Human Resources News & Insights

How your minor health incentives can leave you wide open to major legal trouble

Chances are your company offers employees some type of health-improvement program.  

After all, with everything from weight loss and walking programs to biometric screenings and education programs, there’s no shortage of easy-to-administer wellness programs, right?

Many employers think of these programs as hassle-free ways to help workers improve their health. But that mindset often leaves employers open to a slew of compliance issues.

During a recent presentation, benefits attorney Kate Saracene outlined the many compliance obligations employers have with even the most simple wellness plans and the major issues she’s seen as a result.

9 federal laws, statutes

Most employers are well aware of the major laws covering wellness plans – such as the ACA and HIPAA.

But these plans can actually be subject to nine different federal statutes, including:

  1. ACA
  2. HIPAA
  3. ERISA
  4. COBRA
  5. ADA
  6. GINA
  7. FLSA
  8. the Internal Revenue Code (IRC), and
  9. and the National Labor Relations Act (NLRA).

And this list doesn’t even take into account state laws that can be stricter. For example, some states have gambling laws that prohibit wellness reward “drawings.”

What’s worse, the patchwork of federal regs causes a lot of confusion and even contradictions.

ACA rules v. ADA rules

One prime example of seemingly contradictory federal regs covering wellness plans: The ACA and ADA.

As Saracene noted, both regs allow firms to use financial and in-kind incentives for wellness initiatives – like a health screening – of up to 30% of the cost of employee-only coverage.

But after that commonality, it gets tricky. The rules for determining how that 30% incentive is calculated differs for the two regs. That means an incentive that complies with the ACA can actually be in violation of the ADA, and vice versa.

Bottom line: Employers need to test how the incentive is determined separately for both ACA and ADA compliance to stay safe. Employers may not even be aware of this, as the ADA wellness rules were just issued.

Another recently updated area of wellness compliance is the tax-treatment of incentives under the Internal Revenue Code (IRC).

All non-group health plan incentives – anything from cash and gift cards to gym memberships – are generally taxable as wage on W-2 and subject to FICA, FUTA and income tax withholding.

And that’s true even if the incentives are directly provided by a health insurer. In these situations, Saracene says firms should contact the insurer about the incentives and put the conversation in writing. This proves you attempted to comply with the taxable income regs.

An overlooked HIPAA burden

If your company offers a health-contingent wellness program – one that requires staffers to satisfy a standard related to a health factor – the program must satisfy five conditions under HIPAA.

And one of those conditions can cause a major administrative headache for employers. That condition: Plans must give notice of the availability of a reasonable alternative standard for the reward in all plan materials that describe the terms of the program.

This notice must include contact info for choosing the alternative and a statement acknowledging that a staffer’s physician’s recommendations will be accommodated.

What employers often fail to recognize is that this notice needs to accompany each and every single booklet or brochure about the wellness program.

And that’s true for something as minor as when a worker fails a basic test for a reward.

Based on a presentation by Kate Saracene, Nixon Peabody LLP, at the 2017 Mid-Sized Retirement & Healthcare Plan Management Conference in Phoenix, AZ

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