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Wellness & Value-Add Benefits: No Good Deed Goes Unpunished?

In an effort to encourage employee health and add value to health and welfare benefit offerings, there are an increasing number of employers exploring benefits such as wellness programs, telemedicine, employee assistance programs, on-site clinics and specified illness and disease.

Lately, however, the increasing complexity of administering a compliant plan has left some employers feeling like no good deed goes unpunished when it comes to offering these value-add benefits.

While these benefits may seem simple and cost effective, it is important to remember that these plans often come with not-so-simple compliance obligations that are frequently overlooked. For example, many of these plans have to comply with ERISA, HIPAA, the ACA, COBRA, and IRS regulations for Health Savings Accounts (HSAs). As long as you know what your employer obligations are, offering value-add benefits can still be a valuable addition to your total compensation strategy.

Potential Compliance Obligations

At the crux of determining your compliance obligations for most of these benefits is whether or not the plan is a “group health plan” that provides “medical care.” Medical care is defined as amounts paid for: (a) the diagnosis, cure, mitigation, treatment, or prevention of disease, or amounts paid for the purpose of affecting any structure or function of the body; (b) transportation primarily for and essential to medical care; and (c) insurance covering medical care. Any  value-added benefits that meets this broad definition of medical care must comply with ERISA, COBRA, PPACA and HIPAA privacy rules (unless an exception applies). These plans must:

  • Have an ERISA plan document and summary plan description;
  • Provide a COBRA general notice and election notice for participants experiencing a qualifying event;
  • Comply with the ACA market reforms; and
  • Take appropriate steps to secure the protected health information (PHI) of individuals in the plan.

Next, there is the issue of coordinating these benefits with consumer driven health plans, such as an HSA. To be eligible to contribute to an HSA, an individual cannot be enrolled in any other non-HDHP coverage, except for other permissible coverage as defined in IRS Pub. 969. Very few value-add benefits are defined as other permissible non-HDHP coverage under the IRS rule, so it requires a case-by-case analysis of whether the plan offers significant medical benefits. Unless an exception applies, individuals enrolled in a value-add program that provides significant medical benefits are ineligible to contribute to an HSA.


There are, however, a few exceptions to these rules that could simplify or eliminate your compliance obligations.

  • ERISA: Church and Government Plans; Voluntary Plan Safe Harbor
  • COBRA: Church and Federal Government Plans; Voluntary Plan Safe Harbor
  • HIPAA: Government programs whose principal purpose is not providing/paying for health care; Group health plans with less than 50 participants that is solely self-administered
  • PPACA: Non-Health Benefit; Limited Wraparound Benefit; Non-Coordinated Benefit; Supplemental Benefit; Integrated Benefit
  • HSA: Limited-Purpose Benefit; Post-Deductible Benefit; Employee Pays Fair Market Value

Wellness Program Incentives

Wellness programs are a great way to promote employee health and fitness through the use of educational activities and rewards/penalties. Depending on the type of wellness program offered, you may have virtually no compliance obligations, or conversely your plan may need to comply with the HIPAA nondiscrimination rules, the ACA, the ADA, and GINA.

Most more robust wellness programs must meet five requirements:

  1. Does not exceed applicable incentive limits
  2. Is designed to promote health and prevent disease
  3. Offers an opportunity to qualify for the reward at least once per year
  4. Offers and discloses a reasonable alternative standard (RAS)
  5. Is voluntary

Wellness Plan Compliance Chart

*Tobacco-Related: 50% of EE-Only Cost of Coverage (Affidavit); 30%* of EE-ONLY Cost of Coverage (Testing); The EEOC’s ADA and GINA wellness rules were vacated on 1/1/19 – HIPAA/ACA rules will remain effective.


For a more in-depth discussion of compliance for wellness programs and other value-add benefits, watch our recorded webinar here.