The recent expansion of nondiscrimination rules for workplace wellness programs could stifle employers' ability to use incentives to drive active health management and improve health outcomes among employees.

The Department of Health and Human Services last month finalized a series of regulations under the Patient Protection and Affordable Care act that significantly broaden protections for employees who are medically or otherwise incapable of completing an activity-based or outcome-based objective (see box) to earn rewards or avoid penalties under their employer's wellness program.

Beginning in 2014, employers must provide a “reasonable alternative standard” through which an employee can still earn an activity-based wellness incentive if a medical condition prevents them from completing the initial activity.

Employers also will be required to provide reasonable alternative standards for employees who cannot meet a target health outcome — such as a percentage reduction or benchmark in their body mass index, cholesterol or weight.

Unlike activity-based incentives, employers must provide alternative standards for outcome-based incentives regardless of whether an employee is medically capable of meeting the original standard.

“It's going to be a real test to see how many employees avail themselves of the broader alternative standard provision, and whether the reasonable alternative programs can be as effective as the initial programs in terms of actually improving health outcomes,” said Steve Wojcik, vice president of public policy for the Washington-based National Business Group on Health.

The additional layer of discrimination protection tied to outcome-based incentives could make it difficult for employers to use such incentive structures to drive engagement in health management, or accurately gauge the net effectiveness of such incentive structures where significant percentages of employees are obtaining the attached rewards through alternative methods.

“It's very difficult to design a reward for the outcome that you want your employees to achieve if anyone who doesn't meet that standard regardless of whether their capable of doing is given an alternative means of getting that reward,” said Diane Dygert, a Chicago-based partner at law firm Seyfarth Shaw L.L.P.

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While the new regulations provide employers considerable flexibility in terms of designing alternative standards for activity-based and outcome-based incentives that would qualify as “reasonable,” experts say the rules also require employers to acquiesce to recommended alternative standards from an employee's personal physician if they differ from the employers.

“It would be hard for a medical doctor to ethically recommend an alternative if he or she thought it was going to encourage bad behavior on the part of the patient,” said Lester Morales, Tampa, Fla.-based chief growth officer at Willis North America Inc.'s human capital practice. “The new rules do allow a lot more wiggle room for an employee to take advantage of the system, but I think the percentage of people trying to use this as a loophole should be fairly minimal.”

Still, some experts worry that the new nondiscrimination provisions disproportionately favor employees to the extent that they could undermine an employer's broader wellness objectives.

“The government appears to be giving a lot of deference to the employee and their personal physician, and it doesn't give the employer much opportunity to contest whatever reasonable alternative a physician comes up with,” said Amy Bergner, a managing director at PricewaterhouseCoopers L.L.P. in Washington.

However, not all of the provisions in the final regulations were as worrisome as the nondiscrimination rules, experts said.

Certain provisions likely will prove helpful to employers seeking to leverage workplace wellness programs to reduce health care costs and stimulate stronger interest in active health management.

“On the positive side, the new regulations will increase the size of the rewards or penalties they use to motivate employers,” Ms. Bergner said. Under the new regulations, employers will be permitted to raise the dollar amount of activity-based or outcome-based rewards or surcharges they offer to employees to 30% of the total premium cost of their health care coverage — up from the current cap of 20% — and as much as 50% of total premium costs for incentives tied to smoking prevention or reduction programs.

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“That should be a good thing,” Ms. Bergner said. “Unfortunately, that's something that we lose sight of because of the more burdensome nondiscrimination provisions of the new regulations.”

• Participatory wellness program: Programs that either do not provide incentives, or do not include any health factor-based standards or conditions to access incentives.

• Health-contingent wellness program: Any program that requires participants to meet a standard or condition related to a health factor to access an incentive.

• Activity-based wellness program: A type of health-contingent wellness program in which participants are required to perform or complete an activity related to a health factor — but are not required to achieve any specific health outcome — to obtain an incentive.

• Outcome-based wellness program: A type of health-contingent wellness program in which participants must attain or maintain a specific health outcome — such as not smoking or attaining certain results on health risk assessments or biometric screenings — to access an incentive.

• Reasonable design: A wellness program is considered “reasonably designed” if it has a reasonable chance of improving participants' health status or preventing disease. Additionally, reasonably designed programs must not be overly burdensome on participants or be a subterfuge for discrimination based on a health factor or condition.

• Reasonable alternative standard: An alternative standard offered to an employee who is unable to meet an activity-based or outcome-based wellness objective to obtain an incentive will be deemed reasonable if it is available at no cost to the qualifying employee(s), provides access to the full incentive value and adequate time for employees to complete, and accommodates the recommendations of a qualifying employee's personal physician in the event the alternative provided by the employer or program administrator is deemed medically inappropriate.

Source: U.S. Department of Health and Human Services