On November 20, 2012, the Departments of Health and Human Services ("HHS"), Labor and Treasury issued proposed regulations on wellness programs, essential health benefits and health insurance market reforms. These proposed rules come just weeks after the 2012 election and are essential to the implementation of the Affordable Care Act.

Wellness Programs

The Affordable Care Act ("ACA") modifies and expands upon the existing regulations under HIPAA allowing employers to establish employee wellness programs providing incentives for following programs for health promotion and/or disease prevention. The proposed regulations continue to support "participatory wellness programs," which do not require an employee to meet a standard related to a health risk, (e.g., reimbursements for fitness memberships), as well as outline standards for nondiscriminatory "health-contingent wellness programs," which require an employee to attain or maintain a certain health outcome (e.g., rewards for certain results on biometric screenings).

The proposed regulations largely adopt the wellness program provisions of the earlier regulations under HIPAA and apply to both grandfathered and non-grandfathered plans beginning in 2014.  Participatory wellness programs do not have to meet the requirements applicable to health-contingent wellness programs. Health-contingent programs continue to be subject to requirements relating to frequency of opportunity to qualify, size of reward, uniform availability and reasonable alternative standards, reasonable design and notice of other means of qualifying for the reward, as modified by the proposed regulations. 

The most significant change is in the size of the reward. The regulations under HIPAA established a maximum reward of 20% of the cost of employee only coverage. Under the ACA, this maximum is increased to 30%, and up to 50% for programs designed to prevent or reduce tobacco use.

The proposed regulations also clarify the requirements for providing a reasonable alternative standard for individuals for whom it is medically inadvisable to satisfy the otherwise applicable standard. A plan may waive the otherwise applicable standard and provide the reward either for an entire class or on a case-by-case basis based on facts and circumstances.

Essential Health Benefits

The proposed rules also include standards regarding "essential health benefits" ("EHBs"), cost-sharing limitations and actuarial value requirements that plans sold on a state exchange, small group plans, and issuers of individual policies must satisfy. These proposed rules impact small and mid-sized employers as they consider the type of insured coverage to purchase.
 
Starting in January 2014, the plans identified above must provide EHBs equal to the scope of coverage provided under a typical employer plan, including coverage in at least the following ten specific categories: (1) ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance abuse disorder services, including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and habilitative services and devices; (8) laboratory services; (9) preventative and wellness services and chronic disease management; and (10) pediatric services, including oral and vision care.

Annual cost-sharing and deductible limits also apply. The dollar amount of the cost-sharing limit is tied to the out-of-pocket limits for high deductible health plans for 2013 ($6,250 for individual and $12,500 for other coverage) and will increase in $50 increments in future years. Once the applicable limit is reached, the individual is not responsible for additional cost sharing for EHBs for the remainder of the year. The initial annual deductible limits are set at $2,000 for individual and $4,000 for other coverage, and will increase in future years. 

Finally, coverage for EHBs must satisfy one of four "metallic" levels of coverage based on the actuarial value ("AV") of the issuer's financial responsibility for covered services as compared with total allowed costs for a standard population. Bronze level plans are at 60%, silver at 70%, gold at 80% and platinum at 90%. The HHS AV calculator generally must be used to determine the metallic level of a particular plan. 

While the regulations do not require large or self-funded plans to cover all ten EHBs, employers should have an awareness of these EHBs since they have an effect on other reform mandates, such as lifetime limits. The metallic value calculators also may be significant since the "play or pay" penalty under the ACA applies if the employer does not offer full-time employees at least 60% (bronze) coverage. Finally, whether the out-of-pocket maximum limits will apply in the large group market has been reserved for future guidance.

Health Insurance Market Reforms

Finally, the proposed regulations implement provisions under the Affordable Care Act to extend guaranteed issue to individuals and small employers, to prohibit the use of factors such as health status, medical history, gender and industry of employment to be used to set premiums, and limiting age rating. Beginning in 2014, non-grandfathered individual and small group coverage must limit variation in premiums to age and tobacco use (within limits), family size and geography. The limits apply in 2017 to large group plan coverage made available through an exchange. While the proposed regulations contain certain limitations applicable only to individual and small group plans, as of January 1, 2014, all group health plans and insurers, including self-insured plans, are prohibited from denying coverage to individuals because of pre-existing conditions.

The proposed regulations are certain to attract widespread comments and requests for changes. Given the 2014 implementation date of many provisions of ACA, the issuing agencies will have to quickly assess these comments and issue final regulations. Certain portions of the new rules may also result in lawsuits which could delay their ultimate implementation. Employers should begin planning now to comply with these new requirements, assuming that the overall structure and approach reflected in the proposed rules will eventually become final.