EMPLOYEE BENEFITS: Nonsmokers now allowed health premium discounts in Kentucky
Governor Steve Beshear recently signed into law House Bill 165 amending the Kentucky Civil Rights Act (KCRA), which prohibits employers from discriminating against smokers. Previously, Kentucky employers were broadly prohibited from treating smokers differently than nonsmokers. While the prohibition remains in effect, the amended KCRA, which takes effect July 15, will soon allow employers to offer rewards in the form of discounted health coverage to nonsmokers. Read on to learn how this new law can help you minimize the costs of smoking in the workplace.
Discounts available to nonsmokers
Under the amended KCRA, employers that maintain employer-sponsored group health plans will be allowed to offer nonsmokers discounted health coverage without violating the nondiscrimination provisions of the Act. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits group health plans from discriminating against individuals on the basis of any health-related factor, including smoking. Therefore, if you plan to offer discounted health coverage to nonsmokers, you must ensure that you also comply with HIPAA.
Under HIPAA, discounted health coverage offered as a reward to nonsmokers must be provided through a wellness program, which is defined by the Act as any program designed to promote health and prevent disease. Programs that satisfy certain criteria may offer rewards — such as premium discounts, rebates, or modified copayments or deductibles — to employees who choose to participate and may impose health-related eligibility criteria, such as no-smoking rules.
Thus, rather than simply offering nonsmokers a reward, you should establish a wellness program that conditions obtaining the reward on members satisfying a no-smoking eligibility requirement. Wellness programs that differentiate between similarly situated individuals on the basis of health-related factors must satisfy the following requirements:
- The reward to employees who adhere to the wellness program must not exceed 20 percent of the total cost of the employee-only coverage under the health plan in which the employee is enrolled. For example, if an employee typically pays $100 per month for health coverage, you may not offer more than a $20 monthly reward for participating in the program. If an employee’s dependents (e.g., spouses and/or dependent children) participate in the program, the reward may not exceed 20 percent of the cost of the coverage in which the employee and any dependents are enrolled.
- The program must be reasonably designed to promote good health and prevent disease. A program that encourages employees and their dependents to quit smoking should satisfy this requirement.
- You must create a “reasonable alternative standard” for eligibility for employees and dependents who are physically unable (or for whom it is medically inadvisable) to achieve the standards for the reward. If an employee or dependent is physically unable to quit smoking because of an addiction, you must allow him to qualify for the reward in another way, such as participation in a smoking-cessation program. If the individual claims he is unable to stop smoking because of an addiction, you may request verification of the addiction from a physician.
- You must give employees and their dependents at least one opportunity per year to qualify for the wellness program.
- You must ensure that all communications and materials explaining the terms of the program disclose the availability of the reasonable alternative standard. The following language should satisfy this requirement:
If a medical condition makes it unreasonably difficult or medically inadvisable for you to achieve the standards for the reward under this program, you may contact us at [insert phone number] and we will work with you to develop another way for you to qualify for the reward.
If your wellness program satisfies these requirements, you may offer nonsmokers rewards, such as premium discounts, rebates, or modified copayments or deductibles, without violating HIPAA or the Patient Protection and Affordable Care Act (PPACA). After July 15, when the amended KCRA becomes effective, this will be a legal and effective way for you to permit nonsmokers to carry less of the burden of health insurance. Care should also be taken to comply with the applicable requirements of the PPACA, the provisions of which are comparable to HIPAA requirements.
Smoking-cessation programs are becoming an increasingly common tool for employers seeking to reduce smoking in the workforce. The KCRA, as amended, allows you to offer incentives for participation in such programs. Although doing so means differentiating between smokers and nonsmokers, offering these incentives no longer violates the Act.
Amendments help companies reduce the costs of smoking
It’s well documented that smoking creates numerous costs for employers. Smokers are absent more often than nonsmokers, are generally less productive, increase maintenance costs, and impose a large burden on health insurance plans. The recent amendments are a big step toward helping employers reduce the additional costs created by smokers.
The revised KCRA contains both a carrot and a stick to help motivate employees to quit smoking. Smokers who refuse to quit (or refuse to attempt to quit) may be subject to increased health insurance costs, while smokers who desire to quit may now receive assistance and incentives from their employers. If you’ve been thinking about taking steps to reduce smoking in your workforce, this new law will give you the ability to do so. ✤
If you have any questions or need help, please contact any member of the Greenebaum Doll & McDonald Labor and Employment Department.
Copyright 2010 M. Lee Smith Publishers LLC
KENTUCKY EMPLOYMENT LAW LETTER does not attempt to offer solutions to individual problems but rather to provide information about current developments in Kentucky employment law. Questions about individual problems should be addressed to the employment law attorney of your choice.