements of this 

paragraph (f). If a wellness program is a 

participatory wellness program, as 

defined in paragraph (f)(1) of this 

section, that paragraph also makes clear 

that the wellness program does not 

violate this section if participation in 

the program is made available to all 

similarly situated individuals. If a 

wellness program is a health-contingent 

wellness program, as defined in 

paragraph (f)(2) of this section, the 

wellness program does not violate this 

section if the requirements of paragraph 

(f)(3) of this section are met. Except 

where expressly provided otherwise, 

references in this section to an 

individual obtaining a reward include 

both obtaining a reward (such as a 

premium discount or rebate, a waiver of 

all or part of a cost-sharing mechanism, 

an additional benefit, or any financial or 

other incentive) and avoiding a penalty 

(such as the absence of a premium 

surcharge, or other financial or 

nonfinancial disincentive). References 

in this section to a plan providing a 

reward include both providing a reward 

(such as a premium discount or rebate, 

a waiver of all or part of a cost-sharing 

mechanism, an additional benefit, or 

any financial or other incentive) and 

imposing a penalty (such as a surcharge 

or other financial or nonfinancial 

disincentive). 

(1) Participatory wellness programs 

defined. If none of the conditions for 

obtaining a reward under a wellness 

program is based on an individual 

satisfying a standard that is related to a 

health factor (or if a wellness program 

does not provide a reward), the wellness 

program is a participatory wellness 

program and, if participation in the 

program is made available to all 

similarly situated individuals, does not 

violate this section. Examples of 

participatory wellness programs are: 

(i) A program that reimburses all or 

part of the cost for membership in a 

fitness center. 

(ii) A diagnostic testing program that 

provides a reward for participation and 

does not base any part of the reward on 

outcomes. 

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(iii) A program that encourages 

preventive care through the waiver of 

the copayment or deductible 

requirement under a group health plan 

for the costs of, for example, prenatal 

care or well-baby visits. (Note that, with 

respect to non-grandfathered plans, 

§ 147.130 of this subchapter requires 

benefits for certain preventive health 

services without the imposition of cost 

sharing.) 

(iv) A program that reimburses 

employees for the costs of participating, 

or that otherwise provides a reward for 

participating, in a smoking cessation 

program without regard to whether the 

employee quits smoking. 

(v) A program that provides a reward 

to employees for attending a monthly 

no-cost health education seminar. 

(vi) A program that provides a reward 

to employees who complete a health 

risk assessment regarding current health 

status, without any further action 

(educational or otherwise) required by 

the employee with regard to the health 

issues identified as part of the 

assessment. (See also § 146.122 for rules 

prohibiting collection of genetic 

information). 

(2) Health-contingent wellness 

programs defined. If any of the 

conditions for obtaining a reward under 

a wellness program is based on an 

individual satisfying a standard that is 

related to a health factor, the wellness 

program is a health-contingent wellness 

program and the program is permissible 

under this section only if all of the 

requirements of paragraph (f)(3) of this 

section are satisfied. Examples of 

health-contingent wellness programs 

are: 

(i) A program that imposes a premium 

surcharge based on tobacco use. 

(ii) A program that uses a biometric 

screening or a health risk assessment to 

identify employees with specified 

medical conditions or risk factors (such 

as high cholesterol, high blood pressure, 

unhealthy body mass index, or high 

glucose level) and provides a reward to 

employees identified as within a normal 

or healthy range for biometrics (or at 

low risk for certain medical conditions), 

while requiring employees who are 

identified as outside the normal or 

healthy range (or at risk) to take 

additional steps (such as 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 obtain the same reward. 

(3) Requirements for healthcontingent wellness programs. A healthcontingent wellness program does not 

violate this section if all of the following 

requirements are satisfied: 

(i) Frequency of opportunity to 

qualify. The program must give 

individuals eligible for the program the 

opportunity to qualify for the reward 

under the program at least once per 

year. 

(ii) Size of reward. The reward for a 

health-contingent wellness program, 

together with the reward for other 

health-contingent wellness programs 

with respect to the plan, must not 

exceed the applicable percentage of the 

total cost of employee-only coverage 

under the plan, as defined in this 

paragraph (f)(3)(ii). However, if, in 

addition to employees, any class of 

dependents (such as spouses, or spouses 

and dependent children) may 

participate in the wellness program, the 

reward must not exceed the applicable 

percentage of the total cost of the 

coverage in which an employee and any 

dependents are enrolled. For purposes 

of this paragraph (f)(3)(ii), the cost of 

coverage is determined based on the 

total amount of employer and employee 

contributions for the benefit package 

under which the employee is (or the 

employee and any dependents are) 

receiving coverage. 

(A) Applicable percentage. For 

purposes of this paragraph (f)(3)(ii), the 

applicable percentage is 30 percent, 

except that the applicable percentage is 

increased an additional 20 percentage 

points (to 50 percent) to the extent that 

the additional percentage is in 

connection with a program designed to 

prevent or reduce tobacco use. 

(B) Examples. The rules of this 

paragraph (f)(3)(ii) are illustrated by the 

following examples: 

Example 1. (i) Facts. An employer sponsors 

a group health plan. The annual premium for 

employee-only coverage is $6,000 (of which 

the employer pays $4,500 per year and the 

employee pays $1,500 per year). The plan 

offers employees a health-contingent 

wellness program focused on exercise, blood 

sugar, weight, cholesterol, and blood 

pressure. The reward for compliance is an 

annual premium rebate of $600. 

(ii) Conclusion. In this Example 1, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because the reward for the 

wellness program, $600, does not exceed 30 

percent of the total annual cost of employeeonly coverage, $1,800. ($6,000 × 30% = 

$1,800.) 

Example 2. (i) Facts. Same facts as 

Example 1, except the wellness program is 

exclusively a tobacco prevention program. 

Employees who have used tobacco in the last 

12 months and who are not enrolled in the 

plan’s tobacco cessation program are charged 

a $1,000 premium surcharge (in addition to 

their employee contribution towards the 

coverage). (Those who participate in the 

plan’s tobacco cessation program are not 

assessed the $1,000 surcharge.) 

(ii) Conclusion. In this Example 2, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because the reward for the 

wellness program (absence of a $1,000 

surcharge), does not exceed 50 percent of the 

total annual cost of employee-only coverage, 

$3,000. ($6,000 × 50% = $3,000.) 

Example 3. (i) Facts. Same facts as 

Example 1, except that, in addition to the 

$600 reward for compliance with the healthcontingent wellness program, the plan also 

imposes an additional $2,000 tobacco 

premium surcharge on employees who have 

used tobacco in the last 12 months and who 

are not enrolled in the plan’s tobacco 

cessation program. (Those who participate in 

the plan’s tobacco cessation program are not 

assessed the $2,000 surcharge.) 

(ii) Conclusion. In this Example 3, the 

program satisfies the requirements of this 

paragraph (f)(3)(ii) because both: The total of 

all rewards (including absence of a surcharge 

for participating in the tobacco program) is 

$2,600 ($600 + $2,000 = $2,600), which does 

not exceed 50 percent of the total annual cost 

of employee-only coverage ($3,000); and, 

tested separately, the $600 reward for the 

wellness program unrelated to tobacco use 

does not exceed 30 percent of the total 

annual cost of employee-only coverage, 

$1,800. 

Example 4. (i) Facts. An employer sponsors 

a group health plan. The total annual 

premium for employee-only coverage 

(including both employer and employee 

contributions towards the coverage) is 

$5,000. The plan provides a $250 reward to 

employees who complete a health risk 

assessment, without regard to the health 

issues identified as part of the assessment. 

The plan also offers a Healthy Heart program, 

which is a health-contingent wellness 

program under paragraph (f)(2) of this 

section, with an opportunity to earn a $1,500 

reward. 

(ii) Conclusion. In this Example 4, the plan 

satisfies the requirements of this paragraph 

(f)(3)(ii). Even though the total reward for all 

wellness programs under the plan is $1,750 

($250 + $1,500 = $1,750, which exceeds 30 

percent of the cost of the annual premium for 

employee-only coverage ($5,000 × 30% = 

$1,500)), only the reward offered for 

compliance with the health-contingent 

wellness program ($1,500) is taken into 

account in determining whether the rules of 

this paragraph (f)(3)(ii) are met. (The $250 

reward is offered in connection with a 

participatory wellness program and therefore 

is not taken into account under this 

paragraph (f)(3)(ii)). The health-contingent 

wellness program offers a reward that does 

not exceed 30 percent of the total annual cost 

of employee-only coverage. 

(iii) Uniform availability and 

reasonable alternative standards. The 

reward under the program must be 

available to all similarly situated 

individuals. 

(A) Under this paragraph (f)(3)(iii), a 

reward under a program is not available 

to all similarly situated individuals for 

a period unless the program meets both 

of the following requirements: 

(1) The program allows a reasonable 

alternative standard (or waiver of the 

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otherwise applicable standard) for 

obtaining the reward for any individual 

for whom, for that period, it is 

unreasonably difficult due to a medical 

condition to satisfy the otherwise 

applicable standard; and 

(2) The program allows a reasonable 

alternative standard (or waiver of the 

otherwise applicable standard) for 

obtaining the reward for any individual 

for whom, for that period, it is 

medically inadvisable to attempt to 

satisfy the otherwise applicable 

standard. 

(B) While plans and issuers are not 

required to determine a particular 

alternative standard in advance of an 

individual’s request for one, if an 

individual is described in either 

paragraph (f)(3)(iii)(A)(1) or (2) of this 

section, a reasonable alternative 

standard must be furnished by the plan 

or issuer upon the individual’s request 

or the condition for obtaining the 

reward must be waived. All the facts 

and circumstances are taken into 

account in determining whether a plan 

or issuer has furnished a reasonable 

alternative standard, including but not 

limited to the following: 

(1) If the reasonable alternative 

standard is completion of an 

educational program, the plan or issuer 

must make the educational program 

available instead of requiring an 

individual to find such a program 

unassisted, and may not require an 

individual to pay for the cost of the 

program. 

(2) If the reasonable alternative 

standard is a diet program, plans and 

issuers are not required to pay for the 

cost of food but must pay any 

membership or participation fee. 

(3) If the reasonable alternative 

standard is compliance with the 

recommendations of a medical 

professional who is an employee or 

agent of the plan or issuer, and an 

individual’s personal physician states 

that the plan’s recommendations are not 

medically appropriate for that 

individual, the plan or issuer must 

provide a reasonable alternative 

standard that accommodates the 

recommendations of the individual’s 

personal physician with regard to 

medical appropriateness. Plans and 

issuers may impose standard cost 

sharing under the plan or coverage for 

medical items and services furnished 

pursuant to the physician’s 

recommendations. 

(C) If reasonable under the 

circumstances, a plan or issuer may seek 

verification, such as a statement from an 

individual’s personal physician, that a 

health factor makes it unreasonably 

difficult for the individual to satisfy, or 

medically inadvisable for the individual 

to attempt to satisfy, the otherwise 

applicable standard. It would not be 

reasonable, for example, for a plan and 

issuer to seek verification of a claim that 

is obviously valid based on the nature 

of the individual’s medical condition 

that is known to the plan or issuer. 

However, plans and issuers may seek 

verification in the case of claims for 

which it is reasonable to determine that 

medical judgment is required to 

evaluate the validity of the claim. 

(iv) Reasonable design. The program 

must be reasonably designed to promote 

health or prevent disease. A program 

satisfies this standard if it has a 

reasonable chance of improving the 

health of, or preventing disease in, 

participating individuals and it is not 

overly burdensome, is not a subterfuge 

for discriminating based on a health 

factor, and is not highly suspect in the 

method chosen to promote health or 

prevent disease. This determination is 

based on all the relevant facts and 

circumstances. To the extent a plan’s 

initial standard for obtaining a reward 

(including a portion of a reward) is 

based on the results of a measurement, 

test, or screening relating to a health 

factor (such as a biometric examination 

or a health risk assessment), the plan 

must make available to any individual 

who does not meet the standard based 

on the measurement, test, or screening 

a different, reasonable means of 

qualifying for the reward. 

(v) Notice of availability of other 

means of qualifying for the reward. (A) 

The plan or issuer must disclose in all 

plan materials describing the terms of 

the program the availability of other 

means of qualifying for the reward or 

the possibility of waiver of the 

otherwise applicable standard. If plan 

materials merely mention that a 

program is available, without describing 

its terms, this disclosure is not required. 

(B) The following language, or 

substantially similar language, can be 

used to satisfy the notice requirement of 

this paragraph (f)(3)(v): ‘‘Your health 

plan is committed to helping you 

achieve your best health status. Rewards 

for participating in a wellness program 

are available to all employees. If you 

think you might be unable to meet a 

standard for a reward under this 

wellness program, you might qualify for 

an opportunity to earn the same reward 

by different means. Contact us at [insert 

contact information] and we will work 

with you to find a wellness program 

with the same reward that is right for 

you in light of your health status.’’ 

Additional sample language is provided 

in the examples of paragraph (f)(4) of 

this section. 

(4) Examples. The rules of paragraphs 

(f)(3)(iii), (iv), and (v) of this section are 

illustrated by the following examples: 

Example 1. (i) Facts. A group health plan 

provides a reward to individuals who 

participate in a reasonable specified walking 

program. If it is unreasonably difficult due to 

a medical condition for an individual to 

participate (or if it is medically inadvisable 

for an individual to participate), the plan will 

waive the walking program requirement and 

provide the reward. All materials describing 

the terms of the walking program disclose the 

availability of the waiver. 

(ii) Conclusion. The program satisfies the 

requirements of paragraph (f)(3)(iii) of this 

section because the reward under the 

program is available to all similarly situated 

individuals because it accommodates 

individuals who cannot participate in the 

walking program due to a medical condition 

(or for whom it would be medically 

inadvisable to attempt to participate) by 

providing them the reward even if they do 

not participate in the walking program (that 

is, by waiving the condition). The program 

satisfies the requirements of paragraph 

(f)(3)(iv) of this section because the walking 

program is reasonably designed to promote 

health and prevent disease. Last, the plan 

complies with the disclosure requirement of 

paragraph (f)(3)(v) of this section. Thus, the 

plan satisfies paragraphs (f)(3)(iii), (iv), and 

(v) of this section. 

Example 2. (i) Facts. A group health plan 

offers a reward to individuals who achieve a 

count under 200 on a cholesterol test. If a 

participant does not achieve the targeted 

cholesterol count, the plan will make 

available a different, reasonable means of 

qualifying for the reward. In addition, all 

plan materials describing the terms of the 

program include the following statement: 

‘‘Your health plan wants to help you take 

charge of your health. Rewards are available 

to all employees who participate in our 

Cholesterol Awareness Wellness Program. If 

your cholesterol count is under 200, you will 

receive the reward. If not, you will still have 

an opportunity to qualify for the reward. We 

will work with you to find a Health Smart 

program that is right for you.’’ Individual D 

is identified as having a cholesterol count 

above 200. The plan partners D with a nurse 

who makes recommendations regarding diet 

and exercise, with which it is not 

unreasonably difficult due to a medical 

condition of D or medically inadvisable for 

D to comply, and which is otherwise 

reasonably designed, based on all the 

relevant facts and circumstances. In addition, 

the plan makes available to all other 

individuals who do not meet the cholesterol 

standard a different, reasonable means of 

qualifying for the reward which is not 

unreasonably burdensome or impractical. D 

will qualify for the discount if D follows the 

recommendations regardless of whether D 

achieves a cholesterol count that is under 

200. 

(ii) Conclusion. In this Example 2, the 

program satisfies the requirements of 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. The program’s initial standard for 

obtaining a reward is dependent on the 

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results of a cholesterol screening, which is 

related to a health factor. However, the 

program is reasonably designed under 

paragraphs (f)(3)(iii) and (iv) of this section 

because the plan makes available to all 

individuals who do not meet the cholesterol 

standard a different, reasonable means of 

qualifying for the reward and because the 

program is otherwise reasonably designed 

based on all the relevant facts and 

circumstances. The plan also discloses in all 

materials describing the terms of the program 

the opportunity to qualify for the reward 

through other means. Thus, the program 

satisfies paragraphs (f)(3)(iii), (iv), and (v) of 

this section. 

Example 3. (i) Facts. Same facts as 

Example 2, except that, following diet and 

exercise, D again fails to achieve a cholesterol 

count that is under 200, and the program 

requires D to visit a doctor and follow any 

additional recommendations of D’s doctor 

with respect to D’s cholesterol. The program 

permits D to select D’s own doctor for this 

purpose. D visits D’s doctor, who determines 

D should take a prescription medication for 

cholesterol. In addition, the doctor 

determines that D must be monitored through 

periodic blood tests to continually reevaluate 

D’s health status. The plan accommodates D 

by making the discount available to D, but 

only if D actually follows the advice of D’s 

doctor’s regarding medication and blood 

tests. 

(ii) Conclusion. In this Example 3, the 

program’s requirements to follow up with, 

and follow the recommendations of, D’s 

doctor do not make the program 

unreasonable under paragraphs (f)(3)(iii) or 

(iv) of this section. The program continues to 

satisfy the conditions of paragraphs (f)(3)(iii), 

(iv), and (v) of this section. 

Example 4. (i) Facts. A group health plan 

will provide a reward to participants who 

have a body mass index (BMI) that is 26 or 

lower, determined shortly before the 

beginning of the year. Any participant who 

does not meet the target BMI is given the 

same discount if the participant complies 

with an exercise program that consists of 

walking 150 minutes a week. Any participant 

for whom it is unreasonably difficult due to 

a medical condition to comply with this 

walking program (and any participant for 

whom it is medically inadvisable to attempt 

to comply with the walking program) during 

the year is given the same discount if the 

individual satisfies an alternative standard 

that is reasonable taking into consideration 

the individual’s medical situation, is not 

unreasonably burdensome or impractical to 

comply with, and is otherwise reasonably 

designed based on all the relevant facts and 

circumstances. All plan materials describing 

the terms of the wellness program include 

the following statement: ‘‘Fitness is Easy! 

Start Walking! Your health plan cares about 

your health. If you are overweight, our Start 

Walking program will help you lose weight 

and feel better. We will help you enroll. (**If 

your doctor says that walking isn’t right for 

you, that’s okay too. We will develop a 

wellness program that is.)’’ Individual E is 

unable to achieve a BMI that is 26 or lower 

within the plan’s timeframe and is also not 

reasonably able to comply with the walking 

program. E proposes a program based on the 

recommendations of E’s physician. The plan 

agrees to make the discount available to E, 

but only if E actually follows the physician’s 

recommendations. 

(ii) Conclusion. In this Example 4, the 

program satisfies the requirements of 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. The program’s initial standard for 

obtaining a reward is dependent on the 

results of a BMI screening, which is related 

to a health factor. However, the plan 

complies with the requirements of paragraph 

(f)(3)(iv) of this section because it makes 

available to all individuals who do not satisfy 

the BMI standard a different reasonable 

means of qualifying for the reward (a walking 

program that is not unreasonably 

burdensome or impractical for individuals to 

comply with and that is otherwise reasonably 

designed based on all the relevant facts and 

circumstances). In addition, the plan 

complies with the requirements of paragraph 

(f)(3)(iii) of this section because, if there are 

individuals for whom it is unreasonably 

difficult due to a medical condition to 

comply, or for whom it is medically 

inadvisable to attempt to comply, with the 

walking program, the plan provides a 

reasonable alternative to those individuals. 

Moreover, the plan satisfies the requirements 

of paragraph (f)(3)(v) of this section because 

it discloses, in all materials describing the 

terms of the program, the availability of other 

means of qualifying for the reward or the 

possibility of waiver of the otherwise 

applicable standard. Thus, the plan satisfies 

paragraphs (f)(3)(iii), (iv), and (v) of this 

section. 

Example 5. (i) Facts. In conjunction with 

an annual open enrollment period, a group 

health plan provides a premium differential 

based on tobacco use, determined using a 

health risk assessment. The following 

statement is included in all plan materials 

describing the tobacco premium differential: 

‘‘Stop smoking today! We can help! If you are 

a smoker, we offer a smoking cessation 

program. If you complete the program, you 

can avoid this surcharge.’’ The plan 

accommodates participants who smoke by 

facilitating their enrollment in a smoking 

cessation program that requires participation 

at a time and place that are not unreasonably 

burdensome or impractical for participants, 

and that is otherwise reasonably designed 

based on all the relevant facts and 

circumstances. The plan pays the cost of the 

program. Any participant can avoid the 

surcharge by participating in the program, 

regardless of whether the participant stops 

smoking. 

(ii) Conclusion. In this Example 5, the 

premium differential satisfies the 

requirements of paragraphs (f)(3)(iii), (iv), 

and (v) of this section. The program’s initial 

standard for obtaining a reward is dependent 

on the results of a health risk assessment, 

which is a screening. However, the plan is 

reasonably designed under paragraph 

(f)(3)(iv) because the plan provides a 

different, reasonable means of qualifying for 

the reward to all tobacco users. The plan 

discloses, in all materials describing the 

terms of the program, the availability of other 

means of qualifying for the reward. Thus, the 

plan satisfies paragraphs (f)(3)(iii), (iv), and 

(v) of this section. 

Example 6. (i) Facts. Same facts as 

Example 5, except the plan does not facilitate 

F’s enrollment in any program. Instead the 

plan advises F to find a program, pay for it, 

and provide a certificate of completion to the 

plan. 

(ii) Conclusion. In this Example 6, the 

requirement for F to find and pay for F’s own 

smoking cessation program means that the 

alternative program is not reasonable. 

Accordingly, the plan has not offered a 

reasonable alternative standard that complies 

with paragraphs (f)(3)(iii) and (iv) of this 

section and the premium differential violates 

paragraph (c) of this section. 

* * * * * 

PART 147—HEALTH INSURANCE 

REFORM REQUIREMENTS FOR THE 

GROUP AND INDIVIDUAL HEALTH 

INSURANCE MARKETS 

3. The authority citation for Part 147 

continues to read as follows: 

Authority: Secs. 2701 through 2763, 2791, 

and 2792 of the Public Health Service Act (42 

U.S.C. 300gg through 300gg–63, 300gg–91, 

and 300gg–92), as amended (2010). 

4. Section 147.110 is added to read as 

follows: 

§ 147.110 Prohibiting discrimination 

against participants, beneficiaries, and 

individuals based on a health factor. 

(a) In general. A group health plan 

and a health insurance issuer offering 

group or individual health insurance 

coverage must comply with all the 

requirements under 45 CFR 146.121 

applicable to a group health plan and a 

health insurance issuer offering group 

health insurance coverage. Accordingly, 

with respect to an issuer offering health 

insurance coverage in the individual 

market, the issuer is subject to the 

requirements of § 146.121 to the same 

extent as an issuer offering group health 

insurance coverage, except that the 

exception contained in § 146.121(f) does 

not apply. 

(b) Applicability date. This section is 

applicable to a group health plan and a 

health insurance issuer offering group or 

individual health insurance coverage for 

plan years (in the individual market, 

policy years) beginning on or after 

January 1, 2014. See § 147.140, which 

provides that the rules of this section do 

not apply to grandfathered health plans. 

[FR Doc. 2012–28361 Filed 11–20–12; 11:15 am] 

BILLING CODE 4830–01–P; 4510–029–P; 4120–01–P 

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