When Wellness Programs Get Scary

You wouldn’t think running wellness programs would be all that scary for employers, but Macy’s Inc., along with its subsidiaries Anthem and Cigna, are likely screaming in horror at a lawsuit filed against them by the Department of Labor (DOL) for management of their smoking-cessation program. The suit claims that the wellness program, which was implemented by Macy’s in 2011, violates the Health Information Portability and Accountability Act (HIPAA) nondiscrimination rules while also impermissibly using participant contributions.

When Wellness Programs Get Scary

Wellness programs come in all different shapes and sizes. Some are “participatory wellness programs,” a.k.a. programs that are available to all participants regardless of health status. Examples of these programs are participation in diagnostic screenings or enrollment in health educational courses. Other wellness programs are “health-contingent wellness programs,” a.k.a. programs that require participants to satisfy certain standards in order to get a reward. Health-contingent programs are either activity-based or outcome-based. Activity-based wellness programs require that participants perform or complete some health related activity to get a reward. An example of this would be to offer enrollment into an exercise program that requires a person to perform certain health activities, like walking (perhaps through a graveyard at night) or elevating your heart rate (how about running through a haunted house?). Outcome-based wellness programs require that participants either attain, or maintain, a specific health outcome to get a reward. The most common example of this type of program is a smoking-cessation program.

Nothing to fear in either of these types of programs, right? Not until regulation breaches creep in.

[Related: Opening an Employee Health Clinic]

The fright employers like Macy’s run into is the regulations also require that an employer ensure their program is nondiscriminatory toward all participants. There are five nondiscrimination requirements used by the DOL to determine whether a health-contingent wellness program is nondiscriminatory. They follow.

  1. Enrollment must be available to all employees for at least one year.
  2. The total reward a participant can earn cannot be more than 30% of the cost of employee-only coverage. For smoking-cessation plans, this amount cannot exceed 50%.
  3. The program has to be designed to promote health.
  4. The wellness program has to be available to all similarly situated individuals, and it must offer a reasonable alternative standard for individuals who need one.
  5. And finally, the plan has to disclose the terms of the reasonable alternate standard to all participants.

Notice the emphasis I put on “reasonable alternative standards?” Well, participants of Macy’s smoking-cessation program were charged around $35-$45 per month for their participation until they were tobacco-free. Further, those monthly charges were deposited directly into Macy’s welfare plan, where they were used to pay plan expenses.

The DOL believes that Macy’s smoking-cessation program ran afoul of their regulations by failing to provide a reasonable alternative standard for participants who couldn’t meet the initial, and only, standard of the program: to completely stop their tobacco use. The DOL also argues that Macy’s then further violated the law by impermissibly using those monthly surcharges earned from the wellness program for their own benefit by using the funds to pay plan expenses.

Now, while this is concerning news to employers that run similar wellness programs, I wouldn’t go running for the hills in terror quite yet. This lawsuit is still pending, and it’s entirely possible that the courts will find Macy’s innocent of all charges. But it does demonstrate what types of wellness program violations the DOL is willing to pursue and how nondiscrimination procedures are supposed to operate moving forward.

However the case concludes, you can be sure that this is one thriller that all employers will be watching moving forward.

Adam Abelson
Adam Abelson
Associate Director, Educational Programs at the International Foundation

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