Macy's lawsuit: Reasonable Alternative Standards for wellness programs

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Properly structured wellness programs are of tremendous value to employers and employees alike, as they can improve the health, wellbeing and productivity of workers. As a result, employers with wellness programs usually incentivize employees in a bid to improve participation and outcomes.

However, as witnessed at a recent legal workshop we attended, many employers are still not clear on some of the nondiscrimination rules that apply when offering wellness program incentives — or when levying health plan surcharges (typically for tobacco users). Just ask Macy’s and their third-party administrators (TPAs), who are currently being sued by the Department of Labor. Among the allegations: they failed to properly apply the Reasonable Alternative Standard (RAS) rules allowing their smokers to avoid a health insurance surcharge.

The important thing to note here is that Macy’s did in fact offer their smokers a tobacco cessation program that would allow them to qualify for the tobacco-free health insurance rates. Cutting through the complexities of the case, the program was allegedly non-compliant in three areas:

  • The availability of the Reasonable Alternative Standard was not properly disclosed.
  • The smoking cessation program was unreasonably difficult for some individuals to complete for medical reasons, meaning that these people were not in fact offered a “reasonable” alternative given their particular circumstances.
  • The plan continued charging the tobacco surcharge to individuals who didn’t remain tobacco-free for at least 6 consecutive months during the year — even though they had done the tobacco cessation program. This is definitely a no-no if true… the whole purpose of the Reasonable Alternative is to allow certain employees to earn incentives or avoid surcharges even if they cannot achieve a particular health standard.

SelfHelpWorks is more familiar with the ins and outs of the Reasonable Alternative Standard (RAS) requirements than most, because our targeted online interventions are often used as a Reasonable Alternative — particularly in the areas of tobacco, BMI and blood sugar levels. So we thought you might find the following overview useful — although please bear in mind that this is nothing more than a brief, watered-down synopsis and should in no way be construed as legal advice.

Basically, there are two types of incentivized wellness programs — participation-based and contingency-based. In participation-based programs the participants are rewarded for simply “showing up” — the incentives are not tied to a health-related achievement. On the other hand, in contingency-based programs the reward is contingent on achieving a health goal of some sort. It’s the contingency-based incentive programs that require you to offer participants a Reasonable Alternative.

There are two types of contingency-based programs: activity-based and outcome-based.  Activity-based programs require completing an activity to earn the incentive, but do not require any particular health outcome. On the other hand, outcome-based programs require achieving or maintaining a specific health standard or outcome to earn the incentive. So rewarding employees for walking 10,000 steps a day would be considered activity-based, while rewarding them for having a BMI of less than 30 or being tobacco-free is outcome-based.

For activity-based programs, a Reasonable Alternative must be provided for someone who is physically incapable of participating in or completing the activity, or for whom it is medically inadvisable. For outcome-based programs, a Reasonable Alternative must be provided for someone who is not able to achieve the required health standard.

It’s important to be aware that in 2013 the Reasonable Alternative requirement was expanded for tobacco and other outcome-based programs. Prior to then, a Reasonable Alternative only had to be provided if a medical condition made it unreasonably difficult or medically inadvisable for an employee to satisfy the health standard. However the 2013 regulations required that a Reasonable Alternative be provided to anyone who failed to meet the initial standard, regardless of medical reason.

The general requirements for a Reasonable Alternative Standard are:

  • At least one suitable RAS must be provided at no cost to the employee. Suitability is judged on a case-by-case basis. So if an employer offers a default RAS but an employee cannot be reasonably expected to complete it due to their particular circumstances, it is the company’s responsibility to provide another.
  • Employees completing the RAS must receive the reward for the entire year. So a smoker who completes a tobacco cessation program 6 months after the start of the plan year still needs to receive non-smoker rates for the entire year.
  • The time commitment required of the participant must be reasonable.
  • The RAS must be available every year, regardless of the employee’s outcome in prior years.
  • The availability of a RAS (or the possibility of having the standard waived, if applicable) must be properly disclosed where applicable.

Reasonable alternatives come in various forms, some more likely to produce positive outcomes than others. That’s why the SelfHelpWorks online video-based courses are such a popular Reasonable Alternative: in addition to being suitable for virtually any employee regardless of health status, our successful rates are extremely high. Simply put, when a participant begins a SelfHelpWorks program, chances are very good they will soon be making a positive and long-lasting lifestyle change.

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