- On March 31, 2026
Workplace wellness initiatives commonly use incentives or rewards to encourage healthier behaviors and reduce habits that may negatively affect employees’ well-being. When a wellness program is connected to a group health plan, it must follow the nondiscrimination requirements established under HIPAA. These rules permit employers to offer incentives, if the program adheres to specific conditions.
Under HIPAA, wellness programs fall into two main categories: participatory programs and health-contingent programs. Health-contingent programs require individuals to meet a health-related standard to earn a reward, whereas participatory programs do not impose such requirements. This distinction matters because participatory programs are not held to the same nondiscrimination criteria as health-contingent programs.
This overview explains the different types of workplace wellness programs and summarizes HIPAA’s rules regarding allowable incentives and rewards.
Types of Wellness Programs
HIPAA classifies workplace wellness programs into two groups: participatory and health contingent. The difference is important because stricter rules apply to incentives offered through health-contingent programs.
Participatory Wellness Programs
Participatory programs either do not require participants to meet any health-related benchmark or do not provide rewards based on outcomes. Typically, they also do not require completion of a physical activity. Examples include:
- Reimbursing employees for smoking cessation programs, regardless of whether they quit;
- Offering discounted or subsidized gym memberships
- Providing rewards for completing biometric screenings without tying rewards to results; and
- Incentivizing completion of health risk assessments without regard to outcomes.
These programs meet HIPAA’s nondiscrimination standards as long as they are available to all similarly situated employees, regardless of health status. There is no cap on the value of incentives offered under participatory programs.
Health-Contingent Wellness Programs
Health-contingent programs require individuals to meet a health-related condition to receive a reward. They are divided into two subtypes: activity-only and outcome-based programs.
- Activity-only programs require participants to complete an activity related to health, such as walking or following an exercise plan, but do not require achieving a specific result.
- Outcome-based programs require participants to reach or maintain a specific health outcome, such as quitting smoking or achieving certain biometric results.
These programs often operate in two stages:
- An initial measurement, screening, or test; and
- A follow-up program aimed at individuals who do not meet the initial criteria.
To prevent unfair practices, health-contingent programs must comply with nondiscrimination standards, including limits on incentives.
The total incentive available under health-contingent programs cannot exceed a set percentage of the total cost of employee-only health coverage, including both employer and employee contributions. If dependents are eligible to participate, the limit is based on the total cost of the applicable coverage level (such as family coverage).
In general, incentives for health-contingent programs are capped at 30% of the total cost of coverage. However, programs focused on reducing or preventing tobacco use may offer incentives of up to 50%. Importantly, rewards from participatory programs do not count toward these limits.
Americans with Disabilities Act (ADA) Considerations
In 2016, the Equal Employment Opportunity Commission (EEOC) issued guidance on how the ADA applies to wellness programs that involve health-related questions or medical exams. While the ADA restricts such inquiries, they are allowed if part of a voluntary wellness program.
Incentive Limits Under the ADA
The EEOC initially stated that incentives could not exceed 30% of the cost of self-only coverage for a program to be considered voluntary. However, a federal court later found this threshold too high, leading the EEOC to remove the specific limit effective January 1, 2019.
In early 2021, the EEOC proposed new rules that would have limited most wellness program incentives involving medical inquiries to minimal amounts, while allowing higher incentives for certain health-contingent programs. This proposal was later withdrawn, leaving some uncertainty around acceptable incentive levels. As a result, employers should proceed cautiously when designing programs that involve medical questions or examinations.
Smoking Cessation Programs
The EEOC has clarified that programs asking employees only about tobacco use (without medical testing) are not considered to involve disability-related inquiries or medical exams. Therefore, these programs may offer incentives of up to 50% of the cost of coverage under HIPAA rules.
However, if incentives are tied to medical testing, such as biometric screenings for tobacco use, the program would fall under ADA requirements, including the current uncertainty around what constitutes permissible incentives.