Workplace Wellness Incentives: HIPPA Non Discrimination Rules

Workplace wellness programs often incorporate incentives or rewards to promote healthy lifestyle choices and discourage behaviors that are detrimental to employees’ good health. A workplace wellness program that relates to a group health plan must comply with HIPAA’s nondiscrimination rules. These rules allow employers to provide incentives or rewards as part of a wellness program, provided the program follows certain guidelines.

In addition, beginning in 2014, the Affordable Care Act (ACA) adopted the existing HIPAA nondiscrimination requirements for wellness programs with some modifications, while also increasing the maximum reward that can be offered under these programs.

This Compliance Overview provides an overview of the types of workplace wellness programs and HIPAA’s rules on the incentives or rewards that can be offered under the programs.


Categories of Wellness Programs


Under HIPAA, workplace wellness programs are divided into two categories: participatory wellness programs and health-contingent wellness programs. This distinction is important because participatory wellness programs are not subject to the same restrictions on incentives or rewards that apply to health-contingent wellness programs.

Participatory Wellness Programs

Participatory wellness programs either do not require an individual to meet a health-related standard to obtain a reward or do not offer a reward at all. Also, these programs generally do not require an individual to complete physical activity. For example, participatory wellness programs include:

  • Reimbursement for the cost of smoking cessation programs (not based on whether the employee quits smoking);
  • Subsidized fitness center memberships;
  • Reward for participating in diagnostic testing, such as biometric screenings (not based on outcomes); and
  • The reward for completing a health risk assessment (not based on outcomes).

Participatory wellness programs comply with the nondiscrimination requirements without having to satisfy any additional standards, as long as participation is made available to all similarly situated individuals, regardless of health status. There is no limit on financial incentives or rewards for participatory wellness programs.


Health-contingent Wellness Programs


Health-contingent wellness programs require individuals to satisfy a standard related to a health factor in order to obtain a reward. There are two types of health-contingent wellness programs—activity-only wellness programs and outcome-based wellness programs.

Activity-only wellness programs This type of wellness program requires an individual to perform or complete an activity related to a health factor in order to obtain a reward (for example, walking, diet, or exercise programs). Activity-only wellness programs do not require an individual to attain or maintain a specific health outcome.
Outcome-based wellness programs This type of wellness program requires an individual to attain or maintain a certain health outcome in order to obtain a reward (for example, not smoking, attaining certain results on biometric screenings, or meeting exercise targets).

Generally, these programs have two tiers:

·        A measurement, test or screening as part of an initial standard; and

·        A larger program that then targets individuals who do not meet the initial standard with wellness activities.

To protect consumers from unfair practices, health-contingent wellness programs must follow certain standards related to nondiscrimination, including one that limits the maximum reward offered.


The total reward offered to an individual under an employer’s health-contingent wellness programs (both activity-only and outcome-based) cannot exceed a specified percentage of the total cost of employee-only coverage under the plan. The total cost includes both employer and employee contributions towards the cost of coverage. If, in addition to employees, any class of dependents (such as spouses and dependent children) may participate in the health-contingent wellness program, the reward cannot exceed the specified percentage of the total cost of the coverage in which the employee and any dependents are enrolled (such as family coverage or employee-plus-one coverage).


Effective for 2014 plan years, the ACA increased the maximum permissible reward from 20 percent to 30 percent of the cost of health coverage for health-contingent wellness programs. In addition, the final regulations increased the maximum permissible reward to 50 percent of the cost of health coverage for health-contingent wellness programs designed to prevent or reduce tobacco use.


Rewards offered under participatory wellness programs do not count toward the limit for health-contingent wellness programs. Thus, any reward for participatory programs (such as attending health education seminars) is not included in the applicable percentage for health-contingent programs.


Impact of Americans with Disabilities Act (ADA)


On May 17, 2016, the Equal Employment Opportunity Commission (EEOC) issued a final rule describing how the ADA applies to employee wellness programs that include questions about employees’ health or medical examinations. Although the ADA limits when employers may inquire about employees’ health or require them to undergo medical examinations, these inquiries and exams are allowed if they are part of a voluntary wellness program.

Incentive Limits for Wellness Programs

The EEOC’s final rule addressed the extent to which employers may use incentives to encourage employees to participate in wellness programs that ask them to respond to disability-related inquiries or undergo medical examinations. The final rule provided that a wellness program could be considered voluntary under the ADA if the program’s incentives did not exceed 30 percent of the total cost of self-only health plan coverage. However, a federal court ruled that this 30 percent limit was too high to be consistent with the ADA’s voluntary requirement for wellness programs.  Consistent with the court’s ruling, the EEOC removed the incentive limit from its final rule, effective Jan. 1, 2019.


The EEOC has indicated that it plans to issue a new proposed rule on wellness programs in the future; however, it is not clear when this proposed rule will be released. For now, due to this legal uncertainty, employers should carefully consider the level of incentives they use with their wellness programs that ask for health information or involve medical exams.


Also, according to the EEOC, a smoking cessation program that merely asks employees whether they use tobacco (or whether they stopped using tobacco upon completion of the program) is not a wellness program that includes disability-related inquiries or medical examinations. Thus, an employer may be able to offer incentives as high as 50 percent of the cost of employee coverage for that smoking cessation program, consistent with the ACA’s requirements. However, an incentive tied to a biometric screening or medical examination that tests for the presence of tobacco would be subject to the ADA’s voluntary requirement for wellness programs (and the current uncertainty regarding incentive limits).



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Farmers Branch, TX 75244



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501 S Carroll Blvd Suite 101A
Denton, TX 76201
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