```

[Federal Register Volume 78, Number 106 (Monday, June 3, 2013)]
[Rules and Regulations]
[Pages 33157-33192]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12916]

[[Page 33157]]

Vol. 78

Monday,

No. 106

June 3, 2013

Part II

Department of the Treasury

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Internal Revenue Service

26 CFR Part 54

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Department of Labor

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Employee Benefits Security Administration

29 CFR Part 2590

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Department of Health and Human Services

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45 CFR Parts 146 and 147

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Incentives for Nondiscriminatory Wellness Programs in Group Health 
Plans; Final Rule

Federal Register / Vol. 78 , No. 106 / Monday, June 3, 2013 / Rules 
and Regulations

[[Page 33158]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9620]
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-F]
RIN 0938-AR48

Incentives for Nondiscriminatory Wellness Programs in Group 
Health Plans

AGENCIES: 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: Final rule.

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SUMMARY: This document contains final regulations, consistent with the 
Affordable Care Act, regarding nondiscriminatory wellness programs in 
group health coverage. Specifically, these final regulations 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 final regulations further increase the maximum 
permissible reward to 50 percent for wellness programs designed to 
prevent or reduce tobacco use. These regulations also include other 
clarifications regarding the reasonable design of health-contingent 
wellness programs and the reasonable alternatives they must offer in 
order to avoid prohibited discrimination.

DATES: Effective Date: August 2, 2013.
    Applicability Date: These final regulations generally apply to 
group health plans and group health insurance issuers for plan years 
beginning on or after January 1, 2014. These final regulations 
generally apply to individual health insurance issuers for policy years 
beginning on or after January 1, 2014.

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) 927-9639; 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, Pub. L. 111-148, 
was enacted on March 23, 2010; the Health Care and Education 
Reconciliation Act, Pub. L. 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.
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    \1\ The 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.
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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), Pub. L. 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.
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    \2\ The HIPAA nondiscrimination provisions set forth eight 
health status-related factors, which the December 13, 2006 final 
regulations refer to as ``health factors.'' Under HIPAA and the 2006 
regulations, as well as under PHS Act section 2705 (as added by the 
Affordable Care Act), 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.
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    The Departments of Labor, Health and Human Services (HHS), and the 
Treasury (collectively, the Departments \3\) published joint final 
regulations implementing the HIPAA nondiscrimination and wellness 
provisions on December 13, 2006 at 71 FR 75014 (the 2006 
regulations).\4\ The 2006 regulations divided wellness programs into 
two general categories: Participatory wellness programs and health-
contingent wellness programs. Under the 2006 regulations, participatory 
wellness programs \5\ are considered to comply with the HIPAA 
nondiscrimination requirements

[[Page 33159]]

without having to satisfy any additional standards if participation in 
the program is made available to all similarly situated individuals, 
regardless of health status. Paragraph (d) of the 2006 regulations 
provided 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 listed in the 2006 regulations.
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    \3\ Note, however, that in the Economic Analysis and Paperwork 
Burden section of this preamble, in sections under headings listing 
only two of the three Departments, the term ``Departments'' 
generally refers only to the two Departments listed in the heading.
    \4\ See 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.
    \5\ Under the 2006 regulations, a participatory wellness program 
is generally a program under which none of the conditions for 
obtaining a reward is based on an individual satisfying a standard 
related to a health factor or under which no reward is offered.
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    Under the 2006 regulations, plans and issuers with health-
contingent wellness programs \6\ were permitted to 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)(2), which outlined five 
specific criteria.
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    \6\ Under the 2006 regulations, a health-contingent wellness 
program is generally a program under which any of the conditions for 
obtaining a reward is based on an individual satisfying a standard 
related to a health factor (such as not smoking, attaining certain 
results on biometric screenings, or meeting targets for exercise).
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C. Amendments Made by the Affordable Care Act

    The Affordable Care Act (section 1201) amended the HIPAA 
nondiscrimination and wellness 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 HIPAA nondiscrimination protections to the 
individual market.\7\ 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), but does not apply to coverage in the 
individual market.
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    \7\ Section 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.
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D. Proposed Regulations Implementing PHS Act Section 2705 and Amending 
the 2006 Regulations

    On November 26, 2012, the Departments published proposed 
regulations at 77 FR 70620, to implement PHS Act section 2705 and amend 
the 2006 regulations regarding nondiscriminatory wellness programs in 
group health coverage. Like the 2006 regulations, the proposed 
regulations continued to divide wellness programs into participatory 
wellness programs and health-contingent wellness programs. Examples of 
participatory wellness programs provided in the proposed regulations 
included a program that reimburses for all or part of the cost of 
membership in a fitness center; a diagnostic testing program that 
provides a reward for participation and does not base any part of the 
reward on outcomes; and a program that provides a reward to employees 
for attending a monthly, no-cost health education seminar. Examples of 
health-contingent wellness programs in the proposed regulations 
included a program that imposes a premium surcharge based on tobacco 
use; and 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.
    The proposed regulations re-stated that participatory wellness 
programs are not required to meet the five requirements applicable to 
health-contingent wellness programs. The proposed regulations also 
outlined the conditions for health-contingent wellness programs, as 
follows:
    1. The program must give eligible individuals an opportunity to 
qualify for the reward at least once per year.
    2. 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 30 percent of the total cost of 
employee-only coverage under the plan, or 50 percent to the extent the 
program is designed to prevent or reduce tobacco use.
    3. The reward must be 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, during that period, it is unreasonably 
difficult due to a medical condition to satisfy the otherwise 
applicable standard (or for whom it is medically inadvisable to attempt 
to satisfy the otherwise applicable standard).
    4. The program must be reasonably designed to promote health or 
prevent disease. For this purpose, it must have a reasonable chance of 
improving the health of, or preventing disease in, participating 
individuals, and not be overly burdensome, not be a subterfuge for 
discriminating based on a health factor, and not be highly suspect in 
the method chosen to promote health or prevent disease. The proposed 
regulations also stated 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.
    5. 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.

II. Overview of the Final Regulations

A. General Overview

    The Departments believe that appropriately designed wellness 
programs have the potential to contribute importantly to promoting 
health and preventing disease. After consideration of all the comments, 
the Departments are issuing these final regulations to provide 
comprehensive guidance with respect to the general requirements for 
wellness programs. At the same time, the Departments recognize that 
each wellness program is unique and questions may remain regarding the 
application of these requirements. The Departments anticipate issuing 
future subregulatory guidance to provide additional clarity and 
potentially proposing modifications to this final rule as necessary. 
These final regulations generally implement standards for group health 
plans and health insurance issuers offering group health insurance 
coverage with respect

[[Page 33160]]

to the wellness program exception from the HIPAA nondiscrimination 
provisions in PHS Act section 2705, ERISA section 702, and Code section 
9802, as amended by the Affordable Care Act. These final regulations 
replace the wellness program provisions of paragraph (f) of the 2006 
regulations and are applicable to both grandfathered and non-
grandfathered group health plans and group health insurance coverage 
for plan years beginning on or after January 1, 2014.\8\ These 
regulations also implement the nondiscrimination provisions of PHS Act 
section 2705 applicable to non-grandfathered individual health 
insurance coverage for policy years beginning on or after January 1, 
2014. This rulemaking does not modify provisions of the 2006 
regulations other than paragraph (f).
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    \8\ See section 1251 of the Affordable Care Act and interim 
final regulations at 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and 
45 CFR 147.140 for the definition of a grandfathered health plan.
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    Stakeholder feedback suggested that there is some degree of 
confusion regarding the scope of the HIPAA and Affordable Care Act 
rules governing wellness programs, which is clarified in these final 
regulations. Specifically, these final regulations do not establish 
requirements for all types of programs or information technology 
platforms offered by an employer, health plan, or health insurance 
issuer that could be labeled a wellness program, disease management 
program, case management program, or similar term. Instead, these final 
regulations set forth criteria for a program of health promotion or 
disease prevention offered or provided by a group health plan or group 
health insurance issuer that must be satisfied in order for the plan or 
issuer to qualify for an exception to the prohibition on discrimination 
based on health status under paragraphs (b)(2)(ii) and (c)(3) of the 
2006 regulations (which provide exceptions to the general prohibition 
against discrimination based on a health factor in benefits and 
premiums or contributions, respectively).\9\ That is, these rules set 
forth criteria for an affirmative defense that can be used by plans and 
issuers in response to a claim that the plan or issuer discriminated 
under the HIPAA nondiscrimination provisions.
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    \9\ 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).
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    These final regulations are restructured, as compared to the 
proposed regulations, to help clarify this relationship and how the 
five statutory requirements apply to different types of programs, 
including different types of health-contingent wellness programs 
(described below as activity-only wellness programs and outcome-based 
wellness programs). The final regulations also reorganize the 
presentation of the steps a plan or issuer must take to ensure a 
wellness program: is reasonably designed to promote health or prevent 
disease; has a reasonable chance of improving the health of, or 
preventing disease in, participating individuals; 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. To meet these standards, health-contingent 
wellness programs that are outcome-based wellness programs must offer a 
``reasonable alternative standard'' (or waiver of the otherwise 
applicable standard) to a broader group of individuals than is required 
for activity-only wellness programs. Specifically, for activity-only 
wellness programs, a reasonable alternative 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. 
For outcome-based wellness programs, which generally provide rewards 
based on whether an individual has attained a certain health outcome 
(such as a particular body mass index (BMI), cholesterol level, or non-
smoking status, determined through a biometric screening or health risk 
assessment), a reasonable alternative standard must be provided to all 
individuals who do not meet the initial standard, to ensure that the 
program is reasonably designed to improve health and is not a 
subterfuge for underwriting or reducing benefits based on health 
status.\10\ These requirements are generally intended to be the same as 
those included in the proposed rules, but the terminology has changed 
(for example, the term ``different, reasonable means,'' which was used 
side by side with the term ``reasonable alternative standard,'' has 
been dropped to reduce confusion). These changes help to clarify that 
the group of individuals that must be offered a reasonable alternative 
standard differs when comparing the requirements for an activity-only 
wellness program to the requirements for an outcome-based wellness 
program. The requirements that the alternative be reasonable taking 
into account an individual's medical condition, and the option of 
waiving the initial standard, remain the same. The term ``reasonable 
alternative standard'' is used in these final rules as it is in the 
statute.\11\
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    \10\ See 77 FR 70625.
    \11\ The ``reasonable alternative standard'' is separate and 
distinct from the standard for ``reasonable accommodations'' under 
the Americans with Disabilities Act of 1990 (ADA) and related laws, 
regulations and guidance. See section II.H later in this preamble 
for a discussion of how compliance with the nondiscrimination rules 
(including the wellness program provisions) is not determinative of 
compliance with any other law.
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    The intention of the Departments in these final regulations is 
that, regardless of the type of wellness program, every individual 
participating in the program should be able to receive the full amount 
of any reward or incentive, regardless of any health factor. The 
reorganized requirements of the final regulations explain how a plan or 
issuer is required to provide such an opportunity for each category of 
wellness program.

B. Definitions

    Paragraph (f)(1) provides several definitions that govern for 
purposes of these final regulations.
    Reward. References in these final regulations to an individual 
obtaining a reward include both obtaining a reward (such as a discount 
or rebate of a premium or contribution, a waiver of all or part of a 
cost-sharing mechanism (such as a deductible, copayment, or 
coinsurance), an additional benefit, or any financial or other 
incentive) and avoiding a penalty (such as the absence of a surcharge 
or other financial or nonfinancial disincentives). References in the 
final regulations to a plan providing a reward include both providing a 
reward (such as a discount or rebate of a premium or contribution, 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).
    Participatory wellness programs. Consistent with the 2006 
regulations and PHS Act section 2705(j), these final regulations 
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 defined under the final regulations 
as programs 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 final

[[Page 33161]]

regulations, including: (1) A program that reimburses employees for all 
or part of the cost of membership in a fitness center; (2) a diagnostic 
testing program that provides a reward for participation and does not 
base any part of the reward on outcomes; and (3) a program that 
provides a reward to employees for attending a monthly, no-cost health 
education seminar.
    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 
undertake more than a similarly situated individual based on a health 
factor in order to obtain the same reward). This standard may be 
performing or completing an activity relating to a health factor, or it 
may be attaining or maintaining a specific health outcome. In these 
final regulations, the category of health-contingent wellness programs 
is subdivided into: (1) Activity-only wellness programs, and (2) 
outcome-based wellness programs. Under paragraphs (b)(2)(ii) and (c)(3) 
of the 2006 regulations (which remain unchanged),\12\ both of these 
types of health-contingent wellness programs are permissible only if 
they comply with the criteria of these final regulations.\13\
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    \12\ 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).
    \13\ Until these final regulations are effective and applicable, 
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.
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    Activity-only wellness programs. Activity-only wellness programs 
are a subcategory of health-contingent wellness programs. Under an 
activity-only wellness program, an individual is required to perform or 
complete an activity related to a health factor in order to obtain a 
reward. Activity-only wellness programs do not require an individual to 
attain or maintain a specific health outcome. Examples of activity-only 
wellness programs include walking, diet, or exercise programs. Some 
individuals participating in an activity-only wellness program may be 
unable to participate in or complete (or have difficulty participating 
in or completing) the program's prescribed activity due to a health 
factor. For example, an individual may be unable to participate in a 
walking program due to a recent surgery or pregnancy, or may have 
difficulty participating due to severe asthma. The final regulations, 
therefore, provide safeguards to ensure these individuals are given a 
reasonable opportunity to qualify for the reward.
    Outcome-based wellness programs. Outcome-based wellness programs 
are a subcategory of health-contingent wellness programs. Under an 
outcome-based wellness program, an individual must attain or maintain a 
specific health outcome (such as not smoking or attaining certain 
results on biometric screenings) in order to obtain a reward. 
Generally, these programs have two tiers: (a) A measurement, test, or 
screening as part of an initial standard; and (b) a larger program that 
then targets individuals who do not meet the initial standard with 
wellness activities. For individuals who do not attain or maintain the 
specific health outcome, compliance with an educational program or an 
activity may be offered as an alternative to achieve the same reward. 
However, this alternative pathway does not mean that the overall 
program, which has an outcome-based initial standard, is not an 
outcome-based wellness program. That is, if a measurement, test, or 
screening is used as part of an initial standard and individuals who 
meet the standard are granted the reward, the program is considered an 
outcome-based wellness program. Examples of outcome-based wellness 
programs include a program that tests individuals for specified medical 
conditions or risk factors (such as high cholesterol, high blood 
pressure, abnormal BMI, 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.

C. Requirement for Participatory Wellness Programs

    Paragraph (f)(2) of these final regulations requires a 
participatory wellness program to be made available to all similarly 
situated individuals, regardless of health status. Participatory 
wellness programs are not required to meet the requirements applicable 
to health-contingent wellness programs under these final regulations. 
Some comments requested that the Departments impose additional 
requirements with respect to participatory wellness programs. Other 
commenters proposed that the Departments require that plans and issuers 
take into account an individual's income or other personal 
circumstances in determining whether a participatory wellness program 
is available or accessible to all similarly situated individuals.
    As discussed earlier, the HIPAA nondiscrimination provisions 
generally prohibit group health plans and health insurance issuers from 
discriminating against individual participants and beneficiaries in 
eligibility, benefits, or premiums based on a health factor. To the 
extent a plan or issuer establishes a wellness program that does not 
adjust benefits or premiums based on a health factor, these wellness 
program provisions are generally not implicated. These final rules make 
clear that such ``participatory'' wellness programs (in contrast to 
``health-contingent wellness programs'') are permissible under the 
HIPAA nondiscrimination rules, as amended by the Affordable Care Act, 
provided they are available to all similarly situated individuals 
regardless of health status.
    Availability regardless of health status ensures that the general 
prohibition against discrimination based on a health factor is not 
implicated. If factors other than health status (such as scheduling 
limitations) limit an individual's ability to take part in a program, 
that does not mean that the plan has violated the general rule 
prohibiting discrimination based on a health factor because the program 
was not discriminatory under the HIPAA nondiscrimination rules to begin 
with. For example, if a plan made available a premium discount in 
return for attendance at an educational seminar, but only healthy 
individuals were provided the opportunity to attend, the program would 
discriminate based on a health factor because only healthy individuals 
were provided the opportunity to reduce their premiums. However, if all 
similarly situated individuals were permitted to attend, but a 
particular individual could not attend because the seminar was held on 
a weekend day and the individual was unavailable to attend at that 
time, that does not mean the program discriminated against that 
individual based on a health factor. Because there is no discrimination 
based on a health factor under HIPAA, the wellness exception is not 
relevant. At the same time, as discussed in section II.H of this 
preamble, compliance with the HIPAA nondiscrimination and wellness 
provisions is not determinative of compliance with any other applicable 
Federal or State law, which may impose additional accessibility 
standards for wellness programs.

[[Page 33162]]

D. Requirements for Health-Contingent Wellness Programs

    These final regulations generally retain the proposed five 
requirements for health-contingent wellness programs, but the 
regulations have been reorganized, subdividing health-contingent 
wellness programs into activity-only wellness programs and outcome-
based wellness programs, to make it clearer to whom a plan or issuer is 
required to provide a reasonable alternative standard. The final 
regulations retain the proposed modification relating to the size of 
the reward, as well as clarifications that were 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.
(1) Frequency of Opportunity to Qualify
    These final regulations retain the requirement, for both activity-
only and outcome-based wellness programs, that individuals eligible for 
the program be given the opportunity to qualify for the reward at least 
once per year. As stated in the preamble to the 2006 regulations and 
the proposed regulations, the once-per-year requirement was included as 
a bright-line standard for determining the minimum frequency that is 
consistent with a reasonable design for promoting good health or 
preventing disease.\14\
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    \14\ See 71 FR at 75018. See also 77 FR at 70623.
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(2) Size of Reward
    Like the proposed regulations, these final regulations continue to 
limit the total amount of the reward for health-contingent wellness 
programs (both activity-only and outcome-based) with respect to a plan, 
whether offered alone or coupled with the reward for other health-
contingent wellness programs. Specifically, as in the proposed 
regulations, the total reward offered to an individual under all 
health-contingent wellness programs with respect to a plan cannot 
exceed the applicable percentage (as defined in paragraph (f)(5) of the 
final 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 for the benefit package under which the 
employee is (or the employee and any dependents are) receiving 
coverage. If, in addition to employees, any class of dependents (such 
as spouses, or spouses and dependent children) may participate in the 
health-contingent wellness program, the reward cannot 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).
    Several comments addressed health-contingent wellness programs that 
allow dependents to participate, and what portion of the reward should 
be attributable to each participating dependent. For health-contingent 
wellness programs that allow a class of dependents to participate, some 
commenters suggested that the maximum allowed reward or incentive be 
prorated based on the portion of the premium or contribution 
attributable to that family member. These commenters argued that if, 
for example, one family member fails to meet the standard related to a 
health factor, the entire family should not be faced with the maximum 
penalty. Other commenters requested that the Departments not set forth 
rules for the apportionment of the reward where dependent coverage 
exists. These commenters argued that it would be an administrative 
challenge to apportion the reward to each covered family member. While 
final regulations issued by HHS under PHS Act section 2701 require 
health insurance issuers in the small group market \15\ to apply rating 
variations to family coverage based on the portion of the premium 
attributable to each family member covered under the coverage,\16\ 
these final regulations do not set forth detailed rules governing 
apportionment of the reward under a health-contingent wellness program. 
Instead, plans and issuers have flexibility to determine apportionment 
of the reward among family members, as long as the method is 
reasonable. Additional subregulatory guidance may be provided by the 
Departments if questions persist or if the Departments become aware of 
apportionment designs that seem unreasonable.
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    \15\ Small 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 this 
purpose, 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.
    \16\ 45 CFR 147.102(c).
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(3) Reasonable Design
    Consistent with the 2006 regulations and PHS Act section 2705(j), 
these final regulations continue to require that health-contingent 
wellness programs be reasonably designed to promote health or prevent 
disease, whether activity-only or outcome-based. Some commenters urged 
that the Departments not impose a rigid set of pre-approved wellness 
program structures or guidelines, which may inhibit innovation in 
designing wellness programs. On the other hand, other commenters 
requested that the Departments require that all wellness programs be 
based on evidence-based clinical guidelines and national standards 
established by bodies such as the Centers for Disease Control and 
Prevention (CDC), Centers for Medicare & Medicaid Services, or the 
National Institutes of Health. These final regulations state that a 
wellness program is reasonably designed if it has a reasonable chance 
of improving the health of, or preventing disease in, participating 
individuals, and is not overly burdensome, is not a subterfuge for 
discrimination based on a health factor, and is not highly suspect in 
the method chosen to promote health or prevent disease. The 
determination of whether a health-contingent wellness program is 
reasonably designed is based on all the relevant facts and 
circumstances. While programs are not required to be accredited or 
based on particular evidence-based clinical standards, these practices, 
such as those found in CDC's Guide to Community Preventive 
Services,\17\ may increase the likelihood of wellness program success 
and are encouraged as a best practice.
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    \17\ See www.thecommunityguide.org/index.html.
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    These final regulations continue to provide plans and issuers 
flexibility and encourage innovation.\18\ Some commenters requested 
confirmation that plans and issuers could design wellness programs that 
are limited to targeted groups of individuals with adverse health 
factors. Consistent with paragraph (g) of the 2006 regulations, nothing 
in these final regulations

[[Page 33163]]

prevents a plan or issuer from establishing more favorable rules for 
eligibility or premium rates (including rewards for adherence to 
certain wellness programs) for individuals with an adverse health 
factor than for individuals without the adverse health factor.
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    \18\ 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.'' 
See 71 FR at 75018. 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.'' See 71 FR at 75019.
---------------------------------------------------------------------------

    Several comments requested that the reasonable design requirement 
include strong consumer protections to ensure that the opportunity for 
a discount is available in practice and accessible to all individuals 
regardless of health status. Some commenters argued that wellness 
programs which set clear markers of medical illness, disability, or 
largely non-preventable conditions as standards are not reasonably 
designed and should therefore be prohibited under the final 
regulations. Other commenters suggested that a ``reasonably designed'' 
wellness program must include a set of programs, resources, and 
worksite policies designed to promote health and prevent disease and 
must include more than a biometric test.
    After consideration of all the comments, as in the proposed rules, 
the final regulations direct that an outcome-based wellness program 
must provide a reasonable alternative standard to qualify for the 
reward, for all individuals who do not meet the initial standard that 
is related to a health factor, in order to be reasonably designed. This 
approach is intended to ensure that outcome-based programs are more 
than mere rewards in return for results in biometric screenings or 
responses to a health risk assessment, and are instead part of a larger 
wellness program designed to promote health and prevent disease, 
ensuring the program is not a subterfuge for discrimination or 
underwriting based on a health factor.
(4) Uniform Availability and Reasonable Alternative Standards
    An important element of these final regulations is the requirement 
that the full reward under a health-contingent wellness program, 
whether activity-only or outcome-based, be available to all similarly 
situated individuals. As stated earlier, the proposed regulations 
included requirements that, in certain circumstances, a health-
contingent wellness program provide a reasonable alternative standard 
(or waiver of the otherwise applicable standard) and, to the extent 
that a plan's initial standard for obtaining a reward (or a portion of 
a reward) is based on the results of a measurement, test, or screening 
that is related to a health factor (such as a biometric examination or 
a health risk assessment), provide a different, reasonable means of 
qualifying for the reward. Several commenters pointed out that the 
interaction between these two requirements was confusing and unclear. 
As discussed earlier in this preamble, these final regulations retain 
the same requirements contained in the proposed regulations, but the 
terminology has been changed to reduce confusion and provide clarity 
for the regulated community.
    Many clarifications regarding the reasonable alternative standards 
are equally applicable to activity-only wellness programs and outcome-
based wellness programs. First, in order to satisfy the requirement to 
provide a reasonable alternative standard, the same, full reward must 
be available under a health-contingent wellness program (whether an 
activity-only or outcome-based wellness program) 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. Accordingly, while an individual may take some 
time to request, establish, and satisfy a reasonable alternative 
standard, the same, full reward must be provided to that individual as 
is provided to individuals who meet the initial standard for that plan 
year. (For example, if a calendar year plan offers a health-contingent 
wellness program with a premium discount and an individual who 
qualifies for a reasonable alternative standard satisfies that 
alternative on April 1, the plan or issuer must provide the premium 
discounts for January, February, and March to that individual.) Plans 
and issuers have flexibility to determine how to provide the portion of 
the reward corresponding to the period before an alternative was 
satisfied (e.g., payment for the retroactive period or pro rata over 
the remainder of the year) as long as the method is reasonable and the 
individual receives the full amount of the reward. In some 
circumstances, an individual may not satisfy the reasonable alternative 
standard until the end of the year. In such circumstances, the plan or 
issuer may provide a retroactive payment of the reward for that year 
within a reasonable time after the end of the year, but may not provide 
pro rata payments over the following year (a year after the year to 
which the reward corresponds). The Departments may provide additional 
subregulatory guidance if questions persist or if the Departments 
become aware of payment designs that seem unreasonable with respect to 
individuals who satisfy the reasonable alternative standard.
    Other clarifications were retained from the proposed regulations. 
The final regulations reiterate that, in lieu of providing a reasonable 
alternative standard, a plan or issuer may always waive the otherwise 
applicable standard and provide the reward. These final regulations 
also do not require plans and issuers to establish a particular 
reasonable alternative standard in advance of an individual's specific 
request for one, as long as a reasonable alternative standard is 
provided by the plan or issuer (or the condition for obtaining the 
reward is waived) upon an individual's request. Plans and issuers have 
flexibility to determine whether to provide the same reasonable 
alternative standard for an entire class of individuals (provided that 
it is reasonable for that class) or provide the reasonable alternative 
standard on an individual-by-individual basis, based on the facts and 
circumstances presented.
    The Departments received several comments requesting that the final 
regulations permit employers to retain flexibility to make reasonable 
alternative standards health-focused and stringent enough so that these 
alternatives do not become a loophole for individuals who can meet the 
initial standard. These final regulations continue to permit plans and 
issuers flexibility in designing reasonable alternative standards 
(including using reasonable alternative standards that are health-
contingent), while also providing some clarification of what 
constitutes being ``reasonable'' in the context of an alternative 
standard.
    All the facts and circumstances are taken into account in 
determining whether a plan or issuer has provided a reasonable 
alternative standard, including but not limited to the following 
factors listed in these final regulations:
     If the reasonable alternative standard is completion of an 
educational program, the plan or issuer must make the educational 
program available or assist the employee in finding such a program 
(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.
     The time commitment required must be reasonable.
     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 an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical

[[Page 33164]]

professional) is 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.
    The final regulations generally retain the factors that were 
included in the proposed regulations with a few added clarifications. 
Specifically, in response to comments, the final rules clarify that in 
order for an alternative standard to be reasonable, the time commitment 
must be reasonable. For example, requiring attendance nightly at a one-
hour class would be unreasonable.
    In addition, the proposed regulations stated that if a reasonable 
alternative standard is compliance with the recommendations of a 
medical professional who is an agent of the plan, and an individual's 
personal physician states that the recommendations are not medically 
appropriate for that individual, the plan must provide a second 
reasonable alternative standard that accommodates the recommendations 
of the individual's personal physician with regard to medical 
appropriateness, and that normal cost sharing could be imposed for 
medical items and services furnished pursuant to the physician's 
recommendations. The final rules retain the clarification of the 
proposed regulations, and add an additional clarification that an 
individual's personal physician can make recommendations regarding 
medical appropriateness that must be accommodated with respect to any 
plan standard (and is not limited to a situation in which a personal 
physician disagrees with the specific recommendations of an agent of 
the plan with respect to an individual). This additional clarification 
is consistent with the final regulations' overall requirement that 
wellness programs be designed to promote health and prevent disease, 
and not be a subterfuge for discrimination or underwriting based on a 
health factor. As stated in the preamble to the Departments' 
regulations implementing the internal claims and appeals and external 
review processes under PHS Act section 2719, adverse benefit 
determinations based on whether a participant or beneficiary is 
entitled to a reasonable alternative standard for a reward under a 
wellness program are considered to involve medical judgment and 
therefore are eligible for Federal external review.\19\ 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.
---------------------------------------------------------------------------

    \19\ See 76 FR at 37216.
---------------------------------------------------------------------------

    The Departments continue to maintain that, with respect to tobacco 
cessation, ``overcoming an addiction sometimes requires a cycle of 
failure and renewed effort,'' as stated in the preamble to the proposed 
regulations.\20\ For plans with an initial outcome-based standard that 
an individual not use tobacco, a reasonable alternative standard in 
Year 1 may be to try an educational seminar. As clarified in an example 
in the final regulations, an individual who attends the seminar is then 
entitled to the reward, regardless of whether the individual quits 
smoking. At the same time, in Year 2, the plan may require completion 
of a different reasonable alternative standard, such as a complying 
with a new recommendation from the individual's personal physician or a 
new nicotine replacement therapy (and completion of that standard would 
qualify the individual to receive the reward).
---------------------------------------------------------------------------

    \20\ See 71 FR 75019 (December 13, 2006) and 77 FR 70624 
(November 26, 2012).
---------------------------------------------------------------------------

    It is the view of the Departments that the same can be true with 
respect to meeting any outcome-based standard. That is, with respect to 
weight loss and weight management, for example, clinical evidence 
suggests that a number of environmental factors can influence an 
individual's ability to achieve a desired health outcome.\21\ Under 
these final regulations, plans and issuers cannot cease to provide a 
reasonable alternative standard under any health-contingent wellness 
program merely because an individual was not successful in satisfying 
the initial standard before; plans and issuers must continue to offer a 
reasonable alternative standard whether it is the same or different 
and, to the extent the reasonable alternative standard is, itself, a 
health-contingent wellness program, it must meet the relevant 
requirements of these final regulations. Language in the final 
regulations clarifies that, for example, if a plan or issuer provides a 
walking program as a reasonable alternative standard to a running 
program, individuals for whom it is unreasonably difficult due to a 
medical condition to complete the walking program (or for whom it is 
medically inadvisable to attempt to complete the walking program) must 
be provided a reasonable alternative standard to the walking program. 
Similarly, to the extent a reasonable alternative standard is, itself, 
an outcome-based wellness program, the reasonable alternative standard 
must comply with the requirements for outcome-based wellness programs, 
subject to certain special rules, described below.
---------------------------------------------------------------------------

    \21\ See Katz DL, O'Connell M, Yeh MC, Nawaz H, Njike V, 
Anderson LM, Cory S, Dietz W: Task Force on Community Preventive 
Services. Public health strategies for preventing and controlling 
overweight and obesity in school and worksite settings: a report on 
recommendations of the Task Force on Community Preventive Services. 
MMWR Recomm Rep 2005, 7; 54 (RR-10):1-12. See also Fiore, M., Jaen, 
C., Baker, T., Bailey, W., Benowitz, N., Curry, S., Healton, C. 
(2008). Treating tobacco use and dependence; 2008 clinical practice 
guideline. Rockville, MD: U.S. Department of Health and Human 
Services.
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    While, as discussed earlier, many clarifications regarding the 
reasonable alternative standards are equally applicable to activity-
only wellness programs and outcome-based wellness programs, some of the 
requirements apply in different ways depending on whether the program 
is an activity-only or an outcome-based wellness program.
(a) Activity-Only Wellness Programs
    An activity-only wellness program must make the full reward under 
the program available to all similarly-situated individuals. Under 
paragraph (f)(3)(iv) of these final regulations, a reward under a 
wellness program is not available to all similarly situated individuals 
for a period unless 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 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.
    Under an activity-only wellness program, 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 in an activity-only wellness program, if reasonable 
under the circumstances.\22\ Some commenters stated that it is common 
practice to require verification

[[Page 33165]]

when an individual requests a reasonable alternative standard and urged 
the Departments to permit plans and issuers to require physician 
verification in all circumstances involving a request for a reasonable 
alternative standard. Other commenters supported the approach set forth 
in the proposed rules that limits plans' and issuers' ability to impose 
verification requirements to verification of claims that require the 
use of medical judgment to evaluate. Some of these commenters also 
asked the Departments to clarify that verification, when allowed, could 
be performed by any type of medical professional. The Departments also 
received comments on the example in the proposed regulations that 
stated 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. 
Many commenters had questions about what the Departments would consider 
a plan or issuer to know or not know, cited the fact that different 
information technology systems exist for wellness program information 
and claims data, and raised concerns regarding what types of situations 
would be ``obviously valid'' under this standard.
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    \22\ 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 verification, such as a statement 
from an individual's personal physician, may be required by a plan 
or issuer ``if reasonable under the circumstances.''
---------------------------------------------------------------------------

    The Departments originally included the example in the proposed 
regulations in the context of what these final regulations now refer to 
as outcome-based wellness programs, so that if an individual requested 
a reasonable alternative standard after failing to meet an initial 
standard based on a measurement, test, or screening, the plan or issuer 
could not then require physician verification of the need for a 
reasonable alternative standard. As described in more detail below, the 
reorganized final regulations clarify that, with respect to outcome-
based wellness programs, plans and issuers cannot require verification 
by the individual's 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 as a condition of providing a reasonable 
alternative to the initial standard. While plans and issuers may still 
require such verification as a condition of providing a reasonable 
alternative standard in the context of an activity-only wellness 
program, the reorganization of the final regulations makes the language 
stating that it would not be reasonable for an issuer to seek 
verification of a claim which is obviously valid, as it was included in 
the proposed regulations, now moot. Therefore, after reviewing the 
comments received in response to the proposed regulations, the 
Departments have deleted this example from the regulatory text. Plans 
and issuers are still permitted under these final regulations to seek 
verification in the case of an activity-only wellness program with 
respect to requests for a reasonable alternative standard for which it 
is reasonable to determine that medical judgment is required to 
evaluate the validity of the request.
    In addition, with respect to which type of medical professional can 
be required by the plan or issuer to provide verification, the final 
regulations repeat the statutory language. Wellness programs and 
reasonable alternative standards can vary greatly, and the nature of 
the program or alternative standard may require different levels of 
clinical expertise to evaluate reasonableness with respect to any 
particular individual. These final regulations do not expressly 
prohibit plan provisions that require verification to be provided by a 
physician in clinically appropriate circumstances. Nor do these final 
regulations expressly require that medical professionals other than a 
physician be permitted to provide verification in specific 
circumstances if a physician's expertise would be required to evaluate 
the validity of a request. Instead, the Departments generally view any 
plan requirement for verification to be subject to the broader 
standards for reasonable design and intend to examine verification 
requirements in light of all the relevant facts and circumstances. The 
Departments may provide future guidance on this issue.
    A number of commenters raised concerns about the privacy and 
confidentiality of health information provided to wellness programs, 
particularly with respect to employer access to such information and 
the potentially discriminatory results of such access. As noted in 
section II.H later in this preamble, these final regulations are 
implementing only the provisions regarding wellness programs in the 
Affordable Care Act. Other State and Federal laws may apply with 
respect to the privacy, disclosure, and confidentiality of information 
provided to these programs. For example, HIPAA-covered entities, 
including certain health plans and providers, must comply with the 
HIPAA Privacy and Security Rules \23\ with respect to the 
confidentiality of individually identifiable health information, and 
employers subject to the Americans with Disabilities Act of 1990 (ADA) 
must comply with any applicable ADA requirements for disclosure and 
confidentiality of medical information and non-discrimination on the 
basis of disability.
---------------------------------------------------------------------------

    \23\ See 45 CFR Parts 160 and 164.
---------------------------------------------------------------------------

(b) Outcome-Based Wellness Programs
    Outcome-based wellness programs allow plans and issuers to conduct 
screenings and employ measurement techniques in order to target 
wellness programs effectively, as discussed earlier. For example, plans 
and issuers are able to target only 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, with the 
reward based on health outcomes or participation in reasonable 
alternatives. For outcome-based wellness programs to meet the 
requirement that the reward be available to all similarly situated 
individuals, the proposed regulations generally required that the 
program allow a reasonable alternative standard (or waiver of the 
otherwise applicable standard) for obtaining the reward for any 
individual who does not meet the initial standard based on a 
measurement, test, or screening. Several commenters asserted that a 
reasonable alternative standard should be required to be made available 
only to individuals who have a medical condition that prevents them 
from meeting the initial standard. As discussed earlier, programs 
consisting solely of a measurement, test, or screening are not 
reasonably designed to promote health and prevent disease. Therefore, 
if an individual does not meet a plan's target biometrics (or other, 
similar initial standards), that individual must be provided with a 
reasonable alternative standard regardless of any medical condition or 
other health status, to ensure that outcome-based initial standards are 
not a subterfuge for discrimination or underwriting based on a health 
factor.
    The requirement to provide a reasonable alternative standard to all 
individuals who do not meet or achieve a particular health outcome is 
not intended to transform all outcome-based wellness programs to 
participatory wellness programs, although plans may choose to utilize 
participatory programs, such as educational programs, when designing 
reasonable alternative standards. Plans and issuers may provide 
reasonable alternative standards that are themselves health-contingent 
wellness programs. To the extent a reasonable alternative standard 
under

[[Page 33166]]

an outcome-based wellness program is, itself, an activity-only wellness 
program, the reasonable alternative standard must comply with the 
requirements for activity-only programs as if it were an initial 
program standard. Therefore, for example, as discussed in more detail 
earlier in this preamble, if a plan or issuer provides a walking 
program as an alternative to a running program, the plan must provide 
reasonable alternatives to individuals who cannot complete the walking 
program because of a medical condition.
    Moreover, to the extent that a reasonable alternative standard 
under an outcome-based wellness program is, itself, another outcome-
based wellness program, it must generally comply with the requirements 
for outcome-based wellness programs, subject to certain special rules. 
Among other things, these special rules prevent a never-ending cycle of 
reasonable alternative standards being required to be provided by plans 
and issuers, while also ensuring that a reasonable alternative standard 
prescribed for an individual is, in fact, reasonable in light of the 
individual's actual circumstances, as determined to be medically 
appropriate in the judgment of the individual's personal physician. 
Under the first special rule, the final regulations provide that the 
reasonable alternative standard cannot be a requirement to meet a 
different level of the same standard without additional time to comply 
that takes into account the individual's circumstances. For example, if 
the initial standard is to achieve a BMI less than 30, the reasonable 
alternative standard cannot be to achieve a BMI less than 31 on that 
same date. However, if the initial standard is to achieve a BMI less 
than 30, a reasonable alternative standard for the individual could be 
to reduce the individual's BMI by a small amount or a small percentage 
over a realistic period of time, such as within a year. Second, an 
individual must be given the opportunity to comply with the 
recommendations of the individual's personal physician as a second 
reasonable alternative standard to meeting the reasonable alternative 
standard defined by the plan or issuer, but only if the physician joins 
in the request. The individual can make a request to involve a personal 
physician's recommendations at any time and the personal physician can 
adjust the physician's recommendations at any time, consistent with 
medical appropriateness, as determined by the personal physician.
    With respect to outcome-based wellness programs, it is not 
reasonable to require 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 as a condition of providing a reasonable 
alternative to the initial standard. (As discussed in the preceding 
paragraph, however, an individual must be given the opportunity to 
comply with the recommendations of the individual's personal physician 
as a second reasonable alternative standard to meeting the reasonable 
alternative standard defined by the plan or issuer, but only if the 
physician joins in the request.) However, if a plan or issuer provides 
an activity-only wellness program as an alternative to the otherwise 
applicable measurement, test, or screening of the outcome-based 
wellness program, then the plan or issuer may, if reasonable under the 
circumstances, seek verification with respect to the activity-only 
component of the program that it is unreasonably difficult due to a 
medical condition for an individual to perform or complete the activity 
(or it is medically inadvisable to attempt to perform or complete the 
activity). For example, if an outcome-based wellness program requires 
participants to maintain a certain healthy weight and provides a diet 
and exercise program for individuals who do not meet the targeted 
weight (which is an activity-only standard), a plan or issuer may seek 
verification that a second reasonable alternative standard is needed 
for individuals for whom it would be unreasonably difficult due to a 
medical condition to comply, or medically inadvisable to attempt to 
comply, with the diet and exercise program, due to a medical condition.
(5) Notice of Availability of Reasonable Alternative Standard
    These final regulations, like the proposed regulations, require 
plans and issuers to disclose the availability of a reasonable 
alternative standard to qualify for the reward (and, if applicable, the 
possibility of waiver of the otherwise applicable standard) in all plan 
materials describing the terms of a health-contingent wellness program 
(both activity-only and outcome-based wellness programs). These final 
regulations clarify that a disclosure of the availability of a 
reasonable alternative standard includes contact information for 
obtaining the alternative and a statement that recommendations of an 
individual's personal physician will be accommodated. For outcome 
based-wellness programs, this notice must also be included in any 
disclosure that an individual did not satisfy an initial outcome-based 
standard.
    For all health contingent wellness programs (both activity-only and 
outcome-based wellness programs), if plan materials merely mention that 
such a program is available, without describing its terms, this 
disclosure is not required. For example, a summary of benefits and 
coverage 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. In contrast, a plan disclosure that references 
a premium differential based on tobacco use, or based on the results of 
a biometric exam, is a disclosure describing the terms of a health-
contingent wellness program and, therefore, must include this 
disclosure.
    The proposed regulations provided new sample language in the 
regulatory text and in examples that was intended to be simpler for 
individuals to understand and to increase the likelihood that those who 
qualify for a reasonable alternative standard will contact the plan or 
issuer to request one. Some commenters supported the new sample 
language, while others suggested additions and modifications. Several 
commenters proposed adding additional information to the notice, in 
most cases related to requests for a reasonable alternative standard. 
The model notice is intended to be brief and many of the details 
regarding a wellness program are available in other plan documents.\24\ 
Accordingly, these final regulations do not adopt all of the 
suggestions made by commenters (for example, the sample language does 
not provide examples of reasons why an employee may request a 
reasonable alternative or government contact information for 
complaints). However, the sample language now includes a statement that 
recommendations of an individual's personal physician will be 
accommodated.
---------------------------------------------------------------------------

    \24\ For ERISA plans, wellness program terms (including the 
availability of any reasonable alternative standard) are generally 
required to be disclosed in the summary plan description (SPD), as 
well as in the applicable governing plan documents (which must be 
provided upon request), if compliance with the wellness program 
affects premiums, cost sharing, or other benefits under the terms of 
the plan.
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E. Applicable Percentage

    Paragraph (f)(5) of the final regulations sets the applicable 
percentage for the size of the reward under a health-contingent 
wellness

[[Page 33167]]

program. The 2006 regulations specified 20 percent as the maximum 
permissible reward for participation in a health-contingent 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. These final regulations increase the 
applicable percentage from 20 percent to 30 percent, effective for plan 
years beginning on or after January 1, 2014, with an increase of an 
additional 20 percentage points (to 50 percent) for health-contingent 
wellness programs designed to prevent or reduce tobacco use. Examples 
illustrate how to calculate the applicable percentage.
    As described in the proposed regulations, the additional increase 
for 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. 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). HHS published a final regulation 
implementing PHS Act section 2701 \25\ stating that health insurance 
issuers in the small group market are permitted 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.
---------------------------------------------------------------------------

    \25\ See 45 CFR 147.102(a)(1)(iv), published on February 27, 
2013 at 78 FR 13406.
---------------------------------------------------------------------------

    As discussed in the proposed rule, to coordinate these regulations 
with the tobacco use rating provisions of PHS Act section 2701, these 
final regulations use the 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 health-contingent 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.
    Several commenters requested clarification that an individual's 
statement regarding tobacco use is not grounds for a permissible 
rescission under PHS Act section 2712 and its implementing regulations. 
Under the HHS final regulation implementing PHS Act section 2701, an 
issuer that must comply with the requirements under PHS Act section 
2701 may not rescind coverage on the basis that an enrollee is found to 
have reported false or incorrect information about their tobacco 
use.\26\ While the HHS final regulation implementing PHS Act section 
2701 addresses rescission, that provision is only applicable to health 
insurance issuers providing coverage in the individual and small group 
markets, and does not apply to self-insured group health plans and 
large insured group health plans.\27\ Whether self-insured group health 
plans and large insured group health plans can recoup the otherwise 
applicable premiums or benefits is generally determined under the plan 
terms and other applicable law, such as ERISA. Rescission in connection 
with an individual's statement regarding tobacco use under self-insured 
and large, insured group health plans may be addressed by the 
Departments in future regulations or subregulatory guidance under PHS 
Act section 2712.
---------------------------------------------------------------------------

    \26\ The remedy of recouping the tobacco premium surcharge that 
should have been paid since the beginning of the plan or policy year 
is provided under PHS Act section 2701 and its implementing 
regulations. As stated in the preamble to those regulations, it is 
the view of the Departments (which share interpretive jurisdiction 
over section 2712 of the PHS Act) that this remedy of recoupment 
renders any misrepresentation with regard to tobacco use no longer a 
``material'' fact for purposes of rescission under PHS Act section 
2712 and its implementing regulations. See 78 FR 13414.
    \27\ Starting in 2017, States will have the option of allowing 
health insurance issuers in the large group market to participate in 
the Exchange. In States that elect this option, issuers in the large 
group market will be subject to the rating requirements of PHS 
section 2701 including the prohibition against rescinding based on 
failure to report tobacco use.
---------------------------------------------------------------------------

F. Application to Grandfathered Plans

    Under these final regulations, the same wellness program standards 
apply to grandfathered health plans (under authority in the HIPAA 
nondiscrimination and wellness provisions) and non-grandfathered plans 
(under the rules of PHS Act section 2705 governing rewards for 
adherence to certain wellness programs, which largely adopt the 
wellness program provisions of the 2006 regulations with some 
modification and clarification). While section 1251 of the Affordable 
Care Act provides that certain amendments made by the Affordable Care 
Act (including the amendments to PHS Act section 2705(j)) do not apply 
to grandfathered health plans,\28\ the Departments believe that the 
provisions of these final regulations are authorized under both HIPAA 
and the Affordable Care Act. 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.
---------------------------------------------------------------------------

    \28\ In these final regulations, the Departments have deleted 
language from the applicability date section of the proposed 
regulations that references the regulations regarding grandfathered 
health plans. This deletion was made to avoid confusion regarding 
the applicability of these final regulations, which apply the same 
wellness program standards to both grandfathered and non-
grandfathered health plans. The HHS regulations continue to provide, 
however, that with respect to individual health insurance coverage, 
the nondiscrimination provisions do not apply to grandfathered 
health plans.
---------------------------------------------------------------------------

G. Application of Nondiscrimination Provisions to the Individual Health 
Insurance Market

    The HHS proposed regulations included a new 45 CFR 147.110 to apply 
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. The proposed regulation, 
however, did not extend the wellness provisions to the individual 
health insurance market because the wellness exception of PHS Act 
section 2705(j) does not apply to the individual health insurance 
market.
    Commenters requested that the wellness provisions be extended to 
the individual market or that states be allowed to authorize 
participatory programs in the individual market. Although the proposed 
rule addressing the individual market is being finalized without 
change, it is HHS's belief that participatory wellness programs in the 
individual market do not violate the nondiscrimination provisions 
provided that such programs are consistent with State law and available 
to all similarly situated individuals enrolled in the individual health 
insurance coverage. This is because participatory wellness programs do 
not base rewards on achieving a standard related to a health factor, 
and thus do not discriminate based upon health status.

[[Page 33168]]

H. No Effect on Other Laws

    Many commenters requested that the Departments address the 
interaction of these wellness program requirements with other laws. 
Paragraph (h) of the 2006 regulations clarifies that compliance with 
the HIPAA nondiscrimination rules (which were later amended by the 
Affordable Care Act), including the wellness program requirements in 
paragraph (f), is not determinative of compliance with any other 
provision of ERISA, or any other State or Federal law, including the 
ADA.\29\ This paragraph is unchanged by these final regulations and 
remains in effect. As stated in the preamble to the 2006 
regulations,\30\ the Departments recognize that many other laws may 
regulate plans and issuers in their provision of benefits to 
participants and beneficiaries. These laws include, but are not limited 
to, the ADA, Title VII of the Civil Rights Act of 1964, Code section 
105(h) and PHS Act section 2716 (prohibiting discrimination in favor of 
highly compensated individuals), the Genetic Information 
Nondiscrimination Act of 2008, the Family and Medical Leave Act, 
ERISA's fiduciary provisions, and State law. The Departments did not 
attempt to summarize the requirements of those laws in the 2006 
regulations and do not attempt to do so in these final regulations. 
Employers, plans, issuers, and other service providers should consider 
the applicability of these laws to their coverage and contact legal 
counsel or other government agencies such as the Equal Employment 
Opportunity Commission and State Departments of Insurance if they have 
questions about those laws. As stated earlier in this preamble, this 
rulemaking does not modify paragraph (h) or any provisions of the 2006 
regulations, other than paragraph (f). The Departments reiterate that 
compliance with these final regulations is not determinative of 
compliance with any other applicable requirements.
---------------------------------------------------------------------------

    \29\ Moreover, in paragraph (b) of the 2006 regulations, the 
general rule governing the application of the nondiscrimination 
rules to benefits clarifies that whether any plan provision or 
practice with respect to benefits complies with paragraph (b)(2)(i) 
does not affect whether the provision or practice is permitted under 
any other provision of the Code, ERISA, or the PHS Act, the 
Americans with Disabilities Act, or any other law, whether State or 
Federal.
    \30\ See 71 FR 75014, 75015 (December 13, 2006).
---------------------------------------------------------------------------

I. Applicability Date

    These final regulations are applicable to group health plans and 
health insurance issuers in the group and individual markets 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.

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 
final rule is a ``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 improve
                                             the health of the
                                             individual and 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' \31\ review of the most recent literature 
and studies regarding wellness programs, as summarized in Table 1, the 
Departments have reached the conclusion that the impact of the 
benefits, costs, and transfers associated with the final rules will be 
minimal. As discussed in this analysis, few health-contingent 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).\32\ 
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 
wellness 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 health-contingent 
wellness programs, but they are required to be made available to all 
similarly situated individuals regardless of health status.
---------------------------------------------------------------------------

    \31\ In section III of this preamble, some subsections have a 
heading listing one or two of the three Departments. In those 
subsections, the term ``Departments'' generally refers only to the 
Departments listed in the heading.
    \32\ The 2012 RAND Employer Survey found that the maximum 
premium differential offered in a survey respondent was 16 percent.
---------------------------------------------------------------------------

    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

[[Page 33169]]

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 wellness programs and health-contingent wellness 
programs) are delivering on their intended objectives 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 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 final 
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 final rule will justify the costs.

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 published joint final regulations implementing the HIPAA 
nondiscrimination and wellness provisions, which, among other things, 
allowed plans and issuers with health-contingent wellness programs to 
vary benefits (including cost-sharing mechanisms), premiums, or 
contributions based on whether an individual has met the standards of a 
wellness program that met five specific requirements. See section I.B. 
of this preamble for a detailed discussion of the HIPAA 
nondiscrimination and wellness provisions and the 2006 regulations.

C. Regulatory Alternatives--Department of Labor and Department of 
Health and Human Services

    The 2006 regulations outlined five specific criteria that must be 
met for health-contingent wellness programs to comply with the 
nondiscrimination requirements, including that the total reward for 
wellness programs offered by a plan sponsor not exceed 20 percent of 
the total cost of coverage under the plan.\33\ As amended by the 
Affordable Care Act, the nondiscrimination and wellness provisions of 
PHS Act section 2705 largely reflect 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 and authorized the Departments to 
increase the maximum reward to as much as 50 percent if the Departments 
determine that such an increase is appropriate.
---------------------------------------------------------------------------

    \33\ See 26 CFR 54.9802-1(f)(2)(i), 29 CFR 2590.702(f)(2)(i), 
and 45 CFR 146.121(f)(2)(i).
---------------------------------------------------------------------------

    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). PHS Act section 2701 applies to 
non-grandfathered health insurance coverage in the individual and small 
group markets, but does not apply in the large group market or to self-
insured plans. On February 27, 2013, HHS published a final regulation 
stating that issuers in the small group market are permitted 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.\34\
---------------------------------------------------------------------------

    \34\ See 45 CFR 147.102(a)(1)(iv), published on February 27, 
2013 at 78 FR 13406.
---------------------------------------------------------------------------

    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 health-contingent wellness program were 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 
final regulations are discussed in this analysis.
    Wellness programs \35\ 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.\36\ A RAND Employer Survey found that 51 percent of 
employers offer wellness programs.\37\ The uptake of

[[Page 33170]]

wellness programs continues to be more common among large employers. 
For example, the 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.
---------------------------------------------------------------------------

    \35\ On 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/workplacewellnessmarketreview2012.pdf.
    \36\ Kaiser Family Foundation, Employer Health Benefits: 2012 
Annual Survey. 2012, The Kaiser Family Foundation, Menlo Park, CA; 
Health Research & Educational Trust, Chicago, IL.
    \37\ On behalf of the Departments, RAND produced the ``Workplace 
Wellness Programs Study Final Report,'' to submit to Congress 
contemporaneous with the issuance of these final regulations. This 
report includes a literature review, case studies, analysis of an 
employer survey conducted by RAND for the Departments, and a review 
of Care Continuum Alliance data.
---------------------------------------------------------------------------

    The Kaiser/HRET survey indicates that 27 percent of all firms and 
65 percent of large firms offered weight loss programs, while 29 
percent and 65 percent, respectively, offered gym memberships or on-
site exercise facilities. Meanwhile, 30 percent of all employers and 70 
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 non-representative survey suggests that typically less 
than 20 percent of eligible employees participate in wellness 
interventions such as smoking cessation.\38\
---------------------------------------------------------------------------

    \38\ Nyce, S. Boosting Wellness Participation Without Breaking 
the Bank. TowersWatson Insider. July, 2010:1-9.
---------------------------------------------------------------------------

    Currently, insufficient broad-based evidence makes it difficult to 
definitively assess the impact of workplace wellness on health outcomes 
and cost; however, available evidence suggests that wellness programs 
may have some effect on improving health outcomes. The RAND 
Corporation's analysis of the Care Continuum Alliance (CCA) database 
\39\ found statistically significant and clinically meaningful 
improvements in exercise frequency, smoking behavior, and weight 
control between wellness program participants and non-participants.
---------------------------------------------------------------------------

    \39\ The Care Continuum Alliance (CCA) is the trade organization 
of the health and wellness management industry. The CCA database 
includes data on health plan enrollment, medical and prescription 
claims, health risk assessment (HRA) responses, biometric screening 
information, and employee participation in health and wellness 
programs.
---------------------------------------------------------------------------

    Overall, employers largely report that workplace wellness programs 
are delivering on their intended benefit of improving health and 
reducing costs. According to the 2012 Kaiser/HRET survey, 73 percent of 
respondents that offered wellness programs stated that these programs 
improved employee health, and 52 percent believed that they reduced 
costs. Larger firms (defined as those with more than 200 workers in the 
Kaiser/HRET survey) were more positive in believing that wellness 
programs reduced costs, as 68 percent said that it reduced cost, as 
opposed to 51 percent among smaller firms.\40\ 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.\41\ There are 
numerous accounts of the positive impact of workplace wellness programs 
in many industries, regions, and types of employers. For example, RAND 
determined in their analysis that available data are suggestive that 
incentives above $50 are effective to encourage participation in 
wellness programs, and that incentives above $200 have a small, but 
statistically significant, effect on weight loss, exercise, and smoking 
outcomes. Additionally, a recent 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.\42\
---------------------------------------------------------------------------

    \40\ Kaiser Family Foundation, Employer Health Benefits: 2012 
Annual Survey. 2012, The Kaiser Family Foundation, Menlo Park, CA; 
Health Research & Educational Trust, Chicago, IL.
    \41\ Buck Consultants, Working Well: A Global Survey of Health 
Promotion and Workplace Wellness Strategies. 2010, Buck Consultants: 
San Francisco, CA.
    \42\ Berry, L., A. Mirabito, and W. Baun, What's the Hard Return 
on Employee Wellness Programs? Harvard Business Review, 2010. 
88(12): p. 104.
---------------------------------------------------------------------------

    Several studies that looked at the impact of smoking cessation 
programs found significantly higher quit rates or less tobacco use.\43\ 
Smoking cessation programs typically offered education and counseling 
to increase social support.\44\ RAND found notable evidence of the 
effectiveness of smoking cessation programs in its analysis of the CCA 
database and case studies. The CCA database analysis found that 
participation in a program targeting smoking cessation decreases the 
smoking rate among participating smokers by 30 percent in the first 
year. Employer D in RAND's case studies reported that a smoking 
cessation program helped 33 employees quit smoking, which resulted in a 
one-percentage point decrease in the total number of smokers. Two other 
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.\45\
---------------------------------------------------------------------------

    \43\ Heirich, 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. 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.
    \44\ Heirich, 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.
    \45\ Heirich, 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 site-based smoking 
cessation intervention for unionized building trades workers. Cancer 
Causes Control, 2009. 20(6): p. 887-94. 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.
---------------------------------------------------------------------------

    Overall, evidence on the effectiveness of wellness programs is 
promising, but it is not yet conclusive. An in-depth evaluation of an 
extensive wellness program involving a St. Louis hospital system found 
that the wellness program brought down inpatient hospitalization costs, 
but these cost savings were cancelled out by increased outpatient 
costs.\46\ Additionally, a recent article published by Health Affairs 
found that employer savings from wellness programs may result more from 
cost shifting, rather than from healthier outcomes and reduced health 
care usage.\47\ Finally, a study investigating the effectiveness of a 
smoking cessation program showed significant differences in smoking 
rates at a one-month follow-up, but showed no significant

[[Page 33171]]

differences in quit rates at six months, highlighting the need to 
investigate the sustainability of results.\48\
---------------------------------------------------------------------------

    \46\ Gautam Gowrisankaran, Karen Norberg, Steven Kymes, Michael 
E. Chernew, Dustin Stwalley, Leah Kemper and William Peck ``A 
Hospital System's Wellness Program Linked To Health Plan Enrollment 
Cut Hospitalizations But Not Overall Costs'' Health Affairs, 32, 
no.3 (2013):477-485.
    \47\ Jill R. Horwitz, Brenna D. Kelly, and John E. DiNardo 
``Wellness Incentives In The Workplace: Cost Savings Through Cost 
Shifting To Unhealthy Workers'' Health Affairs, 32, no.3 (2013):468-
476.
    \48\ 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.
---------------------------------------------------------------------------

    While employer plan 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.\49\ In the RAND Employer Survey, 
only about half of employers with wellness programs stated that they 
had formally evaluated program impact, and only two percent reported 
actual cost savings. When RAND conducted their case studies, they found 
that none of their employers had formally evaluated their programs, 
although three of the five case studies did examine some data metrics 
to conduct some level of assessment.
---------------------------------------------------------------------------

    \49\ Buck Consultants, Working Well: A Global Survey of Health 
Promotion and Workplace Wellness Strategies. 2010, Buck Consultants: 
San Francisco, CA.
---------------------------------------------------------------------------

    The Departments are mindful that 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. 
Further, although correlations often can be easily demonstrated, it can 
be difficult to show causal relationships. For example, it can be 
difficult to separate individuals' varying levels of motivation to 
become healthier, and their self-selection to participate in wellness 
programs, from measures of the effectiveness of wellness programs 
themselves.
    In the Departments' impact analysis for the proposed rules, 
available data indicated that employers' use of incentives in wellness 
programs was relatively low. The Departments' review of more recent 
literature indicates the use of incentives has become more common in 
wellness programs that are not health-contingent programs. Over two-
thirds of RAND Employee Survey respondents reported using incentives to 
promote employee participation in wellness programs. The Kaiser/HRET 
Survey also reported that 41 percent offered any kind of incentive, 
which was nearly double the percent reporting some kind of incentive 
offering in 2010. Mercer Consulting's 2011 National Survey of Employer-
Sponsored Health Plans found similar patterns, estimating 33 percent of 
those with 500 or more employees provided financial incentives for 
participating in at least one program, which was a 12 percentage point 
increase from the 2009 Survey.\50\
---------------------------------------------------------------------------

    \50\ Mercer, National Survey of Employer-Sponsored Health Plans: 
2011 Survey Report. 2012, Mercer.
---------------------------------------------------------------------------

    Employers, especially large ones, are also looking to continue to 
add incentives to their wellness programs. For example, the 2012 Mercer 
Survey found that as much as 87 percent of employers with more than 200 
employees plan to add or strengthen incentive programs.\51\ 
TowersWatson found that 17 percent of all employers intend to add a 
reward or penalty based on tobacco-use status.\52\ The use of 
incentives to promote employee engagement remains poorly understood, so 
it is not clear how type (for example, 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.\53\ There 
are also no data on potential unintended effects, such as 
discrimination against employees based on their health or health 
behaviors.
---------------------------------------------------------------------------

    \51\ ``Employers accelerate efforts to bring health benefit 
costs under control,'' Mercer: November 16, 2011; Available from: 
http://www.mercer.com/press-releases/national-survey-employer-sponsored-health-plans.
    \52\ ``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.
    \53\ ``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.
---------------------------------------------------------------------------

    Currently, the most commonly incentivized program appears to be 
associated with completion of a health risk assessment. According to 
the RAND Employer Survey, 30 percent of employers with a wellness 
program offered incentives for completing a health risk assessment. The 
2009 Mercer survey found similar results, reporting that 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.\54\ The Kaiser/HRET survey found that 63 
percent of large firms that offered a health risk assessment provided a 
financial incentive to employees who completed it.
---------------------------------------------------------------------------

    \54\ Mercer, National Survey of Employer-Sponsored Health Plans: 
2009 Survey Report. 2010, Mercer.
---------------------------------------------------------------------------

    Cash and cash-equivalent incentives are the most popular incentive 
for completion of a health risk assessment. The 2009 Mercer survey 
reports that five percent of all employers and ten percent of those 
with 500 or more workers provided 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.\55\ Note that in 
the Mercer survey, the results cited reflect the incentives provided by 
all firms that offer a health risk assessment.
---------------------------------------------------------------------------

    \55\ Mercer, National Survey of Employer-Sponsored Health Plans: 
2009 Survey Report. 2010, Mercer.
---------------------------------------------------------------------------

    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. Health-contingent incentive programs appear to be 
among the least common incentive schemes. According to the RAND 
Employer Survey, only 10 percent of employers with more than 50 
employees that offer a wellness program use any incentives tied to 
health standards, only seven percent link the incentives to health 
insurance premiums, and only seven percent administer results-based 
incentives through their health plans.
    The most common form of outcome-based incentives is reported to be 
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.\56\ The RAND

[[Page 33172]]

Employer Survey found that almost the same percentage of employers 
rewarded actual smoking cessation (19%) as rewarded mere participation 
in a smoking cessation program (21%), whereas employers were three to 
four times as likely to reward participation as outcomes for other 
health factors. When RAND conducted its case studies for the 
Departments, they found that four of five employers targeted smoking 
cessation outcomes with incentives, whereas only two of five employers 
had incentives for other outcomes.
---------------------------------------------------------------------------

    \56\ TowersWatson, Raising the Bar on Health Care: Moving Beyond 
Incremental Change.
---------------------------------------------------------------------------

    The value of incentives can vary widely. Estimates from 
representative surveys of the average value of incentives per year 
range between $152 \57\ and $557,\58\ or between three and 11 percent 
of the $5,049 average cost of individual coverage in 2010,\59\ among 
employees who receive them. According to the RAND Employer Survey, the 
maximum incentives average less than 10 percent. 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.
---------------------------------------------------------------------------

    \57\ Mercer, National Survey of Employer-Sponsored Health Plans: 
2009 Survey Report. 2010, Mercer.
    \58\ Linnan, L., et al., Results of the 2004 national worksite 
health promotion survey. American Journal of Public Health, 2008. 
98(8): p. 1503-1509.
    \59\ Kaiser Family Foundation, Employer Health Benefits: 2010 
Annual Survey.
---------------------------------------------------------------------------

    The Departments lack sufficient information to assess how firms 
that currently are at the 20 percent limit will respond to the 
increased limits. The Departments received comments indicating that 
some firms may increase their limits, as permitted by the final rules; 
however, the number of these firms currently at the 20 percent limit is 
low. Furthermore, if a large number of firms already viewed the current 
20 percent reward limit as sufficient, then the Departments would not 
expect that increasing the limit would provide an incentive for program 
design changes. These findings indicate that, based on currently 
available data, increasing the maximum reward for particpating in a 
health-contingent wellness program to 30 percent (and the Departments' 
decision to allow an additional 20 percentage points for programs 
designed to prevent or reduce tobacco use) is unlikely to have a 
significant impact.
    It is possible that the increased wellness program reward limits 
will incentivize firms without health-contingent 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 important elements of these final regulations are (1) the 
standard that the reward under a health-contingent 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.\60\
---------------------------------------------------------------------------

    \60\ See section II.C, earlier in this preamble for a more 
detailed discussion of these requirements.
---------------------------------------------------------------------------

    As discussed earlier in this preamble, the final regulations do not 
prescribe a particular type of alternative standard that must be 
provided. Instead, they permit 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 
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 individuals 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 at this time.
    The Departments note that plan sponsors will have strong motivation 
to identify and provide reasonable 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 a reasonable alternative standard will 
eliminate 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.
    In considering the transfers that might derive from the 
availability of (and participants' satisfaction with) reasonable 
alternative standards, the transfers arising from this requirement may 
take the form of transfers to individuals who satisfy a reasonable 
alternative standard, to such individuals from other individuals, or 
some combination of these. The existence of a health-contigent wellness 
program creates a transfer from those who do not meet the standard to 
those who do meet the standard. Allowing individuals to satisfy a 
reasonable alternative standard in order to qualify for a reward is a 
transfer to those who satisfy the reasonable 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 final regulations will produce more benefits than the 
current requirements.
    Rewards also could create costs to individuals and to the extent 
the new larger rewards create more costs than smaller rewards, these 
final regulations may increase the costs relative to the 2006 
regulations. To the extent an individual does not meet a standard or 
satisfy a reasonable alternative standard, they could face higher 
costs. (For example, in the case of an individual participating in a 
wellness program with a tobacco cessation program, a plan or issuer is 
permitted to apply premium surcharge of up to 50 percent for tobacco 
use if certain conditions are met.)
    Based on the foregoing discussion, the Departments expect the 
benefits, costs, and transfers associated with these final regulations 
to be minimal. However, the Departments are not able to provide 
aggregate estimates, because they do not

[[Page 33173]]

have sufficient 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 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 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.\61\ 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 final 
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 Sec.  121.201) pursuant to the 
Small Business Act (15 U.S.C. 631 et seq.). The Departments requested 
comments on the appropriateness of this size standard at the proposed 
rule stage and received several supportive responses and no negative 
responses.
---------------------------------------------------------------------------

    \61\ Under 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.
---------------------------------------------------------------------------

    The Departments expect that these final regulations will affect few 
small plans. While a large number of small plans offer a wellness 
program, the 2012 Kaiser/HRET survey reported that only seven 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.) \62\ In addition, only two percent 
of these firms offered lower employee health plan premiums to wellness 
participants, less than one percent offered lower deductibles, and less 
than 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 only a small percentage 
of plans have health-contingent wellness programs. Moreover, as 
discussed in the Economic Impacts section earlier in this preamble, few 
plans that offer health-contingent wellness programs come close to 
reaching the 20 percent limit, and most participatory wellness programs 
are associated with completing the health risk assessment irrespective 
of the results, which are not subject to the limitation.
---------------------------------------------------------------------------

    \62\ Kaiser Family Foundation, Employer Health Benefits: 2012 
Annual Survey. 2012, The Kaiser Family Foundation, Menlo Park, CA; 
Health Research & Educational Trust, Chicago, IL.
---------------------------------------------------------------------------

    The Kaiser/HRET survey also reports that about 80 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 final rule for health-
contingent 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 activity-only 
standard or for all individuals who fail to meet the initial outcome-
based standard will impose little new costs or transfers to the 
affected plans.
    The Departments received a comment suggesting that the rule would 
have a significant economic impact on small entities no matter how they 
are defined, because a final regulation issued by HHS on February 27, 
2013 provided that that issuers in the small group market can vary 
rates for tobacco use by up to a ratio of 1.5 to 1 (that is, allowing 
up to a 50 percent premium surcharge for tobacco use), pursuant to PHS 
Act section 2701(a)(1)(A)(iv) only in connection with a wellness 
program meeting the standards of PHS Act section 2705(j) and these 
final regulations.\63\ Since there are no data available to support 
this prediction, and the Departments only received one comment 
suggesting a substantial increase in the number of wellness programs, 
the Departments do not believe that a substantial increase in the 
number of wellness programs will occur.
---------------------------------------------------------------------------

    \63\ 78 FR 13405.
---------------------------------------------------------------------------

    In the event that the number of wellness programs associated with 
small plans does increase, the Departments believe that this final rule 
contains considerable regulatory flexibility for plans to design 
wellness programs that suit their needs. With this flexibility in mind, 
the Departments expect that plans will only choose to offer a wellness 
program if the benefits outweigh the costs. If plans choose to offer a 
wellness program, they will design one that minimizes costs and is not 
overly burdensome. With this design flexibility, this rule should not 
disproportionately impact small entities. Thus, the commenter has 
highlighted the possibility that this final rule may affect a 
substantial number of small entities, but the Departments do not see 
any evidence to indicate that this final rule will have a significant 
impact on small entities.
    Based on the foregoing, the Departments hereby certify that these 
final 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 regulations and the proposed regulations regarding 
wellness programs did not include an information collection request 
(ICR). As described earlier in this preamble, these final regulations, 
like the 2006 final regulations, require plans and issuers to disclose 
the availability of a reasonable alternative standard to qualify for 
the reward (and if applicable, the possibility of waiver of the 
otherwise applicable standard) in all plan materials describing the 
terms of a health-contingent wellness program (both activity-only and 
outcome-based wellness programs). These final regulations clarify that 
a disclosure of the availability of a reasonable alternative standard 
includes contact information for obtaining the alternative and a 
statement that recommendations of an individual's personal physician 
will be accommodated. For outcome-

[[Page 33174]]

based wellness programs, this notice must also be included in any 
disclosure that an individual did not satisfy an initial outcome-based 
standard. If plan materials merely mention that such a program is 
available, without describing its terms, this disclosure is not 
required. These final regulations include sample language that can be 
used to satisfy this requirement.
    In concluding that these final 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 final 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. While these 
materials may in some cases require revisions to comply with the final 
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 final 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 final regulations.

G. Paperwork Reduction Act--Department of Health and Human Services

    As described in earlier in this preamble, The 2006 regulations and 
the proposed regulations regarding wellness programs did not include an 
information collection request (ICR). As described earlier in this 
preamble, these final regulations, like the 2006 final regulations, 
require plans and issuers to disclose the availability of a reasonable 
alternative standard to qualify for the reward (and if applicable, the 
possibility of waiver of the otherwise applicable standard) in all plan 
materials describing the terms of a health-contingent wellness program 
(both activity-only and outcome-based wellness programs). These final 
regulations clarify that a disclosure of the availability of a 
reasonable alternative standard includes contact information for 
obtaining the alternative and a statement that recommendations of an 
individual's personal physician will be accommodated. For outcome-based 
wellness programs, this notice must also be included in any disclosure 
that an individual did not satisfy an initial outcome-based standard. 
If plan materials merely mention that such a program is available, 
without describing its terms, this disclosure is not required. These 
final regulations include sample language that can be used to satisfy 
this requirement.
    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 final rule 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 final regulations, and, because these final 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, 
the notice of proposed rulemaking preceding this final rule was 
submitted to the Small Business Administration for comment on its 
impact on small business.

I. Congressional Review Act

    These final 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 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 foreign-
based 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 final regulations do 
not include any federal mandate that may result in expenditures by 
state, local, or tribal governments, or by the private sector, of $100 
million or more, adjusted for inflation.\64\
---------------------------------------------------------------------------

    \64\ In 2013, that threshold level is approximately $141 
million.
---------------------------------------------------------------------------

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 final 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

[[Page 33175]]

laws, which meet or exceed the federal HIPAA standards prohibiting 
discrimination based on health factors. 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 the 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 final regulations clarify and implement the statute's 
minimum standards and do not significantly reduce the discretion given 
the states by the statute.
    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.\65\ 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.
---------------------------------------------------------------------------

    \65\ This 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).
---------------------------------------------------------------------------

    The Departments received a comment letter suggesting that they 
failed to take into account the reduction in states' tobacco tax 
revenue that would occur if the proposed regulations result in fewer 
people smoking. The Departments note that reduced tobacco tax revenue 
is one of many indirect effects of reduced smoking. However, the 
Departments believe that any lost tax revenue will be more than offset 
by the benefits to the public welfare that will result from reduced 
smoking. As the commenter stated in its letter, ``[t]hrough employees' 
active participation in nondiscriminatory wellness programs, sick 
leave, absenteeism, health plan costs, and worker's compensation will 
be reduced. Needless to mention, a healthier workforce is a more 
sustainable workforce. Therefore, from the point of view of public 
health, the rule greatly contributes to the promotion of healthy 
lifestyle of the states' population. If every small and large entity 
improves the health of their employees, the overall health of the 
states will be improved as well.''
    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 adopted pursuant to 
the authority contained in sections 7805 and 9833 of the Code.
    The Department of Labor regulations are 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 1-2011, 77 FR 1088 
(January 9, 2012).
    The Department of Health and Human Services regulations are 
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.

[[Page 33176]]

    Approved: May 23, 2013.
Beth Tucker,
Deputy Commissioner for Operations Support, Internal Revenue Service.
    Signed this May 15, 2013.
Mark Mazur,
Assistant Secretary of the Treasury (Tax Policy).
    Dated: April 25, 2013.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: April 29, 2013.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
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 amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 is amended by adding an 
entry for Sec.  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.

0
Par. 2. In Sec.  54.9802-1, paragraph (f) is revised to read as 
follows:

Sec.  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 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).
    (1) Definitions. The definitions in this paragraph (f)(1) govern in 
applying the provisions of this paragraph (f).
    (i) Reward. Except where expressly provided otherwise, references 
in this section to an individual obtaining a reward include both 
obtaining a reward (such as a discount or rebate of a premium or 
contribution, 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 discount 
or rebate of a premium or contribution, 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).
    (ii) Participatory wellness programs. 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. Examples of participatory wellness 
programs are:
    (A) A program that reimburses employees for all or part of the cost 
for membership in a fitness center.
    (B) A diagnostic testing program that provides a reward for 
participation in that program and does not base any part of the reward 
on outcomes.
    (C) 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, Sec.  54.9815-2713T 
requires benefits for certain preventive health services without the 
imposition of cost sharing.)
    (D) 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.
    (E) A program that provides a reward to employees for attending a 
monthly, no-cost health education seminar.
    (F) 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 Sec.  54.9802-3T for rules prohibiting collection of genetic 
information.)
    (iii) Health-contingent wellness programs. A health-contingent 
wellness program is a program that requires an individual to satisfy a 
standard related to a health factor to obtain a reward (or requires an 
individual to undertake more than a similarly situated individual based 
on a health factor in order to obtain the same reward). A health-
contingent wellness program may be an activity-only wellness program or 
an outcome-based wellness program.
    (iv) Activity-only wellness programs. An activity-only wellness 
program is a type of health-contingent wellness program that requires 
an individual to perform or complete an activity related to a health 
factor in order to obtain a reward but does not require the individual 
to attain or maintain a specific health outcome. Examples include 
walking, diet, or exercise programs, which some individuals may be 
unable to participate in or complete (or have difficulty participating 
in or completing) due to a health factor, such as severe asthma, 
pregnancy, or a recent surgery. See paragraph (f)(3) of this section 
for requirements applicable to activity-only wellness programs.
    (v) Outcome-based wellness programs. An outcome-based wellness 
program is a type of health-contingent wellness program that requires 
an individual to attain or maintain a specific health outcome (such as 
not smoking or attaining certain results on biometric screenings) in 
order to obtain a reward. To comply with the rules of this paragraph 
(f), an outcome-based wellness program typically has two tiers. That 
is, for individuals who do not attain or maintain the specific health 
outcome, compliance with an educational program or an activity may be 
offered as an alternative to achieve the same reward. This alternative 
pathway, however, does not mean that the overall program, which has an 
outcome-based component, is not an outcome-based wellness program. That 
is, if a measurement, test, or screening is used as part of an initial 
standard and individuals who meet the standard are granted the reward, 
the program is considered an outcome-based wellness program. For 
example, if a wellness program tests individuals for specified medical 
conditions or risk factors (including biometric screening such as 
testing for high cholesterol, high blood pressure, abnormal body mass 
index, or high glucose level) and provides a reward to individuals 
identified as within a normal or healthy range for these medical 
conditions or risk factors, while requiring individuals 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, 
complying with a walking or exercise program, or complying with a 
health care provider's plan of care) to obtain the same reward,

[[Page 33177]]

the program is an outcome-based wellness program. See paragraph (f)(4) 
of this section for requirements applicable to outcome-based wellness 
programs.
    (2) Requirement for participatory wellness programs. A 
participatory wellness program, as described in paragraph (f)(1)(ii) of 
this section, does not violate the provisions of this section only if 
participation in the program is made available to all similarly 
situated individuals, regardless of health status.
    (3) Requirements for activity-only wellness programs. A health-
contingent wellness program that is an activity-only wellness program, 
as described in paragraph (f)(1)(iv) of this section, does not violate 
the provisions of this section only 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 the activity-only wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage (as defined in paragraph (f)(5) of this section) of the 
total cost of employee-only coverage under the plan. 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 towards the cost of coverage for the benefit 
package under which the employee is (or the employee and any dependents 
are) receiving coverage.
    (iii) 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.
    (iv) Uniform availability and reasonable alternative standards. The 
full reward under the activity-only wellness program must be available 
to all similarly situated individuals.
    (A) Under this paragraph (f)(3)(iv), a reward under an activity-
only wellness 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 reasonable alternative standard in advance of an 
individual's request for one, if an individual is described in either 
paragraph (f)(3)(iv)(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.
    (C) 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 or assist the employee in finding such a program 
(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) The time commitment required must be reasonable (for example, 
requiring attendance nightly at a one-hour class would be 
unreasonable).
    (3) 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.
    (4) If an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical professional) is 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.
    (D) To the extent that a reasonable alternative standard under an 
activity-only wellness program is, itself, an activity-only wellness 
program, it must comply with the requirements of this paragraph (f)(3) 
in the same manner as if it were an initial program standard. (Thus, 
for example, if a plan or issuer provides a walking program as a 
reasonable alternative standard to a running program, individuals for 
whom it is unreasonably difficult due to a medical condition to 
complete the walking program (or for whom it is medically inadvisable 
to attempt to complete the walking program) must be provided a 
reasonable alternative standard to the walking program.) To the extent 
that a reasonable alternative standard under an activity-only wellness 
program is, itself, an outcome-based wellness program, it must comply 
with the requirements of paragraph (f)(4) of this section, including 
paragraph (f)(4)(iv)(D).
    (E) 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 of an activity-
only wellness program. Plans and issuers may seek verification with 
respect to requests for a reasonable alternative standard for which it 
is reasonable to determine that medical judgment is required to 
evaluate the validity of the request.
    (v) Notice of availability of reasonable alternative standard. The 
plan or issuer must disclose in all plan materials describing the terms 
of an activity-only wellness program the availability of a reasonable 
alternative standard to qualify for the reward (and, if applicable, the 
possibility of waiver of the otherwise applicable standard), including 
contact information for obtaining a reasonable alternative standard and 
a statement that recommendations of an individual's personal physician 
will be accommodated. If plan materials merely mention that such a 
program is available, without describing its terms, this disclosure is 
not required. Sample language is provided in paragraph (f)(6) of this 
section, as well as in certain examples of this section.

[[Page 33178]]

    (vi) Example. The provisions of this paragraph (f)(3) are 
illustrated by the following example:

    Example.  (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 attempt 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. In this Example, the program satisfies the 
requirements of paragraph (f)(3)(iii) of this section because the 
walking program is reasonably designed to promote health and prevent 
disease. The program satisfies the requirements of paragraph 
(f)(3)(iv) of this section because the reward under the program is 
available to all similarly situated individuals. It accommodates 
individuals for whom it is unreasonably difficult to 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 with the reward even if they do not participate in the walking 
program (that is, by waiving the condition). The plan also 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.

    (4) Requirements for outcome-based wellness programs. A health-
contingent wellness program that is an outcome-based wellness program, 
as described in paragraph (f)(1)(v) of this section, does not violate 
the provisions of this section only 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 the outcome-based wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage (as defined in paragraph (f)(5) of this section) of the 
total cost of employee-only coverage under the plan. 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)(4)(ii), the cost of 
coverage is determined based on the total amount of employer and 
employee contributions towards the cost of coverage for the benefit 
package under which the employee is (or the employee and any dependents 
are) receiving coverage.
    (iii) 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 ensure that an outcome-based wellness program is 
reasonably designed to improve health and does not act as a subterfuge 
for underwriting or reducing benefits based on a health factor, a 
reasonable alternative standard to qualify for the reward must be 
provided to any individual who does not meet the initial standard based 
on a measurement, test, or screening that is related to a health 
factor, as explained in paragraph (f)(4)(iv) of this section.
    (iv) Uniform availability and reasonable alternative standards. The 
full reward under the outcome-based wellness program must be available 
to all similarly situated individuals.
    (A) Under this paragraph (f)(4)(iv), a reward under an outcome-
based wellness program is not available to all similarly situated 
individuals for a period unless the program allows a reasonable 
alternative standard (or waiver of the otherwise applicable standard) 
for obtaining the reward for any individual who does not meet the 
initial standard based on the measurement, test, or screening, as 
described in this paragraph (f)(4)(iv).
    (B) While plans and issuers are not required to determine a 
particular reasonable alternative standard in advance of an 
individual's request for one, if an individual is described in 
paragraph (f)(4)(iv)(A) 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.
    (C) 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 or assist the employee in finding such a program 
(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) The time commitment required must be reasonable (for example, 
requiring attendance nightly at a one-hour class would be 
unreasonable).
    (3) 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.
    (4) If an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical professional) is 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.
    (D) To the extent that a reasonable alternative standard under an 
outcome-based wellness program is, itself, an activity-only wellness 
program, it must comply with the requirements of paragraph (f)(3) of 
this section in the same manner as if it were an initial program 
standard. To the extent that a reasonable alternative standard under an 
outcome-based wellness program is, itself, another outcome-based 
wellness program, it must comply with the requirements of this 
paragraph (f)(4), subject to the following special rules:
    (1) The reasonable alternative standard cannot be a requirement to 
meet a different level of the same standard without additional time to 
comply that takes into account the individual's circumstances. For 
example, if the initial standard is to achieve a BMI less than 30, the 
reasonable alternative standard cannot be to achieve a BMI less than 31 
on that same date. However, if the initial standard is to achieve a BMI 
less than 30, a reasonable alternative standard for the individual 
could be to reduce the individual's BMI by a small amount or small 
percentage, over a realistic period of time, such as within a year.
    (2) An individual must be given the opportunity to comply with the 
recommendations of the individual's personal physician as a second 
reasonable alternative standard to meeting the reasonable alternative 
standard defined by the plan or issuer, but only if the physician joins 
in the request. The individual can make a

[[Page 33179]]

request to involve a personal physician's recommendations at any time 
and the personal physician can adjust the physician's recommendations 
at any time, consistent with medical appropriateness.
    (E) It is not reasonable to seek verification, such as a statement 
from an individual's personal physician, under an outcome-based 
wellness program 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 as 
a condition of providing a reasonable alternative to the initial 
standard. However, if a plan or issuer provides an alternative standard 
to the otherwise applicable measurement, test, or screening that 
involves an activity that is related to a health factor, then the rules 
of paragraph (f)(3) of this section for activity-only wellness programs 
apply to that component of the wellness program and the plan or issuer 
may, if reasonable under the circumstances, seek verification that it 
is unreasonably difficult due to a medical condition for an individual 
to perform or complete the activity (or it is medically inadvisable to 
attempt to perform or complete the activity). (For example, if an 
outcome-based wellness program requires participants to maintain a 
certain healthy weight and provides a diet and exercise program for 
individuals who do not meet the targeted weight, a plan or issuer may 
seek verification, as described in paragraph (f)(3)(iv)(D) of this 
section, if reasonable under the circumstances, that a second 
reasonable alternative standard is needed for certain individuals 
because, for those individuals, it would be unreasonably difficult due 
to a medical condition to comply, or medically inadvisable to attempt 
to comply, with the diet and exercise program, due to a medical 
condition.)
    (v) Notice of availability of reasonable alternative standard. The 
plan or issuer must disclose in all plan materials describing the terms 
of an outcome-based wellness program, and in any disclosure that an 
individual did not satisfy an initial outcome-based standard, the 
availability of a reasonable alternative standard to qualify for the 
reward (and, if applicable, the possibility of waiver of the otherwise 
applicable standard), including contact information for obtaining a 
reasonable alternative standard and a statement that recommendations of 
an individual's personal physician will be accommodated. If plan 
materials merely mention that such a program is available, without 
describing its terms, this disclosure is not required. Sample language 
is provided in paragraph (f)(6) of this section, as well as in certain 
examples of this section.
    (vi) Examples. The rules of this paragraph (f)(4) are illustrated 
by the following examples:

    Example 1--Cholesterol screening with reasonable alternative 
standard to work with personal physician.  (i) Facts. A group health 
plan offers a reward to participants who achieve a count under 200 
on a total cholesterol test. If a participant does not achieve the 
targeted cholesterol count, the plan allows the participant to 
develop an alternative cholesterol action plan in conjunction with 
the participant's personal physician that may include 
recommendations for medication and additional screening. The plan 
allows the physician to modify the standards, as medically 
necessary, over the year. (For example, if a participant develops 
asthma or depression, requires surgery and convalescence, or some 
other medical condition or consideration makes completion of the 
original action plan inadvisable or unreasonably difficult, the 
physician may modify the original action plan.) 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 total 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 and your doctor to find a Health Smart program that is 
right for you.'' In addition, when any individual participant 
receives notification that his or her cholesterol count is 200 or 
higher, the notification includes the following statement: ``Your 
plan offers a Health Smart program under which we will work with you 
and your doctor to try to lower your cholesterol. If you complete 
this program, you will qualify for a reward. Please contact us at 
[contact information] to get started.''
    (ii) Conclusion. In this Example 1, the program is an outcome-
based wellness program because the initial standard requires an 
individual to attain or maintain a specific health outcome (a 
certain cholesterol level) to obtain a reward. The program satisfies 
the requirements of paragraph (f)(4)(iii) of this section because 
the cholesterol program is reasonably designed to promote health and 
prevent disease. The program satisfies the requirements of paragraph 
(f)(4)(iv) of this section because it makes available to all 
participants who do not meet the cholesterol standard a reasonable 
alternative standard to qualify for the reward. Lastly, the plan 
also discloses in all materials describing the terms of the program 
and in any disclosure that an individual did not satisfy the initial 
outcome-based standard the availability of a reasonable alternative 
standard (including contact information and the individual's ability 
to involve his or her personal physician), as required by paragraph 
(f)(4)(v) of this section. Thus, the program satisfies the 
requirements of paragraphs (f)(4)(iii), (iv), and (v) of this 
section.
    Example 2--Cholesterol screening with plan alternative and no 
opportunity for personal physician involvement.  (i) Facts. Same 
facts as Example 1, except that the wellness program's physician or 
nurse practitioner (rather than the individual's personal physician) 
determines the alternative cholesterol action plan. The plan does 
not provide an opportunity for a participant's personal physician to 
modify the action plan if it is not medically appropriate for that 
individual.
    (ii) Conclusion. In this Example 2, the wellness program does 
not satisfy the requirements of paragraph (f)(4)(iii) of this 
section because the program does not accommodate the recommendations 
of the participant's personal physician with regard to medical 
appropriateness, as required under paragraph (f)(4)(iv)(C)(3) of 
this section. Thus, the program is not reasonably designed under 
paragraph (f)(4)(iii) of this section and is not available to all 
similarly situated individuals under paragraph (f)(4)(iv) of this 
section. The notice also does not provide all the content required 
under paragraph (f)(4)(v) of this section.
    Example 3--Cholesterol screening with plan alternative that can 
be modified by personal physician.  (i) Facts. Same facts as Example 
2, except that if a participant's personal physician disagrees with 
any part of the action plan, the personal physician may modify the 
action plan at any time, and the plan discloses this to 
participants.
    (ii) Conclusion. In this Example 3, the wellness program 
satisfies the requirements of paragraph (f)(4)(iii) of this section 
because the participant's personal physician may modify the action 
plan determined by the wellness program's physician or nurse 
practitioner at any time if the physician states that the 
recommendations are not medically appropriate, as required under 
paragraph (f)(4)(iv)(C)(3) of this section. Thus, the program is 
reasonably designed under paragraph (f)(4)(iii) of this section and 
is available to all similarly situated individuals under paragraph 
(f)(4)(iv) of this section. The notice, which includes a statement 
that recommendations of an individual's personal physician will be 
accommodated, also complies with paragraph (f)(4)(v) of this 
section.
    Example 4--BMI screening with walking program alternative.  (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 participant satisfies an alternative 
standard that is reasonable taking into consideration the 
participant's medical situation, is not unreasonably burdensome or

[[Page 33180]]

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 considered overweight 
because you have a BMI of over 26, 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 work with you (and, if you wish, your own doctor) to 
develop a wellness program that is.)'' Participant E is unable to 
achieve a BMI that is 26 or lower within the plan's timeframe and 
receives notification that complies with paragraph (f)(4)(v) of this 
section. Nevertheless, it is unreasonably difficult due to a medical 
condition for E to comply with the walking program. E proposes a 
program based on the recommendations of E's physician. The plan 
agrees to make the same discount available to E that is available to 
other participants in the BMI program or the alternative walking 
program, but only if E actually follows the physician's 
recommendations.
    (ii) Conclusion. In this Example 4, the program is an outcome-
based wellness program because the initial standard requires an 
individual to attain or maintain a specific health outcome (a 
certain BMI level) to obtain a reward. The program satisfies the 
requirements of paragraph (f)(4)(iii) of this section because it is 
reasonably designed to promote health and prevent disease. The 
program also satisfies the requirements of paragraph (f)(4)(iv) of 
this section because it makes available to all individuals who do 
not satisfy the BMI standard a reasonable alternative standard to 
qualify for the reward (in this case, 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 walking program 
is, itself, an activity-only standard and the plan complies with the 
requirements of paragraph (f)(3) of this section (including the 
requirement of paragraph (f)(3)(iv) that, 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 provide a reasonable 
alternative to those individuals). Moreover, the plan satisfies the 
requirements of paragraph (f)(4)(v) of this section because it 
discloses, in all materials describing the terms of the program and 
in any disclosure that an individual did not satisfy the initial 
outcome-based standard, the availability of a reasonable alternative 
standard (including contact information and the individual's option 
to involve his or her personal physician) to qualify for the reward 
or the possibility of waiver of the otherwise applicable standard. 
Thus, the program satisfies the requirements of paragraphs 
(f)(4)(iii), (iv), and (v) of this section.
    Example 5--BMI screening with alternatives available to either 
lower BMI or meet personal physician's recommendations.  (i) Facts. 
Same facts as Example 4 except that, with respect to any participant 
who does not meet the target BMI, instead of a walking program, the 
participant is expected to reduce BMI by one point. At any point 
during the year upon request, any individual can obtain a second 
reasonable alternative standard, which is compliance with the 
recommendations of the participant's personal physician regarding 
weight, diet, and exercise as set forth in a treatment plan that the 
physician recommends or to which the physician agrees. The 
participant's personal physician is permitted to change or adjust 
the treatment plan at any time and the option of following the 
participant's personal physician's recommendations is clearly 
disclosed.
    (ii) Conclusion. In this Example 5, the reasonable alternative 
standard to qualify for the reward (the alternative BMI standard 
requiring a one-point reduction) does not make the program 
unreasonable under paragraph (f)(4)(iii) or (iv) of this section 
because the program complies with paragraph (f)(4)(iv)(C)(4) of this 
section by allowing a second reasonable alternative standard to 
qualify for the reward (compliance with the recommendations of the 
participant's personal physician, which can be changed or adjusted 
at any time). Accordingly, the program continues to satisfy the 
applicable requirements of paragraph (f) of this section.
    Example 6--Tobacco use surcharge with smoking cessation program 
alternative.  (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, and discloses contact information and the 
individual's option to involve his or her personal physician. The 
plan pays for the cost of participation in the smoking cessation 
program. Any participant can avoid the surcharge for the plan year 
by participating in the program, regardless of whether the 
participant stops smoking, but the plan can require a participant 
who wants to avoid the surcharge in a subsequent year to complete 
the smoking cessation program again.
    (ii) Conclusion. In this Example 6, the premium differential 
satisfies the requirements of paragraphs (f)(4)(iii), (iv), and (v). 
The program is an outcome-based wellness program because the initial 
standard for obtaining a reward is dependent on the results of a 
health risk assessment (a measurement, test, or screening). The 
program is reasonably designed under paragraph (f)(4)(iii) because 
the plan provides a reasonable alternative standard (as required 
under paragraph (f)(4)(iv) of this section) to qualify for the 
reward to all tobacco users (a smoking cessation program). The plan 
discloses, in all materials describing the terms of the program, the 
availability of the reasonable alternative standard (including 
contact information and the individual's option to involve his or 
her personal physician). Thus, the program satisfies the 
requirements of paragraphs (f)(4)(iii), (iv), and (v) of this 
section.
    Example 7--Tobacco use surcharge with alternative program 
requiring actual cessation. (i) Facts. Same facts as Example 6, 
except the plan does not provide participant F with the reward in 
subsequent years unless F actually stops smoking after participating 
in the tobacco cessation program.
    (ii) Conclusion. In this Example 7, the program is not 
reasonably designed under paragraph (f)(4)(iii) of this section and 
does not provide a reasonable alternative standard as required under 
paragraph (f)(4)(iv) of this section. The plan cannot cease to 
provide a reasonable alternative standard merely because the 
participant did not stop smoking after participating in a smoking 
cessation program. The plan must continue to offer a reasonable 
alternative standard whether it is the same or different (such as a 
new recommendation from F's personal physician or a new nicotine 
replacement therapy).
    Example 8--Tobacco use surcharge with smoking cessation program 
alternative that is not reasonable.  (i) Facts. Same facts as 
Example 6, except the plan does not facilitate participant F's 
enrollment in a smoking cessation 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 8, 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)(4)(iii) and (iv) of this section and the program 
fails to satisfy the requirements of paragraph (f) of this section.

    (5) Applicable percentage--(i) For purposes of this paragraph (f), 
the applicable percentage is 30 percent, except that the applicable 
percentage is increased by 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.
    (ii) The provisions of this paragraph (f)(5) 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 with several components, 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 reward for the wellness 
program, $600, does not exceed the applicable percentage of 30

[[Page 33181]]

percent of the total annual cost of employee-only coverage, $1,800. 
($6,000 x 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 reward for the wellness 
program (absence of a $1,000 surcharge), does not exceed the 
applicable percentage of 50 percent of the total annual cost of 
employee-only coverage, $3,000. ($6,000 x 50% = $3,000.)
    Example 3.  (i) Facts. Same facts as Example 1, except that, in 
addition to the $600 reward for compliance with the health-
contingent 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 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 
the applicable percentage of 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 the applicable percentage of 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, with an 
opportunity to earn a $1,500 reward.
    (ii) Conclusion. In this Example 4, even though the total reward 
for all wellness programs under the plan is $1,750 ($250 + $1,500 = 
$1,750, which exceeds the applicable percentage of 30 percent of the 
cost of the annual premium for employee-only coverage ($5,000 x 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)(5) are met. (The 
$250 reward is offered in connection with a participatory wellness 
program and therefore is not taken into account.) Accordingly, the 
health-contingent wellness program offers a reward that does not 
exceed the applicable percentage of 30 percent of the total annual 
cost of employee-only coverage.

    (6) Sample language. The following language, or substantially 
similar language, can be used to satisfy the notice requirement of 
paragraphs (f)(3)(v) or (f)(4)(v) of this section: ``Your health plan 
is committed to helping you achieve your best health. 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 (and, if you wish, with your 
doctor) to find a wellness program with the same reward that is right 
for you in light of your health status.''
* * * * *

0
3. Section 54.9815-2705 is added to read as follows:

Sec.  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 Sec.  54.9802-1.
    (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.

Department of Labor

Employee Benefits Security Administration

29 CFR Chapter XXV

    For the reasons set forth in the preamble, 29 CFR part 2590 is 
amended as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
4. 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 1-2011, 77 FR 1088 (January 9, 
2012).

Subpart B--Health Coverage Portability, Nondiscrimination, and 
Renewability

0
5. Section 2590.702 is amended by revising paragraph (f) to read as 
follows:

Sec.  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).
    (1) Definitions. The definitions in this paragraph (f)(1) govern in 
applying the provisions of this paragraph (f).
    (i) Reward. Except where expressly provided otherwise, references 
in this section to an individual obtaining a reward include both 
obtaining a reward (such as a discount or rebate of a premium or 
contribution, 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 discount 
or rebate of a premium or contribution, 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).
    (ii) Participatory wellness programs. 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. Examples of participatory wellness 
programs are:
    (A) A program that reimburses employees for all or part of the cost 
for membership in a fitness center.
    (B) A diagnostic testing program that provides a reward for 
participation in that program and does not base any part of the reward 
on outcomes.
    (C) 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, Sec.  2590.715-2713 of 
this part requires benefits for certain preventive health

[[Page 33182]]

services without the imposition of cost sharing.)
    (D) 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.
    (E) A program that provides a reward to employees for attending a 
monthly, no-cost health education seminar.
    (F) 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 Sec.  2590.702-1 for rules prohibiting collection of genetic 
information.)
    (iii) Health-contingent wellness programs. A health-contingent 
wellness program is a program that requires an individual to satisfy a 
standard related to a health factor to obtain a reward (or requires an 
individual to undertake more than a similarly situated individual based 
on a health factor in order to obtain the same reward). A health-
contingent wellness program may be an activity-only wellness program or 
an outcome-based wellness program.
    (iv) Activity-only wellness programs. An activity-only wellness 
program is a type of health-contingent wellness program that requires 
an individual to perform or complete an activity related to a health 
factor in order to obtain a reward but does not require the individual 
to attain or maintain a specific health outcome. Examples include 
walking, diet, or exercise programs, which some individuals may be 
unable to participate in or complete (or have difficulty participating 
in or completing) due to a health factor, such as severe asthma, 
pregnancy, or a recent surgery. See paragraph (f)(3) of this section 
for requirements applicable to activity-only wellness programs.
    (v) Outcome-based wellness programs. An outcome-based wellness 
program is a type of health-contingent wellness program that requires 
an individual to attain or maintain a specific health outcome (such as 
not smoking or attaining certain results on biometric screenings) in 
order to obtain a reward. To comply with the rules of this paragraph 
(f), an outcome-based wellness program typically has two tiers. That 
is, for individuals who do not attain or maintain the specific health 
outcome, compliance with an educational program or an activity may be 
offered as an alternative to achieve the same reward. This alternative 
pathway, however, does not mean that the overall program, which has an 
outcome-based component, is not an outcome-based wellness program. That 
is, if a measurement, test, or screening is used as part of an initial 
standard and individuals who meet the standard are granted the reward, 
the program is considered an outcome-based wellness program. For 
example, if a wellness program tests individuals for specified medical 
conditions or risk factors (including biometric screening such as 
testing for high cholesterol, high blood pressure, abnormal body mass 
index, or high glucose level) and provides a reward to individuals 
identified as within a normal or healthy range for these medical 
conditions or risk factors, while requiring individuals 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, 
complying with a walking or exercise program, or complying with a 
health care provider's plan of care) to obtain the same reward, the 
program is an outcome-based wellness program. See paragraph (f)(4) of 
this section for requirements applicable to outcome-based wellness 
programs.
    (2) Requirement for participatory wellness programs. A 
participatory wellness program, as described in paragraph (f)(1)(ii) of 
this section, does not violate the provisions of this section only if 
participation in the program is made available to all similarly 
situated individuals, regardless of health status.
    (3) Requirements for activity-only wellness programs. A health-
contingent wellness program that is an activity-only wellness program, 
as described in paragraph (f)(1)(iv) of this section, does not violate 
the provisions of this section only 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 the activity-only wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage (as defined in paragraph (f)(5) of this section) of the 
total cost of employee-only coverage under the plan. 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 towards the cost of coverage for the benefit 
package under which the employee is (or the employee and any dependents 
are) receiving coverage.
    (iii) 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.
    (iv) Uniform availability and reasonable alternative standards. The 
full reward under the activity-only wellness program must be available 
to all similarly situated individuals.
    (A) Under this paragraph (f)(3)(iv), a reward under an activity-
only wellness 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 reasonable alternative standard in advance of an 
individual's request for one, if an individual is described in either 
paragraph (f)(3)(iv)(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.
    (C) 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:

[[Page 33183]]

    (1) If the reasonable alternative standard is completion of an 
educational program, the plan or issuer must make the educational 
program available or assist the employee in finding such a program 
(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) The time commitment required must be reasonable (for example, 
requiring attendance nightly at a one-hour class would be 
unreasonable).
    (3) 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.
    (4) If an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical professional) is 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.
    (D) To the extent that a reasonable alternative standard under an 
activity-only wellness program is, itself, an activity-only wellness 
program, it must comply with the requirements of this paragraph (f)(3) 
in the same manner as if it were an initial program standard. (Thus, 
for example, if a plan or issuer provides a walking program as a 
reasonable alternative standard to a running program, individuals for 
whom it is unreasonably difficult due to a medical condition to 
complete the walking program (or for whom it is medically inadvisable 
to attempt to complete the walking program) must be provided a 
reasonable alternative standard to the walking program.) To the extent 
that a reasonable alternative standard under an activity-only wellness 
program is, itself, an outcome-based wellness program, it must comply 
with the requirements of paragraph (f)(4) of this section, including 
paragraph (f)(4)(iv)(D).
    (E) 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 of an activity-
only wellness program. Plans and issuers may seek verification with 
respect to requests for a reasonable alternative standard for which it 
is reasonable to determine that medical judgment is required to 
evaluate the validity of the request.
    (v) Notice of availability of reasonable alternative standard. The 
plan or issuer must disclose in all plan materials describing the terms 
of an activity-only wellness program the availability of a reasonable 
alternative standard to qualify for the reward (and, if applicable, the 
possibility of waiver of the otherwise applicable standard), including 
contact information for obtaining a reasonable alternative standard and 
a statement that recommendations of an individual's personal physician 
will be accommodated. If plan materials merely mention that such a 
program is available, without describing its terms, this disclosure is 
not required. Sample language is provided in paragraph (f)(6) of this 
section, as well as in certain examples of this section.
    (vi) Example. The provisions of this paragraph (f)(3) are 
illustrated by the following example:

    Example. (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 attempt 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. In this Example, the program satisfies the 
requirements of paragraph (f)(3)(iii) of this section because the 
walking program is reasonably designed to promote health and prevent 
disease. The program satisfies the requirements of paragraph 
(f)(3)(iv) of this section because the reward under the program is 
available to all similarly situated individuals. It accommodates 
individuals for whom it is unreasonably difficult to 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 with the reward even if they do not participate in the walking 
program (that is, by waiving the condition). The plan also 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.

    (4) Requirements for outcome-based wellness programs. A health-
contingent wellness program that is an outcome-based wellness program, 
as described in paragraph (f)(1)(v) of this section, does not violate 
the provisions of this section only 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 the outcome-based wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage (as defined in paragraph (f)(5) of this section) of the 
total cost of employee-only coverage under the plan. 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)(4)(ii), the cost of 
coverage is determined based on the total amount of employer and 
employee contributions towards the cost of coverage for the benefit 
package under which the employee is (or the employee and any dependents 
are) receiving coverage.
    (iii) 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 ensure that an outcome-based wellness program is 
reasonably designed to improve health and does not act as a subterfuge 
for underwriting or reducing benefits based on a health factor, a 
reasonable alternative standard to qualify for the reward must be 
provided to any individual who does not meet the initial standard based 
on a measurement, test, or screening that is related to a health 
factor, as explained in paragraph (f)(4)(iv) of this section.
    (iv) Uniform availability and reasonable alternative standards. The 
full reward under the outcome-based wellness program must be available 
to all similarly situated individuals.
    (A) Under this paragraph (f)(4)(iv), a reward under an outcome-
based wellness program is not available to all similarly situated 
individuals for a period unless the program allows a

[[Page 33184]]

reasonable alternative standard (or waiver of the otherwise applicable 
standard) for obtaining the reward for any individual who does not meet 
the initial standard based on the measurement, test, or screening, as 
described in this paragraph (f)(4)(iv).
    (B) While plans and issuers are not required to determine a 
particular reasonable alternative standard in advance of an 
individual's request for one, if an individual is described in 
paragraph (f)(4)(iv)(A) 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.
    (C) 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 or assist the employee in finding such a program 
(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) The time commitment required must be reasonable (for example, 
requiring attendance nightly at a one-hour class would be 
unreasonable).
    (3) 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.
    (4) If an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical professional) is 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.
    (D) To the extent that a reasonable alternative standard under an 
outcome-based wellness program is, itself, an activity-only wellness 
program, it must comply with the requirements of paragraph (f)(3) of 
this section in the same manner as if it were an initial program 
standard. To the extent that a reasonable alternative standard under an 
outcome-based wellness program is, itself, another outcome-based 
wellness program, it must comply with the requirements of this 
paragraph (f)(4), subject to the following special provisions:
    (1) The reasonable alternative standard cannot be a requirement to 
meet a different level of the same standard without additional time to 
comply that takes into account the individual's circumstances. For 
example, if the initial standard is to achieve a BMI less than 30, the 
reasonable alternative standard cannot be to achieve a BMI less than 31 
on that same date. However, if the initial standard is to achieve a BMI 
less than 30, a reasonable alternative standard for the individual 
could be to reduce the individual's BMI by a small amount or small 
percentage, over a realistic period of time, such as within a year.
    (2) An individual must be given the opportunity to comply with the 
recommendations of the individual's personal physician as a second 
reasonable alternative standard to meeting the reasonable alternative 
standard defined by the plan or issuer, but only if the physician joins 
in the request. The individual can make a request to involve a personal 
physician's recommendations at any time and the personal physician can 
adjust the physician's recommendations at any time, consistent with 
medical appropriateness.
    (E) It is not reasonable to seek verification, such as a statement 
from an individual's personal physician, under an outcome-based 
wellness program 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 as 
a condition of providing a reasonable alternative to the initial 
standard. However, if a plan or issuer provides an alternative standard 
to the otherwise applicable measurement, test, or screening that 
involves an activity that is related to a health factor, then the rules 
of paragraph (f)(3) of this section for activity-only wellness programs 
apply to that component of the wellness program and the plan or issuer 
may, if reasonable under the circumstances, seek verification that it 
is unreasonably difficult due to a medical condition for an individual 
to perform or complete the activity (or it is medically inadvisable to 
attempt to perform or complete the activity). (For example, if an 
outcome-based wellness program requires participants to maintain a 
certain healthy weight and provides a diet and exercise program for 
individuals who do not meet the targeted weight, a plan or issuer may 
seek verification, as described in paragraph (f)(3)(iv)(D) of this 
section, if reasonable under the circumstances, that a second 
reasonable alternative standard is needed for certain individuals 
because, for those individuals, it would be unreasonably difficult due 
to a medical condition to comply, or medically inadvisable to attempt 
to comply, with the diet and exercise program, due to a medical 
condition.)
    (v) Notice of availability of reasonable alternative standard. The 
plan or issuer must disclose in all plan materials describing the terms 
of an outcome-based wellness program, and in any disclosure that an 
individual did not satisfy an initial outcome-based standard, the 
availability of a reasonable alternative standard to qualify for the 
reward (and, if applicable, the possibility of waiver of the otherwise 
applicable standard), including contact information for obtaining a 
reasonable alternative standard and a statement that recommendations of 
an individual's personal physician will be accommodated. If plan 
materials merely mention that such a program is available, without 
describing its terms, this disclosure is not required. Sample language 
is provided in paragraph (f)(6) of this section, as well as in certain 
examples of this section.
    (vi) Examples. The provisions of this paragraph (f)(4) are 
illustrated by the following examples:

    Example 1--Cholesterol screening with reasonable alternative 
standard to work with personal physician. (i) Facts. A group health 
plan offers a reward to participants who achieve a count under 200 
on a total cholesterol test. If a participant does not achieve the 
targeted cholesterol count, the plan allows the participant to 
develop an alternative cholesterol action plan in conjunction with 
the participant's personal physician that may include 
recommendations for medication and additional screening. The plan 
allows the physician to modify the standards, as medically 
necessary, over the year. (For example, if a participant develops 
asthma or depression, requires surgery and convalescence, or some 
other medical condition or consideration makes completion of the 
original action plan inadvisable or unreasonably difficult, the 
physician may modify the original action plan.) 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 total 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 and your doctor to find a Health Smart program that is 
right for you.'' In addition, when any individual participant

[[Page 33185]]

receives notification that his or her cholesterol count is 200 or 
higher, the notification includes the following statement: ``Your 
plan offers a Health Smart program under which we will work with you 
and your doctor to try to lower your cholesterol. If you complete 
this program, you will qualify for a reward. Please contact us at 
[contact information] to get started.''
    (ii) Conclusion. In this Example 1, the program is an outcome-
based wellness program because the initial standard requires an 
individual to attain or maintain a specific health outcome (a 
certain cholesterol level) to obtain a reward. The program satisfies 
the requirements of paragraph (f)(4)(iii) of this section because 
the cholesterol program is reasonably designed to promote health and 
prevent disease. The program satisfies the requirements of paragraph 
(f)(4)(iv) of this section because it makes available to all 
participants who do not meet the cholesterol standard a reasonable 
alternative standard to qualify for the reward. Lastly, the plan 
also discloses in all materials describing the terms of the program 
and in any disclosure that an individual did not satisfy the initial 
outcome-based standard the availability of a reasonable alternative 
standard (including contact information and the individual's ability 
to involve his or her personal physician), as required by paragraph 
(f)(4)(v) of this section. Thus, the program satisfies the 
requirements of paragraphs (f)(4)(iii), (iv), and (v) of this 
section.
    Example 2--Cholesterol screening with plan alternative and no 
opportunity for personal physician involvement. (i) Facts. Same 
facts as Example 1, except that the wellness program's physician or 
nurse practitioner (rather than the individual's personal physician) 
determines the alternative cholesterol action plan. The plan does 
not provide an opportunity for a participant's personal physician to 
modify the action plan if it is not medically appropriate for that 
individual.
    (ii) Conclusion. In this Example 2, the wellness program does 
not satisfy the requirements of paragraph (f)(4)(iii) of this 
section because the program does not accommodate the recommendations 
of the participant's personal physician with regard to medical 
appropriateness, as required under paragraph (f)(4)(iv)(C)(3) of 
this section. Thus, the program is not reasonably designed under 
paragraph (f)(4)(iii) of this section and is not available to all 
similarly situated individuals under paragraph (f)(4)(iv) of this 
section. The notice also does not provide all the content required 
under paragraph (f)(4)(v) of this section.
    Example 3--Cholesterol screening with plan alternative that can 
be modified by personal physician. (i) Facts. Same facts as Example 
2, except that if a participant's personal physician disagrees with 
any part of the action plan, the personal physician may modify the 
action plan at any time, and the plan discloses this to 
participants.
    (ii) Conclusion. In this Example 3, the wellness program 
satisfies the requirements of paragraph (f)(4)(iii) of this section 
because the participant's personal physician may modify the action 
plan determined by the wellness program's physician or nurse 
practitioner at any time if the physician states that the 
recommendations are not medically appropriate, as required under 
paragraph (f)(4)(iv)(C)(3) of this section. Thus, the program is 
reasonably designed under paragraph (f)(4)(iii) of this section and 
is available to all similarly situated individuals under paragraph 
(f)(4)(iv) of this section. The notice, which includes a statement 
that recommendations of an individual's personal physician will be 
accommodated, also complies with paragraph (f)(4)(v) of this 
section.
    Example 4--BMI screening with walking program alternative. (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 participant satisfies an alternative 
standard that is reasonable taking into consideration the 
participant'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 considered overweight 
because you have a BMI of over 26, 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 work with you (and, if you wish, your own doctor) to develop 
a wellness program that is.)'' Participant E is unable to achieve a 
BMI that is 26 or lower within the plan's timeframe and receives 
notification that complies with paragraph (f)(4)(v) of this section. 
Nevertheless, it is unreasonably difficult due to a medical 
condition for E to comply with the walking program. E proposes a 
program based on the recommendations of E's physician. The plan 
agrees to make the same discount available to E that is available to 
other participants in the BMI program or the alternative walking 
program, but only if E actually follows the physician's 
recommendations.
    (ii) Conclusion. In this Example 4, the program is an outcome-
based wellness program because the initial standard requires an 
individual to attain or maintain a specific health outcome (a 
certain BMI level) to obtain a reward. The program satisfies the 
requirements of paragraph (f)(4)(iii) of this section because it is 
reasonably designed to promote health and prevent disease. The 
program also satisfies the requirements of paragraph (f)(4)(iv) of 
this section because it makes available to all individuals who do 
not satisfy the BMI standard a reasonable alternative standard to 
qualify for the reward (in this case, 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 walking program 
is, itself, an activity-only standard and the plan complies with the 
requirements of paragraph (f)(3) of this section (including the 
requirement of paragraph (f)(3)(iv) that, 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 provide a reasonable 
alternative to those individuals). Moreover, the plan satisfies the 
requirements of paragraph (f)(4)(v) of this section because it 
discloses, in all materials describing the terms of the program and 
in any disclosure that an individual did not satisfy the initial 
outcome-based standard, the availability of a reasonable alternative 
standard (including contact information and the individual's option 
to involve his or her personal physician) to qualify for the reward 
or the possibility of waiver of the otherwise applicable standard. 
Thus, the program satisfies the requirements of paragraphs 
(f)(4)(iii), (iv), and (v) of this section.
    Example 5--BMI screening with alternatives available to either 
lower BMI or meet personal physician's recommendations. (i) Facts. 
Same facts as Example 4 except that, with respect to any participant 
who does not meet the target BMI, instead of a walking program, the 
participant is expected to reduce BMI by one point. At any point 
during the year upon request, any individual can obtain a second 
reasonable alternative standard, which is compliance with the 
recommendations of the participant's personal physician regarding 
weight, diet, and exercise as set forth in a treatment plan that the 
physician recommends or to which the physician agrees. The 
participant's personal physician is permitted to change or adjust 
the treatment plan at any time and the option of following the 
participant's personal physician's recommendations is clearly 
disclosed.
    (ii) Conclusion. In this Example 5, the reasonable alternative 
standard to qualify for the reward (the alternative BMI standard 
requiring a one-point reduction) does not make the program 
unreasonable under paragraph (f)(4)(iii) or (iv) of this section 
because the program complies with paragraph (f)(4)(iv)(C)(4) of this 
section by allowing a second reasonable alternative standard to 
qualify for the reward (compliance with the recommendations of the 
participant's personal physician, which can be changed or adjusted 
at any time). Accordingly, the program continues to satisfy the 
applicable requirements of paragraph (f) of this section.
    Example 6--Tobacco use surcharge with smoking cessation program 
alternative. (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

[[Page 33186]]

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, and discloses contact information and the 
individual's option to involve his or her personal physician. The 
plan pays for the cost of participation in the smoking cessation 
program. Any participant can avoid the surcharge for the plan year 
by participating in the program, regardless of whether the 
participant stops smoking, but the plan can require a participant 
who wants to avoid the surcharge in a subsequent year to complete 
the smoking cessation program again.
    (ii) Conclusion. In this Example 6, the premium differential 
satisfies the requirements of paragraphs (f)(4)(iii), (iv), and (v). 
The program is an outcome-based wellness program because the initial 
standard for obtaining a reward is dependent on the results of a 
health risk assessment (a measurement, test, or screening). The 
program is reasonably designed under paragraph (f)(4)(iii) because 
the plan provides a reasonable alternative standard (as required 
under paragraph (f)(4)(iv) of this section) to qualify for the 
reward to all tobacco users (a smoking cessation program). The plan 
discloses, in all materials describing the terms of the program, the 
availability of the reasonable alternative standard (including 
contact information and the individual's option to involve his or 
her personal physician). Thus, the program satisfies the 
requirements of paragraphs (f)(4)(iii), (iv), and (v) of this 
section.
    Example 7--Tobacco use surcharge with alternative program 
requiring actual cessation. (i) Facts. Same facts as Example 6, 
except the plan does not provide participant F with the reward in 
subsequent years unless F actually stops smoking after participating 
in the tobacco cessation program.
    (ii) Conclusion. In this Example 7, the program is not 
reasonably designed under paragraph (f)(4)(iii) of this section and 
does not provide a reasonable alternative standard as required under 
paragraph (f)(4)(iv) of this section. The plan cannot cease to 
provide a reasonable alternative standard merely because the 
participant did not stop smoking after participating in a smoking 
cessation program. The plan must continue to offer a reasonable 
alternative standard whether it is the same or different (such as a 
new recommendation from F's personal physician or a new nicotine 
replacement therapy).
    Example 8--Tobacco use surcharge with smoking cessation program 
alternative that is not reasonable. (i) Facts. Same facts as Example 
6, except the plan does not facilitate participant F's enrollment in 
a smoking cessation 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 8, 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)(4)(iii) and (iv) of this section and the program 
fails to satisfy the requirements of paragraph (f) of this section.

    (5) Applicable percentage--(i) For purposes of this paragraph (f), 
the applicable percentage is 30 percent, except that the applicable 
percentage is increased by 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.
    (ii) The rules of this paragraph (f)(5) 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 with several components, 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 reward for the wellness 
program, $600, does not exceed the applicable percentage of 30 
percent of the total annual cost of employee-only coverage, $1,800. 
($6,000 x 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 reward for the wellness 
program (absence of a $1,000 surcharge), does not exceed the 
applicable percentage of 50 percent of the total annual cost of 
employee-only coverage, $3,000. ($6,000 x 50% = $3,000.)
    Example 3. (i) Facts. Same facts as Example 1, except that, in 
addition to the $600 reward for compliance with the health-
contingent 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 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 
the applicable percentage of 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 the applicable percentage of 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, with an 
opportunity to earn a $1,500 reward.
    (ii) Conclusion. In this Example 4, even though the total reward 
for all wellness programs under the plan is $1,750 ($250 + $1,500 = 
$1,750, which exceeds the applicable percentage of 30 percent of the 
cost of the annual premium for employee-only coverage ($5,000 x 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)(5) are met. (The 
$250 reward is offered in connection with a participatory wellness 
program and therefore is not taken into account.) Accordingly, the 
health-contingent wellness program offers a reward that does not 
exceed the applicable percentage of 30 percent of the total annual 
cost of employee-only coverage.

    (6) Sample language. The following language, or substantially 
similar language, can be used to satisfy the notice requirement of 
paragraphs (f)(3)(v) or (f)(4)(v) of this section: ``Your health plan 
is committed to helping you achieve your best health. 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 (and, if you wish, with your 
doctor) to find a wellness program with the same reward that is right 
for you in light of your health status.''
* * * * *

Subpart C--Other Requirements

0
6. Section 2590.715-2705 is added to read as follows:

Sec.  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 Sec.  2590.702 of this part.
    (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.

[[Page 33187]]

Department of Health and Human Services

45 CFR Subtitle A

    For the reasons stated in the preamble, the Department of Health 
and Human Services amends 45 CFR Parts 146 and 147 as follows:

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
7. The authority citation for part 146 continues to read as follows:

    Authority:  Secs. 2702 through 2705, 2711 through 2723, 2791, 
and 2792 of the Public Health Service 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).

0
8. In Sec.  146.121, paragraph (f) is revised to read as follows:

Sec.  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).
    (1) Definitions. The definitions in this paragraph (f)(1) govern in 
applying the provisions of this paragraph (f).
    (i) Reward. Except where expressly provided otherwise, references 
in this section to an individual obtaining a reward include both 
obtaining a reward (such as a discount or rebate of a premium or 
contribution, 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 discount 
or rebate of a premium or contribution, 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).
    (ii) Participatory wellness programs. 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. Examples of participatory wellness 
programs are:
    (A) A program that reimburses employees for all or part of the cost 
for membership in a fitness center.
    (B) A diagnostic testing program that provides a reward for 
participation in that program and does not base any part of the reward 
on outcomes.
    (C) 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, Sec.  147.130 of this 
subchapter requires benefits for certain preventive health services 
without the imposition of cost sharing.)
    (D) 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.
    (E) A program that provides a reward to employees for attending a 
monthly, no-cost health education seminar.
    (F) 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 Sec.  146.122 for rules prohibiting collection of genetic 
information.)
    (iii) Health-contingent wellness programs. A health-contingent 
wellness program is a program that requires an individual to satisfy a 
standard related to a health factor to obtain a reward (or requires an 
individual to undertake more than a similarly situated individual based 
on a health factor in order to obtain the same reward). A health-
contingent wellness program may be an activity-only wellness program or 
an outcome-based wellness program.
    (iv) Activity-only wellness programs. An activity-only wellness 
program is a type of health-contingent wellness program that requires 
an individual to perform or complete an activity related to a health 
factor in order to obtain a reward but does not require the individual 
to attain or maintain a specific health outcome. Examples include 
walking, diet, or exercise programs, which some individuals may be 
unable to participate in or complete (or have difficulty participating 
in or completing) due to a health factor, such as severe asthma, 
pregnancy, or a recent surgery. See paragraph (f)(3) of this section 
for requirements applicable to activity-only wellness programs.
    (v) Outcome-based wellness programs. An outcome-based wellness 
program is a type of health-contingent wellness program that requires 
an individual to attain or maintain a specific health outcome (such as 
not smoking or attaining certain results on biometric screenings) in 
order to obtain a reward. To comply with the rules of this paragraph 
(f), an outcome-based wellness program typically has two tiers. That 
is, for individuals who do not attain or maintain the specific health 
outcome, compliance with an educational program or an activity may be 
offered as an alternative to achieve the same reward. This alternative 
pathway, however, does not mean that the overall program, which has an 
outcome-based component, is not an outcome-based wellness program. That 
is, if a measurement, test, or screening is used as part of an initial 
standard and individuals who meet the standard are granted the reward, 
the program is considered an outcome-based wellness program. For 
example, if a wellness program tests individuals for specified medical 
conditions or risk factors (including biometric screening such as 
testing for high cholesterol, high blood pressure, abnormal body mass 
index, or high glucose level) and provides a reward to individuals 
identified as within a normal or healthy range for these medical 
conditions or risk factors, while requiring individuals 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, 
complying with a walking or exercise program, or complying with a 
health care provider's plan of care) to obtain the same reward, the 
program is an outcome-based wellness program. See paragraph (f)(4) of 
this section for requirements applicable to outcome-based wellness 
programs.
    (2) Requirement for participatory wellness programs. A 
participatory wellness program, as described in paragraph (f)(1)(ii) of 
this section, does not violate the provisions of this section only if 
participation in the program is

[[Page 33188]]

made available to all similarly situated individuals, regardless of 
health status.
    (3) Requirements for activity-only wellness programs. A health-
contingent wellness program that is an activity-only wellness program, 
as described in paragraph (f)(1)(iv) of this section, does not violate 
the provisions of this section only 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 the activity-only wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage (as defined in paragraph (f)(5) of this section) of the 
total cost of employee-only coverage under the plan. 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 towards the cost of coverage for the benefit 
package under which the employee is (or the employee and any dependents 
are) receiving coverage.
    (iii) 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.
    (iv) Uniform availability and reasonable alternative standards. The 
full reward under the activity-only wellness program must be available 
to all similarly situated individuals.
    (A) Under this paragraph (f)(3)(iv), a reward under an activity-
only wellness 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 reasonable alternative standard in advance of an 
individual's request for one, if an individual is described in either 
paragraph (f)(3)(iv)(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.
    (C) 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 or assist the employee in finding such a program 
(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) The time commitment required must be reasonable (for example, 
requiring attendance nightly at a one-hour class would be 
unreasonable).
    (3) 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.
    (4) If an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical professional) is 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.
    (D) To the extent that a reasonable alternative standard under an 
activity-only wellness program is, itself, an activity-only wellness 
program, it must comply with the requirements of this paragraph (f)(3) 
in the same manner as if it were an initial program standard. (Thus, 
for example, if a plan or issuer provides a walking program as a 
reasonable alternative standard to a running program, individuals for 
whom it is unreasonably difficult due to a medical condition to 
complete the walking program (or for whom it is medically inadvisable 
to attempt to complete the walking program) must be provided a 
reasonable alternative standard to the walking program.) To the extent 
that a reasonable alternative standard under an activity-only wellness 
program is, itself, an outcome-based wellness program, it must comply 
with the requirements of paragraph (f)(4) of this section, including 
paragraph (f)(4)(iv)(D).
    (E) 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 of an activity-
only wellness program. Plans and issuers may seek verification with 
respect to requests for a reasonable alternative standard for which it 
is reasonable to determine that medical judgment is required to 
evaluate the validity of the request.
    (v) Notice of availability of reasonable alternative standard. The 
plan or issuer must disclose in all plan materials describing the terms 
of an activity-only wellness program the availability of a reasonable 
alternative standard to qualify for the reward (and, if applicable, the 
possibility of waiver of the otherwise applicable standard), including 
contact information for obtaining a reasonable alternative standard and 
a statement that recommendations of an individual's personal physician 
will be accommodated. If plan materials merely mention that such a 
program is available, without describing its terms, this disclosure is 
not required. Sample language is provided in paragraph (f)(6) of this 
section, as well as in certain examples of this section.
    (vi) Example. The provisions of this paragraph (f)(3) are 
illustrated by the following example:

    Example.  (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 attempt to participate), the plan will waive 
the walking program requirement and provide the reward. All

[[Page 33189]]

materials describing the terms of the walking program disclose the 
availability of the waiver.
    (ii) Conclusion. In this Example, the program satisfies the 
requirements of paragraph (f)(3)(iii) of this section because the 
walking program is reasonably designed to promote health and prevent 
disease. The program satisfies the requirements of paragraph 
(f)(3)(iv) of this section because the reward under the program is 
available to all similarly situated individuals. It accommodates 
individuals for whom it is unreasonably difficult to 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 with the reward even if they do not participate in the walking 
program (that is, by waiving the condition). The plan also 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.

    (4) Requirements for outcome-based wellness programs. A health-
contingent wellness program that is an outcome-based wellness program, 
as described in paragraph (f)(1)(v) of this section, does not violate 
the provisions of this section only 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 the outcome-based wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage (as defined in paragraph (f)(5) of this section) of the 
total cost of employee-only coverage under the plan. 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)(4)(ii), the cost of 
coverage is determined based on the total amount of employer and 
employee contributions towards the cost of coverage for the benefit 
package under which the employee is (or the employee and any dependents 
are) receiving coverage.
    (iii) 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 ensure that an outcome-based wellness program is 
reasonably designed to improve health and does not act as a subterfuge 
for underwriting or reducing benefits based on a health factor, a 
reasonable alternative standard to qualify for the reward must be 
provided to any individual who does not meet the initial standard based 
on a measurement, test, or screening that is related to a health 
factor, as explained in paragraph (f)(4)(iv) of this section.
    (iv) Uniform availability and reasonable alternative standards. The 
full reward under the outcome-based wellness program must be available 
to all similarly situated individuals.
    (A) Under this paragraph (f)(4)(iv), a reward under an outcome-
based wellness program is not available to all similarly situated 
individuals for a period unless the program allows a reasonable 
alternative standard (or waiver of the otherwise applicable standard) 
for obtaining the reward for any individual who does not meet the 
initial standard based on the measurement, test, or screening, as 
described in this paragraph (f)(4)(iv).
    (B) While plans and issuers are not required to determine a 
particular reasonable alternative standard in advance of an 
individual's request for one, if an individual is described in 
paragraph (f)(4)(iv)(A) 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.
    (C) 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 or assist the employee in finding such a program 
(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) The time commitment required must be reasonable (for example, 
requiring attendance nightly at a one-hour class would be 
unreasonable).
    (3) 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.
    (4) If an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical professional) is 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.
    (D) To the extent that a reasonable alternative standard under an 
outcome-based wellness program is, itself, an activity-only wellness 
program, it must comply with the requirements of paragraph (f)(3) of 
this section in the same manner as if it were an initial program 
standard. To the extent that a reasonable alternative standard under an 
outcome-based wellness program is, itself, another outcome-based 
wellness program, it must comply with the requirements of this 
paragraph (f)(4), subject to the following special rules:
    (1) The reasonable alternative standard cannot be a requirement to 
meet a different level of the same standard without additional time to 
comply that takes into account the individual's circumstances. For 
example, if the initial standard is to achieve a BMI less than 30, the 
reasonable alternative standard cannot be to achieve a BMI less than 31 
on that same date. However, if the initial standard is to achieve a BMI 
less than 30, a reasonable alternative standard for the individual 
could be to reduce the individual's BMI by a small amount or small 
percentage, over a realistic period of time, such as within a year.
    (2) An individual must be given the opportunity to comply with the 
recommendations of the individual's personal physician as a second 
reasonable alternative standard to meeting the reasonable alternative 
standard defined by the plan or issuer, but only if the physician joins 
in the request. The individual can make a request to involve a personal 
physician's recommendations at any time and the personal physician can 
adjust the physician's recommendations at any time, consistent with 
medical appropriateness.
    (E) It is not reasonable to seek verification, such as a statement 
from an individual's personal physician, under an outcome-based 
wellness program that a health factor makes it

[[Page 33190]]

unreasonably difficult for the individual to satisfy, or medically 
inadvisable for the individual to attempt to satisfy, the otherwise 
applicable standard as a condition of providing a reasonable 
alternative to the initial standard. However, if a plan or issuer 
provides an alternative standard to the otherwise applicable 
measurement, test, or screening that involves an activity that is 
related to a health factor, then the rules of paragraph (f)(3) of this 
section for activity-only wellness programs apply to that component of 
the wellness program and the plan or issuer may, if reasonable under 
the circumstances, seek verification that it is unreasonably difficult 
due to a medical condition for an individual to perform or complete the 
activity (or it is medically inadvisable to attempt to perform or 
complete the activity). (For example, if an outcome-based wellness 
program requires participants to maintain a certain healthy weight and 
provides a diet and exercise program for individuals who do not meet 
the targeted weight, a plan or issuer may seek verification, as 
described in paragraph (f)(3)(iv)(D) of this section, if reasonable 
under the circumstances, that a second reasonable alternative standard 
is needed for certain individuals because, for those individuals, it 
would be unreasonably difficult due to a medical condition to comply, 
or medically inadvisable to attempt to comply, with the diet and 
exercise program, due to a medical condition.)
    (v) Notice of availability of reasonable alternative standard. The 
plan or issuer must disclose in all plan materials describing the terms 
of an outcome-based wellness program, and in any disclosure that an 
individual did not satisfy an initial outcome-based standard, the 
availability of a reasonable alternative standard to qualify for the 
reward (and, if applicable, the possibility of waiver of the otherwise 
applicable standard), including contact information for obtaining a 
reasonable alternative standard and a statement that recommendations of 
an individual's personal physician will be accommodated. If plan 
materials merely mention that such a program is available, without 
describing its terms, this disclosure is not required. Sample language 
is provided in paragraph (f)(6) of this section, as well as in certain 
examples of this section.
    (vi) Examples. The provisions of this paragraph (f)(4) are 
illustrated by the following examples:

    Example 1--Cholesterol screening with reasonable alternative 
standard to work with personal physician. (i) Facts. A group health 
plan offers a reward to participants who achieve a count under 200 
on a total cholesterol test. If a participant does not achieve the 
targeted cholesterol count, the plan allows the participant to 
develop an alternative cholesterol action plan in conjunction with 
the participant's personal physician that may include 
recommendations for medication and additional screening. The plan 
allows the physician to modify the standards, as medically 
necessary, over the year. (For example, if a participant develops 
asthma or depression, requires surgery and convalescence, or some 
other medical condition or consideration makes completion of the 
original action plan inadvisable or unreasonably difficult, the 
physician may modify the original action plan.) 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 total 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 and your doctor to find a Health Smart program that is 
right for you.'' In addition, when any individual participant 
receives notification that his or her cholesterol count is 200 or 
higher, the notification includes the following statement: ``Your 
plan offers a Health Smart program under which we will work with you 
and your doctor to try to lower your cholesterol. If you complete 
this program, you will qualify for a reward. Please contact us at 
[contact information] to get started.''
    (ii) Conclusion. In this Example 1, the program is an outcome-
based wellness program because the initial standard requires an 
individual to attain or maintain a specific health outcome (a 
certain cholesterol level) to obtain a reward. The program satisfies 
the requirements of paragraph (f)(4)(iii) of this section because 
the cholesterol program is reasonably designed to promote health and 
prevent disease. The program satisfies the requirements of paragraph 
(f)(4)(iv) of this section because it makes available to all 
participants who do not meet the cholesterol standard a reasonable 
alternative standard to qualify for the reward. Lastly, the plan 
also discloses in all materials describing the terms of the program 
and in any disclosure that an individual did not satisfy the initial 
outcome-based standard the availability of a reasonable alternative 
standard (including contact information and the individual's ability 
to involve his or her personal physician), as required by paragraph 
(f)(4)(v) of this section. Thus, the program satisfies the 
requirements of paragraphs (f)(4)(iii), (iv), and (v) of this 
section.
    Example 2--Cholesterol screening with plan alternative and no 
opportunity for personal physician involvement.  (i) Facts. Same 
facts as Example 1, except that the wellness program's physician or 
nurse practitioner (rather than the individual's personal physician) 
determines the alternative cholesterol action plan. The plan does 
not provide an opportunity for a participant's personal physician to 
modify the action plan if it is not medically appropriate for that 
individual.
    (ii) Conclusion. In this Example 2, the wellness program does 
not satisfy the requirements of paragraph (f)(4)(iii) of this 
section because the program does not accommodate the recommendations 
of the participant's personal physician with regard to medical 
appropriateness, as required under paragraph (f)(4)(iv)(C)(3) of 
this section. Thus, the program is not reasonably designed under 
paragraph (f)(4)(iii) of this section and is not available to all 
similarly situated individuals under paragraph (f)(4)(iv) of this 
section. The notice also does not provide all the content required 
under paragraph (f)(4)(v) of this section.
    Example 3--Cholesterol screening with plan alternative that can 
be modified by personal physician. (i) Facts. Same facts as Example 
2, except that if a participant's personal physician disagrees with 
any part of the action plan, the personal physician may modify the 
action plan at any time, and the plan discloses this to 
participants.
    (ii) Conclusion. In this Example 3, the wellness program 
satisfies the requirements of paragraph (f)(4)(iii) of this section 
because the participant's personal physician may modify the action 
plan determined by the wellness program's physician or nurse 
practitioner at any time if the physician states that the 
recommendations are not medically appropriate, as required under 
paragraph (f)(4)(iv)(C)(3) of this section. Thus, the program is 
reasonably designed under paragraph (f)(4)(iii) of this section and 
is available to all similarly situated individuals under paragraph 
(f)(4)(iv) of this section. The notice, which includes a statement 
that recommendations of an individual's personal physician will be 
accommodated, also complies with paragraph (f)(4)(v) of this 
section.
    Example 4--BMI screening with walking program alternative.  (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 participant satisfies an alternative 
standard that is reasonable taking into consideration the 
participant'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 considered overweight 
because you have a BMI of over 26, our Start Walking program will 
help you lose weight and feel better. We will help you enroll. (**If 
your doctor says that walking

[[Page 33191]]

isn't right for you, that's okay too. We will work with you (and, if 
you wish, your own doctor) to develop a wellness program that is.)'' 
Participant E is unable to achieve a BMI that is 26 or lower within 
the plan's timeframe and receives notification that complies with 
paragraph (f)(4)(v) of this section. Nevertheless, it is 
unreasonably difficult due to a medical condition for E to comply 
with the walking program. E proposes a program based on the 
recommendations of E's physician. The plan agrees to make the same 
discount available to E that is available to other participants in 
the BMI program or the alternative walking program, but only if E 
actually follows the physician's recommendations.
    (ii) Conclusion. In this Example 4, the program is an outcome-
based wellness program because the initial standard requires an 
individual to attain or maintain a specific health outcome (a 
certain BMI level) to obtain a reward. The program satisfies the 
requirements of paragraph (f)(4)(iii) of this section because it is 
reasonably designed to promote health and prevent disease. The 
program also satisfies the requirements of paragraph (f)(4)(iv) of 
this section because it makes available to all individuals who do 
not satisfy the BMI standard a reasonable alternative standard to 
qualify for the reward (in this case, 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 walking program 
is, itself, an activity-only standard and the plan complies with the 
requirements of paragraph (f)(3) of this section (including the 
requirement of paragraph (f)(3)(iv) that, 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 provide a reasonable 
alternative to those individuals). Moreover, the plan satisfies the 
requirements of paragraph (f)(4)(v) of this section because it 
discloses, in all materials describing the terms of the program and 
in any disclosure that an individual did not satisfy the initial 
outcome-based standard, the availability of a reasonable alternative 
standard (including contact information and the individual's option 
to involve his or her personal physician) to qualify for the reward 
or the possibility of waiver of the otherwise applicable standard. 
Thus, the program satisfies the requirements of paragraphs 
(f)(4)(iii), (iv), and (v) of this section.

    Example 5--BMI screening with alternatives available to either 
lower BMI or meet personal physician's recommendations. (i) Facts. 
Same facts as Example 4 except that, with respect to any participant 
who does not meet the target BMI, instead of a walking program, the 
participant is expected to reduce BMI by one point. At any point 
during the year upon request, any individual can obtain a second 
reasonable alternative standard, which is compliance with the 
recommendations of the participant's personal physician regarding 
weight, diet, and exercise as set forth in a treatment plan that the 
physician recommends or to which the physician agrees. The 
participant's personal physician is permitted to change or adjust 
the treatment plan at any time and the option of following the 
participant's personal physician's recommendations is clearly 
disclosed.
    (ii) Conclusion. In this Example 5, the reasonable alternative 
standard to qualify for the reward (the alternative BMI standard 
requiring a one-point reduction) does not make the program 
unreasonable under paragraph (f)(4)(iii) or (iv) of this section 
because the program complies with paragraph (f)(4)(iv)(C)(4) of this 
section by allowing a second reasonable alternative standard to 
qualify for the reward (compliance with the recommendations of the 
participant's personal physician, which can be changed or adjusted 
at any time). Accordingly, the program continues to satisfy the 
applicable requirements of paragraph (f) of this section.
    Example 6--Tobacco use surcharge with smoking cessation program 
alternative.  (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, and discloses contact information and the 
individual's option to involve his or her personal physician. The 
plan pays for the cost of participation in the smoking cessation 
program. Any participant can avoid the surcharge for the plan year 
by participating in the program, regardless of whether the 
participant stops smoking, but the plan can require a participant 
who wants to avoid the surcharge in a subsequent year to complete 
the smoking cessation program again.
    (ii) Conclusion. In this Example 6, the premium differential 
satisfies the requirements of paragraphs (f)(4)(iii), (iv), and (v). 
The program is an outcome-based wellness program because the initial 
standard for obtaining a reward is dependent on the results of a 
health risk assessment (a measurement, test, or screening). The 
program is reasonably designed under paragraph (f)(4)(iii) because 
the plan provides a reasonable alternative standard (as required 
under paragraph (f)(4)(iv) of this section) to qualify for the 
reward to all tobacco users (a smoking cessation program). The plan 
discloses, in all materials describing the terms of the program, the 
availability of the reasonable alternative standard (including 
contact information and the individual's option to involve his or 
her personal physician). Thus, the program satisfies the 
requirements of paragraphs (f)(4)(iii), (iv), and (v) of this 
section.
    Example 7--Tobacco use surcharge with alternative program 
requiring actual cessation.  (i) Facts. Same facts as Example 6, 
except the plan does not provide participant F with the reward in 
subsequent years unless F actually stops smoking after participating 
in the tobacco cessation program.
    (ii) Conclusion. In this Example 7, the program is not 
reasonably designed under paragraph (f)(4)(iii) of this section and 
does not provide a reasonable alternative standard as required under 
paragraph (f)(4)(iv) of this section. The plan cannot cease to 
provide a reasonable alternative standard merely because the 
participant did not stop smoking after participating in a smoking 
cessation program. The plan must continue to offer a reasonable 
alternative standard whether it is the same or different (such as a 
new recommendation from F's personal physician or a new nicotine 
replacement therapy).
    Example 8--Tobacco use surcharge with smoking cessation program 
alternative that is not reasonable.  (i) Facts. Same facts as 
Example 6, except the plan does not facilitate participant F's 
enrollment in a smoking cessation 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 8, 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)(4)(iii) and (iv) of this section and the program 
fails to satisfy the requirements of paragraph (f) of this section.

    (5) Applicable percentage--(i) For purposes of this paragraph (f), 
the applicable percentage is 30 percent, except that the applicable 
percentage is increased by 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.
    (ii) The rules of this paragraph (f)(5) 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 with several components, 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 reward for the wellness 
program, $600, does not exceed the applicable percentage of 30 
percent of the total annual cost of employee-only coverage, $1,800. 
($6,000 x 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

[[Page 33192]]

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 reward for the wellness 
program (absence of a $1,000 surcharge), does not exceed the 
applicable percentage of 50 percent of the total annual cost of 
employee-only coverage, $3,000. ($6,000 x 50% = $3,000.)
    Example 3.  (i) Facts. Same facts as Example 1, except that, in 
addition to the $600 reward for compliance with the health-
contingent 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 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 
the applicable percentage of 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 the applicable percentage of 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, with an 
opportunity to earn a $1,500 reward.
    (ii) Conclusion. In this Example 4, even though the total reward 
for all wellness programs under the plan is $1,750 ($250 + $1,500 = 
$1,750, which exceeds the applicable percentage of 30 percent of the 
cost of the annual premium for employee-only coverage ($5,000 x 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)(5) are met. (The 
$250 reward is offered in connection with a participatory wellness 
program and therefore is not taken into account.) Accordingly, the 
health-contingent wellness program offers a reward that does not 
exceed the applicable percentage of 30 percent of the total annual 
cost of employee-only coverage.

    (6) Sample language. The following language, or substantially 
similar language, can be used to satisfy the notice requirement of 
paragraphs (f)(3)(v) or (f)(4)(v) of this section: ``Your health plan 
is committed to helping you achieve your best health. 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 (and, if you wish, with your 
doctor) to find a wellness program with the same reward that is right 
for you in light of your health status.''
* * * * *

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL INSURANCE MARKETS

0
9. 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).

0
10. Section 147.110 is added to read as follows:

Sec.  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 Sec.  146.121 to the same extent as an issuer 
offering group health insurance coverage, except the exception 
contained in Sec.  146.121(f) (concerning nondiscriminatory wellness 
programs) does not apply.
    (b) Applicability date. This section is applicable to group health 
plans and health insurance issuers offering group or individual health 
insurance coverage for plan years (in the individual market, policy 
years) beginning on or after January 1, 2014. See Sec.  147.140, which 
provides that the rules of this section do not apply to grandfathered 
health plans that are individual health insurance coverage.
[FR Doc. 2013-12916 Filed 5-29-13; 11:15 am]
BILLING CODE 4830-01-4510-29-4120-01-P
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