CMS Launched Pilot Project to Offer Individual Market Wellness Programs

Alayna Frauhiger

Associate Editor

Loyola University Chicago School of Law, JD 2021

Workplace wellness programs — efforts to get workers to lose weight, eat better, stress less and sleep more — are an $8 billion industry in the U.S. Recently, Centers for Medicare and Medicaid Services (CMS) launched a pilot project for states to implement health-contingent wellness programs in the individual market. The project is part of a mandate under the Affordable Care Act that added a provision to the Public Health Service Act calling for health-contingent wellness programs to be tested in the individual market through a pilot project operated by HHS, the Department of Labor and the Treasury Department.

The skinny on wellness programs

Under this new pilot project, states will be able to offer residents lower premiums or other incentives if they choose to participate in the state’s wellness program through the individual market. CMS is currently seeking applications for the project, which will involve 10 states. “Allowing states to implement these wellness programs in their individual markets offers the opportunity to not only improve the health of their residents but also to help reduce healthcare spending,” CMS Administrator Seema Verma said in a statement.

The primary reason that workplace wellness programs exist is to improve employee health and reduce employee-related expenses, especially healthcare costs. The Affordable Care Act (ACA) divides workplace wellness programs into two categories: participatory workplace wellness programs and health-contingent programs.

Participatory wellness programs are open to any employee who wishes to participate such as employee participation in diagnostic testing and screening; smoking cessation classes and education and reimbursement for gym or wellness center memberships. An employer can choose to reimburse or reward employees for participation in these programs but, reimbursement must not be contingent upon any health outcomes involved. Essentially participatory wellness programs are focused on compliance with nondiscrimination requirements. This means that as long as participation in the program is made available to all similarly situated employees regardless of their health status, it is considered nondiscriminatory as far as the ACA guidelines are concerned.

On the other hand, health-contingent workplace wellness programs reward employees not merely for participating, but for achieving a specific health goal. Wellness programs might include programs that reward non-smokers, or smokers who stop or reduce their smoking habits following program participation or reward those who lower their cholesterol or weight through a targeted program.

Regarding standards for ACA compliance for health-contingent wellness programs, there are a few things to consider. Unlike participatory programs, mere participation in health-contingent wellness programs is not enough. To qualify for rewards or incentives, employees must clearly demonstrate achievement in the form of improved health outcomes.

Designing wellness programs require careful consideration of compliance obligations under a number of different laws including but not limited to, the Patient Protection and Affordable Care Act of 2010 (ACA) the Employee Retirement Income Security Act of 1974 (ERISA), the Internal Revenue Code of 1986 (Code), the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Genetic Information Nondiscrimination Act of 2009 (GINA), and the Americans with Disabilities Act of 1990 (ADA).

It is unclear whether these programs work, many studies have produced conflicting results. Researchers from the University of Chicago and Harvard published a study that suggests that workplace wellness plans can affect health behaviors, but had no overall effects on health outcomes.

Project requirements

States interested in allowing health-contingent wellness programs in the individual market may apply to participate in the wellness program demonstration project. States can offer premium cost savings or other financial incentives as a part of their wellness programs and develop their programs using the issuer-based demonstration project or the standard demonstration project.

For the first option, financial incentives, states will institute HHS-approved criteria for wellness programs on the individual health insurance market. Healthcare payers wanting to offer a wellness program for the individual health insurance market have the freedom to design their plan for their members and submit it to the state for approval. The state’s standards would have to align with those designed for the group health insurance market.

Under the second option, the standard demonstration project, the state would design the wellness program and healthcare payers would have to comply with that model. The design would be subject to the same requirements as the group market. This option is more restrictive, requiring healthcare payers to comply with the terms and rewards the state defines precisely.

Regardless of which option the states choose, their guidelines must give beneficiaries at least one opening per year to qualify for the benefit. The states must also take into account whether the design is achievable for all members regardless of a medical condition and, if not, a potential substitute must be arranged for those individuals.

Consistent with the Public Health Service Act, States that participate in the demonstration project must apply the requirements established under the PHS Act to wellness programs offered by health insurance issuers in the individual market in the State. Issuers in the individual market in such states will be required to comply with the provisions of 45 C.F.R § 146.121(f) for group health plans and health insurance coverage in the group market.