The U.S. Department of Health and Human Services on Tuesday announced a series of proposed rules under the Patient Protection and Affordable Care Act governing employee wellness programs and essential health benefits for certain employers.

Under the proposed rules, employers sponsoring wellness programs that include rewards or surcharges based on specific health standards and outcomes — such as a reduction in weight, cholesterol or use of tobacco — can increase the maximum dollar amount of the rewards offered to employees to 30% from 20% of the total cost of their health care coverage, and can raise incentives tied to smoking prevention or reduction programs to up to 50% of total coverage costs.

The proposed rules also seek to clarify prior restrictions on “health-contingent” wellness programs issued in 2006 under the nondiscrimination clause of the Health Insurance Portability and Accountability Act. Participation-based programs — in which employees are rewarded merely for taking part in wellness-related activities — are largely exempt from both the 2006 restrictions and the amendments proposed under the PPACA.

During a conference call with reporters on Tuesday, HHS and U.S. Department of Labor officials said the proposed rules on wellness programs are designed to give employers greater flexibility to design programs that will positively impact their employees' overall health while providing individuals with enhanced protections against discriminatory practices.

%%BREAK%%

“The proposed rules will not dictate the kinds of wellness programs employers can offer,” said Daniel Maguire, director of the Labor Department's Office of Health Plan Standards and Compliance Assistance. “We've built into this rule consumer protections based on our experience from the rule that we had in 2006. The attempt is to make the incentives more appealing to more people, and to make sure that people are protected if the incentives are increased.”

The proposed rules under the health care reform law require employers to provide employees whose medical conditions preclude them from qualifying for rewards based on their health status with alternative ways to qualify for the rewards, or provide waivers to the qualifications altogether. However, the new rules do not require employers to establish specific alternative qualification standards at the inception of their wellness program, and they would allow companies to addresses employee requests for alternatives on an individual basis.

Officials said the proposed rules also seek to address reports of confusion over the existing requirement to notify employees of the opportunity to seek alternative qualification standards for incentives when they enroll in the wellness program. The proposed rules include new, simplified sample language for employee notices, which officials said likely will make employees less reticent about seeking alternative qualifications.

“We're very grateful to have the proposed rules on wellness in hand, because this is about the time that employer plans would start thinking about their wellness programs and reviewing their financial incentives for the 2014 plan year,” said Steve Wojcik, vice president of public policy for the Washington-based National Business Group on Health. “It's very encouraging overall. The ACA paid a lot of attention to wellness health promotion, but we were waiting to see whether the regulations would actually support that. We're very pleased to see that they actually do.”

%%BREAK%%

Though much of HHS' proposed rule pertaining to the establishment of minimum standards of coverage under the PPACA mirrored its December 2011 guidance bulletin, the department did clarify certain ambiguities surrounding the law's applicability. Primarily, the proposed rules made it clear that large group plans and self-insured employers will not be subject to the same essential health benefits requirements as individual and small-group plans, nor will they be subject to annual caps on deductibles.

“That's really important to employers that are pursuing a strategy with a high-deductible health care plan,” said Amy Bergner, the Washington-based managing director of the health care practice at PricewaterhouseCoopers L.L.P.'s human resource services division. “Those caps would have placed some pretty significant limits on their flexibility to change their plan design, if not in 2014 then certainly in future years.”

The proposed rule also made clear that small employers' annual contributions to employee health savings accounts and amounts made available under health reimbursement arrangements in the current year will count toward the actuarial value of that employer's group plan.