A wellness reward is easy to pay and surprisingly easy to get wrong.
A wellness rewards account pays employees a set amount when they meet a goal: a screening, a step count, a completed course. It works when the goal is reasonable, the reward is modest and the rules respect three overlapping federal laws. It fails when the program quietly penalizes people who cannot meet the goal.
Two kinds of program, and the rules differ.
Whether a program is participatory or health-contingent decides which rules apply and how large the reward can be.
Participatory Programs
The reward is for taking part, not for a health result: completing a health assessment, attending a seminar, joining a challenge. Federal rules place no cap on these rewards, as long as the program is open to everyone on the same terms.
Health-Contingent Programs
The reward depends on meeting a health standard, such as a target weight or blood pressure, or on an activity such as a walking goal. These are subject to limits on the size of the reward, a reasonable alternative for people who cannot meet the standard, and at least one chance a year to qualify.
Cash Rewards Are Taxable
A cash reward is wages, subject to withholding and payroll tax, whatever the program is called. Gift cards are treated the same way. Premium reductions tied to a wellness program also need to be coded correctly.
Three Laws Overlap
HIPAA and the Affordable Care Act regulate wellness incentives tied to a group health plan. The ADA limits what an employer can ask, and requires that participation be voluntary when medical information is collected. GINA protects genetic information. A program has to satisfy all that apply.
Keep Medical Data Separate
Information from screenings and assessments is health information. It needs to be kept confidential, held by a vendor or the plan and not by supervisors, and not used for employment decisions.
Measure Whether It Works
Participation is easy to count. Whether the program changes health or cost is harder, and usually shows up only in the claims data. See wellbeing and population health.
Four mistakes that draw complaints.
No Alternative
A health-contingent reward with no way for someone with a medical condition to earn it is the classic mistake. Offer a reasonable alternative.
A Reward That Is Too Large
A very large incentive for disclosing medical information can make the program effectively mandatory.
Supervisors See Results
Health data in the wrong hands creates exposure for discrimination claims. Use a vendor and a firewall.
No Notice
Employees must be told about the program, the standard and the alternative. Put it in writing.
The questions employers ask about wellness rewards.
Five questions that come before the launch.
Can we pay cash for a wellness activity?
Yes. A cash reward is taxable wages, and the program has to meet the federal rules that apply to its type.
Is there a limit on the reward?
For health-contingent programs tied to a group health plan, yes; the rules cap the reward as a share of the cost of coverage. Participatory programs have no such cap.
What is a reasonable alternative?
A different way for someone to earn the reward if a health condition prevents them from meeting the standard. The standard can be waived or changed.
Do we see the results?
Not individually. Screening results should be held by the vendor or plan, and the employer should see only combined data.
Does the program lower costs?
Sometimes. The evidence is mixed, and it depends on design and participation. We look at claims data before and after rather than assume.
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General information about wellness rewards programs, not legal or tax advice. Plan-specific questions belong with your tax adviser or counsel, and we will bring them in.
Related guides.
Wellbeing and Population Health
How wellbeing programs connect to claims and cost.
Choosing a Wellbeing Program
How to pick a vendor and a design.
Lifestyle and Specialty Accounts
The accounts that cover what insurance does not.
Where the Rules Come From.
The laws and rules named on this page link to the statute or regulation they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
Wellness Program Rules (26 C.F.R. 54.9802-1)
The HIPAA and ACA rules for wellness incentives tied to a group health plan.
ADA Rules on Medical Inquiries (29 C.F.R. 1630.14)
The rules on what employers may ask in a voluntary wellness program.
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