What is an employee wellness program?
An employee wellness program is any program an employer offers to promote health or prevent disease, from biometric screenings and health risk assessments to fitness reimbursements, coaching and tobacco cessation. Many attach a reward, such as a premium discount, a lower deductible, a gift card or an HSA contribution. Some use the reverse, a surcharge that employees avoid by meeting a standard.
When a program gives a reward through the group health plan, or varies premiums or cost sharing, it falls under the federal wellness rules in HIPAA as amended by the ACA. When it asks medical questions or includes a medical exam, the ADA applies. When it asks about family medical history or a spouse’s health, GINA applies. Those three sets of rules overlap, and meeting one does not mean you meet the others.
Is a program participatory or health-contingent?
That depends on how the reward is earned, and the type of program decides which rules apply. The HIPAA and ACA wellness rules sort programs into two categories, and split the second into two more.
| Type | How the reward is earned | Examples | Reward limit under HIPAA/ACA |
|---|---|---|---|
| Participatory | Taking part, with no health standard to meet | Completing a health risk assessment, attending a seminar, gym reimbursement | None |
| Health-contingent: activity-only | Completing an activity tied to a health factor, without reaching a result | A walking, diet or exercise program | 30% of coverage cost, 50% for tobacco programs |
| Health-contingent: outcome-based | Reaching or keeping a specific health result | A blood pressure, cholesterol or BMI target, or being tobacco-free | 30% of coverage cost, 50% for tobacco programs |
Participatory programs must be available to all similarly situated people regardless of health status. That is the only requirement under these rules. Health-contingent programs carry five.
What are the five rules for health-contingent programs?
Every health-contingent program, activity-only or outcome-based, must meet all five requirements in 29 CFR 2590.702(f):
- Once a year. Every eligible person gets a chance to qualify for the reward at least once per year.
- Size of the reward. Total rewards for all health-contingent programs can’t exceed 30% of the total cost of employee-only coverage, counting both employer and employee contributions. If dependents can take part, the limit is 30% of the cost of the coverage they are enrolled in. The limit is 50% when the added amount is for preventing or reducing tobacco use.
- Reasonable design. The program must have a reasonable chance of improving health or preventing disease, and can’t be overly burdensome, a cover for discriminating on health, or highly suspect in its methods.
- Uniform availability and a reasonable alternative standard. The full reward must be available to everyone similarly situated. For activity-only programs, that means a reasonable alternative or waiver for anyone whose medical condition makes the activity unreasonably difficult or medically inadvisable. For outcome-based programs, anyone who doesn’t meet the target must be offered a reasonable alternative, with no doctor’s note required to get one.
- Notice. Every plan material that describes the program’s terms must say a reasonable alternative is available, give contact information, and state that the recommendations of the person’s own doctor will be accommodated. The regulation includes sample language.
The alternative also has rules of its own. If it is an educational program, the plan must make it available or find one for the person at no cost. Time commitments must be reasonable. For a diet program, the plan pays membership or participation fees but not food.
How do the ADA and GINA limit wellness programs?
The ADA lets an employer ask medical questions or run medical exams in a wellness program only if the program is voluntary and reasonably designed to promote health or prevent disease. Under 29 CFR 1630.14(d), the employer can’t require participation, deny or limit coverage for people who decline, or retaliate. Employees must get a notice explaining what medical information is collected, who sees it and how it is protected, and the employer receives only aggregate data that doesn’t identify anyone.
GINA adds limits on genetic information, which includes family medical history. Under 29 CFR 1635.8, a program can’t offer a reward for genetic information. It can reward completing a health risk assessment that includes family history questions only if it says clearly that the reward is available whether or not those questions are answered. A program also can’t penalize an employee because a spouse declines to share health information.
What the EEOC rules no longer contain is an incentive limit:
- 2016. The EEOC issued ADA and GINA rules that allowed incentives up to 30% of the cost of self-only coverage.
- 2017. In AARP v. EEOC, the U.S. District Court for the District of Columbia found the EEOC had not explained why 30% kept a program voluntary, and vacated the incentive sections effective January 1, 2019.
- December 2018. The EEOC removed the incentive section from its regulations, effective January 1, 2019. The incentive paragraphs in both rules are now marked “reserved.”
- January 2021. The EEOC approved proposed rules that would have limited most incentives to a de minimis amount, such as a water bottle or a small gift card. They were withdrawn before publication in February 2021 under a regulatory freeze, and no replacement has been issued.
The result is that the HIPAA and ACA limits are firm, but there is no EEOC safe harbor for how large an incentive can be before a program that asks medical questions stops being voluntary. Employers with large incentives on screenings or health risk assessments carry that open question.
Tobacco surcharges and the lawsuits over them.
A tobacco surcharge is a health-contingent, outcome-based wellness program. The reward is the surcharge an employee avoids by not using tobacco, so all five rules apply: the 50% limit, a reasonable alternative such as a cessation program, and notice of that alternative in every plan document, enrollment form and benefits guide that mentions the surcharge.
Employees have filed dozens of class actions under ERISA claiming tobacco surcharges broke those rules, most often by not offering or not describing a reasonable alternative, or by not giving back the full year’s surcharge to employees who completed the alternative mid-year. Some have produced settlements and rulings for employees. The status of the leading cases is in ERISA health plan litigation.
On the mid-year question, the Departments said in ACA FAQs Part 74 on August 26, 2026 that, until further guidance, they will not enforce a requirement to pay the reward back to the start of the plan year. A plan may give the reward from the point the employee meets the alternative, if the program is otherwise compliant. That is an enforcement position from the agencies, and it does not bind courts hearing private lawsuits.
To check a surcharge, confirm that:
- A reasonable alternative standard exists and is free to the employee.
- Every document that mentions the surcharge describes the alternative, with contact information and the personal physician statement.
- The surcharge, plus any other health-contingent rewards, stays within the 50% limit.
- The plan document and SPD say how and when the surcharge is refunded or removed once the alternative is met.
What does the research say about ROI?
The best evidence says broad workplace wellness programs change some habits but rarely lower medical spending in the first few years. Early studies reported large returns, but many compared people who chose to join with people who didn’t. Two randomized trials, which avoid that problem, found much smaller effects.
| Study | Design | What improved | What did not |
|---|---|---|---|
| Song and Baicker, JAMA, April 2019 | 32,974 employees at 160 BJ’s Wholesale Club worksites, 20 randomly chosen to offer the program, 18 months | Self-reported regular exercise and active weight management | Clinical measures such as blood pressure, cholesterol, glucose and BMI; medical spending and use; absenteeism, job tenure and performance |
| Jones, Molitor and Reif, Quarterly Journal of Economics, 2019 | Nearly 5,000 University of Illinois employees randomly assigned eligibility and rewards, more than two years | Health screening rates | Total medical spending, other health behaviors, productivity and self-reported health |
The Illinois study also found strong selection. The people who signed up already had lower medical spending and healthier habits before the program began. A program can look successful in a vendor report because the healthiest employees joined, not because it changed anyone’s health. That study’s results ruled out most of the earlier estimates of savings on medical spending and absenteeism.
None of this says every program fails. It says a broad screening and education program is unlikely to pay for itself through claims within a few years, and that participation counts are not evidence of results. Programs aimed at a specific condition or a higher-risk group are a different question, and should be judged on their own data.
How do you measure a program?
Measure a wellness program the way you would any other plan expense: with a baseline, a comparison group where possible, and your own claims data. Before you buy or renew, ask:
- What problem does it address? Start from what your claims, pharmacy and leave data show, not from what a decision-maker personally likes or what a vendor sells.
- Who joins? Compare participants with nonparticipants before the program starts. If participants were already healthier, the vendor’s savings figure is likely overstated.
- What counts as success? Agree up front on clinical measures, use of high-cost care, retention or absence data, and the time frame, rather than enrollment or app logins.
- What will it cost if the numbers rise first? Screenings can find conditions that were already there, so claims for those conditions can go up before anything improves.
- Who owns it? A program that lives only in the benefits department, without support from leadership and managers, tends to stall at participation.
- Is it compliant? Check each reward and surcharge against the HIPAA, ADA and GINA rules above, and review your plan materials for the required notice.
Ethos Benefits’ claims analytics work can help you set a baseline and track a program against your plan’s own data.
