Federal agencies have issued three sets of proposed regulations that include some items of particular interest to employers that sponsor health plans. • Proposed regulations on wellness programs, which modify the permissible incentives for meeting wellness standards and the conditions under which plans may provide those incentives • Proposed regulations defining essential health benefits and actuarial value, which primarily relate to insurance coverage in the individual and small group insurance markets, as well as coverage offered on a state health insurance exchange • Proposed regulations implementing various reforms that apply to insurers and primarily affect coverage in the small group and individual markets Because they are not final, these proposed regulations are not legally binding and are subject to change. Highlights of the issues covered by these regulations are noted below. We will provide detailed explanations of these regulations, insofar as they affect employers, when they are finalized.

1. November 26, 2012
News Flash November 26, 2012: Proposed Regulations on Wellness Programs, Essential
Health Benefits and Insurance Market Reforms
Federal agencies have issued three sets of proposed regulations that include some items of
particular interest to employers that sponsor health plans.
• Proposed regulations on wellness programs, which modify the permissible incentives for
meeting wellness standards and the conditions under which plans may provide those incentives
• Proposed regulations defining essential health benefits and actuarial value, which primarily
relate to insurance coverage in the individual and small group insurance markets, as well as
coverage offered on a state health insurance exchange
• Proposed regulations implementing various reforms that apply to insurers and primarily affect
coverage in the small group and individual markets
Because they are not final, these proposed regulations are not legally binding and are subject to
change. Highlights of the issues covered by these regulations are noted below. We will provide
detailed explanations of these regulations, insofar as they affect employers, when they are finalized.
Wellness Programs
The health care reform law includes a provision that allows non-grandfathered group health plans to
provide greater incentives for meeting certain wellness standards than have previously been
permitted. The proposed regulations on wellness programs explain how this provision changes the
rules that currently apply to wellness programs. They also make grandfathered plans subject to the
new rules.
The proposed regulations are very similar to existing guidance regarding wellness programs, in that
they identify two types of wellness programs that a health plan might include, applying different
rules to each.
• “Participatory wellness programs” provide incentives solely for participating in a program that
is unrelated to an individual’s health status. A program that provides a reward to all health plan
participants who complete a health risk assessment, with the award being the same regardless of
the health status revealed by the assessment, falls into this class. The proposed rules (as well as
current rules) require only that these programs be available to all similarly situated participants.
These rules do not limit the incentives that may apply under these programs (but other
authorities (e.g., the ADA) may make it unwise to apply very large incentives under these
programs).
• The proposed regulations include some changes for “health-contingent wellness programs,”
which generally require meeting a health standard (e.g., cholesterol, blood pressure and BMI
levels within certain limits) in order to obtain a reward. A premium discount for non-smokers in

2. November 26, 2012
an example of this type of program. Applicable rules require these programs to comply with
five conditions.
(1) These programs must provide an opportunity to qualify for the reward at least once a year.
(2) The reward generally cannot exceed a percentage of the total cost of employee-only
coverage (or, if dependents may participate in the wellness program, the cost of the
coverage category in which the employee and any dependents are enrolled). The proposed
regulations confirm that this percentage will be 30% (increased from 20%), effective for
plan years beginning during 2014. In addition, the total percentage may be increased to 50%
if the additional 20 percentage points are an incentive under a program designed to reduce or
prevent tobacco use. For information on the incentive cap as it is currently in effect, see
Willis Employee Benefits Alert, March 2008, “More Guidance, More Flexibility on
Wellness Programs.”)
(3) The program must be reasonably designed to promote health or prevent disease and not a
“subterfuge for discrimination based on a health factor.”
(4) The reward must be available to all similarly situated individuals. Also, the plan must
provide a “reasonable alternative” for obtaining the reward to certain individuals. The
proposed regulations specify that the plan must identify and bear any cost of that alternative.
(5) Notice must be provided that other means of qualifying for the reward are available, and the
proposed rules provide new sample language for that notice.
For more information on these requirements as they are currently in effect, see Willis Employee
Benefits Alert, January 2007, “Final Nondiscrimination Regulations: How Do They Affect
Wellness Programs?”
Essential Health Benefits and Actuarial Value
Proposed regulations related to essential health benefits (EHB) appear to adopt the state-by-state
approach to defining EHB reflected in earlier HHS statements on the topic. Employer plans (other
than insured plans sold in the small group market or through an exchange) generally are not
required to provide EHB, but the definition of EHB is important to employers in complying with
the prohibitions of annual and lifetime dollar limits on EHB. The significance of the term “essential
health benefits” (as well as the confusingly similar term “minimum essential coverage”) is
discussed in Willis Human Capital Practice Alert, July 2011, “Looking Ahead – Compliance After
2011.”
Like HHS’ earlier releases regarding EHB, the proposed regulations focus primarily on the
processes that states will follow in defining EHB and the options available to the states in doing so.
It does not appear that HHS confirmed its statement, previously included in an FAQ, that employer-

3. November 26, 2012
sponsored plans (other than insured plans sold in the small group market or through an exchange)
would be able to choose any state’s definition of EHB for purposes of complying with the annual
and lifetime dollar limits provisions. It also does not appear that HHS reiterated previous
regulations’ assurance that the enforcing agencies will take into account good faith efforts to
comply with a reasonable interpretation of EHB until regulations defining the term are finalized.
A Welcome Surprise
Although disappointing on the subject of EHB, the preamble to these proposed regulations included
an unexpected statement regarding applicability of certain cost-sharing restrictions to group health
plans. Specifically, the preamble states that group health plans (other than insured plans purchased
in the small group market or through an exchange) need not comply with the following coverage
reforms –
• Limit on annual deductibles so that they can be no greater than $2,000 for self-only coverage, or
$4,000 for coverage other than self-only, starting with the 2014 plan year
• Limit on out-of-pocket maximums so that they can be no higher than those permitted during
2014 for the high-deductible health plan coverage that an individual must have in order to be
eligible for tax-favored contributions to a health savings account (for 2012, these limits are
$6,050 for self-only coverage and $12,100 for coverage other than self-only)
The preamble to the proposed regulations notes that this is how the relevant federal agencies “read”
the health care reform law. This indicates that the statement on applicability of these provisions is
an interpretation of the statute as written (as opposed to a statement of an intention to issue
regulations in the future that would implement this position). Even so, a statement in the preamble
to proposed regulations on an unrelated topic is not the type of assurance that most employers are
seeking on these questions.
Actuarial Value and Minimum Value
The proposed regulations include provisions regarding the determination of actuarial value of health
plans for purposes of the so-called “metal levels” of coverage that will be offered through the state
insurance exchanges. That discussion is not directly relevant to most employers, as they will not be
responsible for making those metal level determinations. For some employers, however, the rules
on calculating actuarial value are of crucial importance in determining whether the “pay or play”
excise tax will apply to them starting in 2014.
For large employers (50 or more full-time employees) that offer minimum essential coverage to
substantially all of their full-time employees, the excise tax will apply only if an employee declines
the employer’s plan and receives federal assistance in connection with exchange-purchased
coverage. An employee is ineligible for such assistance, however, if the employee was offered
minimum essential coverage that is affordable and provides minimum value (i.e., has at least 60%

4. November 26, 2012
actuarial value). For additional information on applicability of the pay or play excise tax, the
definition of minimum essential coverage, determination of full-time status, affordability and other
matters, see Willis Human Capital Practice Alert, July 2011, “Looking Ahead – Compliance After
2011” and Willis Human Capital Practice Alert, October 2012, “PPACA Determination of Fulltime
Employees – Interim Safe Harbor.” In this article, we are discussing only the minimum value (MV)
determination.
Like previous IRS guidance (Notice 2012-31), the proposed MV regulations offer three options for
determining whether a plan provides MV: a government-designed calculator, design-based safe
harbor checklists and actuarial certification.
• MV Calculator. The proposed regulations confirm HHS and IRS’ intention to create an MV
calculator that will provide a verdict on whether an employer-sponsored plan provides MV
based on information entered into the calculator regarding the plan’s cost sharing. The MV
calculation will make this determination based on a different set of assumptions than those that
apply to determine the metal levels for coverage offered through an exchange. The MV
calculator will be based on continuance tables and a standard population reflecting claims data
of typical self-insured employer plans. HHS expects that this will result in the MV calculator
providing a similar or higher actuarial value for a plan than the same plan would receive using
the calculator created for determining the metal levels.
• Design-Based Safe Harbor Checklists. As an alternative, an employer-sponsored plan can use
safe harbor checklists to be issued by HHS and IRS, describing the cost sharing for four core
categories of benefits: physician and mid-level practitioner care, hospital and emergency room
services, pharmacy benefits, and laboratory and imaging services.
• Actuarial Certification. If an employer-sponsored plan has nonstandard features that preclude
the use of the calculator or safe harbor checklists it can have an actuary that meets certain
specification certify that the plan provides minimum value, based on specified assumptions.
Insurance Market Reforms
The third set of proposed regulations implements several insurance market reform provisions of
PPACA, including the guaranteed availability of coverage, limits on insurance premiums in the
individual and small group markets and guaranteed renewability of coverage. Generally, these rules
apply only to individual and small-group market health plans and coverage offered on an exchange,
with insurers being responsible for compliance. The regulations include provisions that determine
whether association plan coverage is considered group or individual coverage.
The information in this e-mail is not intended to represent legal or tax advice and has been prepared solely for
informational purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this
publication.