EBIA Weekly Newsletter

Can Our Self-Insured Health Plan Charge Employees Who Use Tobacco More for Their Coverage?

   July 28, 2016

QUESTION: Can our self-insured health plan satisfy HIPAA’s nondiscrimination rules if it requires employees who use tobacco to pay more for coverage than employees who are not tobacco users?

ANSWER: Yes, so long as the cost difference is structured as part of a wellness program and the applicable conditions are met, you can charge tobacco users a higher contribution rate to participate in your group health plan without violating HIPAA’s nondiscrimination rules.

HIPAA generally prohibits group health plans from discriminating among similarly situated individuals based on health status or health factors; however, HIPAA’s nondiscrimination provisions do not prevent a group health plan from reducing participant contributions for participants who qualify under a program of health promotion and disease prevention (generally known as wellness programs), or increasing participant contributions for participants who fail to meet the requirements of a wellness program.

Wellness programs that offer a reward only if the employee is able to meet a standard related to a health factor (such as not using tobacco) must satisfy five conditions:

  • Size of Incentive. Rewards related to tobacco use, when combined with rewards for all other wellness programs under your plan, cannot exceed 50% of the cost of coverage. (If your plan includes rewards not related to tobacco use (such as biometric testing), the rewards unrelated to tobacco use cannot exceed 30% of the cost of coverage.)
  • Health Promotion. The program must be reasonably designed to promote good health or prevent disease.
  • Annual Opportunity. Participants must have a chance to qualify for the reward at least once per year.
  • Availability. The program must be available to all similarly situated individuals. This includes a requirement that the program provide a reasonable alternative standard, such as attending smoking-cessation classes, to all participants—regardless of whether they have a medical condition that makes it unreasonably difficult or medically inadvisable to stop tobacco use. Alternative standards are subject to additional requirements. For example, if the alternative is completion of an educational program, you must make the program available or help participants find a suitable program, and you may not require participants to pay for the program.
  • Disclosure of Alternatives. All plan materials describing the wellness program must disclose the availability and characteristics of the reasonable alternative standard. DOL regulations provide sample language for this disclosure.

In addition to HIPAA, other laws may further restrict the design of your wellness program. For example, final EEOC regulations under the ADA state that HIPAA’s increased incentive limit for programs related to tobacco use cannot be used if your program uses a medical test to detect participants’ use of tobacco. In this situation, the maximum allowable incentive under the ADA may be calculated differently than the HIPAA limit, depending on the terms of your plan. Therefore, when designing a wellness program, it is important to coordinate the requirements of all applicable laws and not focus exclusively on HIPAA.

For more information, see EBIA’s HIPAA Portability, Privacy & Security manual at Section XI.I (“Wellness Programs Must Meet Specific Nondiscrimination Requirements”), EBIA’s Consumer-Driven Health Care manual at Section VI.D (“Wellness and Disease-Management Programs: HIPAA Considerations”), EBIA’s Self-Insured Health Plans manual at Section XIII.D (“Benefits Must Not Be Discriminatory”), and EBIA’s Health Care Reform manual at Section XIII.C (“Health Status Nondiscrimination and Wellness Programs”).

Contributing Editors: EBIA Staff.