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[Federal Register Volume 77, Number 227 (Monday, November 26, 2012)]
[Proposed Rules]
[Pages 70619-70642]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28361]

[[Page 70619]]

Vol. 77

Monday,

No. 227

November 26, 2012

Part IV

Department of the Treasury

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Internal Revenue Service

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26 CFR Part 54

Department of Labor

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Employee Benefits Security Administration

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29 CFR Part 2590

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; Proposed Rule

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

[[Page 70620]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[REG-122707-12]
RIN 1545-BL07

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB55

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 146 and 147

[CMS-9979-P]
RIN 0938-AR48

Incentives for Nondiscriminatory Wellness Programs in Group 
Health Plans

AGENCY: Internal Revenue Service, Department of the Treasury; Employee 
Benefits Security Administration, Department of Labor; Centers for 
Medicare & Medicaid Services, Department of Health and Human Services.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes amendments to regulations, consistent 
with the Affordable Care Act, regarding nondiscriminatory wellness 
programs in group health coverage. Specifically, these proposed 
regulations would increase the maximum permissible reward under a 
health-contingent wellness program offered in connection with a group 
health plan (and any related health insurance coverage) from 20 percent 
to 30 percent of the cost of coverage. The proposed regulations would 
further increase the maximum permissible reward to 50 percent for 
wellness programs designed to prevent or reduce tobacco use. These 
regulations also include other proposed clarifications regarding the 
reasonable design of health-contingent wellness programs and the 
reasonable alternatives they must offer in order to avoid prohibited 
discrimination.

DATES: Comments are due on or before January 25, 2013.

ADDRESSES: Written comments may be submitted to the Department of Labor 
as specified below. Any comment that is submitted will be shared with 
the other Departments and will also be made available to the public. 
Warning: Do not include any personally identifiable information (such 
as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines. No deletions, modifications, or redactions 
will be made to the comments received, as they are public records. 
Comments may be submitted anonymously.
    Comments, identified by ``Wellness Programs'', may be submitted by 
one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail or Hand Delivery: Office of Health Plan Standards and 
Compliance Assistance, Employee Benefits Security Administration, Room 
N-5653, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210, Attention: Wellness Programs.
    Comments received will be posted without change to 
www.regulations.gov and www.dol.gov/ebsa, and available for public 
inspection at the Public Disclosure Room, N-1513, Employee Benefits 
Security Administration, 200 Constitution Avenue NW., Washington, DC 
20210, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Amy Turner or Beth Baum, Employee 
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Karen Levin, Internal Revenue Service, Department of the 
Treasury, at (202) 622-6080; or Jacob Ackerman, Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, at (410) 
786-1565.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning employment-based 
health coverage laws may call the EBSA Toll-Free Hotline at 1-866-444-
EBSA (3272) or visit the Department of Labor's Web site (www.dol.gov/ebsa). In addition, information from HHS on private health insurance 
for consumers can be found on the Centers for Medicare & Medicaid 
Services (CMS) Web site (www.cciio.cms.gov/) and information on health 
reform can be found at www.HealthCare.gov.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

    The Patient Protection and Affordable Care Act, Public Law 111-148, 
was enacted on March 23, 2010; the Health Care and Education 
Reconciliation Act, Public Law 111-152, was enacted on March 30, 2010 
(these are collectively known as the ``Affordable Care Act''). The 
Affordable Care Act reorganizes, amends, and adds to the provisions of 
part A of title XXVII of the Public Health Service Act (PHS Act) 
relating to group health plans and health insurance issuers in the 
group and individual markets. The term ``group health plan'' includes 
both insured and self-insured group health plans.\1\ The Affordable 
Care Act adds section 715(a)(1) to the Employee Retirement Income 
Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue 
Code (the Code) to incorporate the provisions of part A of title XXVII 
of the PHS Act into ERISA and the Code, and to make them applicable to 
group health plans and health insurance issuers providing health 
insurance coverage in connection with group health plans. The PHS Act 
sections incorporated by these references are sections 2701 through 
2728.
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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), Public Law 104-191, added section 9802 of the Code, section 
702 of ERISA, and section 2702 of the PHS Act (HIPAA nondiscrimination 
and wellness provisions). These provisions generally prohibit group 
health plans and group health insurance issuers from discriminating 
against individual participants and beneficiaries in eligibility, 
benefits, or premiums based on a health factor.\2\ An exception to the 
general rule allows premium discounts or rebates or modification to 
otherwise applicable cost sharing (including copayments, deductibles or 
coinsurance) in return for adherence to certain programs of health 
promotion and disease prevention. The Departments of Labor, Health and 
Human Services (HHS), and the

[[Page 70621]]

Treasury (collectively, the Departments) have implemented this 
exception by allowing benefits (including cost sharing), premiums, or 
contributions to vary based on participation in a wellness program if 
such a program adheres to certain conditions set forth in regulations.
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    \2\ The HIPAA nondiscrimination provisions set forth eight 
health status-related factors, which the December 13, 2006 final 
regulations on nondiscrimination and wellness programs refer to as 
``health factors.'' Under HIPAA and the 2006 regulations, the eight 
health factors are health status, medical condition (including both 
physical and mental illnesses), claims experience, receipt of health 
care, medical history, genetic information, evidence of insurability 
(including conditions arising out of acts of domestic violence), and 
disability. See 66 FR 1379, January 8, 2001.
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    The Departments published joint final regulations on December 13, 
2006 at 71 FR 75014 (the 2006 regulations) regarding the HIPAA 
nondiscrimination and wellness provisions.\3\ The 2006 regulations 
divide wellness programs into two general categories. The first 
category is programs that either do not require an individual to meet a 
standard related to a health factor in order to obtain a reward or that 
do not offer a reward at all (``participatory wellness programs''). 
Participatory wellness programs comply with the nondiscrimination 
requirements without having to satisfy any additional standards if 
participation in the program is made available to all similarly 
situated individuals.\4\ Examples of participatory wellness programs in 
the 2006 regulations include a fitness center reimbursement program,\5\ 
a diagnostic testing program that does not base any reward on test 
outcomes, a program that waives cost sharing for prenatal or well-baby 
visits,\6\ a program that reimburses employees for the costs of smoking 
cessation programs regardless of whether the employee quits smoking, 
and a program that provides rewards for attending a free health 
education seminar. There is no limit on the financial incentives for 
participatory wellness programs.
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    \3\ 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.
    \4\ See paragraph (f)(1) of the 2006 regulations. See also 26 
CFR 54.9802-1(d), 29 CFR 2590.702(d), and 45 CFR 146.121(d), which 
provide that, generally, distinctions among groups of similarly 
situated participants in a health plan must be based on bona fide 
employment-based classifications consistent with the employer's 
usual business practice. A plan may also distinguish between 
beneficiaries based on, for example, their relationship to the plan 
participant (such as spouse or dependent child) or based on the age 
of dependent children. Distinctions are not permitted to be based on 
any of the health factors noted earlier.
    \5\ The Treasury and the IRS note that satisfying the rules for 
wellness programs does not determine the tax treatment of benefits 
provided by the wellness program. For example, fitness center fees 
are generally considered expenses for general good health and thus 
payment of the fee by the employer is not excluded from income as 
the reimbursement of a medical expense.
    \6\ Note that section 2713 of the PHS Act, as added by the 
Affordable Care Act, and the Departments' interim final regulations 
at 26 CFR 54.9815-2713T, 29 CFR 2590.715-2713, and 45 CFR 147.130 
require non-grandfathered group health plans and health insurance 
issuers offering non-grandfathered group or individual health 
insurance coverage to provide benefits for certain preventive health 
services without the imposition of cost sharing. See also 26 CFR 
54.9815-1251T, 29 CFR 2590.715-1251, and 45 CFR 147.140 (regarding 
the definition of grandfathered health plan coverage).
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    The second category of wellness programs under the 2006 regulations 
consists of programs that require individuals to satisfy a standard 
related to a health factor in order to obtain a reward (``health-
contingent wellness programs''). This category includes wellness 
programs that require an individual to attain or maintain a certain 
health outcome in order to obtain a reward (such as not smoking, 
attaining certain results on biometric screenings, or meeting targets 
for exercise). As outlined in the 2006 regulations,\7\ plans and 
issuers may vary benefits (including cost-sharing mechanisms), 
premiums, or contributions based on whether an individual has met the 
standards of a wellness program that meets the requirements of 
paragraph (f). Paragraph (f)(2) of the 2006 regulations prescribes the 
following consumer-protection conditions for health-contingent wellness 
programs:
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    \7\ See 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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    1. The total reward for such wellness programs offered by a plan 
sponsor does not exceed 20 percent of the total cost of coverage under 
the plan.
    2. The program is reasonably designed to promote health or prevent 
disease. For this purpose, it must have a reasonable chance of 
improving health or preventing disease, not be overly burdensome, not 
be a subterfuge for discriminating based on a health factor, and not be 
highly suspect in method.
    3. The program gives eligible individuals an opportunity to qualify 
for the reward at least once per year.
    4. The reward is available to all similarly situated individuals. 
For this purpose, a reasonable alternative standard (or waiver of the 
otherwise applicable standard) must be made available to any individual 
for whom it is unreasonably difficult due to a medical condition to 
satisfy the otherwise applicable standard during that period (or for 
whom it is medically inadvisable to attempt to satisfy the otherwise 
applicable standard).
    5. In all plan materials describing the terms of the program, the 
availability of a reasonable alternative standard (or the possibility 
of waiver of the otherwise applicable standard) is disclosed.

C. Amendments Made by the Affordable Care Act

    The Affordable Care Act (section 1201) amended the 
nondiscrimination and wellness program provisions of the PHS Act (but 
not of ERISA section 702 or Code section 9802). (Affordable Care Act 
section 1201 also moved those provisions from PHS Act section 2702 to 
PHS Act section 2705). As amended by the Affordable Care Act, the 
nondiscrimination and wellness provisions of PHS Act section 2705 
largely reflect the 2006 regulations (except as discussed later in this 
preamble), and extend the nondiscrimination protections to the 
individual market.\8\ The wellness program exception to the prohibition 
on discrimination under PHS Act section 2705 applies with respect to 
group health plans (and any health insurance coverage offered in 
connection with such plans). Section 2705(l) separately provides for a 
10-State wellness program demonstration project in the individual 
market, to be established not later than July 1, 2014 (as such, this 
proposed rule does not include wellness program policy for the 
individual market).
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    \8\ 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. Application to Grandfathered Plans

    Section 1251 of the Affordable Care Act provides that certain 
amendments made by the Affordable Care Act generally do not apply to 
plans or health insurance coverage that are in effect on the date of 
enactment (and that are not changed in ways specified in implementing 
regulations),\9\ except as specified in section 1251(a)(3) and (4) of 
the Affordable Care Act. Specifically, section 1251(a)(2) of the 
Affordable Care Act provides that subtitles A and C of title I of the 
Affordable Care Act, and the amendments made by such subtitles, ``shall 
not apply'' to such grandfathered health plans.
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    \9\ See 26 CFR 54.9815-1251T, 29 CFR 2590.715-1251, and 45 CFR 
147.140 (75 FR 34538, June 17, 2010), as amended (75 FR 70114, 
November 17, 2010). See also Q5 of Affordable Care Act 
Implementation FAQs Part II (October 8, 2010), available at http;//
www.dol.gov/ebsa/faqs/faq-aca2.html and http://cciio.cms.gov/resources/factsheets/aca_implementation_faqs2.html.
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    Because the amendments made to the PHS Act in section 1201 of the 
Affordable Care Act do not apply to grandfathered health plans, the 
version of PHS Act section 2702 in effect at the time of enactment of 
the Affordable Care Act (and the 2006 regulations under that section) 
continues to apply to

[[Page 70622]]

grandfathered health plans, while the provisions of the new PHS Act 
section 2705 apply to non-grandfathered health plans for plan years (in 
the individual market, policy years) beginning on or after January 1, 
2014.\10\ ERISA section 702 and Code section 9802 continue to govern 
all group health plans, including grandfathered health plans, and, for 
plan years beginning on or after January 1, 2014, ERISA section 
715(a)(1) and Code section 9815(a)(1) will also apply new PHS Act 
section 2705 to non-grandfathered health plans.
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    \10\ See 26 CFR 54.9815-1251T(c)(2), 29 CFR 2590.715-1251(c)(2), 
and 45 CFR 147.140(c)(2), providing that a grandfathered health plan 
must comply with the requirements of the PHS Act, ERISA, and the 
Code applicable prior to the changes enacted by the Affordable Care 
Act, to the extent not inconsistent with the rules applicable to a 
grandfathered health plan (75 FR 34538, June 17, 2010).
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    However, because the Departments believe that the provisions of 
these proposed regulations would be authorized under either HIPAA or 
the Affordable Care Act, the Departments are proposing in this 
rulemaking to apply the same set of standards to both grandfathered and 
non-grandfathered health plans. As noted, PHS Act section 2705(j) 
largely adopts the wellness program provisions of the 2006 regulations 
with some modification and clarification. Consistent with the statutory 
approach, these proposed regulations would apply the rules of PHS Act 
section 2705, governing rewards for adherence to certain wellness 
programs, to grandfathered health plans by regulation under authority 
in the HIPAA nondiscrimination and wellness provisions as was done in 
the 2006 regulations. This approach is intended to avoid inconsistency 
across group health coverage and to provide grandfathered plans the 
same flexibility to promote health and prevent disease as non-
grandfathered plans.

II. Overview of the Proposed Rule

    These regulations generally propose standards for group health 
plans and health insurance issuers offering group health insurance 
coverage with respect to wellness programs. These proposed regulations 
would replace the wellness program provisions of paragraph (f) of the 
2006 regulations and would apply to both grandfathered and non-
grandfathered group health plans and group health insurance coverage 
for plan years beginning on or after January 1, 2014. These regulations 
also propose to implement the nondiscrimination provisions made 
applicable to the individual market by section 1201 of the Affordable 
Care Act. This rulemaking does not propose to modify provisions of the 
2006 regulations other than paragraph (f).

A. Two Categories of Wellness Programs

    Consistent with the 2006 regulations and PHS Act section 2705(j), 
these proposed regulations would continue to divide wellness programs 
into two categories: ``Participatory wellness programs'', which are a 
majority of wellness programs (as noted below) and ``health-contingent 
wellness programs.'' Participatory wellness programs are programs that 
are made available to all similarly situated individuals and that 
either do not provide a reward or do not include any conditions for 
obtaining a reward that are based on an individual satisfying a 
standard that is related to a health factor. Several examples of 
participatory wellness programs are provided in these proposed 
regulations, including: (1) A program that reimburses for all or part 
of the cost of membership in a fitness center; and (2) a program that 
provides a reward to employees for attending a monthly, no-cost health 
education seminar. Participatory programs are not required to meet the 
five requirements applicable to health-contingent wellness programs.
    In contrast, health-contingent wellness programs require an 
individual to satisfy a standard related to a health factor to obtain a 
reward (or require an individual to do more than a similarly situated 
individual based on a health factor in order to obtain the same 
reward). Like the 2006 regulations, these proposed regulations would 
continue to permit rewards to be in the form of a discount or rebate of 
a premium or contribution, a waiver of all or part of a cost-sharing 
mechanism (such as deductibles, copayments, or coinsurance), the 
absence of a surcharge, the value of a benefit that otherwise would not 
be provided under the plan, or other financial or nonfinancial 
incentives or disincentives. Examples of health-contingent wellness 
programs in these proposed regulations are: (1) A program that imposes 
a premium surcharge based on tobacco use; and (2) a program that uses a 
biometric screening or a health risk assessment to identify employees 
with specified medical conditions or risk factors (such as high 
cholesterol, high blood pressure, abnormal body mass index, or high 
glucose level) and provides a reward to employees identified as within 
a normal or healthy range (or at low risk for certain medical 
conditions), while requiring employees who are identified as outside 
the normal or healthy range (or at risk) to take additional steps (such 
as meeting with a health coach, taking a health or fitness course, 
adhering to a health improvement action plan, or complying with a 
health care provider's plan of care) to obtain the same reward. Under 
paragraphs (b)(2)(ii) and (c)(3) of the 2006 regulations (which remain 
unchanged),\11\ health-contingent wellness programs are permissible 
only if they comply with the provisions of paragraph (f)(3), which are 
proposed to be amended in this rulemaking.\12\
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    \11\ 26 CFR 54.9802-1(b)(2)(ii) and (c)(3); 29 CFR 
2590.702(b)(2)(ii) and (c)(3); and 45 CFR 146.121(b)(2)(ii) and 
(c)(3).
    \12\ Until these proposed regulations are finalized and 
effective, the provisions of the 2006 regulations, at 26 CFR 
54.9802-1(f), 29 CFR 2590.702(f), and 45 CFR 146.121(f) generally 
remain applicable to group health plans and group health insurance 
issuers.
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    The Departments believe that appropriately designed wellness 
programs have the potential to contribute importantly to promoting 
health and preventing disease. Even after the issuance of the 2006 
regulations and the enactment of the Affordable Care Act wellness 
provisions, however, stakeholder feedback suggests that there continues 
to be a degree of confusion regarding the scope of the rules governing 
wellness programs. The Departments hope that these proposed regulations 
will help dispel the confusion by reiterating that the five regulatory 
requirements relating to frequency of opportunity to qualify, size of 
reward, uniform availability and reasonable alternative standards, 
reasonable design, and notice of other means of qualifying for the 
reward (summarized below and contained in paragraph (f)(3) of the 
proposed regulations) apply only to those wellness programs that meet 
the definition of ``health-contingent'' programs. As discussed above, 
these are wellness programs that both provide a reward and condition 
the reward on satisfying a standard that is related to a health factor. 
Many wellness programs (those characterized in these regulations as 
``participatory wellness programs'') do not both provide a reward and 
condition the reward on satisfying a standard that is related to a 
health factor. Accordingly, as noted, participatory wellness programs 
are not required to meet the five enumerated requirements applicable to 
health-contingent wellness programs, but they are required to be made 
available to all similarly situated individuals.

[[Page 70623]]

B. Requirements for Health-Contingent Wellness Programs

    Consistent with the 2006 regulations, these proposed regulations 
generally would maintain the five requirements for health-contingent 
wellness programs with one significant modification relating to the 
size of the reward. In addition, several regulatory provisions have 
been re-ordered, and clarifications are proposed to address questions 
and issues raised by stakeholders since the 2006 regulations were 
issued and to be consistent with the amendments made by the Affordable 
Care Act, as discussed below.
    (1) Frequency of Opportunity to Qualify.
    These proposed regulations would, consistent with the 2006 
regulations and the amendments made by the Affordable Care Act, require 
health-contingent wellness programs to give individuals eligible for 
the program the opportunity to qualify for the reward at least once per 
year. As stated in the preamble to the 2006 regulations, the once-per-
year requirement was included as a bright-line standard for determining 
the minimum frequency that is consistent with a reasonable design for 
promoting good health or preventing disease.\13\
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    \13\ See 71 FR at 75018.
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    (2) Size of Reward.
    Like the 2006 regulations, these proposed regulations would 
continue to limit the total amount of the reward for health-contingent 
wellness programs with respect to a plan, whether offered alone or 
coupled with the reward for other health-contingent wellness programs. 
Specifically, the total reward offered to an individual under an 
employer's health-contingent wellness programs could not exceed a 
specified percentage (referred to as the ``applicable percentage'' in 
the proposed regulations) of the total cost of employee-only coverage 
under the plan, taking into account both employer and employee 
contributions towards the cost of coverage. If, in addition to 
employees, any class of dependents (such as spouses, or spouses and 
dependent children) may participate in the health-contingent wellness 
program, the reward could not exceed the applicable percentage of the 
total cost of the coverage in which the employee and any dependents are 
enrolled (such as family coverage or employee-plus-one coverage).
    Some stakeholders have raised questions about health-contingent 
wellness programs that allow dependents to participate, and what 
portion of the reward should be attributable to each participating 
dependent. If a class of dependents may participate in a health-
contingent wellness program, some have suggested that there be a 
maximum reward attributable to the employee's participation in the 
wellness program, such as an amount that does not exceed the applicable 
percentage of the cost of employee-only coverage. The proposed 
regulation being issued contemporaneously by HHS proposes that, to 
comply with PHS Act section 2701, with respect to family coverage, any 
premium variation for tobacco use must be applied to the portion of 
premium attributable to each family member. The Departments invite 
comments on apportionment of rewards in health-contingent wellness 
programs (which may involve tobacco use and/or other health factors)--
for example, should the reward be prorated if only one family member 
fails to qualify for it.
    The 2006 regulations specify 20 percent as the maximum permissible 
reward for participation in a 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. In these proposed regulations, the increase in the 
applicable percentage from 20 percent to 30 percent, which is effective 
for plan years beginning on or after January 1, 2014, conforms to the 
new PHS Act section 2705(j)(3)(A). In addition, the Departments have 
determined that an increase of an additional 20 percentage points (to 
50 percent) for health-contingent wellness programs designed to prevent 
or reduce tobacco use is warranted to conform to the new PHS Act 
section 2701, to avoid inconsistency across group health coverage, 
whether insured or self-insured, or offered in the small group or large 
group market, and to provide grandfathered plans the same flexibility 
to promote health and prevent disease as non-grandfathered plans.
    Specifically, PHS Act section 2701, the ``fair health insurance 
premium'' provision, sets forth the factors that issuers may use to 
vary premium rates in the individual or small group market.\14\ PHS Act 
section 2701(a)(1)(A)(iv) provides that issuers in the individual and 
small group markets cannot vary rates for tobacco use by more than a 
ratio of 1.5 to 1 (that is, allowing up to a 50 percent premium 
surcharge for tobacco use). Contemporaneously with the publication of 
these proposed wellness program regulations, HHS is publishing a 
proposed regulation that would implement PHS Act section 2701. HHS 
proposes that a health insurance issuer in the small group market would 
be able to implement the tobacco use surcharge under PHS Act section 
2701 to employees only in connection with a wellness program meeting 
the standards of PHS Act section 2705(j) and its implementing 
regulations. As discussed in the preamble to the proposed regulation 
implementing PHS Act section 2701, HHS is proposing in that rule that 
the definition of ``tobacco use'' for purposes of section 2701 be 
consistent with the approach taken with respect to health-contingent 
wellness programs designed to prevent or reduce tobacco use under 
section 2705(j). Comments are solicited in the preamble to the proposed 
rules implementing section 2701 on possible definitions of ``tobacco 
use'' that would be applied for purposes of PHS Act sections 2701 and 
2705(j).
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    \14\ 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 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.
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    To coordinate these proposed regulations with the tobacco use 
rating provisions of PHS Act section 2701, as proposed by HHS, these 
proposed wellness program regulations would use the new authority in 
PHS Act section 2705(j)(3)(A) (and, with respect to grandfathered 
health plans, the preexisting authority in the HIPAA nondiscrimination 
and wellness provisions) to increase the applicable percentage for 
determining the size of the reward for participating in a 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. Applying these proposed 
regulations to all group health plans would provide consistency across 
markets, giving large, self-insured, and grandfathered employment-based 
health

[[Page 70624]]

plans the same added flexibility to promote tobacco-free workforces as 
small, insured, non-grandfathered health plans.
    Examples included in these proposed regulations illustrate how to 
calculate the applicable percentage. The Departments invite comments on 
the proposed approach in general and other ideas for coordinating the 
implementation of the tobacco rating factor under PHS Act section 2701 
with the nondiscrimination and wellness program provisions. The 
Departments also invite comments as to whether additional rules or 
examples would be helpful to demonstrate compliance with the limitation 
on the size of the reward when the amount of the reward is variable and 
is not determinable at the time the reward is established (for example, 
when the reward is waiver of a copayment for outpatient office visits, 
the frequency of which will not be predictable for any particular 
participant or beneficiary under the plan).
    (3) Uniform Availability and Reasonable Alternative Standards.
    A critical element of these proposed regulations is the requirement 
that the reward under a health-contingent wellness program be available 
to all similarly situated individuals. To meet this requirement, a 
``reasonable alternative standard'' (or waiver of the otherwise 
applicable standard) for obtaining the reward must be provided for any 
individual for whom, for that period, it is either unreasonably 
difficult due to a medical condition to meet the otherwise applicable 
standard, or for whom it is medically inadvisable to attempt to satisfy 
the otherwise applicable standard. That is, the same, full reward must 
be available to individuals who qualify by satisfying a reasonable 
alternative standard as is provided to individuals who qualify by 
satisfying the program's otherwise applicable standard. These proposed 
regulations would generally reiterate the requirements set forth in the 
2006 regulations and codified in PHS Act section 2705(j), and provide 
several additional clarifications.
    First, under these proposed regulations, as under the 2006 
regulations, in lieu of providing a reasonable alternative standard, a 
plan or issuer may always waive the otherwise applicable standard and 
provide the reward. The plan or issuer may waive the otherwise 
applicable standard and provide a reward for an entire class of 
individuals or may do so on an individual-by-individual basis based on 
the facts and circumstances presented.
    Second, these proposed regulations would not require plans and 
issuers to establish a particular alternative standard in advance of an 
individual's specific request for one. However, a reasonable 
alternative standard would have to be provided by the plan or issuer 
(or the condition for obtaining the reward would be required to be 
waived) upon an individual's request. In this connection, the 
Departments note that, as stated in the preamble to the 2006 
regulations with respect to tobacco cessation, ``overcoming an 
addiction sometimes requires a cycle of failure and renewed effort.'' 
\15\ Plans and issuers cannot cease to provide a reasonable alternative 
standard merely because one was not successful before; they must 
continue to offer a reasonable alternative standard, whether it is the 
same standard or a new reasonable alternative standard (such as a new 
weight-loss class or a new nicotine replacement therapy).\16\
---------------------------------------------------------------------------

    \15\ See 71 FR 75019.
    \16\ Id.
---------------------------------------------------------------------------

    All the facts and circumstances would be taken into account in 
determining whether a plan or issuer has provided a reasonable 
alternative standard, including but not limited to the following 
proposed factors:
     If the reasonable alternative standard is completion of an 
educational program, the plan or issuer must make the educational 
program available instead of requiring an individual to find such a 
program unassisted, and may not require an individual to pay for the 
cost of the program.
     If the reasonable alternative standard is a diet program, 
the plan or issuer is not required to pay for the cost of food but must 
pay any membership or participation fee.
     If the reasonable alternative standard is compliance with 
the recommendations of a medical professional who is an employee or 
agent of the plan or issuer, and an individual's personal physician 
states that the medical professional's recommendations are not 
medically appropriate for that individual, the plan or issuer must 
provide a reasonable alternative standard that accommodates the 
recommendations of the individual's physician with regard to medical 
appropriateness.\17\ Plans and issuers may impose standard cost sharing 
under the plan or coverage for medical items and services furnished in 
accordance with the physician's recommendations.
---------------------------------------------------------------------------

    \17\ As stated in the preamble to the Departments' regulations 
on internal claims and appeals and external review processes, 
adverse benefit determinations based on whether a participant or 
beneficiary is entitled to a reasonable alternative standard for a 
reward under a plan's wellness program are situations in which a 
claim is considered to involve medical judgment and therefore is 
eligible for Federal external review. See 76 FR 37216.
---------------------------------------------------------------------------

    The Departments intend that these clarifications with respect to 
offering reasonable alternative standards will help prevent health-
contingent wellness programs that provide little to no support to 
enrollees to improve individuals' health. In addition, as explained 
later in this preamble, clarifications are proposed to ensure that a 
health-contingent wellness program is reasonably designed to improve 
health and is not a subterfuge for underwriting or reducing benefits 
based on health status. Comments are invited on these provisions, as 
well as whether other facts and circumstances should be specifically 
addressed. For example, the Departments seek comment on whether any 
additional rules or clarifications are needed with respect to the 
process for determining a reasonable alternative standard.
    Finally, the 2006 regulations provided that it is permissible for a 
plan or issuer to seek verification, such as a statement from the 
individual's personal physician, that a health factor makes it 
unreasonably difficult for the individual to satisfy, or medically 
inadvisable for the individual to attempt to satisfy, the otherwise 
applicable standard. The Affordable Care Act amendments codified this 
provision with one modification: PHS Act section 2705(j)(3)(D)(ii) 
makes clear that physician verification may be required by a plan or 
issuer ``if reasonable under the circumstances.'' These proposed 
regulations clarify that it would not be reasonable for a plan or 
issuer to seek verification of a claim that is obviously valid based on 
the nature of the individual's medical condition that is known to the 
plan or issuer. Plans and issuers are permitted under the proposed 
regulations to seek verification of claims that require the use of 
medical judgment to evaluate. The Departments solicit comments on 
whether additional clarifications would be helpful regarding the 
reasonableness of physician verification.
    (4) Reasonable Design.
    Consistent with the 2006 regulations and PHS Act section 2705(j), 
these proposed regulations would continue to require that health-
contingent wellness programs be reasonably designed to promote health 
or prevent disease, not be overly burdensome, not be a subterfuge for 
discrimination based on a health factor, and not be highly suspect

[[Page 70625]]

in the method chosen to promote health or prevent disease. The preamble 
to the 2006 regulations stated that the ``reasonably designed'' 
standard was designed to prevent abuse, but otherwise was ``intended to 
be an easy standard to satisfy * * *. There does not need to be a 
scientific record that the method promotes wellness to satisfy this 
standard. The standard is intended to allow experimentation in diverse 
ways of promoting wellness.'' \18\ The preamble also stated that the 
Departments did not ``want plans and issuers to be constrained by a 
narrow range of programs * * * but want plans and issuers to feel free 
to consider innovative programs for motivating individuals to make 
efforts to improve their health.'' \19\ These proposed regulations 
would continue to provide plans and issuers flexibility and encourage 
innovation. Also, as discussed later in this preamble, the regulations 
include several clarifications to ensure against subterfuge and 
discrimination. Comments are welcome on whether certain standards, 
including evidence- or practice-based standards, are needed to ensure 
that wellness programs are reasonably designed to promote health or 
prevent disease. The Departments also welcome comments on best 
practices guidance regarding evidence- and practice-based strategies in 
order to increase the likelihood of wellness program success. Resources 
for employers and plans include the Healthier Worksite Initiative of 
the Centers for Disease Control and Prevention (CDC) at http://www.cdc.gov/nccdphp/dnpao/hwi/.
---------------------------------------------------------------------------

    \18\ 71 FR 75018.
    \19\ 71 FR 75019.
---------------------------------------------------------------------------

    Under the proposed regulations, the determination of whether a 
health-contingent wellness program is reasonably designed is based on 
all the relevant facts and circumstances. To ensure that programs are 
not a subterfuge for discrimination or underwriting based on health 
factors such as weight, blood pressure, glucose levels, cholesterol 
levels, or tobacco use with no or insufficient support to improve 
individuals' health, the Departments propose that, to the extent a 
plan's initial standard for obtaining a reward (or a portion of a 
reward) is based on results of a measurement, test, or screening that 
is related to a health factor (such as a biometric examination or a 
health risk assessment), the plan is not reasonably designed unless it 
makes available to all individuals who do not meet the standard based 
on the measurement, test, or screening a different, reasonable means of 
qualifying for the reward. Accordingly, the general approach that was 
adopted in the 2006 regulations is preserved, which allows plans and 
issuers to conduct screenings and employ measurement techniques in 
order to target wellness programs effectively. For example, plans and 
issuers could target individuals with high cholesterol for 
participation in cholesterol reduction programs, or individuals who use 
tobacco for participation in tobacco cessation programs, rather than 
the entire population of participants and beneficiaries if individuals 
who do not meet a plan's target biometrics (or similar standards) are 
provided a different, reasonable means of qualifying for the same 
reward. The Departments invite comments on this approach, including on 
ways to ensure that employees will not be subjected to an unreasonable 
``one-size-fits-all'' approach to designing the different means of 
qualifying for the reward that would fail to take an employee's 
circumstances into account to the extent that, as a practical matter, 
they would make it unreasonably difficult for the employee to access 
those different means of qualifying. Comments also are invited on 
whether any other consumer protections are needed to ensure that 
wellness programs are reasonably designed to promote health or prevent 
disease.
    (5) Notice of Other Means of Qualifying for the Reward.
    These proposed regulations, consistent with the 2006 regulations 
and the amendments made by the Affordable Care Act, would require plans 
and issuers to disclose the availability of other means of qualifying 
for the reward or the possibility of waiver of the otherwise applicable 
standard in all plan materials describing the terms of a health-
contingent wellness program. If plan materials merely mention that a 
program is available, without describing its terms, this disclosure is 
not required. For example, a summary of benefits and coverage (SBC) 
required under section 2715 of the PHS Act that notes that cost sharing 
may vary based on participation in a diabetes wellness program, without 
describing the standards of the program, would not trigger this 
disclosure.
    The 2006 regulations provided sample language that could be used to 
satisfy this requirement in both the regulatory text and in several 
examples. However, feedback and experience since the 2006 regulations 
were published have indicated that the sample language was complicated 
and confusing to some individuals and may have led fewer individuals to 
seek a reasonable alternative standard than were eligible. Accordingly, 
these proposed regulations provide new sample language in the 
regulatory text and in examples that is intended to be simpler for 
individuals to understand and to increase the likelihood that those who 
qualify for a different means of obtaining a reward will contact the 
plan or issuer to request it. The Departments invite comment on the 
sample language in both the regulatory text and in the examples.

C. Application to the Individual Health Insurance Market

    PHS Act sections 2705(a) and (b), as added by section 1201 of the 
Affordable Care Act, apply the HIPAA nondiscrimination requirements to 
health insurance issuers in the individual health insurance market. 
Accordingly, the HHS proposed regulations include a new Sec.  147.110 
which applies the nondiscrimination protections of the 2006 regulations 
to non-grandfathered, individual health insurance coverage, effective 
for policy years beginning on or after January 1, 2014. By their terms, 
the wellness program provisions of PHS Act section 2705(j), however, do 
not apply to health insurance coverage in the individual market. 
Accordingly, the wellness program provisions of Sec.  146.121(f) apply 
only to group health plans and group health insurance coverage, not 
individual market coverage.

D. Applicability Date

    These proposed regulations would apply for plan years (in the 
individual market, policy years) beginning on or after January 1, 2014, 
consistent with the statutory effective date of PHS Act section 2705, 
as well as PHS Act section 2701. Comments are invited on this proposed 
applicability date.

III. Economic Impact and Paperwork Burden

A. Executive Orders 12866 and 13563--Department of Labor and Department 
of Health and Human Services

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects; distributive impacts; and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
The Office of Management and Budget (OMB) has determined that this 
proposed rule is a

[[Page 70626]]

``significant regulatory action'' under section 3(f)(4) of Executive 
Order 12866, because it raises novel legal or policy issues arising 
from the President's priorities. Accordingly, the rule has been 
reviewed by the OMB.

                        Table 1--Accounting Table
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Benefits.....................  Quantified: Minimal due to low expected
                                use of higher reward limits.
                               Qualitative: Benefits include the ability
                                to increase the reward based on a health
                                factor to incentivize individuals to
                                meet a health standard associated with
                                improved health, which could reduce
                                health care costs. Improved standards
                                could reduce the use of wellness
                                programs as a subterfuge for
                                discrimination based on a health factor.
Costs........................  Quantified: Minimal since employers are
                                expected to create or expand wellness
                                programs only if the expected benefit
                                exceeds the cost as well as due to low
                                expected use of higher reward limits.
                               Qualitative: Costs of the rule include
                                clarifications regarding what costs
                                individuals may pay as part of an
                                alternative means of complying with the
                                health standard. To the extent an
                                individual faces an increased cost for
                                not meeting a health standard, the
                                individual would have reduced resources
                                to use for other purposes.
Transfers....................  Quantified: Minimal due to low expected
                                use of higher reward limits.
                               Qualitative: Transfers resulting from the
                                rule include transfers from those who do
                                not meet a health standard to those who
                                do meet the standard or the associated
                                alternative standard.
------------------------------------------------------------------------

    Based on the Departments' review of the most recent literature and 
studies regarding wellness programs, the Departments reached the 
conclusion that the impact of the benefits, costs, and transfers 
associated with the proposed rules will be minimal. As discussed in 
this analysis, few 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); therefore, the Departments 
do not believe that expanding the limit to 30 percent (or 50 percent 
for programs designed to prevent or reduce tobacco use) will result in 
significantly higher participation of employers in such programs. The 
Departments provide a qualitative discussion below and cite the survey 
data used to substantiate this conclusion. Moreover, most wellness 
programs appear to be participatory programs that do not require an 
individual to meet a standard related to a health factor in order to 
obtain a reward. As stated earlier in this preamble, these 
participatory wellness programs are not required to meet the five 
requirements that apply to health-contingent wellness programs, but 
they are required to be made available to all similarly situated 
individuals.
    Although the Departments believe few plans will expand the reward 
percentage, the Departments provide a qualitative discussion regarding 
the sources of benefits, costs, and transfers that could occur if plans 
were to expand the reward beyond the current maximum of 20 percent. 
Currently, insufficient broad-based evidence makes it difficult to 
definitively assess the impact of workplace wellness programs on health 
outcomes and cost, although, overall, employers largely report that 
workplace wellness programs in general (participatory programs and 
health-contingent programs) are delivering on their intended benefit of 
improving health and reducing costs.
    The one source of potential additional cost discussed in the impact 
analysis is the clarification that plans must provide a reasonable 
alternative means of satisfying the otherwise applicable standard. The 
Departments present evidence that currently employers not only allow a 
reasonable alternative standard, but that most employers already pay 
for these alternatives. The Departments do not have an estimate of how 
many plans are not currently paying for alternatives consistent with 
the clarifications set forth in the proposed regulations, but the 
number appears to be small. The Departments also employ economic logic 
to conclude that employers will create or expand their wellness program 
and provide reasonable alternatives only if the expected benefits 
exceed the expected costs. Therefore, the Departments believe that the 
benefits of the proposed rule will justify the costs. The Departments 
invite comments on these conclusions and request input for improving 
the analysis, including additional data, surveys, or studies.

B. Background and Need for Regulatory Action--Department of Labor and 
Department of Health and Human Services

    As discussed earlier in this preamble, on December 13, 2006, the 
Departments issued joint final regulations regarding the HIPAA 
nondiscrimination and wellness provisions. The 2006 regulations set 
forth the requirements for wellness programs that provide a reward to 
individuals who satisfy a standard related to a health factor or 
provide a reward to individuals to do more than a similarly situated 
individual based on a health factor. See section I.B. of this preamble 
for a detailed discussion of the HIPAA nondiscrimination and wellness 
provisions and the 2006 regulations.
    PHS Act section 2705 largely reflects the provisions of the 2006 
regulations with some modification and clarification. Most notably, it 
increased the maximum reward that can be provided under a health-
contingent wellness program from 20 percent to 30 percent of the total 
cost of coverage under the plan and authorized the Departments to 
increase this percentage to as much as 50 percent of the total cost of 
coverage under the plan, if the Departments determine that such an 
increase is appropriate. Accordingly, as discussed in section II.B of 
this preamble, these proposed regulations increase the applicable 
percentage for the maximum reward from 20 percent to 30 percent, with 
an additional increase of 20 percentage points (to 50 percent) for 
health-contingent wellness programs designed to prevent or reduce 
tobacco use. The additional increase is warranted to conform to PHS Act 
section 2701, to avoid inconsistency across group health coverage, 
whether insured or self-insured, or offered in the small group or large 
group market, and to provide grandfathered plans the same flexibility 
to promote health and prevent disease as non-grandfathered plans.\20\
---------------------------------------------------------------------------

    \20\ For a discussion of PHS Act section 2701 and the HHS 
proposed regulation being published contemporaneously with these 
proposed regulations, see section II.B.2. of this preamble.
---------------------------------------------------------------------------

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

    As stated earlier in this preamble, the 2006 regulations prescribed 
several requirements for health-contingent wellness programs, including 
a limitation on the maximum reward of 20 percent of the total cost of 
coverage

[[Page 70627]]

under the plan.\21\ PHS Act section 2705 largely reflects the 
requirements for wellness programs from the 2006 regulations with some 
modification and clarification. Most notably, it increased the maximum 
reward that can be provided under a health-contingent wellness program 
from 20 percent to 30 percent of the total cost of coverage under the 
plan and authorized the Departments to increase this percentage to as 
much as 50 percent, if the Departments determine that such an increase 
is appropriate.
---------------------------------------------------------------------------

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

    PHS Act section 2701(a)(1)(A)(iv) provides that issuers in the 
individual and small group markets cannot vary rates for tobacco use by 
more than a ratio of 1.5 to 1 (that is, allowing up to a 50 percent 
rating factor for tobacco use) for non-grandfathered plans. PHS Act 
section 2701 applies to the individual market and the small group 
market, but does not apply in the large group market or to self-insured 
plans. Contemporaneously with the publication of these proposed 
regulations, HHS is publishing a proposed rule that would provide that 
an issuer in the small group market would not be able to impose the 
tobacco rating factor on an individual in the plan under PHS Act 
section 2701 unless it was imposed as part of a wellness program 
meeting the standards of PHS Act section 2705(j) and its implementing 
regulations.
    An important policy goal of the Departments is to provide the large 
group market and self-insured plans and grandfathered health plans with 
the same flexibility as non-grandfathered plans in the small group 
market to promote tobacco-free workforces. The Departments considered 
several regulatory alternatives to meet this objective, including the 
following:
    (1) Stacking premium differentials. One alternative considered was 
to permit a 50 percent premium differential for tobacco use in the 
small group market under PHS Act section 2701 without requiring a 
reasonable alternative standard. Under PHS Act section 2705, an 
additional 30 percent premium differential would also be permitted if 
the five criteria for a health-contingent wellness program are met 
(including the offering of a reasonable alternative standard). Under 
this option, an 80 percent premium differential would have been 
allowable in the small group market based on factors related to health 
status. Large and self-insured plans would have been limited to the 30 
percent maximum reward. Allowing such a substantial difference between 
what was permissible in the small group market and the large group 
market was not in line with the Departments' policy goal of providing 
consistency in flexibility for plans.
    (2) Concurrent premium differentials with no reasonable alternative 
required to be offered for tobacco use. Another alternative would be to 
read sections 2701 and 2705 together such that, for non-grandfathered 
health plans in the small group market, up to a 50 percent premium 
differential would be permitted based on tobacco use, as authorized 
under PHS Act section 2701(a)(1)(A)(iv), with no reasonable alternative 
standard required for the tobacco use program. With respect to non-
tobacco-related wellness programs, a reward could be offered only to 
the extent that a tobacco use wellness program were less than 30 
percent of the cost of coverage because the two provisions apply 
concurrently, and a reward would not be permitted under PHS Act section 
2705 if the maximum reward already were exceeded by virtue of PHS Act 
section 2701. Thus, the 50 percent tobacco surcharge under PHS Act 
section 2701 would be available only to non-grandfathered, insured, 
small group plans. The chosen approach is intended to avoid 
inconsistency and to provide grandfathered plans the same flexibility 
to promote health and prevent disease as non-grandfathered plans.

D. Current Use of Wellness Programs and Economic Impacts--Department of 
Labor and Department of Health and Human Services

    The current use of wellness programs and economic impacts of these 
proposed regulations are discussed in this analysis.
    Wellness programs \22\ have become common among employers in the 
United States. The 2012 Kaiser/HRET survey indicates that 63 percent of 
all employers who offered health benefits also offered at least one 
wellness program.\23\ The uptake of wellness programs continues to be 
more common among large employers. For example, the 2012 Kaiser/HRET 
survey found that health risk assessments are offered by 38 percent of 
large employers offering health benefits, but only 18 percent of 
employers with fewer than 200 workers.
---------------------------------------------------------------------------

    \22\ 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.
    \23\ Kaiser Family Foundation, Employer Health Benefits: 2011 
Annual Survey. 2011, The Kaiser Family Foundation, Menlo Park, CA; 
Health Research & Educational Trust, Chicago, IL.
---------------------------------------------------------------------------

    The Kaiser/HRET survey indicates that 29 percent of all firms and 
53 percent of large firms offered weight loss programs, while 30 
percent and 64 percent, respectively, offered gym memberships or on-
site exercise facilities. Meanwhile, 32 percent of all employers and 63 
percent of large employers offered smoking cessation resources. Despite 
widespread availability, actual participation of employees in wellness 
programs remains limited. While no nationally representative data 
exist, a 2010 non-representative survey suggests that typically less 
than 20 percent of eligible employees participate in wellness 
interventions such as smoking cessation.\24\
---------------------------------------------------------------------------

    \24\ 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. Yet, overall, employers largely report that workplace 
wellness programs are delivering on their intended benefit of improving 
health and reducing costs. According to the 2011 Kaiser/HRET survey, 65 
percent of respondents that offered wellness programs stated that these 
programs improved employee health, and 53 percent believed that they 
reduced costs. Larger firms (defined as those with more than 200 
workers in the Kaiser/HRET survey) were significantly more positive, as 
74 percent affirmed that workplace wellness programs improved health 
and 65 percent said that it reduced cost, as opposed to 65 percent and 
52 percent, respectively, among smaller firms.\25\ Forty percent of 
respondents to a survey by Buck Consultants indicated that they had 
measured the impact of their wellness program on the growth trend of 
their health care costs, and of these, 45 percent reported a reduction 
in that growth trend. The majority of these employers, 61 percent, 
reported that the reduction in growth trend of their health care costs 
was between two and five percentage points per year.\26\ There are 
numerous accounts of the positive impact of workplace wellness programs 
in many industries, regions, and types of employers. For example, a 
recent

[[Page 70628]]

article published by the Harvard Business Review cited positive 
outcomes reported by private-sector employers along several different 
dimensions, including health care savings, reduced absenteeism, and 
employee satisfaction.\27\
---------------------------------------------------------------------------

    \25\ Kaiser Family Foundation, Employer Health Benefits: 2010 
Annual Survey. 2010, The Kaiser Family Foundation, Menlo Park, CA; 
Health Research & Educational Trust, Chicago, IL.
    \26\ Buck Consultants, Working Well: A Global Survey of Health 
Promotion and Workplace Wellness Strategies. 2010, Buck Consultants: 
San Francisco, CA.
    \27\ 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.28 29 Smoking cessation programs typically offered 
education and counseling to increase social support.\30\ Two studies 
reported that individuals in the intervention group quit smoking at a 
rate approximately 10 percentage points higher than those in the 
control group, and another reported that participants were almost four 
times as likely as nonparticipants to reduce tobacco 
use.31 32 However, these effects should be interpreted with 
caution. One study showed significant differences in smoking rates at a 
one-month follow-up, but showed no significant differences in quit 
rates at six months, highlighting the importance of long-term follow-up 
to investigate the sustainability of results.\33\
---------------------------------------------------------------------------

    \28\ 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.
    \29\ Gold, D.B., D.R. Anderson, and S.A. Serxner, Impact of a 
telephone-based intervention on the reduction of health risks. Am J 
Health Promot, 2000. 15(2): p. 97-106; Herman, C.W., et al., 
Effectiveness of an incentive-based online physical activity 
intervention on employee health status. Journal of Occupational and 
Environmental Medicine, 2006. 48(9): p. 889-895; Ozminkowski, R.J., 
et al., The impact of the Citibank, NA, health management program on 
changes in employee health risks over time. J Occup Environ Med, 
2000. 42(5): p. 502-11.
    \30\ 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.
    \31\ 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.
    \32\ In the study, 42% of participants reduced their risk for 
tobacco use. See Gold, D.B., D.R. Anderson, and S.A. Serxner, Impact 
of a telephone-based intervention on the reduction of health risks. 
Am J Health Promot, 2000. 15(2): p. 97-106.
    \33\ Kechukwu, C.A., et al., MassBuilt: Effectiveness of an 
apprenticeship site-based smoking cessation intervention for 
unionized building trades workers. Cancer Causes Control, 2009. 
20(6): p. 887-94.
---------------------------------------------------------------------------

    While employer sponsors generally are satisfied with the results, 
more than half stated in a recent survey that they do not know their 
programs' return on investment.\34\ The peer-reviewed literature, while 
predominantly positive, covers only a small proportion of the universe 
of programs, limiting the generalizability of the reported findings. 
Evaluating such complex interventions is difficult and poses 
substantial methodological challenges that can invalidate findings.
---------------------------------------------------------------------------

    \34\ Buck Consultants, Working Well: A Global Survey of Health 
Promotion and Workplace Wellness Strategies. 2010, Buck Consultants: 
San Francisco, CA.
---------------------------------------------------------------------------

    Overall, surveys suggest that a relatively small percentage of 
employers use incentives, dollar or otherwise, for wellness programs, 
although incentive use is more prevalent among larger employers. Data 
from the 2011 Kaiser/HRET Survey of Employer Health Benefits indicate 
that 14 percent of all employers offered cash, gift cards, merchandise, 
or travel as incentives for wellness program participation. Among large 
firms (greater than 200 workers), only 27 percent offered these kinds 
of incentives. Mercer Consulting's 2009 National Survey of Employer-
Sponsored Health Plans found similar patterns, estimating that six 
percent of all firms and 21 percent of those with 500 or more employees 
provided financial incentives for participating in at least one 
program.\35\ Employers are also looking to continue to add incentives 
to their wellness programs, for example 17 percent intend to add a 
reward or penalty based on tobacco-use status.\36\ The use of 
incentives to promote employee engagement remains poorly understood, so 
it is not clear how type (e.g., cash or non-cash), direction (reward 
versus penalty), and strength of incentive are related to employee 
engagement and outcomes. The Health Enhancement Research Organization 
and associated organizations also recognized this deficiency and 
provided seven questions for future research.\37\ There are also no 
data on potential unintended effects, such as discrimination against 
employees based on their health or health behaviors.
---------------------------------------------------------------------------

    \35\ Mercer, National Survey of Employer-Sponsored Health Plans: 
2009 Survey Report. 2010, Mercer.
    \36\ ``Employer Survey on Purchasing Value in Health Care,'' 
17th Annual Towers Watson/National Business Group on Health Employer 
Survey on Purchasing Value in Health Care.
    \37\ ``Guidance for a Reasonably Designed, Employer-Sponsored 
Wellness Program Using Outcomes-Based Incentives,'' joint consensus 
statement of the Health Enhancement Research Organization, American 
College of Occupational and Environmental Medicine, American Cancer 
Society and American Cancer Society Cancer Action Network, American 
Diabetes Association, and American Heart Association.
---------------------------------------------------------------------------

    Currently, the most commonly incentivized program appears to be 
associated with completion of a health risk assessment. According to 
the 2009 Mercer survey, 10 percent of all firms and 23 percent of large 
employers that offered a health risk assessment provided an incentive 
for completing the assessment. For other types of health management 
programs that the survey assessed, only two to four percent of all 
employers and 13 to 19 percent of large employers offered 
incentives.\38\ The 2011 Kaiser/HRET survey found that 10 percent of 
all employers and 42 percent of large firms that offered a health risk 
assessment provided a financial incentive to employees who completed 
it.
---------------------------------------------------------------------------

    \38\ Mercer, National Survey of Employer-Sponsored Health Plans: 
2009 Survey Report. 2010, Mercer.
---------------------------------------------------------------------------

    Incentives are offered in a variety of forms, such as cash, gift 
cards, merchandise, time off, awards, recognition, raffles or 
lotteries, reduced health plan premiums and co-pays, and contributions 
to flexible spending or health savings accounts. As noted previously, 
the Kaiser/HRET 2011 survey reported that among firms offering health 
benefits with more than 200 workers, 27 percent offered cash or cash 
equivalent incentives (including gift cards, merchandise, or travel 
incentives). In addition, 11 percent of these firms offered lower 
employee health plan premiums to wellness participants, two percent 
offered lower deductibles, and 11 percent offered higher health 
reimbursement account or health savings account contributions. 
Meanwhile, 13 percent of firms with fewer than 200 workers offered cash 
or equivalent incentives, and each of the other types of incentives 
were offered by only two percent or less of firms.
    Cash and cash-equivalent incentives remain the most popular 
incentive for completion of a health risk assessment. The Kaiser/HRET 
2011 survey reports that among employers incentivizing completion of a 
health risk assessment, 41 percent offered cash, gift cards, 
merchandise or travel, 23 percent allowed workers to pay a smaller 
proportion of premiums, 12 percent offered lower deductibles, and one 
percent offered lower coinsurance. Among large employers, 57 percent

[[Page 70629]]

utilized cash incentives, 34 percent offered smaller premiums, six 
percent provided lower deductibles, and three percent provided lower 
coinsurance. Findings from Mercer's 2009 survey suggest similar trends, 
with five percent of all employers and ten percent of those with 500 or 
more workers providing cash incentives for completion of a health risk 
assessment; one percent and two percent, respectively, offering lower 
cost sharing; and two percent and seven percent, respectively, offering 
lower premium contributions.\39\ Note that in the Mercer survey, the 
results cited reflect the incentives provided by all firms that offer a 
health risk assessment, while the Kaiser/HRET results previously 
mentioned reflect only firms that incentivize completion of a health 
risk assessment.
---------------------------------------------------------------------------

    \39\ 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. There is little representative data indicating the 
relative prevalence of these different types of triggers. The most 
common form of outcome-based incentives is reportedly awarded for 
smoking cessation. The 2010 survey by NBGH and TowersWatson indicated 
that while 25 percent of responding employers offered a financial 
incentive for employees to become tobacco-free, only four percent 
offered financial incentives for maintaining a BMI within target 
levels, three percent did so for maintaining blood pressure within 
targets, and three percent for maintaining targeted cholesterol 
levels.\40\
---------------------------------------------------------------------------

    \40\ 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 \41\ and $557,\42\ or between three and 11 percent 
of the $5,049 average cost of individual coverage in 2010,\43\ among 
employees who receive them. This suggests that companies typically are 
not close to reaching the 20 percent of the total cost of coverage 
threshold set forth in the 2006 regulations. These findings indicate 
that based on currently available data, increasing the maximum reward 
for particpating in a health-contingent wellness program to 30 percent 
(and the Departments' decision to propose an additional 20 percentage 
points for programs designed to prevent or reduce tobacco use) is 
unlikely to have a significant impact. Additionally, as discussed 
earlier in this preamble, today most incentive-based wellness programs 
are associated with completion of a health risk assessment irrespective 
of the results, and therefore are not subject to the limitation, 
because such programs are not health-contingent wellness programs.
---------------------------------------------------------------------------

    \41\ Mercer, National Survey of Employer-Sponsored Health Plans: 
2009 Survey Report. 2010, Mercer.
    \42\ Linnan, L., et al., Results of the 2004 national worksite 
health promotion survey. American Journal of Public Health, 2008. 
98(8): p. 1503-1509.
    \43\ Kaiser Family Foundation, Employer Health Benefits: 2010 
Annual Survey.
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    The Departments lack sufficient information to assess how firms 
that currently are at the 20 percent limit will respond to the 
increased limits and welcome public comments regarding this issue. If 
firms already viewed the current 20 percent reward limit as sufficient, 
then the Depatments would not expect that increasing the limit would 
provide an incentive for program design changes.
    It is possible that the increased wellness program reward limits 
will incentivize firms without 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 critical elements of these proposed 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.\44\
---------------------------------------------------------------------------

    \44\ See section II.B, earlier in this preamble for a more 
detailed discussion of these requirements.
---------------------------------------------------------------------------

    As discussed earlier in this preamble, the regulation does not 
prescribe a particular type of alternative standard that must be 
provided. Instead, it permits plan sponsors flexibility to provide any 
reasonable alternative. The Departments expect that plan sponsors will 
select alternatives that entail the minimum net costs (or, stated 
differently, the maximum net benefits) that are possible to achieve 
derive offsetting benefits, such as a higher smoking cessation success 
rate.
    It seems reasonable to presume that the net cost plan sponsors will 
incur in the provision of alternatives, including transfers as well as 
new economic costs and benefits, will not exceed the transfer cost of 
waiving surcharges for all plan participants who qualify for 
alternatives. The Departments expect that many plan sponsors will find 
more cost effective ways to satisfy this requirement, should they 
exercise the option to provide incentives through a health-contingent 
wellness program and that the true net cost to them will therefore be 
much smaller than the transfer cost of waiving surcharges for all plan 
participants who qualify for alternatives. The Departments have no 
basis for estimating the magnitude of the cost of providing alternative 
standards or of potential offsetting benefits, however, and therefore 
solicit comments from the public on this question.
    The Departments note that plan sponsors will have strong motivation 
to identify and provide alternative standards that have positive net 
economic effects. Plan sponsors will be disinclined to provide 
alternatives that undermine their overall wellness program and worsen 
behavioral and health outcomes, or that make financial rewards 
available absent meaningful efforts by participants to improve their 
health habits and overall health. Instead plan sponsors will be 
inclined to provide alternatives that sustain or reinforce plan 
participants' incentive to improve their health habits and overall 
health, and/or that help participants make such improvements. It 
therefore seems likely that gains in economic welfare from this 
requirement will equal or outweigh losses. The Departments intend that 
the requirement to provide reasonable alternatives will reduce 
instances where wellness programs serve only to shift costs to higher 
risk individuals and increase instances where programs succeed at 
helping high risk individuals improve their health. The Departments 
solicit comments on its assumption.
    In considering the transfers that might derive from the 
availability of (and participants' satisfaction with) alternative means 
of qualifying for the

[[Page 70630]]

reward, the transfers arising from this requirement may take the form 
of transfers to participants who satisfy new alternative wellness 
program standards from plan sponsors, to such participants from other 
participants, or some combination of these. The existence of a wellness 
program with a reward contingent on meeting a standard related to a 
health factor creates a transfer from those who do not meet the 
standard to those who do meet the standard. Allowing individuals to 
meet an alternative standard to receive the reward is a transfer to 
those who use the alternative standard from everyone else in the risk 
pool.
    The reward associated with the wellness program is an incentive to 
encourage individuals to meet health standards associated with better 
or improved health, which in turn is associated with lower health care 
costs. If the rewards are effective, health care costs will be reduced 
as an individual's health improves. Some of these lower health care 
costs could translate into lower premiums paid by employers and 
employees, which could offset some of the transfers. To the extent 
larger rewards are more effective at improving health and lowering 
costs, these proposed regulations would produce more benefits than the 
current regulations.
    Rewards also could create costs to individuals and to the extent 
the new larger rewards create more costs than smaller rewards, these 
proposed regulations could increase the costs relative to the existing 
regulations. To the extent an individual does not meet a standard or 
satisfy an alternative standard, they could face higher costs, for 
example in the case of a surcharge for smoking they could face up to a 
50 percent increase in their premiums.
    Based on the foregoing discussion, the Departments expect the 
benefits, costs, and transfers associated with these proposed 
regulations to be minimal. However, the Departments are not able to 
provide aggregate estimates, because they do not have sufficent data to 
estimate the number of plans that will take advantage of the new 
limits.

E. Regulatory Flexibility Act--Department of Labor and Department of 
Health and Human Services

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) applies 
to most Federal rules that are subject to the notice and comment 
requirements of section 553(b) of the Administrative Procedure Act (5 
U.S.C. 551 et seq.). Unless an agency certifies that such a rule will 
not have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities. Small entities include small businesses, 
organizations and governmental jurisdictions.
    For purposes of analysis under the RFA, the Departments propose to 
continue to consider a small entity to be an employee benefit plan with 
fewer than 100 participants. The basis of this definition is found in 
section 104(a)(3) of ERISA, which permits the Secretary of Labor to 
prescribe simplified annual reports for welfare benefit plans that 
cover fewer than 100 participants.\45\
---------------------------------------------------------------------------

    \45\ 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.
---------------------------------------------------------------------------

    Further, while some large employers may have small plans, in 
general, small employers maintain most small plans. Thus, the 
Departments believe that assessing the impact of these proposed 
regulations on small plans is an appropriate substitute for evaluating 
the effect on small entities.
    The definition of small entity considered appropriate for this 
purpose differs, however, from a definition of small business that is 
based on size standards promulgated by the Small Business 
Administration (SBA) (13 CFR 121.201) pursuant to the Small Business 
Act (15 U.S.C. 631 et seq.). The Departments therefore request comments 
on the appropriateness of the size standard used in evaluating the 
impact of these proposed regulations on small entities. The Departments 
have consulted with the SBA Office of Advocacy concerning use of this 
participant count standard for RFA purposes. See 13 CFR 121.902(b)(4).
    The Departments expect that these proposed regulations will affect 
few small plans. While a large number of small plans offer a wellness 
program, the 2011 Kaiser/HRET survey reported that only 13 percent of 
employers with fewer than 200 employees had a wellness program that 
offered cash or cash equivalent incentives (including gift cards, 
merchandise, or travel incentives).\46\ In addition, only two percent 
of these firms offered lower employee health plan premiums to wellness 
participants, one percent offered lower deductibles, and one percent 
offered higher health reimbursement account or health savings account 
contributions. Therefore, the Departments expect that few small plans 
will be affected by increasing the rewards threshold from 20 percent to 
30 percent (50 percent for programs targeting tobacco use prevention or 
reduction), because a small percentage of plans have rewards-based 
wellness programs. Moreover, as discussed in the Economic Impacts 
section earlier in this preamble, few plans that offer rewards-based 
wellness programs come close to reaching the 20 percent limit, and most 
incentive-based wellness programs are associated with completing the 
health risk assessment irrespective of the results, which are not 
subject to the limitation.
---------------------------------------------------------------------------

    \46\ Kaiser Family Foundation, Employer Health Benefits: 2011 
Annual Survey. 2011, The Kaiser Family Foundation, Menlo Park, CA; 
Health Research & Educational Trust, Chicago, IL.
---------------------------------------------------------------------------

    The Kaiser/HRET survey also reports that about 88 percent of small 
plans had their wellness programs provided by the health plan provider. 
Industry experts indicated to the Departments that when wellness 
programs are offered by the health plan provider, they typically supply 
alternative education programs and offer them free of charge. This 
finding indicates that the requirement in the proposed rule for 
rewards-based wellness programs to provide and pay for a reasonable 
alternative standard for individuals for whom it is either unreasonably 
difficult or medically inadvisable to meet the original standard will 
impose little new costs or transfers to the affected plans.
    Based on the foregoing, the Departments herby certify that these 
proposed regulations will not have a significant economic impact on a 
substantial number of small entities.

F. Paperwork Reduction Act--Department of Labor and Department of the 
Treasury

    The 2006 final regulations regarding wellness programs did not 
include an information collection request (ICR). These proposed 
regulations, like the 2006 final regulations, provide that if a plan's 
wellness program requires individuals to meet a standard related to a 
health factor in order to qualify for a reward and if the plan 
materials describe this standard, the materials must also disclose the 
availability of other means of qualifying for the reward or the 
possibility of waiver of the otherwise applicable standard. If plan 
materials merely mention that a program is available, the disclosure 
relating to alternatives is not required. These proposed regulations 
include

[[Page 70631]]

samples of disclosures that could be used to satisfy this requirement.
    In concluding that these proposed regulations did not include an 
ICR, the Departments reasoned that much of the information required was 
likely already provided as a result of state and local requirements or 
the usual business practices of group health plans and group health 
insurance issuers in connection with the offer and promotion of health 
care coverage. In addition, the sample disclosures would enable group 
health plans to make any necessary modifications with minimal effort.
    Finally, although the proposed regulations do not include an ICR, 
the regulations could be interpreted to require a revision to an 
existing collection of information. Administrators of group health 
plans covered under Title I of ERISA are generally required to make 
certain disclosures about the terms of a plan and material changes in 
terms through a Summary Plan Description (SPD) or Summary of Material 
Modifications (SMM) pursuant to sections 101(a) and 102(a) of ERISA and 
related regulations. The ICR related to the SPD and SMM is currently 
approved by OMB under OMB control number 1210-0039, which is currently 
scheduled to expire on April 30, 2013. While these materials may in 
some cases require revisions to comply with the proposed regulations, 
the associated burden is expected to be negligible, and is already 
accounted for in the SPD, SMM, and the ICR by a burden estimation 
methodology, which anticipates ongoing revisions. Based on the 
foregoing, the Departments do not expect that any change to the 
existing ICR arising from these proposed regulations will be 
substantive or material. Accordingly, the Departments have not filed an 
application for approval of a revision to the existing ICR with OMB in 
connection with these proposed regulations.

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

    Under the Paperwork Reduction Act of 1995, the Department is 
required to provide 60-day notice in the Federal Register and solicit 
public comment before a collection of information requirement is 
submitted to OMB for review and approval. In order to fairly evaluate 
whether an information collection should be approved by OMB, section 
3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires the 
Department to solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated techniques.
    Section 146.121(f)(1)(iv) stipulates that the plan or issuer 
disclose in all plan materials describing the terms of the program the 
availability of a reasonable alternative standard to qualify for the 
reward under a wellness program. However, for plan materials that 
merely mention that a program is available, without describing its 
terms, the disclosure is not required. The burden associated with this 
requirement was previously approved under OMB control number 0938-0819. 
We are not seeking reinstatement of the information collection request 
under the aforementioned OMB control number, since we believe that much 
of the information required is likely already provided as a result of 
state and local requirements or the usual business practices of group 
health plans and group health insurance issuers in connection with the 
offer and promotion of health care coverage. In addition, the sample 
disclosures would enable group health plans to make any necessary 
modifications with minimal effort.

H. Special Analyses--Department of the Treasury

    For purposes of the Department of the Treasury it has been 
determined that this notice of proposed rulemaking is not a significant 
regulatory action as defined in Executive Order 12866. Therefore, a 
regulatory assessment is not required. It has also been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these proposed regulations, and, because these 
proposed regulations do not impose a collection of information on small 
entities, a Regulatory Flexibility Analysis under the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to 
section 7805(f) of the Code, this notice of proposed rulemaking has 
been submitted to the Small Business Administration for comment on its 
impact on small business.

I. Congressional Review Act

    These proposed regulations are subject to the Congressional Review 
Act provisions of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et seq.) and, if finalized, will be 
transmitted to Congress and the Comptroller General for review. These 
regulations, do not constitute a ``major rule,'' as that term is 
defined in 5 U.S.C. 804 because they are unlikely to result in (1) an 
annual effect on the economy of $100 million or more; (2) a major 
increase in costs or prices for consumers, individual industries, or 
federal, State or local government agencies, or geographic regions; or 
(3) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with 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 proposed regulations do 
not include any federal mandate that may result in expenditures by 
state, local, or tribal governments, nor does it include mandates which 
may impose an annual burden of $100 million, adjusted for 
inflation,\47\ or more on the private sector.
---------------------------------------------------------------------------

    \47\ In 2012, that threshold level is approximately $139 
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 proposed regulations have 
federalism implications, however, in the Departments' view, the 
federalism implications of these final regulations are substantially 
mitigated because, with respect to health insurance issuers, the vast 
majority of States have enacted laws, which meet or exceed the federal 
HIPAA standards prohibiting discrimination based on health factors.

[[Page 70632]]

Therefore, the regulations are not likely to require substantial 
additional oversight of States by the Department of HHS.
    In general, through section 514, ERISA supersedes State laws to the 
extent that they relate to any covered employee benefit plan, and 
preserves State laws that regulate insurance, banking, or securities. 
While ERISA prohibits States from regulating a plan as an insurance or 
investment company or bank, HIPAA added a new preemption provision to 
ERISA (as well as to the PHS Act) narrowly preempting State 
requirements for group health insurance coverage. With respect to the 
HIPAA nondiscrimination provisions, States may continue to apply State 
law requirements except to the extent that such requirements prevent 
the application of the portability, access, and renewability 
requirements of HIPAA, which include HIPAA's nondiscrimination 
requirements provisions. HIPAA's Conference Report states that the 
conferees intended the narrowest preemption of State laws with regard 
to health insurance issuers (H.R. Conf. Rep. No. 736, 104th Cong. 2d 
Session 205, 1996). State insurance laws that are more stringent than 
the federal requirements are unlikely to ``prevent the application of'' 
the HIPAA nondiscrimination provisions, and therefore are not 
preempted. Accordingly, States have significant latitude to impose 
requirements on health insurance issuers that are more restrictive than 
the federal law.
    Guidance conveying this interpretation was published in the Federal 
Register on April 8, 1997 (62 FR 16904) and on December 30, 2004 (69 FR 
78720), and these proposed regulations clarify and implement the 
statute's minimum standards and do not significantly reduce the 
discretion given the States by the statute. Moreover, the Departments 
understand that the vast majority of States have requirements that meet 
or exceed the minimum requirements of the HIPAA nondiscrimination 
provisions.
    HIPAA provides that the States may enforce the provisions of HIPAA 
as they pertain to issuers, but that the Secretary of HHS must enforce 
any provisions that a State chooses not to or fails to substantially 
enforce. When exercising its responsibility to enforce provisions of 
HIPAA, HHS works cooperatively with the State for the purpose of 
addressing the State's concerns and avoiding conflicts with the 
exercise of State authority.\48\ HHS has developed procedures to 
implement its enforcement responsibilities, and to afford the States 
the maximum opportunity to enforce HIPAA's requirements in the first 
instance. In compliance with Executive Order 13132's requirement that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the States, DOL 
and HHS have engaged in numerous efforts to consult with and work 
cooperatively with affected State and local officials.
---------------------------------------------------------------------------

    \48\ 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).
---------------------------------------------------------------------------

    In conclusion, throughout the process of developing these 
regulations, to the extent feasible within the specific preemption 
provisions of HIPAA, the Departments have attempted to balance the 
States' interests in regulating health plans and health insurance 
issuers, and the rights of those individuals that Congress intended to 
protect through the enactment of HIPAA.

IV. Statutory Authority

    The Department of the Treasury regulations are proposed to be 
adopted pursuant to the authority contained in sections 7805 and 9833 
of the Code.
    The Department of Labor regulations are proposed to be adopted 
pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 
1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1185d, 1191, 
1191a, 1191b, and 1191c; sec. 101(g), Public Law 104-191, 110 Stat. 
1936; sec. 401(b), Public Law 105-200, 112 Stat. 645 (42 U.S.C. 651 
note); sec. 512(d), Public Law 110-343, 122 Stat. 3881; sec. 1001, 
1201, and 1562(e), Public Law 111-148, 124 Stat. 119, as amended by 
Public Law 111-152, 124 Stat. 1029; Secretary of Labor's Order 3-2010, 
75 FR 55354 (September 10, 2010).
    The Department of Health and Human Services regulations are 
proposed to be adopted, with respect to 45 CFR part 146, pursuant to 
the authority contained in sections 2702 through 2705, 2711 through 
2723, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 
300gg-11 through 300gg-23, 300gg-91, and 300gg-92) prior to the 
amendments made by the Affordable Care Act and sections 2701 through 
2763, 2791, and 2792 of the Public Health Service Act (42 U.S.C. 300gg 
through 300gg-63, 300gg-91, and 300gg-92), as amended by the Affordable 
Care Act; with respect to 45 CFR part 147, pursuant to the authority 
contained in sections 2701 through 2763, 2791, and 2792 of the PHS Act 
(42 U.S.C. 300gg through 300gg-63, 300gg-91, and 300gg-92), as amended 
by the Affordable Care Act.

List of Subjects

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Parts 146 and 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Signed this 8th day of November, 2012.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: August 1, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: August 7, 2012.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

Department of the Treasury

Internal Revenue Service

26 CFR Chapter I
    Accordingly, 26 CFR part 54 is proposed to be amended as follows:

PART 54--PENSION EXCISE TAXES

    Paragraph 1. The authority citation for Part 54 is amended by 
adding an entry for 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.

    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

[[Page 70633]]

promotion or disease prevention. Paragraphs (b)(2)(ii) and (c)(3) of 
this section provide exceptions to the general prohibitions against 
discrimination based on a health factor for plan provisions that vary 
benefits (including cost-sharing mechanisms) or the premium or 
contribution for similarly situated individuals in connection with a 
wellness program that satisfies the requirements of this paragraph (f). 
If a wellness program is a participatory wellness program, as defined 
in paragraph (f)(1) of this section, that paragraph also makes clear 
that the wellness program does not violate this section if 
participation in the program is made available to all similarly 
situated individuals. If a wellness program is a health-contingent 
wellness program, as defined in paragraph (f)(2) of this section, the 
wellness program does not violate this section if the requirements of 
paragraph (f)(3) of this section are met. Except where expressly 
provided otherwise, references in this section to an individual 
obtaining a reward include both obtaining a reward (such as a premium 
discount or rebate, a waiver of all or part of a cost-sharing 
mechanism, an additional benefit, or any financial or other incentive) 
and avoiding a penalty (such as the absence of a premium surcharge, or 
other financial or nonfinancial disincentive). References in this 
section to a plan providing a reward include both providing a reward 
(such as a premium discount or rebate, a waiver of all or part of a 
cost-sharing mechanism, an additional benefit, or any financial or 
other incentive) and imposing a penalty (such as a surcharge or other 
financial or nonfinancial disincentive).
    (1) Participatory wellness programs defined. If none of the 
conditions for obtaining a reward under a wellness program is based on 
an individual satisfying a standard that is related to a health factor 
(or if a wellness program does not provide a reward), the wellness 
program is a participatory wellness program and, if participation in 
the program is made available to all similarly situated individuals, 
does not violate this section. Examples of participatory wellness 
programs are:
    (i) A program that reimburses all or part of the cost for 
membership in a fitness center.
    (ii) A diagnostic testing program that provides a reward for 
participation and does not base any part of the reward on outcomes.
    (iii) A program that encourages preventive care through the waiver 
of the copayment or deductible requirement under a group health plan 
for the costs of, for example, prenatal care or well-baby visits. (Note 
that, with respect to non-grandfathered plans, Sec.  54.9815-2713T 
requires benefits for certain preventive health services without the 
imposition of cost sharing.)
    (iv) A program that reimburses employees for the costs of 
participating, or that otherwise provides a reward for participating, 
in a smoking cessation program without regard to whether the employee 
quits smoking.
    (v) A program that provides a reward to employees for attending a 
monthly no-cost health education seminar.
    (vi) A program that provides a reward to employees who complete a 
health risk assessment regarding current health status, without any 
further action (educational or otherwise) required by the employee with 
regard to the health issues identified as part of the assessment. (See 
also Sec.  54.9802-3T for rules prohibiting collection of genetic 
information).
    (2) Health-contingent wellness programs defined. If any of the 
conditions for obtaining a reward under a wellness program is based on 
an individual satisfying a standard that is related to a health factor, 
the wellness program is a health-contingent wellness program and the 
program is permissible under this section only if all of the 
requirements of paragraph (f)(3) of this section are satisfied. 
Examples of health-contingent wellness programs are:
    (i) A program that imposes a premium surcharge based on tobacco 
use.
    (ii) A program that uses a biometric screening or a health risk 
assessment to identify employees with specified medical conditions or 
risk factors (such as high cholesterol, high blood pressure, unhealthy 
body mass index, or high glucose level) and provides a reward to 
employees identified as within a normal or healthy range for biometrics 
(or at low risk for certain medical conditions), while requiring 
employees who are identified as outside the normal or healthy range (or 
at risk) to take additional steps (such as meeting with a health coach, 
taking a health or fitness course, adhering to a health improvement 
action plan, or complying with a health care provider's plan of care) 
to obtain the same reward.
    (3) Requirements for health-contingent wellness programs. A health-
contingent wellness program does not violate this section if all of the 
following requirements are satisfied:
    (i) Frequency of opportunity to qualify. The program must give 
individuals eligible for the program the opportunity to qualify for the 
reward under the program at least once per year.
    (ii) Size of reward. The reward for a health-contingent wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage of the total cost of employee-only coverage under the plan, 
as defined in this paragraph (f)(3)(ii). However, if, in addition to 
employees, any class of dependents (such as spouses, or spouses and 
dependent children) may participate in the wellness program, the reward 
must not exceed the applicable percentage of the total cost of the 
coverage in which an employee and any dependents are enrolled. For 
purposes of this paragraph (f)(3)(ii), the cost of coverage is 
determined based on the total amount of employer and employee 
contributions for the benefit package under which the employee is (or 
the employee and any dependents are) receiving coverage.
    (A) Applicable percentage. For purposes of this paragraph 
(f)(3)(ii), the applicable percentage is 30 percent, except that the 
applicable percentage is increased an additional 20 percentage points 
(to 50 percent) to the extent that the additional percentage is in 
connection with a program designed to prevent or reduce tobacco use.
    (B) Examples. The rules of this paragraph (f)(3)(ii) are 
illustrated by the following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan. 
The annual premium for employee-only coverage is $6,000 (of which 
the employer pays $4,500 per year and the employee pays $1,500 per 
year). The plan offers employees a health-contingent wellness 
program focused on exercise, blood sugar, weight, cholesterol, and 
blood pressure. The reward for compliance is an annual premium 
rebate of $600.
    (ii) Conclusion. In this Example 1, the program satisfies the 
requirements of this paragraph (f)(3)(ii) because the reward for the 
wellness program, $600, does not exceed 30 percent of the total 
annual cost of 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 program satisfies the 
requirements of this paragraph (f)(3)(ii) because the reward for the 
wellness program (absence of a $1,000 surcharge), does not exceed 50 
percent of the

[[Page 70634]]

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 program satisfies the 
requirements of this paragraph (f)(3)(ii) because both: The total of 
all rewards (including absence of a surcharge for participating in 
the tobacco program) is $2,600 ($600 + $2,000 = $2,600), which does 
not exceed 50 percent of the total annual cost of employee-only 
coverage ($3,000); and, tested separately, the $600 reward for the 
wellness program unrelated to tobacco use does not exceed 30 percent 
of the total annual cost of employee-only coverage, $1,800.
    Example 4. (i) Facts. An employer sponsors a group health plan. 
The total annual premium for employee-only coverage (including both 
employer and employee contributions towards the coverage) is $5,000. 
The plan provides a $250 reward to employees who complete a health 
risk assessment, without regard to the health issues identified as 
part of the assessment. The plan also offers a Healthy Heart 
program, which is a health-contingent wellness program under 
paragraph (f)(2) of this section, with an opportunity to earn a 
$1,500 reward.
    (ii) Conclusion. In this Example 4, the plan satisfies the 
requirements of this paragraph (f)(3)(ii). Even though the total 
reward for all wellness programs under the plan is $1,750 ($250 + 
$1,500 = $1,750, which exceeds 30 percent of the cost of the annual 
premium for employee-only coverage ($5,000 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)(3)(ii) are met. (The $250 
reward is offered in connection with a participatory wellness 
program and therefore is not taken into account under this paragraph 
(f)(3)(ii)). The health-contingent wellness program offers a reward 
that does not exceed 30 percent of the total annual cost of 
employee-only coverage.

    (iii) Uniform availability and reasonable alternative standards. 
The reward under the program must be available to all similarly 
situated individuals.
    (A) Under this paragraph (f)(3)(iii), a reward under a program is 
not available to all similarly situated individuals for a period unless 
the program meets both of the following requirements:
    (1) The program allows a reasonable alternative standard (or waiver 
of the otherwise applicable standard) for obtaining the reward for any 
individual for whom, for that period, it is unreasonably difficult due 
to a medical condition to satisfy the otherwise applicable standard; 
and
    (2) The program allows a reasonable alternative standard (or waiver 
of the otherwise applicable standard) for obtaining the reward for any 
individual for whom, for that period, it is medically inadvisable to 
attempt to satisfy the otherwise applicable standard.
    (B) While plans are not required to determine a particular 
alternative standard in advance of an individual's request for one, if 
an individual is described in either paragraph (f)(3)(iii)(A)(1) or (2) 
of this section, a reasonable alternative standard must be furnished by 
the plan upon the individual's request or the condition for obtaining 
the reward must be waived. All the facts and circumstances are taken 
into account in determining whether a plan has furnished a reasonable 
alternative standard, including but not limited to the following:
    (1) If the reasonable alternative standard is completion of an 
educational program, the plan must make the educational program 
available instead of requiring an individual to find such a program 
unassisted, and may not require an individual to pay for the cost of 
the program.
    (2) If the reasonable alternative standard is a diet program, plans 
are not required to pay for the cost of food but must pay any 
membership or participation fee.
    (3) If the reasonable alternative standard is compliance with the 
recommendations of a medical professional who is an employee or agent 
of the plan, and an individual's personal physician states that the 
plan's recommendations are not medically appropriate for that 
individual, the plan must provide a reasonable alternative standard 
that accommodates the recommendations of the individual's personal 
physician with regard to medical appropriateness. Plans may impose 
standard cost sharing under the plan or coverage for medical items and 
services furnished pursuant to the physician's recommendations.
    (C) If reasonable under the circumstances, a plan may seek 
verification, such as a statement from an individual's personal 
physician, that a health factor makes it unreasonably difficult for the 
individual to satisfy, or medically inadvisable for the individual to 
attempt to satisfy, the otherwise applicable standard. It would not be 
reasonable, for example, for a plan to seek verification of a claim 
that is obviously valid based on the nature of the individual's medical 
condition that is known to the plan. However, plans may seek 
verification in the case of claims for which it is reasonable to 
determine that medical judgment is required to evaluate the validity of 
the claim.
    (iv) Reasonable design. The program must be reasonably designed to 
promote health or prevent disease. A program satisfies this standard if 
it has a reasonable chance of improving the health of, or preventing 
disease in, participating individuals and it is not overly burdensome, 
is not a subterfuge for discriminating based on a health factor, and is 
not highly suspect in the method chosen to promote health or prevent 
disease. This determination is based on all the relevant facts and 
circumstances. To the extent a plan's initial standard for obtaining a 
reward (including a portion of a reward) is based on the results of a 
measurement, test, or screening relating to a health factor (such as a 
biometric examination or a health risk assessment), the plan must make 
available to any individual who does not meet the standard based on the 
measurement, test, or screening a different, reasonable means of 
qualifying for the reward.
    (v) Notice of availability of other means of qualifying for the 
reward. (A) The plan must disclose in all plan materials describing the 
terms of the program the availability of other means of qualifying for 
the reward or the possibility of waiver of the otherwise applicable 
standard. If plan materials merely mention that a program is available, 
without describing its terms, this disclosure is not required.
    (B) The following language, or substantially similar language, can 
be used to satisfy the notice requirement of this paragraph (f)(3)(v): 
``Your health plan is committed to helping you achieve your best health 
status. Rewards for participating in a wellness program are available 
to all employees. If you think you might be unable to meet a standard 
for a reward under this wellness program, you might qualify for an 
opportunity to earn the same reward by different means. Contact us at 
[insert contact information] and we will work with you to find a 
wellness program with the same reward that is right for you in light of 
your health status.'' Additional sample language is provided in the 
examples of paragraph (f)(4) of this section.
    (4) Examples. The rules of paragraphs (f)(3)(iii), (iv), and (v) of 
this section are illustrated by the following examples:

    Example 1. (i) Facts. A group health plan provides a reward to 
individuals who

[[Page 70635]]

participate in a reasonable specified walking program. If it is 
unreasonably difficult due to a medical condition for an individual 
to participate (or if it is medically inadvisable for an individual 
to participate), the plan will waive the walking program requirement 
and provide the reward. All materials describing the terms of the 
walking program disclose the availability of the waiver.
    (ii) Conclusion. The program satisfies the requirements of 
paragraph (f)(3)(iii) of this section because the reward under the 
program is available to all similarly situated individuals because 
it accommodates individuals who cannot participate in the walking 
program due to a medical condition (or for whom it would be 
medically inadvisable to attempt to participate) by providing them 
the reward even if they do not participate in the walking program 
(that is, by waiving the condition). The program satisfies the 
requirements of paragraph (f)(3)(iv) of this section because the 
walking program is reasonably designed to promote health and prevent 
disease. Last, the plan complies with the disclosure requirement of 
paragraph (f)(3)(v) of this section. Thus, the plan satisfies 
paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 2. (i) Facts. A group health plan offers a reward to 
individuals who achieve a count under 200 on a cholesterol test. If 
a participant does not achieve the targeted cholesterol count, the 
plan will make available a different, reasonable means of qualifying 
for the reward. In addition, all plan materials describing the terms 
of the program include the following statement: ``Your health plan 
wants to help you take charge of your health. Rewards are available 
to all employees who participate in our Cholesterol Awareness 
Wellness Program. If your cholesterol count is under 200, you will 
receive the reward. If not, you will still have an opportunity to 
qualify for the reward. We will work with you to find a Health Smart 
program that is right for you.'' Individual D is identified as 
having a cholesterol count above 200. The plan partners D with a 
nurse who makes recommendations regarding diet and exercise, with 
which it is not unreasonably difficult due to a medical condition of 
D or medically inadvisable for D to comply, and which is otherwise 
reasonably designed, based on all the relevant facts and 
circumstances. In addition, the plan makes available to all other 
individuals who do not meet the cholesterol standard a different, 
reasonable means of qualifying for the reward which is not 
unreasonably burdensome or impractical. D will qualify for the 
discount if D follows the recommendations regardless of whether D 
achieves a cholesterol count that is under 200.
    (ii) Conclusion. In this Example 2, the program satisfies the 
requirements of paragraphs (f)(3)(iii), (iv), and (v) of this 
section. The program's initial standard for obtaining a reward is 
dependent on the results of a cholesterol screening, which is 
related to a health factor. However, the program is reasonably 
designed under paragraphs (f)(3)(iii) and (iv) of this section 
because the plan makes available to all individuals who do not meet 
the cholesterol standard a different, reasonable means of qualifying 
for the reward and because the program is otherwise reasonably 
designed based on all the relevant facts and circumstances. The plan 
also discloses in all materials describing the terms of the program 
the opportunity to qualify for the reward through other means. Thus, 
the program satisfies paragraphs (f)(3)(iii), (iv), and (v) of this 
section.
    Example 3. (i) Facts. Same facts as Example 2, except that, 
following diet and exercise, D again fails to achieve a cholesterol 
count that is under 200, and the program requires D to visit a 
doctor and follow any additional recommendations of D's doctor with 
respect to D's cholesterol. The program permits D to select D's own 
doctor for this purpose. D visits D's doctor, who determines D 
should take a prescription medication for cholesterol. In addition, 
the doctor determines that D must be monitored through periodic 
blood tests to continually reevaluate D's health status. The plan 
accommodates D by making the discount available to D, but only if D 
actually follows the advice of D's doctor's regarding medication and 
blood tests.
    (ii) Conclusion. In this Example 3, the program's requirements 
to follow up with, and follow the recommendations of, D's doctor do 
not make the program unreasonable under paragraph (f)(3)(iii) or 
(iv) of this section. The program continues to satisfy the 
conditions of paragraph (f)(3)(iii), (iv), and (v) of this section.
    Example 4. (i) Facts. A group health plan will provide a reward 
to participants who have a body mass index (BMI) that is 26 or 
lower, determined shortly before the beginning of the year. Any 
participant who does not meet the target BMI is given the same 
discount if the participant complies with an exercise program that 
consists of walking 150 minutes a week. Any participant for whom it 
is unreasonably difficult due to a medical condition to comply with 
this walking program (and any participant for whom it is medically 
inadvisable to attempt to comply with the walking program) during 
the year is given the same discount if the individual satisfies an 
alternative standard that is reasonable taking into consideration 
the individual's medical situation, is not unreasonably burdensome 
or impractical to comply with, and is otherwise reasonably designed 
based on all the relevant facts and circumstances. All plan 
materials describing the terms of the wellness program include the 
following statement: ``Fitness is Easy! Start Walking! Your health 
plan cares about your health. If you are overweight, our Start 
Walking program will help you lose weight and feel better. We will 
help you enroll. (** If your doctor says that walking isn't right 
for you, that's okay too. We will develop a wellness program that 
is.)'' Individual is unable to achieve a BMI that is 26 or lower 
within the plan's timeframe and is also not reasonably able to 
comply with the walking program. E proposes a program based on the 
recommendations of E's physician. The plan agrees to make the 
discount available to E, but only if E actually follows the 
physician's recommendations.
    (ii) Conclusion. In this Example 4, the program satisfies the 
requirements of paragraphs (f)(3)(iii), (iv), and (v) of this 
section. The program's initial standard for obtaining a reward is 
dependent on the results of a BMI screening, which is related to a 
health factor. However, the plan complies with the requirements of 
paragraph (f)(3)(iv) of this section because it makes available to 
all individuals who do not satisfy the BMI standard a different 
reasonable means of qualifying for the reward (a walking program 
that is not unreasonably burdensome or impractical for individuals 
to comply with and that is otherwise reasonably designed based on 
all the relevant facts and circumstances). In addition, the plan 
complies with the requirements of paragraph (f)(3)(iii) of this 
section because, if there are individuals for whom it is 
unreasonably difficult due to a medical condition to comply, or for 
whom it is medically inadvisable to attempt to comply, with the 
walking program, the plan provides a reasonable alternative to those 
individuals. Moreover, the plan satisfies the requirements of 
paragraph (f)(3)(v) of this section because it discloses, in all 
materials describing the terms of the program, the availability of 
other means of qualifying for the reward or the possibility of 
waiver of the otherwise applicable standard. Thus, the plan 
satisfies paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 5. (i) Facts. In conjunction with an annual open 
enrollment period, a group health plan provides a premium 
differential based on tobacco use, determined using a health risk 
assessment. The following statement is included in all plan 
materials describing the tobacco premium differential: ``Stop 
smoking today! We can help! If you are a smoker, we offer a smoking 
cessation program. If you complete the program, you can avoid this 
surcharge.'' The plan accommodates participants who smoke by 
facilitating their enrollment in a smoking cessation program that 
requires participation at a time and place that are not unreasonably 
burdensome or impractical for participants, and that is otherwise 
reasonably designed based on all the relevant facts and 
circumstances. The plan pays the cost of the program. Any 
participant can avoid the surcharge by participating in the program, 
regardless of whether the participant stops smoking.
    (ii) Conclusion. In this Example 5, the premium differential 
satisfies the requirements of paragraphs (f)(3)(iii), (iv), and (v) 
of this section. The program's initial standard for obtaining a 
reward is dependent on the results of a health risk assessment, 
which is a screening. However, the plan is reasonably designed under 
paragraph (f)(3)(iv) because the plan provides a different, 
reasonable means of qualifying for the reward to all tobacco users. 
The plan discloses, in all materials describing the terms of the 
program, the availability of other means of qualifying for the 
reward. Thus, the plan satisfies paragraphs (f)(3)(iii), (iv), and 
(v) of this section.
    Example 6. (i) Facts. Same facts as Example 5, except the plan 
does not facilitate F's enrollment in any program. Instead the plan 
advises F to find a program, pay for it, and provide a certificate 
of completion to the plan.

[[Page 70636]]

    (ii) Conclusion. In this Example 6, the requirement for F to 
find and pay for F's own smoking cessation program means that the 
alternative program is not reasonable. Accordingly, the plan has not 
offered a reasonable alternative standard that complies with 
paragraphs (f)(3)(iii) and (iv) of this section and the premium 
differential violates paragraph (c) of this section.
* * * * *
    Par. 3. Section 54.9815-2705 is added to read as follows:

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. Accordingly, with respect to health 
insurance issuers offering group health insurance coverage, the issuer 
is subject to the requirements of Sec.  54.9802-1 to the same extent as 
a group health plan.
    (b) Applicability date. This section is applicable to group health 
plans and health insurance issuers offering group health insurance 
coverage for plan years beginning on or after January 1, 2014. See 
Sec.  54.9815-1251T, which provides that the rules of this section do 
not apply to grandfathered health plans.

Department of Labor

Employee Benefits Security Administration

29 CFR Chapter XXV
    29 CFR Part 2590 is proposed to be amended as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

    1. The authority citation for Part 2590 continues to read as 
follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1185d, 1191, 1191a, 1191b, and 
1191c; sec. 101(g), Pub. L. 104- 191, 110 Stat. 1936; sec. 401(b), 
Pub. L. 105- 200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 12(d), 
Pub. L. 110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. 
L. 111-148, 124 Stat. 119, as amended by Pub. L. 111- 152, 124 Stat. 
1029; Secretary of Labor's Order 3-2010, 75 FR 55354 (September 10, 
2010).

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

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

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). If a wellness program is a 
participatory wellness program, as defined in paragraph (f)(1) of this 
section, that paragraph also makes clear that the wellness program does 
not violate this section if participation in the program is made 
available to all similarly situated individuals. If a wellness program 
is a health-contingent wellness program, as defined in paragraph (f)(2) 
of this section, the wellness program does not violate this section if 
the requirements of paragraph (f)(3) of this section are met. Except 
where expressly provided otherwise, references in this section to an 
individual obtaining a reward include both obtaining a reward (such as 
a premium discount or rebate, a waiver of all or part of a cost-sharing 
mechanism, an additional benefit, or any financial or other incentive) 
and avoiding a penalty (such as the absence of a premium surcharge, or 
other financial or nonfinancial disincentive). References in this 
section to a plan providing a reward include both providing a reward 
(such as a premium discount or rebate, a waiver of all or part of a 
cost-sharing mechanism, an additional benefit, or any financial or 
other incentive) and imposing a penalty (such as a surcharge or other 
financial or nonfinancial disincentive).
    (1) Participatory wellness programs defined. If none of the 
conditions for obtaining a reward under a wellness program is based on 
an individual satisfying a standard that is related to a health factor 
(or if a wellness program does not provide a reward), the wellness 
program is a participatory wellness program and, if participation in 
the program is made available to all similarly situated individuals, 
does not violate this section. Examples of participatory wellness 
programs are:
    (i) A program that reimburses all or part of the cost for 
membership in a fitness center.
    (ii) A diagnostic testing program that provides a reward for 
participation and does not base any part of the reward on outcomes.
    (iii) A program that encourages preventive care through the waiver 
of the copayment or deductible requirement under a group health plan 
for the costs of, for example, prenatal care or well-baby visits. (Note 
that, with respect to non-grandfathered plans, section 2590.715-2713 of 
this Part requires benefits for certain preventive health services 
without the imposition of cost sharing.)
    (iv) A program that reimburses employees for the costs of 
participating, or that otherwise provides a reward for participating, 
in a smoking cessation program without regard to whether the employee 
quits smoking.
    (v) A program that provides a reward to employees for attending a 
monthly no-cost health education seminar.
    (vi) A program that provides a reward to employees who complete a 
health risk assessment regarding current health status, without any 
further action (educational or otherwise) required by the employee with 
regard to the health issues identified as part of the assessment. (See 
also Sec.  2590.702-1 for rules prohibiting collection of genetic 
information).
    (2) Health-contingent wellness programs defined. If any of the 
conditions for obtaining a reward under a wellness program is based on 
an individual satisfying a standard that is related to a health factor, 
the wellness program is a health-contingent wellness program and the 
program is permissible under this section only if all of the 
requirements of paragraph (f)(3) of this section are satisfied. 
Examples of health-contingent wellness programs are:
    (i) A program that imposes a premium surcharge based on tobacco 
use.
    (ii) A program that uses a biometric screening or a health risk 
assessment to identify employees with specified medical conditions or 
risk factors (such as high cholesterol, high blood pressure, unhealthy 
body mass index, or high glucose level) and provides a reward to 
employees identified as within a normal or healthy range for biometrics 
(or at low risk for certain medical conditions), while requiring 
employees who are identified as outside the normal or healthy range (or 
at risk) to take additional steps (such as meeting with a health coach, 
taking a health or fitness course, adhering to a health improvement 
action plan, or complying with a health care provider's plan of care) 
to obtain the same reward.
    (3) Requirements for health-contingent wellness programs. A health-
contingent wellness program does not violate this section if all of the 
following requirements are satisfied:

[[Page 70637]]

    (i) Frequency of opportunity to qualify. The program must give 
individuals eligible for the program the opportunity to qualify for the 
reward under the program at least once per year.
    (ii) Size of reward. The reward for a health-contingent wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage of the total cost of employee-only coverage under the plan, 
as defined in this paragraph (f)(3)(ii). However, if, in addition to 
employees, any class of dependents (such as spouses, or spouses and 
dependent children) may participate in the wellness program, the reward 
must not exceed the applicable percentage of the total cost of the 
coverage in which an employee and any dependents are enrolled. For 
purposes of this paragraph (f)(3)(ii), the cost of coverage is 
determined based on the total amount of employer and employee 
contributions for the benefit package under which the employee is (or 
the employee and any dependents are) receiving coverage.
    (A) Applicable percentage. For purposes of this paragraph 
(f)(3)(ii), the applicable percentage is 30 percent, except that the 
applicable percentage is increased an additional 20 percentage points 
(to 50 percent) to the extent that the additional percentage is in 
connection with a program designed to prevent or reduce tobacco use.
    (B) Examples. The rules of this paragraph (f)(3)(ii) are 
illustrated by the following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan. 
The annual premium for employee-only coverage is $6,000 (of which 
the employer pays $4,500 per year and the employee pays $1,500 per 
year). The plan offers employees a health-contingent wellness 
program focused on exercise, blood sugar, weight, cholesterol, and 
blood pressure. The reward for compliance is an annual premium 
rebate of $600.
    (ii) Conclusion. In this Example 1, the program satisfies the 
requirements of this paragraph (f)(3)(ii) because the reward for the 
wellness program, $600, does not exceed 30 percent of the total 
annual cost of 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 program satisfies the 
requirements of this paragraph (f)(3)(ii) because the reward for the 
wellness program (absence of a $1,000 surcharge), does not exceed 50 
percent of the total annual cost of employee-only coverage, $3,000. 
($6,000 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 program satisfies the 
requirements of this paragraph (f)(3)(ii) because: Both the total of 
all rewards (including absence of a surcharge for participating in 
the tobacco program) is $2,600 ($600 + $2,000 = $2,600), which does 
not exceed 50 percent of the total annual cost of employee-only 
coverage ($3,000); and, tested separately, the $600 reward for the 
wellness program unrelated to tobacco use does not exceed 30 percent 
of the total annual cost of employee-only coverage, $1,800.
    Example 4. (i) Facts. An employer sponsors a group health plan. 
The total annual premium for employee-only coverage (including both 
employer and employee contributions towards the coverage) is $5,000. 
The plan provides a $250 reward to employees who complete a health 
risk assessment, without regard to the health issues identified as 
part of the assessment. The plan also offers a Healthy Heart 
program, which is a health-contingent wellness program under 
paragraph (f)(2) of this section, with an opportunity to earn a 
$1,500 reward.
    (ii) Conclusion. In this Example 4, the plan satisfies the 
requirements of this paragraph (f)(3)(ii). Even though the total 
reward for all wellness programs under the plan is $1,750 ($250 + 
$1,500 = $1,750, which exceeds 30 percent of the cost of the annual 
premium for employee-only coverage ($5,000 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)(3)(ii) are met. (The $250 
reward is offered in connection with a participatory wellness 
program and therefore is not taken into account under this paragraph 
(f)(3)(ii)). The health-contingent wellness program offers a reward 
that does not exceed 30 percent of the total annual cost of 
employee-only coverage.

    (iii) Uniform availability and reasonable alternative standards. 
The reward under the program must be available to all similarly 
situated individuals.
    (A) Under this paragraph (f)(3)(iii), a reward under a program is 
not available to all similarly situated individuals for a period unless 
the program meets both of the following requirements:
    (1) The program allows a reasonable alternative standard (or waiver 
of the otherwise applicable standard) for obtaining the reward for any 
individual for whom, for that period, it is unreasonably difficult due 
to a medical condition to satisfy the otherwise applicable standard; 
and
    (2) The program allows a reasonable alternative standard (or waiver 
of the otherwise applicable standard) for obtaining the reward for any 
individual for whom, for that period, it is medically inadvisable to 
attempt to satisfy the otherwise applicable standard.
    (B) While plans and issuers are not required to determine a 
particular alternative standard in advance of an individual's request 
for one, if an individual is described in either paragraph 
(f)(3)(iii)(A)(1) or (2) of this section, a reasonable alternative 
standard must be furnished by the plan or issuer upon the individual's 
request or the condition for obtaining the reward must be waived. All 
the facts and circumstances are taken into account in determining 
whether a plan or issuer has furnished a reasonable alternative 
standard, including but not limited to the following:
    (1) If the reasonable alternative standard is completion of an 
educational program, the plan or issuer must make the educational 
program available instead of requiring an individual to find such a 
program unassisted, and may not require an individual to pay for the 
cost of the program.
    (2) If the reasonable alternative standard is a diet program, plans 
and issuers are not required to pay for the cost of food but must pay 
any membership or participation fee.
    (3) If the reasonable alternative standard is compliance with the 
recommendations of a medical professional who is an employee or agent 
of the plan or issuer, and an individual's personal physician states 
that the plan's recommendations are not medically appropriate for that 
individual, the plan or issuer must provide a reasonable alternative 
standard that accommodates the recommendations of the individual's 
personal physician with regard to medical appropriateness. Plans and 
issuers may impose standard cost sharing under the plan or coverage for 
medical items and services furnished pursuant to the physician's 
recommendations.
    (C) If reasonable under the circumstances, a plan or issuer may 
seek verification, such as a statement from an individual's personal 
physician, that a health factor makes it unreasonably difficult for the 
individual to satisfy, or

[[Page 70638]]

medically inadvisable for the individual to attempt to satisfy, the 
otherwise applicable standard. It would not be reasonable, for example, 
for a plan and issuer to seek verification of a claim that is obviously 
valid based on the nature of the individual's medical condition that is 
known to the plan or issuer. However, plans and issuers may seek 
verification in the case of claims for which it is reasonable to 
determine that medical judgment is required to evaluate the validity of 
the claim.
    (iv) Reasonable design. The program must be reasonably designed to 
promote health or prevent disease. A program satisfies this standard if 
it has a reasonable chance of improving the health of, or preventing 
disease in, participating individuals and it is not overly burdensome, 
is not a subterfuge for discriminating based on a health factor, and is 
not highly suspect in the method chosen to promote health or prevent 
disease. This determination is based on all the relevant facts and 
circumstances. To the extent a plan's initial standard for obtaining a 
reward (including a portion of a reward) is based on the results of a 
measurement, test, or screening relating to a health factor (such as a 
biometric examination or a health risk assessment), the plan must make 
available to any individual who does not meet the standard based on the 
measurement, test, or screening a different, reasonable means of 
qualifying for the reward.
    (v) Notice of availability of other means of qualifying for the 
reward. (A) The plan or issuer must disclose in all plan materials 
describing the terms of the program the availability of other means of 
qualifying for the reward or the possibility of waiver of the otherwise 
applicable standard. If plan materials merely mention that a program is 
available, without describing its terms, this disclosure is not 
required.
    (B) The following language, or substantially similar language, can 
be used to satisfy the notice requirement of this paragraph (f)(3)(v): 
``Your health plan is committed to helping you achieve your best health 
status. Rewards for participating in a wellness program are available 
to all employees. If you think you might be unable to meet a standard 
for a reward under this wellness program, you might qualify for an 
opportunity to earn the same reward by different means. Contact us at 
[insert contact information] and we will work with you to find a 
wellness program with the same reward that is right for you in light of 
your health status.'' Additional sample language is provided in the 
examples of paragraph (f)(4) of this section.
    (4) Examples. The rules of paragraphs (f)(3)(iii), (iv), and (v) of 
this section are illustrated by the following examples:

    Example 1. (i) Facts. A group health plan provides a reward to 
individuals who participate in a reasonable specified walking 
program. If it is unreasonably difficult due to a medical condition 
for an individual to participate (or if it is medically inadvisable 
for an individual to participate), the plan will waive the walking 
program requirement and provide the reward. All materials describing 
the terms of the walking program disclose the availability of the 
waiver.
    (ii) Conclusion. The program satisfies the requirements of 
paragraph (f)(3)(iii) of this section because the reward under the 
program is available to all similarly situated individuals because 
it accommodates individuals who cannot participate in the walking 
program due to a medical condition (or for whom it would be 
medically inadvisable to attempt to participate) by providing them 
the reward even if they do not participate in the walking program 
(that is, by waiving the condition). The program satisfies the 
requirements of paragraph (f)(3)(iv) of this section because the 
walking program is reasonably designed to promote health and prevent 
disease. Last, the plan complies with the disclosure requirement of 
paragraph (f)(3)(v) of this section. Thus, the plan satisfies 
paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 2. (i) Facts. A group health plan offers a reward to 
individuals who achieve a count under 200 on a cholesterol test. If 
a participant does not achieve the targeted cholesterol count, the 
plan will make available a different, reasonable means of qualifying 
for the reward. In addition, all plan materials describing the terms 
of the program include the following statement: ``Your health plan 
wants to help you take charge of your health. Rewards are available 
to all employees who participate in our Cholesterol Awareness 
Wellness Program. If your cholesterol count is under 200, you will 
receive the reward. If not, you will still have an opportunity to 
qualify for the reward. We will work with you to find a Health Smart 
program that is right for you.'' Individual D is identified as 
having a cholesterol count above 200. The plan partners D with a 
nurse who makes recommendations regarding diet and exercise, with 
which it is not unreasonably difficult due to a medical condition of 
D or medically inadvisable for D to comply, and which is otherwise 
reasonably designed, based on all the relevant facts and 
circumstances. In addition, the plan makes available to all other 
individuals who do not meet the cholesterol standard a different, 
reasonable means of qualifying for the reward which is not 
unreasonably burdensome or impractical. D will qualify for the 
discount if D follows the recommendations regardless of whether D 
achieves a cholesterol count that is under 200.
    (ii) Conclusion. In this Example 2, the program satisfies the 
requirements of paragraphs (f)(3)(iii), (iv), and (v) of this 
section. The program's initial standard for obtaining a reward is 
dependent on the results of a cholesterol screening, which is 
related to a health factor. However, the program is reasonably 
designed under paragraphs (f)(3)(iii) and (iv) of this section 
because the plan makes available to all individuals who do not meet 
the cholesterol standard a different, reasonable means of qualifying 
for the reward and because the program is otherwise reasonably 
designed based on all the relevant facts and circumstances. The plan 
also discloses in all materials describing the terms of the program 
the opportunity to qualify for the reward through other means. Thus, 
the program satisfies paragraphs (f)(3)(iii), (iv), and (v) of this 
section.
    Example 3. (i) Facts. Same facts as Example 2, except that, 
following diet and exercise, D again fails to achieve a cholesterol 
count that is under 200, and the program requires D to visit a 
doctor and follow any additional recommendations of D's doctor with 
respect to D's cholesterol. The program permits D to select D's own 
doctor for this purpose. D visits D's doctor, who determines D 
should take a prescription medication for cholesterol. In addition, 
the doctor determines that D must be monitored through periodic 
blood tests to continually reevaluate D's health status. The plan 
accommodates D by making the discount available to D, but only if D 
actually follows the advice of D's doctor's regarding medication and 
blood tests.
    (ii) Conclusion. In this Example 3, the program's requirements 
to follow up with, and follow the recommendations of, D's doctor do 
not make the program unreasonable under paragraphs (f)(3)(iii) or 
(iv) of this section. The program continues to satisfy the 
conditions of paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 4. (i) Facts. A group health plan will provide a reward 
to participants who have a body mass index (BMI) that is 26 or 
lower, determined shortly before the beginning of the year. Any 
participant who does not meet the target BMI is given the same 
discount if the participant complies with an exercise program that 
consists of walking 150 minutes a week. Any participant for whom it 
is unreasonably difficult due to a medical condition to comply with 
this walking program (and any participant for whom it is medically 
inadvisable to attempt to comply with the walking program) during 
the year is given the same discount if the individual satisfies an 
alternative standard that is reasonable taking into consideration 
the individual's medical situation, is not unreasonably burdensome 
or impractical to comply with, and is otherwise reasonably designed 
based on all the relevant facts and circumstances. All plan 
materials describing the terms of the wellness program include the 
following statement: ``Fitness is Easy! Start Walking! Your health 
plan cares about your health. If you are overweight, our Start 
Walking program will help you lose weight and feel better. We will 
help you enroll. (**If your doctor says that walking isn't right for 
you, that's okay too. We will develop a wellness program that is.)'' 
Individual E is unable to achieve a BMI that is 26 or lower within 
the plan's timeframe and is also not reasonably able to comply with 
the walking

[[Page 70639]]

program. E proposes a program based on the recommendations of E's 
physician. The plan agrees to make the discount available to E, but 
only if E actually follows the physician's recommendations.
    (ii) Conclusion. In this Example 4, the program satisfies the 
requirements of paragraphs (f)(3)(iii), (iv), and (v) of this 
section. The program's initial standard for obtaining a reward is 
dependent on the results of a BMI screening, which is related to a 
health factor. However, the plan complies with the requirements of 
paragraph (f)(3)(iv) of this section because it makes available to 
all individuals who do not satisfy the BMI standard a different 
reasonable means of qualifying for the reward (a walking program 
that is not unreasonably burdensome or impractical for individuals 
to comply with and that is otherwise reasonably designed based on 
all the relevant facts and circumstances). In addition, the plan 
complies with the requirements of paragraph (f)(3)(iii) of this 
section because, if there are individuals for whom it is 
unreasonably difficult due to a medical condition to comply, or for 
whom it is medically inadvisable to attempt to comply, with the 
walking program, the plan provides a reasonable alternative to those 
individuals. Moreover, the plan satisfies the requirements of 
paragraph (f)(3)(v) of this section because it discloses, in all 
materials describing the terms of the program, the availability of 
other means of qualifying for the reward or the possibility of 
waiver of the otherwise applicable standard. Thus, the plan 
satisfies paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 5. (i) Facts. In conjunction with an annual open 
enrollment period, a group health plan provides a premium 
differential based on tobacco use, determined using a health risk 
assessment. The following statement is included in all plan 
materials describing the tobacco premium differential: ``Stop 
smoking today! We can help! If you are a smoker, we offer a smoking 
cessation program. If you complete the program, you can avoid this 
surcharge.'' The plan accommodates participants who smoke by 
facilitating their enrollment in a smoking cessation program that 
requires participation at a time and place that are not unreasonably 
burdensome or impractical for participants, and that is otherwise 
reasonably designed based on all the relevant facts and 
circumstances. The plan pays the cost of the program. Any 
participant can avoid the surcharge by participating in the program, 
regardless of whether the participant stops smoking.
    (ii) Conclusion. In this Example 5, the premium differential 
satisfies the requirements of paragraphs (f)(3)(iii), (iv), and (v) 
of this section. The program's initial standard for obtaining a 
reward is dependent on the results of a health risk assessment, 
which is a screening. However, the plan is reasonably designed under 
paragraph (f)(3)(iv) because the plan provides a different, 
reasonable means of qualifying for the reward to all tobacco users. 
The plan discloses, in all materials describing the terms of the 
program, the availability of other means of qualifying for the 
reward. Thus, the plan satisfies paragraphs (f)(3)(iii), (iv), and 
(v) of this section.
    Example 6. (i) Facts. Same facts as Example 5, except the plan 
does not facilitate F's enrollment in any program. Instead the plan 
advises F to find a program, pay for it, and provide a certificate 
of completion to the plan.
    (ii) Conclusion. In this Example 6, the requirement for F to 
find and pay for F's own smoking cessation program means that the 
alternative program is not reasonable. Accordingly, the plan has not 
offered a reasonable alternative standard that complies with 
paragraphs (f)(3)(iii) and (iv) of this section and the premium 
differential violates paragraph (c) of this section.
* * * * *

Subpart C--Other Requirements

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

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.
    (b) Applicability date. This section is applicable to group health 
plans and health insurance issuers offering group health insurance 
coverage for plan years beginning on or after January 1, 2014. See 
Sec.  2590.715-1251, which provides that the rules of this section do 
not apply to grandfathered health plans.

Department of Health and Human Services

45 CFR Subtitle A

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

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

    1. The authority citation for Part 146 continues to read as 
follows:

    Authority: Secs. 2702 through 2705, 2711 through 2723, 2791, and 
2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 
through 300gg-23, 300gg-91, and 300gg-92) (1996).
    Section 146.121 is also issued under secs. 2701 through 2763, 
2791, and 2792 of the Public Health Service Act (42 U.S.C. 300gg 
through 300gg-63, 300gg-91, and 300gg-92), as amended (2010).

    2. In 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). If a wellness program is a 
participatory wellness program, as defined in paragraph (f)(1) of this 
section, that paragraph also makes clear that the wellness program does 
not violate this section if participation in the program is made 
available to all similarly situated individuals. If a wellness program 
is a health-contingent wellness program, as defined in paragraph (f)(2) 
of this section, the wellness program does not violate this section if 
the requirements of paragraph (f)(3) of this section are met. Except 
where expressly provided otherwise, references in this section to an 
individual obtaining a reward include both obtaining a reward (such as 
a premium discount or rebate, a waiver of all or part of a cost-sharing 
mechanism, an additional benefit, or any financial or other incentive) 
and avoiding a penalty (such as the absence of a premium surcharge, or 
other financial or nonfinancial disincentive). References in this 
section to a plan providing a reward include both providing a reward 
(such as a premium discount or rebate, a waiver of all or part of a 
cost-sharing mechanism, an additional benefit, or any financial or 
other incentive) and imposing a penalty (such as a surcharge or other 
financial or nonfinancial disincentive).
    (1) Participatory wellness programs defined. If none of the 
conditions for obtaining a reward under a wellness program is based on 
an individual satisfying a standard that is related to a health factor 
(or if a wellness program does not provide a reward), the wellness 
program is a participatory wellness program and, if participation in 
the program is made available to all similarly situated individuals, 
does not violate this section. Examples of participatory wellness 
programs are:
    (i) A program that reimburses all or part of the cost for 
membership in a fitness center.
    (ii) A diagnostic testing program that provides a reward for 
participation and does not base any part of the reward on outcomes.

[[Page 70640]]

    (iii) A program that encourages preventive care through the waiver 
of the copayment or deductible requirement under a group health plan 
for the costs of, for example, prenatal care or well-baby visits. (Note 
that, with respect to non-grandfathered plans, Sec.  147.130 of this 
subchapter requires benefits for certain preventive health services 
without the imposition of cost sharing.)
    (iv) A program that reimburses employees for the costs of 
participating, or that otherwise provides a reward for participating, 
in a smoking cessation program without regard to whether the employee 
quits smoking.
    (v) A program that provides a reward to employees for attending a 
monthly no-cost health education seminar.
    (vi) A program that provides a reward to employees who complete a 
health risk assessment regarding current health status, without any 
further action (educational or otherwise) required by the employee with 
regard to the health issues identified as part of the assessment. (See 
also Sec.  146.122 for rules prohibiting collection of genetic 
information).
    (2) Health-contingent wellness programs defined. If any of the 
conditions for obtaining a reward under a wellness program is based on 
an individual satisfying a standard that is related to a health factor, 
the wellness program is a health-contingent wellness program and the 
program is permissible under this section only if all of the 
requirements of paragraph (f)(3) of this section are satisfied. 
Examples of health-contingent wellness programs are:
    (i) A program that imposes a premium surcharge based on tobacco 
use.
    (ii) A program that uses a biometric screening or a health risk 
assessment to identify employees with specified medical conditions or 
risk factors (such as high cholesterol, high blood pressure, unhealthy 
body mass index, or high glucose level) and provides a reward to 
employees identified as within a normal or healthy range for biometrics 
(or at low risk for certain medical conditions), while requiring 
employees who are identified as outside the normal or healthy range (or 
at risk) to take additional steps (such as meeting with a health coach, 
taking a health or fitness course, adhering to a health improvement 
action plan, or complying with a health care provider's plan of care) 
to obtain the same reward.
    (3) Requirements for health-contingent wellness programs. A health-
contingent wellness program does not violate this section if all of the 
following requirements are satisfied:
    (i) Frequency of opportunity to qualify. The program must give 
individuals eligible for the program the opportunity to qualify for the 
reward under the program at least once per year.
    (ii) Size of reward. The reward for a health-contingent wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage of the total cost of employee-only coverage under the plan, 
as defined in this paragraph (f)(3)(ii). However, if, in addition to 
employees, any class of dependents (such as spouses, or spouses and 
dependent children) may participate in the wellness program, the reward 
must not exceed the applicable percentage of the total cost of the 
coverage in which an employee and any dependents are enrolled. For 
purposes of this paragraph (f)(3)(ii), the cost of coverage is 
determined based on the total amount of employer and employee 
contributions for the benefit package under which the employee is (or 
the employee and any dependents are) receiving coverage.
    (A) Applicable percentage. For purposes of this paragraph 
(f)(3)(ii), the applicable percentage is 30 percent, except that the 
applicable percentage is increased an additional 20 percentage points 
(to 50 percent) to the extent that the additional percentage is in 
connection with a program designed to prevent or reduce tobacco use.
    (B) Examples. The rules of this paragraph (f)(3)(ii) are 
illustrated by the following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan. 
The annual premium for employee-only coverage is $6,000 (of which 
the employer pays $4,500 per year and the employee pays $1,500 per 
year). The plan offers employees a health-contingent wellness 
program focused on exercise, blood sugar, weight, cholesterol, and 
blood pressure. The reward for compliance is an annual premium 
rebate of $600.
    (ii) Conclusion. In this Example 1, the program satisfies the 
requirements of this paragraph (f)(3)(ii) because the reward for the 
wellness program, $600, does not exceed 30 percent of the total 
annual cost of 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 program satisfies the 
requirements of this paragraph (f)(3)(ii) because the reward for the 
wellness program (absence of a $1,000 surcharge), does not exceed 50 
percent of the total annual cost of employee-only coverage, $3,000. 
($6,000 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 program satisfies the 
requirements of this paragraph (f)(3)(ii) because both: The total of 
all rewards (including absence of a surcharge for participating in 
the tobacco program) is $2,600 ($600 + $2,000 = $2,600), which does 
not exceed 50 percent of the total annual cost of employee-only 
coverage ($3,000); and, tested separately, the $600 reward for the 
wellness program unrelated to tobacco use does not exceed 30 percent 
of the total annual cost of employee-only coverage, $1,800.
    Example 4. (i) Facts. An employer sponsors a group health plan. 
The total annual premium for employee-only coverage (including both 
employer and employee contributions towards the coverage) is $5,000. 
The plan provides a $250 reward to employees who complete a health 
risk assessment, without regard to the health issues identified as 
part of the assessment. The plan also offers a Healthy Heart 
program, which is a health-contingent wellness program under 
paragraph (f)(2) of this section, with an opportunity to earn a 
$1,500 reward.
    (ii) Conclusion. In this Example 4, the plan satisfies the 
requirements of this paragraph (f)(3)(ii). Even though the total 
reward for all wellness programs under the plan is $1,750 ($250 + 
$1,500 = $1,750, which exceeds 30 percent of the cost of the annual 
premium for employee-only coverage ($5,000 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)(3)(ii) are met. (The $250 
reward is offered in connection with a participatory wellness 
program and therefore is not taken into account under this paragraph 
(f)(3)(ii)). The health-contingent wellness program offers a reward 
that does not exceed 30 percent of the total annual cost of 
employee-only coverage.

    (iii) Uniform availability and reasonable alternative standards. 
The reward under the program must be available to all similarly 
situated individuals.
    (A) Under this paragraph (f)(3)(iii), a reward under a program is 
not available to all similarly situated individuals for a period unless 
the program meets both of the following requirements:
    (1) The program allows a reasonable alternative standard (or waiver 
of the

[[Page 70641]]

otherwise applicable standard) for obtaining the reward for any 
individual for whom, for that period, it is unreasonably difficult due 
to a medical condition to satisfy the otherwise applicable standard; 
and
    (2) The program allows a reasonable alternative standard (or waiver 
of the otherwise applicable standard) for obtaining the reward for any 
individual for whom, for that period, it is medically inadvisable to 
attempt to satisfy the otherwise applicable standard.
    (B) While plans and issuers are not required to determine a 
particular alternative standard in advance of an individual's request 
for one, if an individual is described in either paragraph 
(f)(3)(iii)(A)(1) or (2) of this section, a reasonable alternative 
standard must be furnished by the plan or issuer upon the individual's 
request or the condition for obtaining the reward must be waived. All 
the facts and circumstances are taken into account in determining 
whether a plan or issuer has furnished a reasonable alternative 
standard, including but not limited to the following:
    (1) If the reasonable alternative standard is completion of an 
educational program, the plan or issuer must make the educational 
program available instead of requiring an individual to find such a 
program unassisted, and may not require an individual to pay for the 
cost of the program.
    (2) If the reasonable alternative standard is a diet program, plans 
and issuers are not required to pay for the cost of food but must pay 
any membership or participation fee.
    (3) If the reasonable alternative standard is compliance with the 
recommendations of a medical professional who is an employee or agent 
of the plan or issuer, and an individual's personal physician states 
that the plan's recommendations are not medically appropriate for that 
individual, the plan or issuer must provide a reasonable alternative 
standard that accommodates the recommendations of the individual's 
personal physician with regard to medical appropriateness. Plans and 
issuers may impose standard cost sharing under the plan or coverage for 
medical items and services furnished pursuant to the physician's 
recommendations.
    (C) If reasonable under the circumstances, a plan or issuer may 
seek verification, such as a statement from an individual's personal 
physician, that a health factor makes it unreasonably difficult for the 
individual to satisfy, or medically inadvisable for the individual to 
attempt to satisfy, the otherwise applicable standard. It would not be 
reasonable, for example, for a plan and issuer to seek verification of 
a claim that is obviously valid based on the nature of the individual's 
medical condition that is known to the plan or issuer. However, plans 
and issuers may seek verification in the case of claims for which it is 
reasonable to determine that medical judgment is required to evaluate 
the validity of the claim.
    (iv) Reasonable design. The program must be reasonably designed to 
promote health or prevent disease. A program satisfies this standard if 
it has a reasonable chance of improving the health of, or preventing 
disease in, participating individuals and it is not overly burdensome, 
is not a subterfuge for discriminating based on a health factor, and is 
not highly suspect in the method chosen to promote health or prevent 
disease. This determination is based on all the relevant facts and 
circumstances. To the extent a plan's initial standard for obtaining a 
reward (including a portion of a reward) is based on the results of a 
measurement, test, or screening relating to a health factor (such as a 
biometric examination or a health risk assessment), the plan must make 
available to any individual who does not meet the standard based on the 
measurement, test, or screening a different, reasonable means of 
qualifying for the reward.
    (v) Notice of availability of other means of qualifying for the 
reward. (A) The plan or issuer must disclose in all plan materials 
describing the terms of the program the availability of other means of 
qualifying for the reward or the possibility of waiver of the otherwise 
applicable standard. If plan materials merely mention that a program is 
available, without describing its terms, this disclosure is not 
required.
    (B) The following language, or substantially similar language, can 
be used to satisfy the notice requirement of this paragraph (f)(3)(v): 
``Your health plan is committed to helping you achieve your best health 
status. Rewards for participating in a wellness program are available 
to all employees. If you think you might be unable to meet a standard 
for a reward under this wellness program, you might qualify for an 
opportunity to earn the same reward by different means. Contact us at 
[insert contact information] and we will work with you to find a 
wellness program with the same reward that is right for you in light of 
your health status.'' Additional sample language is provided in the 
examples of paragraph (f)(4) of this section.
    (4) Examples. The rules of paragraphs (f)(3)(iii), (iv), and (v) of 
this section are illustrated by the following examples:

    Example 1. (i) Facts. A group health plan provides a reward to 
individuals who participate in a reasonable specified walking 
program. If it is unreasonably difficult due to a medical condition 
for an individual to participate (or if it is medically inadvisable 
for an individual to participate), the plan will waive the walking 
program requirement and provide the reward. All materials describing 
the terms of the walking program disclose the availability of the 
waiver.
    (ii) Conclusion. The program satisfies the requirements of 
paragraph (f)(3)(iii) of this section because the reward under the 
program is available to all similarly situated individuals because 
it accommodates individuals who cannot participate in the walking 
program due to a medical condition (or for whom it would be 
medically inadvisable to attempt to participate) by providing them 
the reward even if they do not participate in the walking program 
(that is, by waiving the condition). The program satisfies the 
requirements of paragraph (f)(3)(iv) of this section because the 
walking program is reasonably designed to promote health and prevent 
disease. Last, the plan complies with the disclosure requirement of 
paragraph (f)(3)(v) of this section. Thus, the plan satisfies 
paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 2. (i) Facts. A group health plan offers a reward to 
individuals who achieve a count under 200 on a cholesterol test. If 
a participant does not achieve the targeted cholesterol count, the 
plan will make available a different, reasonable means of qualifying 
for the reward. In addition, all plan materials describing the terms 
of the program include the following statement: ``Your health plan 
wants to help you take charge of your health. Rewards are available 
to all employees who participate in our Cholesterol Awareness 
Wellness Program. If your cholesterol count is under 200, you will 
receive the reward. If not, you will still have an opportunity to 
qualify for the reward. We will work with you to find a Health Smart 
program that is right for you.'' Individual D is identified as 
having a cholesterol count above 200. The plan partners D with a 
nurse who makes recommendations regarding diet and exercise, with 
which it is not unreasonably difficult due to a medical condition of 
D or medically inadvisable for D to comply, and which is otherwise 
reasonably designed, based on all the relevant facts and 
circumstances. In addition, the plan makes available to all other 
individuals who do not meet the cholesterol standard a different, 
reasonable means of qualifying for the reward which is not 
unreasonably burdensome or impractical. D will qualify for the 
discount if D follows the recommendations regardless of whether D 
achieves a cholesterol count that is under 200.
    (ii) Conclusion. In this Example 2, the program satisfies the 
requirements of paragraphs (f)(3)(iii), (iv), and (v) of this 
section. The program's initial standard for obtaining a reward is 
dependent on the

[[Page 70642]]

results of a cholesterol screening, which is related to a health 
factor. However, the program is reasonably designed under paragraphs 
(f)(3)(iii) and (iv) of this section because the plan makes 
available to all individuals who do not meet the cholesterol 
standard a different, reasonable means of qualifying for the reward 
and because the program is otherwise reasonably designed based on 
all the relevant facts and circumstances. The plan also discloses in 
all materials describing the terms of the program the opportunity to 
qualify for the reward through other means. Thus, the program 
satisfies paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 3. (i) Facts. Same facts as Example 2, except that, 
following diet and exercise, D again fails to achieve a cholesterol 
count that is under 200, and the program requires D to visit a 
doctor and follow any additional recommendations of D's doctor with 
respect to D's cholesterol. The program permits D to select D's own 
doctor for this purpose. D visits D's doctor, who determines D 
should take a prescription medication for cholesterol. In addition, 
the doctor determines that D must be monitored through periodic 
blood tests to continually reevaluate D's health status. The plan 
accommodates D by making the discount available to D, but only if D 
actually follows the advice of D's doctor's regarding medication and 
blood tests.
    (ii) Conclusion. In this Example 3, the program's requirements 
to follow up with, and follow the recommendations of, D's doctor do 
not make the program unreasonable under paragraphs (f)(3)(iii) or 
(iv) of this section. The program continues to satisfy the 
conditions of paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 4. (i) Facts. A group health plan will provide a reward 
to participants who have a body mass index (BMI) that is 26 or 
lower, determined shortly before the beginning of the year. Any 
participant who does not meet the target BMI is given the same 
discount if the participant complies with an exercise program that 
consists of walking 150 minutes a week. Any participant for whom it 
is unreasonably difficult due to a medical condition to comply with 
this walking program (and any participant for whom it is medically 
inadvisable to attempt to comply with the walking program) during 
the year is given the same discount if the individual satisfies an 
alternative standard that is reasonable taking into consideration 
the individual's medical situation, is not unreasonably burdensome 
or impractical to comply with, and is otherwise reasonably designed 
based on all the relevant facts and circumstances. All plan 
materials describing the terms of the wellness program include the 
following statement: ``Fitness is Easy! Start Walking! Your health 
plan cares about your health. If you are overweight, our Start 
Walking program will help you lose weight and feel better. We will 
help you enroll. (**If your doctor says that walking isn't right for 
you, that's okay too. We will develop a wellness program that is.)'' 
Individual E is unable to achieve a BMI that is 26 or lower within 
the plan's timeframe and is also not reasonably able to comply with 
the walking program. E proposes a program based on the 
recommendations of E's physician. The plan agrees to make the 
discount available to E, but only if E actually follows the 
physician's recommendations.
    (ii) Conclusion. In this Example 4, the program satisfies the 
requirements of paragraphs (f)(3)(iii), (iv), and (v) of this 
section. The program's initial standard for obtaining a reward is 
dependent on the results of a BMI screening, which is related to a 
health factor. However, the plan complies with the requirements of 
paragraph (f)(3)(iv) of this section because it makes available to 
all individuals who do not satisfy the BMI standard a different 
reasonable means of qualifying for the reward (a walking program 
that is not unreasonably burdensome or impractical for individuals 
to comply with and that is otherwise reasonably designed based on 
all the relevant facts and circumstances). In addition, the plan 
complies with the requirements of paragraph (f)(3)(iii) of this 
section because, if there are individuals for whom it is 
unreasonably difficult due to a medical condition to comply, or for 
whom it is medically inadvisable to attempt to comply, with the 
walking program, the plan provides a reasonable alternative to those 
individuals. Moreover, the plan satisfies the requirements of 
paragraph (f)(3)(v) of this section because it discloses, in all 
materials describing the terms of the program, the availability of 
other means of qualifying for the reward or the possibility of 
waiver of the otherwise applicable standard. Thus, the plan 
satisfies paragraphs (f)(3)(iii), (iv), and (v) of this section.
    Example 5. (i) Facts. In conjunction with an annual open 
enrollment period, a group health plan provides a premium 
differential based on tobacco use, determined using a health risk 
assessment. The following statement is included in all plan 
materials describing the tobacco premium differential: ``Stop 
smoking today! We can help! If you are a smoker, we offer a smoking 
cessation program. If you complete the program, you can avoid this 
surcharge.'' The plan accommodates participants who smoke by 
facilitating their enrollment in a smoking cessation program that 
requires participation at a time and place that are not unreasonably 
burdensome or impractical for participants, and that is otherwise 
reasonably designed based on all the relevant facts and 
circumstances. The plan pays the cost of the program. Any 
participant can avoid the surcharge by participating in the program, 
regardless of whether the participant stops smoking.
    (ii) Conclusion. In this Example 5, the premium differential 
satisfies the requirements of paragraphs (f)(3)(iii), (iv), and (v) 
of this section. The program's initial standard for obtaining a 
reward is dependent on the results of a health risk assessment, 
which is a screening. However, the plan is reasonably designed under 
paragraph (f)(3)(iv) because the plan provides a different, 
reasonable means of qualifying for the reward to all tobacco users. 
The plan discloses, in all materials describing the terms of the 
program, the availability of other means of qualifying for the 
reward. Thus, the plan satisfies paragraphs (f)(3)(iii), (iv), and 
(v) of this section.
    Example 6. (i) Facts. Same facts as Example 5, except the plan 
does not facilitate F's enrollment in any program. Instead the plan 
advises F to find a program, pay for it, and provide a certificate 
of completion to the plan.
    (ii) Conclusion. In this Example 6, the requirement for F to 
find and pay for F's own smoking cessation program means that the 
alternative program is not reasonable. Accordingly, the plan has not 
offered a reasonable alternative standard that complies with 
paragraphs (f)(3)(iii) and (iv) of this section and the premium 
differential violates paragraph (c) of this section.
* * * * *

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

    3. The authority citation for Part 147 continues to read as 
follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92), as amended (2010).

    4. Section 147.110 is added to read as follows:

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 that the exception 
contained in Sec.  146.121(f) does not apply.
    (b) Applicability date. This section is applicable to a group 
health plan and a health insurance issuer offering group or individual 
health insurance coverage for plan years (in the individual market, 
policy years) beginning on or after January 1, 2014. See Sec.  147.140, 
which provides that the rules of this section do not apply to 
grandfathered health plans.
[FR Doc. 2012-28361 Filed 11-20-12; 11:15 am]
BILLING CODE 4830-01-P; 4510-029-P; 4120-01-P
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