IRS: 'Wellness Programs' Not Part of Bare-bones Obamacare Coverage

Employer-sponsored healthcare plans cannot include most "wellness programs" as part of minimum coverage requirements, dealing a setback to many businesses, according to new federal rules for U.S. President Barack Obama's healthcare overhaul starting next year.

The Internal Revenue Service released on Tuesday proposed rules for Obama's 2010 Affordable Care Act that handed a victory to labor unions and consumer groups, tax lawyers said on Wednesday.

Under the law, a large employer must pay an excise tax penalty if it fails to provide minimum coverage for even one full-time employee, forcing that employee to get a tax credit to buy health insurance through one of the new state insurance exchanges.

Businesses and non-profits had hoped to include wellness programs as part of the affordable and bare-bone coverage they must provide workers. Now employers may need to spend more for workers' health coverage, tax lawyers said.

Only wellness programs designed to prevent smoking will qualify, the IRS said.

Employer wellness programs became a controversial issue in healthcare implementation. These programs can vary widely, but can require a worker to meet certain health standards such as low cholesterol levels, for example, to reap lower insurance premium costs.

Labor unions and employee advocacy groups warned that employers could circumvent minimum healthcare coverage by including wellness programs as part of the healthcare coverage they offer.

Wellness programs can be discriminatory and put some sick or unhealthy workers at a disadvantage, employee advocates argued.

"We are very happy with the rules," said Dania Palanker, senior counsel for the National Women's Law Center, which lobbied the IRS to disallow wellness programs from an employer's minimum healthcare coverage offering.

Retail industry groups were among the businesses that called on the IRS to include wellness programs as part of health coverage.

"It is a setback for employers," Greta Cowart, a partner at Haynes and Boone LLP, said of the IRS ruling. Employers now "lose part of the bang for the buck in terms of the penalty."

The new IRS rules are proposed and open to revisions before the law goes into effect. The public has until July 2 to submit comments to the IRS for changes.