June 3, 2013
Wellness Programs and Rewards Final Regulations Released

Final regulations on wellness programs and rewards for group health plans were issued on May 29, 2013 by the Departments of Treasury, Labor and Health and Human Services. These regulations apply to insured and self-insured group plans, both grandfathered and non-grandfathered, for plan years beginning on or after January 1, 2014.

The final regulations confirmed the maximum wellness reward amounts that will be allowed.
• The maximum wellness program reward is 30 percent of the total cost of medical coverage, including both employer and employee contributions.
• The maximum wellness program total reward may be increased to 50 percent for programs related to tobacco use.
• Rewards can take many forms, such as premium discounts or surcharges, reduced cost sharing, enhanced benefits, gift cards or deposits to Health Savings Accounts or Health Reimbursement Accounts.
• The reward must be available at least once per year for all similarly situated individuals.
• If family members participate in wellness programs, the reward can be based on the total cost of coverage for all covered family members. If some family members are eligible for the reward and others are not, employers have flexibility in determining the portion of the reward attributable to each family member.

There are two types of Wellness Programs: Participatory and Health-Contingent:
1. Participatory Wellness Programs – Any Participatory Wellness program reward is based only on participation, not on meeting specific health standards. Examples of these types of programs include health club discounts or rewards for completing a health assessment. There are no limits on the rewards for Participatory Wellness programs.
2. Health-Contingent Wellness Programs – Health-Contingent Wellness programs require individuals to meet a health standard or participate in a health program to receive a reward. Every individual eligible for the program must be given an opportunity to qualify for the reward once a year. The reward cannot exceed the maximum amounts noted above.
Health-Contingent programs may be Activity-Only programs or Outcome-Based programs.

Activity-Only Wellness Programs
• Individuals are rewarded for completing a program such as a walking, diet or exercise program.
• Individuals are not required to achieve a specific result such as losing weight to earn the reward.
• A physician may provide verification that a medical condition makes it unreasonably difficult or medically inadvisable for a person to perform the activity.
Outcome-Based Wellness Programs
• Individuals are required to achieve a health outcome such as a specific blood pressure or BMI level to receive the reward.
• Individuals who do not meet the required standard must take additional steps such as working with a health coach or completing a health improvement plan to receive the reward.
• Physician verification that a medical condition makes it unreasonably difficult or medically inadvisable for a person to meet the standard is not permitted for Outcome-Based programs.
Reasonable Alternative Standards
If an individual does not qualify for a Health-Contingent reward, a reasonable alternative standard or waiver must be available.
• For Activity-Only programs, a reasonable alternative for obtaining the reward must be provided if it is unreasonably difficult due to a medical condition or medically inadvisable for an individual to attempt to

complete the activity.
• For Outcome-Based programs, a reasonable alternative must be provided to all individuals who do not meet the initial standard.
As an example, a reasonable alternative for an individual who failed to meet a BMI standard might be participation

in a weight loss program or the requirement to reduce BMI by a small amount or percentage over a year’s time.

Any materials provided to employees that describe wellness programs must include information about the availability of reasonable alternatives and contact information to request an alternative. Reasonable alternatives do not need to be defined in advance and can be determined on an individual basis.

Read the final regulation

Covered California Announces Plans and Rates for 2014

Consumers will have access to more than 80% of practicing physicians, 80% of acute care hospitals through 13 commercial health plans

SACRAMENTO, CA – Covered California™ today announced 13 diverse health insurance plans that will offer in 2014, affordable, quality health care coverage to millions of Californians. The plans reflect a mix of large non-profit and commercial plan leaders, along with well-known Medi-Cal and regional plans.

The tentative selection of health plans is subject to a rate review by state regulators. It is impossible to make a direct comparison of these rates to existing premiums in the commercial market because in 2014, there will be new standard benefit designs

under the Affordable Care Act, and the actual change in an individual’s premium will depend on the person’s current insurance coverage. However, Covered California believes that a valuable frame of reference for its premiums, is comparing them to the small employer market in California. Both the small employer market and Covered California are competitive markets, and offer guaranteed issue- you cannot be denied for pre-existing condition.
The rates submitted to Covered California for the 2014 individual market ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions. This is impressive since the 2014 products include doctor visits, prescriptions, hospital stays and more essential benefits; protecting consumers from the “gimics and gotchas” of many insurance policies.

“This is a home run for consumers in every region of California,” said Peter V. Lee, Executive Director of Covered California. “Our active negotiating will not only benefit potential enrollees to Covered California, but will benefit all Californians by making health care affordable,” he said.
Additionally, there is financial protection like a maximum out-of-pocket cost of $6,350 which will dramatically

reduce the chance of someone going bankrupt because of medical bills not covered by insurance.

“Californians should be proud of how not only health plans in this state, but doctors,medical groups and hospitals have stepped up– and creating a market that will allow
millions of consumers to enroll in affordably priced products. Because of that, we will be able to deliver exceptional value, low rates, access to health care in every region of the
state, and a solid platform to achieve the dream of providing quality health care for all Californians.”

Covered California’s rigorous review and selection process resulted in a portfolio of plans that achieve three objectives: a robust choice of offerings throughout the state,
affordable prices, and access to doctors and hospitals. The terms of Covered California’s relationship with its partnering health plans means they will collaboratively
work to promote care improvements, foster prevention, and seek to reduce costs by promoting better care.

Once plan rates are approved by state regulators, Covered California looks forward to signing final contracts and begin the work of enrolling millions of Californians in the
following health plans:

 Alameda Alliance for Health  L.A. Care Health Plan
 Anthem Blue Cross of California  Molina Healthcare
 Blue Shield of California  Sharp HealthCare
 Chinese Community Health Plan  Valley Health Plan
 Contra Costa Health Services  Ventura County Health Care Plan
 Health Net  Western Health Advantage
 Kaiser Permanente
“Covered California plans include the largest current plans in the individual market, as well as new entrants, regional plans and local Medi-Cal plans that want to be part of
making history,” said Lee. On average, there will be five plans from which to choose. Even in rural areas where choice has been historically sparse, there will be two or three
health plans. Throughout the state consumers will have a choice of Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and Exclusive
Provider Organizaitons (EPOs).

To get prices at such competive points, winning health plans built their bids around the expectation of high enrollment, not high profit. Plans reduced profit margins down to
two and three percent; embraced Affordable Care Act programs such as Accountable Care Organizations and Patient-Centered Medical Homes, that seek to improve care
while lowering costs; found common ground with doctors, medical groups and hospitals on lower reimbursement rates to make care affordable.

Virtually every health plan designed a custom network for Covered California. Negotiations included a detailed review of each plan’s rates, their mix of hospitals, physicians and other providers, and their contingency plans for expanding networks in the event more consumers sign up than expected.

The current list of insurers is for individual policies only. Covered California will announce its options for small businesses to buy health insurance in June.

With a substantial portion of the Patient Protection and Affordable Care Act set to go into effect in 2014, employers are working to determine how the law will impact them, their business and their employees. Because the law will require most employers to provide affordable minimum essential health insurance coverage to full-time employees or face financial penalties, employers must understand how the law defines full-time workers, as well as the penalties that businesses can face for failing to comply or choosing not to provide coverage.

Under provisions called the employer shared responsibility rules, the PPACA requires large employers (generally those with 50 or more full-time employees) to provide affordable group health coverage with sufficient value to full-time employees and their dependents. Full-time employees are generally defined as those who work on average at least 30 hours per week. Employers that fail to comply with these rules can face penalties.

What are the potential penalties?

The failure to offer coverage penalty applies if at least one full-time employee obtains subsidized coverage on an exchange where the employer does not offer coverage to at least 95% of its full-time employees and their dependents. This penalty – which can be up to $2,000 per year for each full-time employee (in excess of 30) – will be based on the total number of full-time employees an employer has, regardless of how many employees have government-subsidized exchange coverage.

The insufficient coverage penalty applies if the employer offers full-time employees coverage, but the coverage is either unaffordable (individual premium cost exceeds 9.5% of the employee’s household income) or does not provide minimum value (plan pays less

than 60% of the covered costs). Proposed regulations released by the IRS provide guidance and alternative safe harbors for calculating whether health coverage is unaffordable, including use of an employee’s W-2 earnings. The potential penalty for insufficient coverage is $3,000 per year for each employee who obtains government-subsidized coverage on an exchange.

Employers also should note that in determining whether an employer is subject to these provisions (i.e., is a “large employer”), the IRS controlled group rules are applied – meaning that all affiliated employers for which there is 80% or greater common ownership will be treated as a single employer. However, compliance with the employer shared responsibility rules – and any associated penalties – will generally be assessed on an employer-by-employer basis.

Who is considered a full-time employee?

As an employer, the determination of who is a full-time employee will be crucial in evaluating your options for complying with the employer shared responsibility rules,

and equally important, designing your group health plan’s eligibility and participation requirements.

Because there can be various ways of assessing what constitutes a full-time employee eligible for coverage under the PPACA, the IRS has issued guidance in the form of several notices, as well as temporary regulations. These guidelines set out criteria and standards that can help employers make accurate determinations when hiring new employees, including:

•Initial measurement period – A designated period of not less than three months or more than 12 months used in determining whether a newly hired variable or seasonal employee is full-time.
•Standard measurement period – An annual

designated period of not less than three months or more than 12 months used to determine whether an ongoing variable or seasonal employee is full-time.
•Administrative period – A period of up to 90 days for making full-time determinations and offering/implementing full-time employee coverage.
•Stability period – An annual designated period of not less than six months (and not less than the corresponding measurement period) during which the employer must offer affordable minimum essential health coverage to all full-time employees, or face financial penalties for not doing so.
•Full-time employees – If a new employee is reasonably expected to average at least 30 hours per week at the time of hire, the employee must automatically be treated as full-time and offered group health coverage within three months of hire.
•Variable hour and seasonal employees – A variable hour employee is someone whom the employer cannot reasonably determine will average at least 30 hours per week at the time of hire. No definition is provided for a seasonal employee, but presumably it would include anyone who works on a seasonal basis. Employers may use the initial measurement period to determine whether a newly hired variable or seasonal employee actually averages at least 30 hours per week, and the standard measurement period to determine whether an ongoing variable or seasonable employee actually averages at least 30 hours per week. If the employee does average at least 30 hours per week during the initial measurement period or standard measurement period, the employer must offer affordable minimum essential health coverage during the stability period, or face financial penalties for not doing so.
•Transition from new to ongoing employee status – Once a new employee has completed an initial measurement period and has been employed for a full standard measurement period, the employee must be tested for full-time status under the

ongoing employee rules for that standard measurement

period, regardless of whether the employee was full-time during the initial measurement period.