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With health costs still rising at twice the rate of inflation, employers are looking for ways to get more from their health care dollars. To encourage workers to improve their health, some new insurance products provide supplemental benefits to members who meet specific health thresholds, such as a low body-mass index or cholesterol level, or practice certain healthy behaviors, such as not smoking. Some of these wellness programs are described by the vendors marketing them as being exempt from the Health Insurance Portability and Accountability Act (HIPAA), which has attracted considerable interest from the media and from many companies as well. But employers should tread cautiously.
HIPAA sets out specific rules for wellness programs. Some of the recently publicized wellness programs comply with those rules, such as by offering reasonable alternatives to those who cannot meet the health standards. Other programs claim to be exempt from HIPAA altogether, but a closer look suggests that many of them may not meet the exclusion requirements under HIPAA.
Exemptions From HIPAA
HIPAA limits exclusions for preexisting conditions, requires plans to issue certificates of creditable coverage and to establish special enrollment periods, and prohibits plans from discriminating against participants on the basis of their health. Certain benefits are exempt from HIPAA, such as accident-only coverage, disability-income coverage, liability insurance, workers’ compensation and others, including certain supplemental benefits. The following supplemental benefits are exempt from HIPAA as long as they are provided under a separate policy, certificate or contract of insurance:
- Medicare supplemental health insurance (as defined under the Social Security Act), such as Medigap or Medicare supplemental insurance
- TRICARE supplemental insurance coverage (TRICARE is the Department of Defense’s worldwide health care program for active duty and retired uniformed services members and their families)
- Similar supplemental coverage provided under a group health plan
Independent Wellness Policies
Some promoters of supplemental wellness policies claim that they fall under the category of “similar supplemental coverage,” and thus are exempt from HIPAA.
Given that the regulation describes exempt supplemental coverage as similar to Medigap, Medicare and TRICARE supplemental policies, which fill in coverage gaps in Medicare and TRICARE, it seems reasonable to assume that to be considered similar, the coverage also must fill in the gaps in primary medical coverage, such as copays and deductibles. The coverage may not become secondary or supplemental only under a coordination-of-benefits provision.
Do these new supplemental wellness policies meet the standard set out in the HIPAA regulations? It’s not entirely clear. But the wellness credits that accrue in a supplemental wellness policy appear to affect the entire major medical plan, rather than filling in the gaps left by deductibles and copays. Moreover, Medicare and TRICARE supplemental policies provide the same benefits to all plan participants, regardless of health indicators or behaviors. Under these supplemental wellness policies, coverage actually erodes overall for members whose health factors do not meet program standards. These programs essentially circumvent HIPAA’s nondiscrimination provisions, resulting in employer-provided health plans offering lower deductibles and copays to healthier individuals — and imposing higher deductibles and copays on less healthy participants or those with specific health-risk factors.
Proceed With Caution
Informal discussions with the IRS, U.S. Department of Labor and the U.S. Department of Health and Human Services suggest that some of these wellness policies would not be considered “similar supplemental coverage,” which means they would be subject to HIPAA.
The supplemental benefit provision in the HIPAA regulation is somewhat vague and therefore open to interpretation. And some wellness programs are HIPAA-compliant and may help employees improve their health and help employers reduce their costs. But the penalties for violating HIPAA are severe, so employers that are considering an insured wellness policy should consult with legal counsel first. Violations of HIPAA carry a steep price tag, which may include a government audit, excise taxes, litigation, bad employee relations and bad publicity.
September 2007
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