Saturday, April 13, 2013

The Affordable Care Act has made some changes to the rules around wellness programs. The last several years the Department of Health and Human Services and the IRS have put in guidelines that regulate what qualifies as an acceptable "health contingent wellness program". Under the Affordable Care Act those rules have been modified.

There are two types of wellness programs recognized by the Department of Health and Human Services.

1. Participatory Wellness Programs – These programs offer incentives to employees to participate in programs such as exercise classes or nutritional counseling. The participant is rewarded for participation with no additional criteria needed to qualify for the incentive. Many times employers will give gift cards or prizes for certain thresholds of participation. From a tax standpoint if the value of the prizes exceeds $25 in the year the amount above $25 is taxable income to the employee. If the company utilizes gift cards or gift certificates, the IRS considers these cash, and they are taxable income to the employee.

2. Health Contingent Wellness Programs – Under a health contingent program the participant has to reach certain health related goals to qualify for the award. The concern is how do we accommodate for all the different scenarios that can impact an individual's ability to reach certain health care goals? Family history, pre-existing medical conditions or physical structure can all play a role in the limits each individual can accomplish.

For this reason the Department of Health and Human Services, through the Affordable Care Act, has set these parameters for Health Contingent Wellness Programs:

a. Programs must be reasonably designed to promote health or prevent disease. To be considered reasonably designed to promote health or prevent disease, a program would have to offer a different, reasonable means of qualifying for the reward to any individual who does not meet the standard based on the measurement, test or screening. Programs must have a reasonable chance of improving health or preventing disease and not be overly burdensome for individuals.

b. Programs must be reasonably designed to be available to all similarly situated individuals. Reasonable alternative means of qualifying for the reward would have to be offered to individuals whose medical conditions make it unreasonably difficult, or for whom it is medically inadvisable, to meet the specified health-related standard.

c. Individuals must be given notice of the opportunity to qualify for the same reward through other means. These proposed rules provide new sample language intended to be simpler for individuals to understand and to increase the likelihood that those who qualify for a different means of obtaining a reward will contact the plan or issuer to request it.      http://www.dol.gov/ebsa/newsroom/fswellnessprogram.html)

These changes in the Health Contingent Wellness Program guidelines also include an increase in the amount of benefit the employer can provide to the employee. Under the new rules an employer can now increase the permissible award from 20% to 30% of the cost of the health care coverage. In addition the maximum permissible award goes to 50% for programs designed to prevent or reduce tobacco use.  The utilization of reducing the employee cost of health coverage is not a taxable event under IRS guidelines if it is within the limits provided.

If you have questions regarding the utilization of wellness programs, the Affordable Care Act or payroll issues please contact Gary@IlluminareGroupInc.com.

IRS CIRCULAR 230 — DISCLOSURE NOTICE: IRS Circular 230 regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full "covered opinion". Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein.