What you need to know

What is a health contingent wellness program? Are there rules for this type of program?

In a health  contingent wellness program, any rewards, incentives, or penalties associated with the program are tied to an individual’s ability to meet a certain performance standard related to a specific health factor. For example, employees may be rewarded for reaching a healthy body weight or body mass index (BMI), lowering their cholesterol, or quitting smoking.

When designing your performance-based health and wellness program, follow these  rules:

  1. The program must be designed to promote health and well-being.
  2. The program must be available to all similarly situated individuals.
  3. Individuals must have the opportunity to earn the incentive or avoid the penalty once per year. These rewards and penalties can take many forms (e.g., reduction in premium, contribution to a healthcare account, etc.).
  4. The total amount of the reward/penalty must not exceed 30% of the cost of the coverage elected by the participant on the group health plan.  The total reward may go as high as 50% for programs designed to prevent or reduce tobacco use.   (Note: The limit on rewards includes both the employer and employee share of premiums. Employers should also be able to include administrative and other costs related to the health plan, i.e., third-party administrative fees.)
  5. Individuals who are unable to meet a performance standard because of a medical condition that makes it unreasonably difficult or medically inadvisable to attempt to do so must be provided an alternative performance standard by which they can earn an incentive or avoid a penalty. For example, if an employee can’t achieve a BMI target because a heart condition makes it difficult or inadvisable for them to engage in strenuous exercise, they must have the opportunity to earn the full incentive through some alternative standard, such as agreeing to more limited exercise and keeping their BMI within a modified range. (Note: In program materials, employers must let participants know that alternative standards are available. The employer may ask a plan member to provide some kind of clinical certification that verifies their need for an alternative performance standard, and a physician’s suggestion of what standard would be appropriate. Most employers will need the assistance of a healthcare provider to evaluate claims for alternative performance standards, as well as to avoid having to view confidential medical information, minimizing Health Insurance Portability and Accountability Act (HIPAA) privacy issues.)
  6. Wellness Programs are further regulated by recent changes to the Americans with Disability Act (ADA) and  the Genetic Information Nondiscrimination Act (GINA)  so be sure to have your program reviewed against these additional regulations.

Coaches' Takeaway

Individuals must have the opportunity to earn an incentive or avoid a penalty once per year.

Tools & Resources

CDHPCoach’s Storage Facility, where the Coach has organized and compiled a vast amount of tools and resources for you to access.


Housed here are key components and information within the book, Bend the Healthcare Trend which was the impetus behind the CDHPCoach.


What you need to know