News & Events

Final Regulations Addressing Changes to Wellness Programs Issued

Submitted By Firm: Michael Best & Friedrich LLP

Contact(s): Jose A. Olivieri, Scott C. Beightol


Charles P. Stevens and Kirk A. Pelikan

Date Published: 7/30/2013

Article Type:

Share This:


In early June, 2013, the Departments of Labor, Treasury, and Health and Human Services (the “Agencies”) issued joint final regulations addressing the new standards for wellness programs that were part of the Patient Protection and Affordable Care Act of 2010 (“PPACA”). These regulations address changes that sponsors of wellness programs will need to address beginning in 2014.

Effective Date:

The final regulations become effective August 2, 2013, but first apply to a group health plan during the first plan year beginning on or after January 1, 2014. Thus, for a calendar year plan, an employer must implement changes required by the regulations beginning January 1, 2014.

Unlike some PPACA provisions, a plan’s grandfathered status does not affect the application of the final wellness regulations.


The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) generally prohibits 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. However, HIPAA created an exception to this rule where the discrimination occurred based upon a bona fide wellness program. In regulations released in 2006, the Agencies recognized two general categories of wellness programs:

• Participatory wellness programs; and

• Standard-based wellness programs.

Participatory wellness programs require only that the individual participate, but not attain any particular standard with regard to health, physical condition or activity, before some reward would be granted or a penalty imposed. These programs were permitted provided they were made available to all similarly-situated individuals, regardless of health status.

Standard-based wellness programs required the employee to achieve some status before a reward would be granted or a penalty imposed. These programs were subject to greater scrutiny and employers were prohibited from imposing a penalty (or reward) greater than 20% of the aggregate cost of health coverage.

In PPACA, Congress embraced the 2006 wellness regulations but increased the permitted penalty/reward to 30% of the cost of coverage, and permitted a differential of up to 50% based on regulations to be issued by the Agencies. The new final regulations expound upon PPACA’s changes. Under both the old and new rules, the differential between those treated favorably and those not is considered important, not whether it takes the form of a reward that favors some or a penalty that is imposed on others. The described changes below refer to rewards but they are equally applicable if the differential is imposed in the form of a penalty.


Participatory Wellness Programs

Participatory wellness programs remain largely unchanged under the new regulations. Of note, the Agencies added an additional example of a participatory wellness program—such program includes 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.

Health-Contingent Wellness Programs

On the other hand, standard-based wellness programs (now classified as “health-contingent wellness programs”) were significantly modified. Under the final regulations, health-contingent wellness programs still have five requirements that the program must meet to qualify for HIPAA’s exemption from health factor discrimination, but the regulations have subdivided health-contingent wellness programs into two types: activity-only and outcome-based wellness programs, and the requirements differ somewhat depending upon the type of health-contingent wellness program at issue.

During the remainder of this alert, we define the two types of health-contingent wellness programs, analyze the five main requirements for such programs, and highlight differences where they exist between the two types of health-contingent wellness programs.

Types of Health-Contingent Wellness Programs

An “activity-only wellness program” is one that requires an individual to perform or complete an activity related to a health factor in order to obtain a reward but does not require the individual to attain or maintain a specific health outcome. Examples include walking, diet or exercise programs.

An “outcome-based wellness program” is a program that requires an individual to attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) in order to obtain a reward.

Five Requirements of a Health-Contingent Wellness Program

(1) Frequency of Opportunity to Qualify

Both activity-only wellness programs and outcome-based wellness programs require that an eligible participant be permitted to qualify for a reward under the program at least once per year.

(2) Size of Reward

In general, both activity-only wellness programs and outcome-based wellness programs are restricted from providing a reward that exceeds 30% of the total cost of employee-only coverage (employer and employee contributions) under the plan. This amount may be increased if either of the following applies:

• If the wellness program allows a class of dependents (e.g., spouses and/or children) to participate in the program, the reward may not exceed 30% of the total cost of the coverage in which the employee and any dependents are enrolled.

• If a portion of the health-contingent wellness program is focused on preventing or reducing tobacco use, the applicable percentage listed above can be increased from 30% to 50% so long as the additional 20% is based solely on the tobacco use prevention or reduction.

(3) Reasonable Design

Both activity-only wellness programs and outcome-based wellness programs must be reasonably designed to promote health or prevent disease, which means that the program must have a reasonable chance of improving the health of, or preventing disease in, participating individuals, cannot be overly burdensome, cannot be a subterfuge for discriminating based on a health factor, and cannot be “highly suspect” in the method chosen to promote health or prevent disease.

To meet this standard, an outcome-based wellness program must provide a reasonable alternative standard to permit any individual who does not meet the initial standard to obtain the reward. Prior to the adoption of the final regulations, the alternative was required only for individuals for whom it was medically inadvisable to attempt to satisfy the standard or for whom it was unreasonably difficult to satisfy the standard due to a medical condition.

(4) Uniform Availability and Reasonable Alternative Standards

The regulations require that the full reward under both activity-based and outcome-based wellness programs be available to all similarly-situated individuals. The regulations state that a reward is generally not available unless there is an alternative basis upon which certain individuals can earn the reward if such individual fails to do so under the program’s general standards. These rules are complex and vary by the type of program at issue. Stated succinctly,

• For activity-only programs, an alternative standard (or waiver) must be permitted if it would be either unreasonably difficult or medically inadvisable for the individual to attempt or attain the standard.

• For outcome-based wellness programs, an alternative standard (or waiver) must be permitted for all individuals who do not attain the standard.

• Permitted alternative standards have additional rules: the alternative standard need not be established in advance, and in arriving at an alternative standard, the recommendations of the individual’s personal physician must be accommodated.

(5) Notice of Availability of Reasonable Alternative Standard

Plans which utilize both activity-only wellness programs and outcome-based wellness programs must disclose in all written materials that describe the programs’ terms the fact that reasonable alternative standards to obtain the reward are available, including contact information to obtain the standard and provide a statement that the recommendations of an individual’s personal physician will be accommodated. This description is also required in any disclosure to an individual regarding his/her failure to satisfy an individual outcome-based standard.

A copy of the wellness regulations may be found here.


Find an Employment Lawyer

View or print a complete ELA member list »

Client Successes

Altra Industrial Motion Inc.

Altra Industrial Motion Inc. has multiple locations in the U.S., as well as Central America, Europe, and Asia. The Employment Law Alliance has proved to be a great asset in assisting us in dealing with employment issues and matters in such diverse venues as Mexico, Australia, and Spain. We have obtained excellent results using the ELA network for matters ranging from a multi-state review of employment policies to assisting with individual employment issues in a variety of foreign jurisdictions.

In one instance, we were faced with an employment dispute with a former associate in Mexico that had the potential for substantial economic exposure. The matter had been pending for over a year, and we were not confident in the employment advice we had been receiving. I obtained a referral to the ELA counsel in Mexico, who was able to obtain a favorable resolution of the dispute in only a few days. Based on our experiences with the ELA, we would not hesitate to use its many resources for future employment law needs.

American University in Bulgaria

In my career I have been a practicing attorney, counsel to the Governor of Maine, and CEO of a major public utility. I have worked with many lawyers in many settings. When the American University in Bulgaria needed help with employment litigation in federal court in Syracuse, New York, we turned to Pierce Atwood, the ELA member we knew and trusted in Maine, for a referral. We were extremely pleased with the responsiveness and high quality of service we received from Bond Schoeneck & King, the ELA's firm in upstate New York. I would not hesitate to recommend the ELA to any employer.

David T. Flanagan
Member of Board of Trustees 

Arcata Associates

I really enjoyed the Conducting an Effective Internal Investigation in the United States webinar.  We are in the midst of a rather delicate employee relations issue in California right now and the discussion helped me tremendously.  It also reinforced things that you tend to forget if you don't do these investigations frequently.  So, many, many thanks to the Employment Law Alliance for putting that webinar together.  It was extremely beneficial.

Lynn Clayton
Vice President, Human Resources

Barrett Business Services, Inc.

I recently participated in the ELA-sponsored webinar on the Employee Free Choice Act.  I was most impressed with that presentation.  It was extremely helpful and very worthwhile.  I have also been utilizing the ELA's online Global Employer Handbook.  This compliance tool is absolutely terrific. 

I am familiar with several other products that purport to provide up-to- date employment law information and I believe that this resource is superior to other similar compliance manuals.  I am delighted that the ELA provides this free to its members' clients.

Boyd Coffee Company

Employment Law Alliance (ELA) has provided Boyd Coffee Company with a highly valued connection to resources, important information and learning. With complex operations and employees working in approximately 20 states, we are continually striving to keep abreast of specific state laws, many of which vary from state to state. We have participated in the ELA web seminars and have found the content very useful. We appreciate the ease, cost effectiveness and quality of the content and presenters offered by these web seminars.  The Global Employer Handbook has provided our company with a very helpful overview of legal issues in the various states in which we operate, and the network of attorneys has helped us manage issues that have arisen in states other than where our Roastery and corporate headquarters are located in Portland, Oregon.

Capgemini Outsourcing Services GmbH

As an international operating outsourcing and consulting supplier Capgemini has used firms of the Employment Law Alliance in Central Europe. We were always highly satisfied with the quality of employment law advice and the responsiveness. I can really recommend the ELA lawyers.

Hirschfeld Kraemer

As an employment lawyer based in San Francisco, I work closely with high tech clients with operations around the globe. Last year, one of my clients needed to implement a workforce reduction in a dozen countries simultaneously. And they gave me 48 hours to accomplish this. I don't know how I could have pulled this off without the resources of the ELA. I don't know of any single law firm that could have made this happen. My client received all of the help they needed in a timely fashion and on a cost effective basis.

Stephen J. Hirschfeld

Hollywood Entertainment Corporation

As the Vice President for Litigation & Associate General Counsel for my company, I need to ensure that we have a team of top-notch employment lawyers in place in every jurisdiction where we do business. And I want to be confident that those lawyers know our business so they don't have to reinvent the wheel when a new legal matter arises. With more than 3400 stores and 35,000 employees operating in all 50 U.S. states and across Canada, we rely on the ELA to partner with us to help accomplish our objectives. I have been delighted with the consistent high quality of the work performed by ELA lawyers. I encourage other in-house counsel to use their services, as well.

Ingram Micro

Ingram Micro is the world's largest technology distributor, providing sales, marketing, and logistics services for the IT industry around the globe. With over 13,000 employees working throughout the U.S. and in 35 international countries, we need employment lawyers who we can count on to ensure global legal compliance. Our experience with many multi-state and multi-national law firms is that their employment law services are not always a high priority for them, and many do not have experts in many of their offices. The ELA has assembled an excellent team of highly skilled employment lawyers, wherever and whenever I need them, and they have proven to be an invaluable resource to our company.

Konami Gaming

Our company, Konami Gaming, Inc., is growing rapidly in a very diverse and highly regulated industry. We are aggressively entering new markets outside the domestic U.S., including Canada and South America. I have had the recent opportunity to utilize the services provided by the ELA. The legal advice was both responsive and professional. Most of all, the entire process was seamless since our Nevada attorney coordinated the services and legal advice requested. I look forward to working with the ELA in the future, as it serves as a great resource to the legal community.

Jennifer Martinez
Vice President, Human Resources

Nikkiso Cryo, Inc.

Until recently, I was unaware of the ELA's existence. We have subsidiaries and affiliates throughout the United States, as well as in Asia, the Middle East and Europe. When a recent legal issue arose in Texas, our long-time Nevada counsel, who is a member of the ELA, suggested that this matter be handled by his ELA colleague in Dallas. We are very pleased with the quality and timeliness of services provided by that firm, and we are excited to now have the ELA as an important asset to help us address employment law issues worldwide.

Palm, Inc.

The ELA network has been immensely important to our company in helping us address an array of human resources challenges around the world. I strongly encourage H.R. executives who have employees located in many different jurisdictions to utilize the ELA's unparalleled expertise and geographic coverage.

Stacy Murphy
Former Senior Director of Human Resources

Rich Products

As the General Counsel for a company with 6,500 employees operating across the U.S. and in eight countries, it is critical that I have top quality lawyers on the ground where we do business. The ELA is an indispensable resource. It has taken the guesswork out of finding the best employment counsel wherever we have a problem.

Jill K. Bond
Senior Vice President/General Counsel, Shared Services and Benefits

Ricoh Americas Corporation

We have direct sales and service offices all over the U.S., but have not necessarily had the need in the past for assistance with legal work in every state where we have a business presence. From time to time, we suddenly find ourselves facing a legal issue in a state where we have no outside counsel relationship. It has been a real benefit to know that the ELA has assembled such an impressive team of experts throughout the U.S. and overseas.

A few years ago, we faced a very tough discrimination lawsuit in Mississippi. We had never had to retain a lawyer there before. I was absolutely delighted with the Mississippi ELA firm. We received an excellent result. They will no doubt handle all of our employment law matters in Mississippi in the future. I have also obtained the assistance of several other ELA firms around the U.S. and have received the same outstanding service. The ELA is a tremendous resource for our company.

Roberts-Gordon LLC

Our affiliated companies have used the Employment Law Alliance in connection with numerous acquisitions, and have always been extremely pleased with our ability to obtain the highest quality legal advice on due diligence issues from jurisdiction to jurisdiction. We have found the Employment Law Alliance firms to be not only first rate with respect to their legal advice but also responsive and timely in assisting us with federal and state law issues critical to our due diligence efforts. We consider the Employment Law Alliance to be an important part of our team.

Rockwell Collins, Inc.

We have partnered with many ELA firms on the development and execution of case management strategies with very positive results. We have been very pleased with the legal advice and counsel provided by the law firms we have utilized who are affiliated with the Employment Law Alliance. The ELA firms we have worked with are customer focused, responsive, and thorough in their approach to handling labor and employment law matters.

Elizabeth Daly
Assistant General Counsel


Sanmina-SCI has facilities strategically located in key regions throughout the world. Our customers expect that we will provide them with the highest quality and most sophisticated services in the marketplace. We have that same expectation for the lawyers with whom we do business. With operations in 17 countries, we need to be certain that we have a team of lawyers working together to address our employment law needs worldwide. The ELA has delivered exactly what it promised-- seamless and consistent high quality services delivered in each locale around the globe. It has quickly become a key asset for our human resources department.


We own, manage, and franchise hotels throughout the U.S. and in more than 90 countries. With more than 145,000 employees worldwide, ensuring that we comply with the complex web of local labor and employment laws in every one of these jurisdictions is a daunting task. The Employment Law Alliance has served as an important resource for us and we have benefited greatly from its expertise and long reach. When a legal dispute or issue has arisen in some far-flung place, Employment Law Alliance lawyers have always provided responsive, practical, and cost-effective assistance.

Wilmington Trust Corporation

Wilmington Trust has used the ELA to locate firms in California, Washington State, Georgia, and Europe. Our experience with the ELA lawyers with whom we have worked has always been one of complete satisfaction and prompt, practical advice.

Michael A. DiGregorio
General Counsel