Agencies Release Proposed Rules on Wellness Programs, Essential Health Benefits, and Health Insurance Market Reforms

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By Ilyse Schuman

Now that the 2012 elections are over, federal agencies are finally releasing long-awaited healthcare rules. On Tuesday, the DOL’s Employee Benefits Security Administration (EBSA), U.S. Department of Health and Human Services (HHS), and the Treasury Department issued three proposed rules crucial to the implementation of the Affordable Care Act (ACA). The proposals include regulations regarding incentives for nondiscriminatory wellness programs in group health plans; (pdf) standards related to essential health benefits, health plan actuarial value, and accreditation; (pdf) and regulations regarding rate review and other health insurance market reforms. (pdf) While a more detailed analysis of these new proposed rules will soon be provided by Littler attorneys, the following is a brief overview of each proposal:

Wellness Programs

The ACA codifies the existing HIPAA rules allowing employee wellness programs to offer an incentive, such as a premium reduction, for achieving a health standard. However, starting in plan year beginning on or after January 1, 2014, the law increases the maximum amount of the incentive from 20%, as the current HIPAA rules allow, to 30% of the cost of employee-only coverage under the plan, and up to 50% for wellness programs designed to prevent or reduce tobacco use.

The proposed rule addresses both “participatory wellness programs,” such as reimbursement for gym memberships and awards to employees who attend health-related seminars, which are generally available to all employees regardless of their health status, as well as “health-contingent wellness programs,” which provide rewards to employees who meet a specific health-related standard. For example, these types of wellness programs often provide rewards to employees who do not smoke or reduce their tobacco use, or who maintain a certain cholesterol level or take steps to reduce their current level.

As discussed in a fact sheet, the proposed rule sets forth the following stipulations for health-contingent wellness programs:

  • The wellness programs must be reasonably designed to promote health or prevent disease. Specifically, a program would have to offer a different, reasonable means of qualifying for the reward to any individual who does not meet the standard based on the measurement, test or screening. Programs must have a reasonable chance of improving health or preventing disease and not be overly burdensome for individuals.
  • The wellness programs must be reasonably designed to be available to all similarly situated individuals. Employers would have to provide a reasonable alternative means of qualifying for the reward for individuals whose medical conditions make it unreasonably difficult to meet the wellness goal, or for whom attaining the goal would be medically inadvisable.
  • Employees must be notified of the alternative means of qualifying for the wellness incentive. The proposal includes sample notice language.

Although the proposed rule offers some clarification as to what would constitute a reasonably designed health-contingent wellness program, it does not specify the types of wellness programs an employer may offer. The proposal seeks comment on a number of issues, including possible definitions of “tobacco use”; whether additional rules or guidance is needed to help assess a wellness program’s reasonable alternative standard; and whether additional consumer protections are needed to ensure that wellness programs are reasonably designed to promote health or prevent disease.

A study of workplace wellness programs can be found here. (pdf) The EBSA has also issued a fact sheet on wellness programs.

Essential Health Benefits

Starting January 1, 2014, non-grandfathered insurance plans in the individual and small group market and those in the future insurance exchanges will be required to provide coverage of benefits or services in 10 separate categories that reflect the scope of benefits covered by a typical employer plan. In addition, the law creates four tiers of health plans available for purchase through the Exchanges. Each tier is defined by its actuarial value (AV), or percent of services paid for by the plan. The proposed rule on these issues outlines the future health exchange and issuer standards related to coverage of essential health benefits (EHB) and actuarial value, and proposes a timeline for qualified health plans to be accredited for use in the future Exchanges.

Generally, the proposed rule “defines EHB based on a state-specific benchmark plan, including the largest small group health plan in the state.” Once a state chooses a benchmark plan, all plans covering EHB must include those benefits that are substantially equal to the benefits offered by the benchmark plan. The benchmark options are (1) the largest plan by enrollment in any of the three largest products in the state’s small group market; (2) any of the largest three state employee health benefit plans options by enrollment; (3) any of the largest three national Federal Employees Health Benefits Program (FEHBP) plan options by enrollment; or (4) the largest insured commercial HMO in the state. Option (1) will be the default if the state fails to select a benchmark. If a selected benchmark plan does not include one of the 10 required categories of benefits, the state or HHS will supplement the missing category.

The HHS acknowledged that in its research on employer-sponsored plan benefits, it found that a number of potential benchmark plans do not include certain services, such as coverage for pediatric oral and vision services, as they are often covered under stand-alone policies, nor do they ordinarily identify habilitative services as a distinct group of services. To address benefits that might not be covered in a typical plan, the proposed rule establishes special standards and options for states and plans to define and supplement the benchmark plan with these benefits.

As for the plan’s actuarial value, the HHS has made available an AV calculator for health insurers to determine their plan’s AVs based on a national, standard population. Generally, a plan is considered a “platinum” plan if its value is 90 percent or greater; gold, 80 percent; silver, 70 percent; and bronze, 60 percent. However, the HHS is proposing that a plan would be able to meet a particular tier if the plan’s AV is within 2 percentage points of the standard. For example, a silver plan may have an AV between 68 percent and 72 percent.

More information on this proposed rule is available here.

Health Insurance Market Reforms

The third proposed rule issued on November 20 would implement the health care law policies regarding fair health insurance premiums, guaranteed availability, guaranteed renewability, risk pools, and catastrophic plans. Generally, starting in 2014, group health plans and insurers are prohibited from imposing pre-existing condition exclusions on any health plan participant. As discussed in a HHS fact sheet, to prevent discrimination against those with preexisting conditions, the proposed rule seeks to do the following:

  • Prohibit the denial of coverage to people because of a pre-existing condition or any other factor. Individuals would ordinarily need to obtain coverage during open enrollment periods, but would have available to them special enrollment opportunities in the individual market if they lose coverage.
  • Establish that health insurance issuers in the individual and small group markets be allowed to vary premiums only based on age (within a 3:1 ratio for adults), tobacco use (within a 1.5:1 ratio and subject to wellness program requirements in the small group market), family size, and geography.
  • Require health insurance issuers to maintain a single statewide risk pool for each of their individual and small employer markets, unless a state chooses to merge the individual and small group pools into one pool. Premiums and annual rate changes would be based on the health risk of the entire pool.
  • Make three technical changes to the rate review program. Under this program, an insurance plan that seeks to increase premiums by an established threshold must apply for a rate review. Generally, the proposed rule revises the timing of the submission of requests for state specific thresholds and the effective dates of such thresholds; requires that health insurance issuers submit data on proposed rate increases in a form and manner to be determined by the Centers for Medicare & Medicaid Services (CMS), and amends the requirements for a state to have an Effective Rate Review Program.

Among other input, the agency is seeking public comment on “additional strategies consistent with the Affordable Care Act that CMS or states might deploy to avoid or minimize disruption of rates in the current market and encourage timely enrollment in coverage in 2014.”

Comments on all three proposals must be submitted within 30 days of the rule’s publication in the Federal Register, which is slated for November 26, 2012.

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