Wellness Program Incentives: FAQs Part 74

On August 26, 2026, the Departments of Labor, Health and Human Services, and the Treasury (the Departments) jointly issued FAQs Part 74 addressing HIPAA health-contingent wellness programs. The FAQ provides two Q&As focused on (1) enforcement relief on providing “the full reward” to an individual who meets the reasonable alternative standard after the plan year has begun, and (2) reinforcing language requirements.

While instructive, this new guidance only speaks to what the government enforces, and not practical actions employers can take to reduce private litigation risk from plan participants. To that end, it is best practice for plan sponsors to communicate that all wellness and reasonable alternative deadlines for the upcoming plan year must be met before open enrollment, and include the government’s model language in all materials explaining the wellness program (including the Summary Plan Description (SPD)).

Applies to:

• All employers regardless of size, insured and self-insured, who offer a health-contingent wellness program. Meaning, any program tied to a health plan that requires an activity which certain individuals with a health factor may not be able to complete (such as a walking challenge that requires that ability to walk), or requires meeting a health standard (such as a cholesterol standard or non-tobacco standard).

• Not covered: Participatory wellness programs where the reward is not contingent on a health standard (e.g., reimbursing a gym membership with no requirement for attendance frequency, or rewarding attendance at a health seminar). These programs do not have to meet the health-contingent requirements or offer a reasonable alternative, but must be made available to all similarly situated individuals.

Best Practices:

• Set early deadlines. A previous federal FAQ states employers may set wellness and reasonable alternative deadlines for the upcoming plan year to be wrapped up before the plan year begins. This avoids confusion and complexity, as employees go into open enrollment knowing what rewards they qualify for and there are no possible retroactive rewards.
• Include model language in all wellness materials and the SPD. The Departments previously provided employers sample language to disclose the availability of a reasonable alternative to qualify for the same full reward. The language is easy for employees to read and understand, and short enough to include in all materials describing the wellness program, including the SPD. Therefore, best practice is to include that model language everywhere the wellness program is described as well as in the SPD.
• Exercise caution in tying rewards to receiving a medical exam. In addition to those two best practices previously provided by the Departments, employers should consider that in the absence of settled EEOC rules on what it takes for a wellness incentive to be “voluntary” employers should seek counsel where they provide an incentive tied to medical exams. Until the EEOC provides updated rules, rewards for completing a biometric screening, annual physical, or testing for nicotine in the body, could move a program into riskier litigation territory.

Consequences of Non-Compliance:

• A health-contingent wellness program that fails any of the five HIPAA requirements loses the HIPAA nondiscrimination exception. As a result, the reward or surcharge becomes prohibited discrimination based on a health factor under ERISA Section 702 and PHSA Section 2705, and the DOL or litigation could require the employer to refund impacted participants for the surcharges imposed.

• Group health plan violations of these requirements can trigger an excise tax under IRC Section 4980D of $100 per day per affected individual, in addition to potential DOL enforcement and participant claims for the improperly imposed surcharge or denied reward.