us-irs-revenue-procedures-irb-2013-27-pdf•Internal Revenue Bulletin 2013-27 (PDF rendition): IRS Revenue Procedures
Internal Revenue Bulletin 2013-27 (PDF rendition): IRS Revenue Procedures
us-irs-revenue-procedures-irb-2013-27-pdfInternal Revenue Bulletin 2013-27 (PDF rendition): IRS Revenue ProceduresGuidance
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Bulletin No. 201 3-27 July 1, 2013 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX Rev. Proc. 2013–28, page 28. This procedure provides issuers of qualified mortgage bonds (QMBs) and qualified mortgage credit certificates (MCCs) with average area purchase price safe harbors for statistical areas in the United States and with a nationwide average purchase price for residences in the United States for purposes of the QMB rules under section 143 of the Code and the MCC rules under section 25. Rev. Proc. 2012–25 obsoleted in part. Announcement 2013–35, page 46. This announcement corrects final regulations (TD 9612) that were published in the Federal Register on February 5, 2013 (78 FR 7997), relating to the tax treatment of noncompensatory options and convertible instruments issued by a partnership. The final regulations generally provide that the exercise of a noncompensatory option does not cause the recognition of im- mediate income or loss by either the issuing partnership or the option holder. The final regulations also modify the regulations under section 704(b) regarding the maintenance of the part- ners’ capital accounts and the determination of the partners’ distributive shares of partnership items. The final regulations also contain a characterization rule providing that the holder of a noncompensatory option is treated as a partner under cer- tain circumstances. EMPLOYEE PLANS T.D. 9620, page 1. These final regulations govern nondiscriminatory wellness pro- grams in group health coverage consistent with the Afford- able Care Act. They increase the maximum reward under a health-contingent wellness program from 20 percent to 30 per- cent of the cost of coverage and increase the maximum reward to 50 percent for a wellness program designed to prevent or re- duce tobacco use. These regulations also include clarifications related to the reasonable design of health-contingent wellness programs and reasonable alternatives that must be offered to avoid prohibited discrimination. EXCISE TAX T.D. 9620, page 1. These final regulations govern nondiscriminatory wellness pro- grams in group health coverage consistent with the Afford- able Care Act. They increase the maximum reward under a health-contingent wellness program from 20 percent to 30 per- cent of the cost of coverage and increase the maximum reward to 50 percent for a wellness program designed to prevent or re- duce tobacco use. These regulations also include clarifications related to the reasonable design of health-contingent wellness programs and reasonable alternatives that must be offered to avoid prohibited discrimination. ADMINISTRATIVE Rev. Proc. 2013–28, page 28. This procedure provides issuers of qualified mortgage bonds (QMBs) and qualified mortgage credit certificates (MCCs) with average area purchase price safe harbors for statistical areas in the United States and with a nationwide average purchase price for residences in the United States for purposes of the QMB rules under section 143 of the Code and the MCC rules under section 25. Rev. Proc. 2012–25 obsoleted in part. Finding Lists begin on page ii. The IRS Mission Provide Americ a’s taxpayers top-quality service by helping them understa nd and meet their tax responsibilities and en- force the law wi th integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conven- tions, legislation, court decisions, and other items of general interest. It is published weekly. It is the poli cy of the Service to publish in the Bulletin all sub- stantive ru lings necessary to promote a uniform application of the tax laws , including all rulings that supersede, revoke, mod- ify, or amen d any of those previously published in the Bulletin. All publish ed rulings apply retroactively unless otherwise indi- cated. Pro cedures relating solely to matters of internal man- agement ar e not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—1986 Code. This part includes rulings and decisions based on provisions of the Internal Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Leg- islation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rul- ings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secre- tary (Enforcement). Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbar- ment and suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The cont ents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. July 1, 20132013–27 I.R.B. Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 9815. —Additional Market Reform s T.D. 9620 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 54 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2590 DEPARTMENT OF HEALTH AND HUMAN SERVICES 45 CFR Parts 146 and 147 Incenti ves for Nondisc riminatory Wellness Progra ms in Group Health Plans AGENCIES:Internal Revenue Service, Department of the Treasury; Employee Benefits Security Administration, Depart- ment of Labor; Centers for Medicare & Medicaid Services, Department of Health and Human Services. ACTION:Final rule. SUMMAR Y:This document contains fi- nal reg ulations, consistent with the Af- fordab le Care Act, regarding nondiscrim- inator y wellness programs in group health covera ge. Specifically, these final reg- ulati ons increase the maximum permissi- ble re ward under a health-contingent well- ness p rogramofferedinconnectionwitha group health plan (and any related health insur ance coverage) from 20 percent to 30 perc ent of the cost of coverage. The fi- nal r egulations further increase the max- imum permissible reward to 50 percent for wellness p rograms designed to prevent or reduce toba cco use. These regulations also include o ther clarifications regarding the reasonab le design of health-contingent wellness pro grams and the reasonable al- ternatives t hey must offer in order to avoid prohibited d iscrimination. DATES:Effec tive date:These regulations are effecti ve on August 2, 2013. Applicabili ty date:These final regula- tions gener ally apply to group health plans and group he alth insurance issuers for plan years b eginning on or after January 1, 2014. The se final regulations gener- ally apply to individual health insurance issuers fo r policy years beginning on or after Janu ary 1, 2014. FOR FURTHE R INFORMATION CONTACT:A myTurneror Beth Baum, Employee Benefits Security Administ ration, Department of Labor, at (202) 6 93–8335; Karen Levin, Internal Revenue Service, Department of the Tre asury, at (202) 927–9639; or Jacob Ac kerman, Centers for Medicare & Medicai d Services, Department of Health and Huma n Services, at (410) 786–1565. Custome r Service Information:Indi- viduals interested in obtaining infor- mation f rom the Department of Labor concern ing employment-based health covera ge laws may call the EBSA Toll-F ree Hotline at 1–866–444–EBSA (3272) or visit the Department of La- bor’s w ebsite (www.dol.gov/ebsa). In additi on, information from HHS on priva te health insurance for consumers can be found on the Centers for Medicare &Medi caid Services (CMS) website (www. cciio.cms.gov) and information on hea lth reform can be found at www.H ealthCare.gov. SUPPLEMENTAR Y INFORMATION: I. Background A.Introducti on The Patient Pr otection and Affordable Care Act, Pub. L. 111–148, was enacted on March 23, 20 10; the Health Care and Education Re conciliation Act, Pub. L. 111–152, was enacted on March 30, 2010 (these are co llectively known as the “Af- fordable Car e Act”). The Affordable Care Act reorgan izes, amends, and adds to the provisions of part A of title XXVII of the Public Heal th Service Act (PHS Act) re- lating to gr oup health plans and health in- surance iss uers in the group and individual markets. T he term “group health plan” in- cludes bot h insured and self-insured group health pla ns. 1 The Affordable Care Act adds secti on 715(a)(1) to the Employee Retireme nt Income Security Act (ERISA) and secti on 9815(a)(1) to the Internal Rev- enue Code (the Code) to incorporate the provisio ns of part A of title XXVII of the PHS Act in to ERISA and the Code, and to make t hem applicable to group health plans an d health insurance issuers provid- ing heal th insurance coverage in connec- tion wit h group health plans. The PHS Act section s incorporated by these references are sec tions 2701 through 2728. B.Well ness Exception to HIPAA Nondis crimination Provisions Prior t o the enactment of the Afford- able Ca re Act, titles I and IV of the Health Insura nce Portability and Accountability Act of 1 996 (HIPAA), Pub. L. 104–191, added section 9802 of the Code, section 702 of ERISA, and section 2702 of the PHS Ac t (HIPAA nondiscrimination and welln ess provisions). These provisions gener ally prohibit group health plans and grou p health insurance issuers from dis- crim inating against individual participants and b eneficiaries in eligibility, benefits, or prem iums based on a health factor. 2 An ex- 1 The term “group health plan” is used in title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is distinct from the term “health plan,”as used in other provisions of title I of the Affordable Care Act. The term “health plan” does not include self-insured group health plans. 2 The HIPAA nondiscrimination provisions set forth eight health status-related factors, which the December 13, 2006 final regulations refer to as “health factors.” Under HIPAA and the 2006 regulations, as well as under PHS Act section 2705 (as added by the Affordable Care Act), the eight health factors are health status, medical condition(including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), and disability. See66 FR 1379, January 8, 2001. 2013–27 I.R.B.1July 1, 2013 ception to the general rule allows premium discounts or rebates or modification to oth- erwise applicable cost sharing (including copayments, deductibles, or coinsurance) in return for adherence to certain programs of health promotion and disease preven- tion. The Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the Departments 3 ) published joint final regulations implementing the HIPAA nondiscrimination and wellness provisions on December 13, 2006 at 71 FR 75014 (the 2006 regulations). 4 The 2006 regulations divided wellness programs into two general categories: participatory wellness programs and health-contingent wellness programs. Under the 2006 regu- lations, participatory wellness programs 5 areconsideredtocomplywiththeHIPAA nondiscrimination requirements without having to satisfy any additional standards if participation in the program is made available to all similarly situated individu- als, regardless of health status. Paragraph (d) of the 2006 regulations provided that, generally, distinctions among groups of similarly situated participants in a health plan must be based onbona fideemploy- ment-based classifications consistent with the employer’s usual business practice. A plan may also distinguish between ben- eficiaries based on, for example, their relationship to the plan participant (such as spouse or dependent child) or based on the age of dependent children. Dis- tinctions are not permitted to be based on any of the health factors listed in the 2006 regulations. Under the 2006 regulations, plans and issuers with health-contingent wellness programs 6 were permitted to vary benefits (including cost-sharing mechanisms), pre- miums, or contributions based on whether an individual has met the standards of a wellness program that meets the require- ments of paragraph (f)(2), which outlined five specific criteria. C.Amendments Made by the Affordable Care Act The Affordable Care Act (section 1201) amended the HIPAA nondiscrimination and wellness provisions of the PHS Act (but not of ERISA section 702 or Code sec- tion 9802). (Affordable Care Act section 1201 also moved those provisions from PHS Act section 2702 to PHS Act section 2705.) As amended by the Affordable Care Act, the nondiscrimination and well- ness provisions of PHS Act section 2705 largely reflect the 2006 regulations (ex- cept as discussed later in this preamble), and extend the HIPAA nondiscrimination protections to the individual market. 7 The wellness program exception to the prohi- bition on discrimination under PHS Act section 2705 applies with respect to group health plans (and any health insurance coverage offered in connection with such plans), but does not apply to coverage in the individual market. D.Proposed Regulations Implementing PHS Act section 2705 and Amending the 2006 Regulations On November 26, 2012, the Depart- ments published proposed regulations at 77 FR 70620, to implement PHS Act sec- tion 2705 and amend the 2006 regulations regarding nondiscriminatory wellness pro- grams in group health coverage. Like the 2006 regulations, the proposed regulations continued to divide wellness programs into participatory wellness programs and health-contingent wellness programs. Ex- amples of participatory wellness programs provided in the proposed regulations in- cluded a program that reimburses for all or part of the cost of membership in a fitness center; a diagnostic testing program that provides a reward for participation and does not base any part of the reward on outcomes; and a program that provides a reward to employees for attending a monthly, no-cost health education seminar. Examples of health-contingent wellness programs in the proposed regulations in- cluded a program that imposes a premium surcharge based on tobacco use; and a program that uses a biometric screening or a health risk assessment to identify em- ployees with specified medical conditions or risk factors (suchas high cholesterol, high blood pressure, abnormal body mass index, or high glucose level) and provides a reward to employees identified as within a normal or healthy range (or at low risk for certain medical conditions), while re- quiring employees who are identified as outside the normal or healthy range (or at risk) to take additional steps (such as meet- ing with a health coach, taking a health or fitness course, adhering to a health im- provement action plan, or complying with a health care provider’s plan of care) to obtain the same reward. The proposed regulations re-stated that participatory wellness programs are not re- quired to meet the five requirements ap- plicable to health-contingent wellness pro- grams. The proposed regulations also out- lined the conditions for health-contingent wellness programs, as follows: 1. The program must give eligible indi- viduals an opportunity to qualify for the reward at least once per year. 2. The reward for a health-contingent wellness program, together with the reward for other health-contingent wellness programs with respect to the plan, must not exceed 30 percent of the total cost of employee-only cov- erage under the plan, or 50 percent to the extent the program is designed to prevent or reduce tobacco use. 3. The reward must be available to all similarly situated individuals. For this purpose, a reasonable alternative stan- dard (or waiver of the otherwise ap- plicable standard) must be made avail- able to any individual for whom, dur- ing that period, it is unreasonably dif- ficult due to a medical condition to 3 Note, however, that in the Economic Analysis and Paperwork Burden section of this preamble, in sections under headings listing only two of the three Departments, the term “Departments” generally refers only to the two Departments listed in the heading. 4 See26 CFR 54.9802–1; 29 CFR 2590.702; 45 CFR 146.121. Prior to issuance of the final 2006 regulations, the Departments published interim final regulations with request for comment implementing the HIPAA nondiscrimination provisions on April 8, 1997 at 62 FR 16894, followed by proposed regulations regarding wellness programs on January 8, 2001 at 66 FR 1421. 5 Under the 2006 regulations, a participatory wellness program is generally a program under which none of the conditions for obtaining a reward is basedon an individual satisfying a standard related to a health factor or under which no reward is offered. 6 Under the 2006 regulations, a health-contingent wellness program is generally a program under which any of the conditions for obtaining a reward is basedonanindividualsatisfyinga standard related to a health factor (such as not smoking, attaining certain results on biometric screenings, or meeting targets for exercise). 7 Section 1201 of the Affordable Care Act also moved the guaranteed availability provisions that were previously codified in PHS Act section 2711 to PHSAct section 2702, and extended those requirements to the individual market. July 1, 201322013–27 I.R.B. satisfy the otherwiseapplicable stan- dard (or for whom it is medically in- advisable to attempt to satisfy the oth- erwise applicable standard). 4. The program must be reasonably de- signed to promote health or prevent disease. For this purpose, it must have a reasonable chance of improv- ing the health of, or preventing disease in, participating individuals, and not be overly burdensome, not be a sub- terfuge for discriminating based on a health factor, and not be highly sus- pect in the method chosen to promote health or prevent disease. The pro- posed regulations also stated that, to the extent a plan’s initial standard for obtaining a reward (or a portion of a reward) is based on results of a mea- surement, test, or screening that is re- lated to a health factor (such as a bio- metric examination or a health risk as- sessment), the plan is not reasonably designed unless it makes available to all individuals who do not meet the standard based on the measurement, test, or screening, a different, reason- able means of qualifying for the re- ward. 5. The plan must disclose in all plan ma- terials describing the terms of the pro- gram the availability of other means of qualifying for the reward or the possi- bility of waiver of the otherwise appli- cable standard. II. Overview of the Final Regulations A.General Overview The Departments believe that appropri- ately designed wellness programs have the potential to contribute importantly to pro- moting health and preventing disease. Af- ter consideration of all the comments, the Departments are issuing these final reg- ulations to provide comprehensive guid- ance with respect to the general require- ments for wellness programs. At the same time, the Departments recognize that each wellness program is unique and questions may remain regarding the application of these requirements. The Departments an- ticipate issuing future subregulatory guid- ance to provide additional clarity and po- tentially proposing modifications to this fi- nal rule as necessary. These final regu- lations generally implement standards for group health plans and health insurance is- suers offering group health insurance cov- erage with respect to the wellness pro- gram exception from the HIPAA nondis- crimination provisions in PHS Act sec- tion 2705, ERISA section 702, and Code section 9802, as amended by the Afford- able Care Act. These final regulations replace the wellness program provisions of paragraph (f) of the 2006 regulations and are applicable toboth grandfathered and non-grandfathered group health plans and group health insurance coverage for plan years beginning on or after January 1, 2014. 8 These regulations also implement the nondiscrimination provisions of PHS Act section 2705 applicable to non-grand- fathered individual health insurance cover- age for policy years beginning on or after January 1, 2014. This rulemaking does not modify provisions of the 2006 regulations other than paragraph (f). Stakeholder feedback suggested that there is some degree of confusion regard- ing the scope of the HIPAA and Affordable Care Act rules governing wellness pro- grams, which is clarified in these final regulations. Specifically, these final reg- ulations do not establish requirements for all types of programs or information tech- nology platforms offered by an employer, health plan, or health insurance issuer that could be labeled a wellness program, disease management program, case man- agement program, or similar term. Instead, these final regulations set forth criteria for a program of health promotion or disease prevention offered or provided by a group health plan or group health insurance is- suer that must be satisfied in order for the plan or issuer to qualify for an exception to the prohibition on discrimination based on health status under paragraphs (b)(2)(ii) and (c)(3) of the 2006 regulations (which provide exceptions to the general prohi- bition against discrimination based on a health factor in benefits and premiums or contributions, respectively). 9 That is, these rules set forth criteria for an affirma- tive defense that can be used by plans and issuers in response to a claim that the plan or issuer discriminated under the HIPAA nondiscrimination provisions. These final regulations are restructured, as compared to the proposed regulations, to help clarify this relationship and how the five statutory requirements apply to differ- ent types of programs, including different types of health-contingent wellness pro- grams (described below as activity-only wellness programs and outcome-based wellness programs). The final regulations also reorganize the presentation of the steps a plan or issuer must take to ensure a wellness program: is reasonably designed to promote health orprevent disease; has a reasonable chance of improving the health of, or preventing disease in, participating individuals; is not overly burdensome; is not a subterfuge for discriminating based on a health factor; and is not highly sus- pect in the method chosen to promote health or prevent disease. To meet these standards, health-contingent wellness pro- grams that are outcome-based wellness programs must offer a “reasonable alterna- tive standard” (or waiver of the otherwise applicable standard) to a broader group of individuals than is required for activ- ity-only wellness programs. Specifically, for activity-only wellness programs, a reasonable alternative standard for ob- taining the reward must be provided for any individual for whom, for that period, it is either unreasonably difficult due to a medical condition to meet the other- wise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard. For outcome-based wellness programs, which generally provide rewards based on whether an individual has attained a certain health outcome (such as a partic- ular body mass index (BMI), cholesterol level, or non-smoking status, determined through a biometric screening or health risk assessment), a reasonable alternative standard must be provided to all individ- uals who do not meet the initial standard, to ensure that the program is reasonably designed to improve health and is not a subterfuge for underwriting or reducing benefits based on health status. 10 These requirements are generally intended to be 8 Seesection 1251 of the Affordable Care Act and interim final regulations at 26 CFR 54.9815–1251T, 29 CFR 2590.715–1251, and 45 CFR 147.140 for the definition of a grandfathered health plan. 9 26 CFR 54.9802–1(b)(2)(ii) and (c)(3); 29 CFR 2590.702(b)(2)(ii) and (c)(3); and 45 CFR 146.121(b)(2)(ii) and (c)(3). 10 See77 FR 70625. 2013–27 I.R.B.3July 1, 2013 the same as those included in the proposed rules, but the terminology has changed (for example, the term “different, rea- sonable means,” which was used side by side with the term “reasonable alternative standard,” has been dropped to reduce confusion). These changes help to clarify that the group of individuals that must be offered a reasonable alternative standard differs when comparing the requirements for an activity-only wellness program to the requirements for an outcome-based wellness program. The requirements that the alternative be reasonable taking into account an individual’s medical condi- tion, and the option of waiving the initial standard, remain the same. The term “rea- sonable alternative standard” is used in these final rules as it is in the statute. 11 The intention of the Departments in these final regulations is that, regardless of the type of wellness program, every individual participating in the program should be able to receive the full amount of any reward or incentive, regardless of any health factor. The reorganized re- quirements of the final regulations explain how a plan or issuer is required to provide such an opportunity for each category of wellness program. B.Definitions Paragraph (f)(1) provides several defi- nitions that govern for purposes of these final regulations. Reward. References in these final regu- lations to an individual obtaining a reward include both obtaining a reward (such as a discount or rebate of a premium or con- tribution, a waiver of all or part of a cost- sharing mechanism (such as a deductible, copayment, or coinsurance), an additional benefit, or any financial or other incen- tive) and avoiding a penalty (such as the absence of a surcharge or other financial or nonfinancial disincentives). References in the final regulations to a plan provid- ing a reward include both providing a re- ward (such as a discount or rebate of a pre- mium or contribution, a waiver of all or part of a cost-sharing mechanism, an ad- ditional benefit, or any financial or other incentive) and imposing a penalty (such as a surcharge or other financial or nonfinan- cial disincentive). Participatory wellness programs.Con- sistent with the 2006 regulations and PHS Act section 2705(j), these final regula- tions continue to divide wellness programs into two categories: “participatory well- ness programs,” which are a majority of wellness programs (as noted below), and “health-contingent wellness programs.” Participatory wellness programs are de- fined under the final regulations as pro- grams that either do not provide a reward or do not include any conditions for ob- taining a reward that are based on an indi- vidual satisfying a standard that is related to a health factor. Several examples of participatory wellness programs are pro- vided in these final regulations, including: (1) a program that reimburses employees for all or part of the cost of membership in a fitness center; (2) a diagnostic testing program that provides a reward for partic- ipation and does not base any part of the reward on outcomes; and (3) a program that provides a reward to employees for attending a monthly, no-cost health educa- tion seminar. Health-contingent wellness programs. In contrast, health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward (or require an individual to undertake more than a similarly situ- ated individual based on a health factor in order to obtain the same reward). This standard may be performing or completing an activity relating to a health factor, or it may be attaining or maintaining a specific health outcome. In these final regula- tions, the category of health-contingent wellness programs is subdivided into: (1) activity-only wellness programs, and (2) outcome-based wellness programs. Under paragraphs (b)(2)(ii) and (c)(3) of the 2006 regulations (which remain unchanged), 12 both of these types of health-contingent wellness programs are permissible only if they comply with the criteria of these final regulations. 13 Activity-only wellness programs.Ac- tivity-only wellness programs are a subcat- egory of health-contingent wellness pro- grams. Under an activity-only wellness program, an individual is required to per- form or complete an activity related to a health factor in order to obtain a reward. Activity-only wellness programs do not require an individual to attain or main- tain a specific health outcome. Exam- ples of activity-only wellness programs in- clude walking, diet, or exercise programs. Some individuals participating in an ac- tivity-only wellness program may be un- able to participate in or complete (or have difficulty participating in or completing) the program’s prescribed activity due to a health factor. For example, an individual maybeunabletoparticipateinawalking program due to a recent surgery or preg- nancy, or may have difficulty participating due to severe asthma.The final regula- tions, therefore, provide safeguards to en- sure these individuals are given a reason- able opportunity to qualify for the reward. Outcome-based wellness programs. Outcome-based wellness programs are a subcategory of health-contingent wellness programs. Under anoutcome-based well- ness program, an individual must attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) in order to ob- tain a reward. Generally, these programs have two tiers: (a) a measurement, test, or screening as part of an initial standard; and (b) a larger program that then targets individuals who do not meet the initial standard with wellness activities. For in- dividuals who do not attain or maintain the specific health outcome, compliance with an educational program or an ac- tivity may be offered as an alternative to achieve the same reward. However, this alternative pathway does not mean that the overall program, which has an outcome-based initial standard, is not an outcome-based wellness program. That is, if a measurement, test, or screening is used as part of an initial standard and indi- viduals who meet the standard are granted the reward, the program is considered an 11 The “reasonable alternative standard” is separate and distinct from the standard for “reasonable accommodations” under the Americans with Disabilities Act of 1990 (ADA) and related laws, regulations and guidance.Seesection II.H later in this preamble for a discussion of how compliance with the nondiscrimination rules (including the wellness program provisions)is not determinative of compliance with any other law. 12 26 CFR 54.9802–1(b)(2)(ii) and (c)(3); 29 CFR 2590.702(b)(2)(ii) and (c)(3); and 45 CFR 146.121(b)(2)(ii) and (c)(3). 13 Until these final regulations are effective and applicable, the provisions of the 2006 regulations, at 26 CFR 54.9802–1(f), 29 CFR 2590.702(f), and 45 CFR 146.121(f), generally remain applicable to group health plans and group health insurance issuers. July 1, 201342013–27 I.R.B. outcome-based wellness program. Exam- ples of outcome-based wellness programs include a program that tests individuals for specified medical conditions or risk fac- tors (such as high cholesterol, high blood pressure, abnormal BMI, or high glucose level) and provides a reward to employees identified as within a normal or healthy range (or at low risk for certain medical conditions), while requiring employees who are identified as outside the normal or healthy range (or at risk) to take additional steps (such as meeting with a health coach, taking a health or fitness course, adhering to a health improvement action plan, or complying with a health care provider’s plan of care) to obtain the same reward. C.Requirement for Participatory Wellness Programs Paragraph (f)(2) of these final regula- tions requires a participatory wellness pro- gram to be made available to all similarly situated individuals, regardless of health status. Participatory wellness programs are not required to meet the requirements applicable to health-contingent wellness programs under these final regulations. Some comments requested that the De- partments impose additional requirements with respect to participatory wellness pro- grams. Other commenters proposed that the Departments require that plans and issuers take into account an individual’s income or other personal circumstances in determining whether a participatory well- ness program is available or accessible to all similarly situated individuals. As discussed earlier, the HIPAA nondiscrimination provisions generally prohibit group health plans and health insurance issuers from discriminating against individual participants and benefi- ciaries in eligibility, benefits, or premiums based on a health factor. To the extent a plan or issuer establishes a wellness program that does not adjust benefits or premiums based on a health factor, these wellness program provisions are generally not implicated. These final rules make clear that such “participatory” wellness programs (in contrast to “health-contin- gent wellness programs”) are permissible under the HIPAA nondiscrimination rules, as amended by the Affordable Care Act, provided they are available to all similarly situated individualsregardless of health status. Availability regardless of health status ensures that the general prohibition against discrimination basedon a health factor is not implicated. If factors other than health status (such as scheduling limitations) limit an individual’s ability to take part in a program, that does not mean that the plan has violated the general rule prohibiting discrimination based on a health factor because the program was not discrimina- tory under the HIPAA nondiscrimination rules to begin with. For example, if a plan made available a premium discount in return for attendance at an educational seminar, but only healthy individuals were provided the opportunity to attend, the program would discriminate based on a health factor because only healthy indi- viduals were provided the opportunity to reduce their premiums. However, if all similarly situated individuals were permit- ted to attend, but a particular individual could not attend because the seminar was held on a weekend day and the individual was unavailable to attend at that time, that does not mean the program discriminated against that individual based on a health factor. Because there is no discrimination based on a health factor under HIPAA, the wellness exception is not relevant. At the same time, as discussed in section II.H of this preamble, compliance with the HIPAA nondiscrimination and wellness provisions is not determinative of compli- ance with any other applicable Federal or State law, which may impose additional accessibility standards for wellness pro- grams. D.Requirements for Health-Contingent Wellness Programs These final regulations generally re- tain the proposed five requirements for health-contingent wellness programs, but the regulations have been reorganized, subdividing health-contingent wellness programs into activity-only wellness pro- grams and outcome-based wellness pro- grams, to make it clearer to whom a plan or issuer is required to provide a reasonable alternative standard. The final regulations retain the proposed modification relating to the size of the reward, as well as clar- ifications that were proposed to address questions and issues raised by stakehold- ers since the 2006 regulations were issued and to be consistent with the amendments made by the Affordable Care Act. 1)Frequency of Opportunity to Qualify. These final regulations retain the re- quirement, for both activity-only and out- come-based wellness programs, that indi- viduals eligible for the program be given the opportunity to qualify for the reward at least once per year. As stated in the pre- amble to the 2006 regulations and the pro- posed regulations, the once-per-year re- quirement was included as a bright-line standard for determining the minimum fre- quency that is consistent with a reasonable design for promoting good health or pre- venting disease. 14 2)Size of Reward. Like the proposed regulations, these fi- nal regulations continue to limit the total amount of the reward for health-contin- gent wellness programs (both activity-only and outcome-based) with respect to a plan, whether offered alone or coupled with the reward for other health-contingent well- ness programs. Specifically, as in the pro- posed regulations, the total reward offered to an individual under all health-contin- gent wellness programs with respect to a plan cannot exceed the applicable percent- age (as defined in paragraph (f)(5) of the final regulations) of the total cost of em- ployee-only coverage under the plan, tak- ing into account both employer and em- ployee contributions towards the cost of coverage for the benefit package under which the employee is (or the employee and any dependents are) receiving cover- age. If, in addition to employees, any class of dependents (such as spouses, or spouses and dependent children) may participate in the health-contingent wellness program, the reward cannot exceed the applicable percentage of the total cost of the cover- age in which the employee and any depen- dents are enrolled (such as family coverage or employee-plus-one coverage). Several comments addressed health- contingent wellness programs that allow 14 See71 FR at 75018.Seealso 77 FR at 70623. 2013–27 I.R.B.5July 1, 2013 dependents to participate, and what portion of the reward should be attributable to each participating dependent. For health-con- tingent wellness programs that allow a class of dependents to participate, some commenters suggested that the maximum allowed reward or incentive be prorated based on the portion of the premium or contribution attributable to that family member. These commenters argued that if, for example, one family member fails to meet the standard related to a health factor, the entire family should not be faced with the maximum penalty. Other commenters requested that the Departments not set forth rules for the apportionment of the reward where dependent coverage exists. These commenters argued that it would be an administrative challenge to appor- tion the reward to each covered family member. While final regulations issued by HHS under PHS Act section 2701 re- quire health insurance issuers in the small group market 15 to apply rating variations to family coverage based on the portion of the premium attributable to each family member covered under the coverage, 16 these final regulations do not set forth detailed rules governing apportionment of the reward under a health-contingent wellness program. Instead, plans and issuers have flexibility to determine ap- portionment of the reward among family members, as long as the method is reason- able. Additional subregulatory guidance may be provided by the Departments if questions persist or if the Departments become aware of apportionment designs that seem unreasonable. 3)Reasonable Design. Consistent with the 2006 regulations and PHS Act section 2705(j), these fi- nal regulations continue to require that health-contingent wellness programs be reasonably designed to promote health or prevent disease, whether activity-only or outcome-based. Some commenters urged that the Departments not impose a rigid set of pre-approved wellness program struc- tures or guidelines, which may inhibit in- novation in designing wellness programs. On the other hand, other commenters requested that the Departments require that all wellness programs be based on evidence-based clinical guidelines and na- tional standards established by bodies such as the Centers for Disease Control and Prevention (CDC), Centers for Medicare & Medicaid Services, or the National In- stitutes of Health. These final regulations state that a wellness program is reasonably designed if it has a reasonable chance of improving the health of, or preventing disease in, participating individuals, and is not overly burdensome, is not a subterfuge for discrimination based on a health factor, and is not highly suspect in the method chosen to promote health or prevent dis- ease. The determination of whether a health-contingent wellness program is reasonably designed is based on all the relevant facts and circumstances. While programs are not required to be accred- ited or based on particular evidence-based clinical standards, these practices, such as those found in CDC’s Guide to Commu- nity Preventive Services, 17 may increase the likelihood of wellness program suc- cess and are encouraged as a best practice. These final regulations continue to pro- vide plans and issuers flexibility and en- courage innovation. 18 Some commenters requested confirmation that plans and is- suers could design wellness programs that are limited to targeted groups of individ- uals with adverse health factors. Consis- tent with paragraph (g) of the 2006 regu- lations, nothing in these final regulations prevents a plan or issuer from establish- ing more favorable rules for eligibility or premium rates (including rewards for ad- herence to certain wellness programs) for individuals with an adverse health factor than for individuals without the adverse health factor. Several comments requested that the reasonable design requirement include strong consumer protections to ensure that the opportunity for a discount is available in practice and accessible to all individuals regardless of health status. Some com- menters argued that wellness programs which set clear markers of medical ill- ness, disability, or largely non-preventable conditions as standards are not reasonably designed and should therefore be prohib- ited under the final regulations. Other commenters suggested that a “reasonably designed” wellness program must include a set of programs, resources, and worksite policies designed to promote health and prevent disease and must include more than a biometric test. After consideration of all the com- ments, as in the proposed rules, the final regulations direct that an outcome-based wellness program must provide a reason- able alternative standard to qualify for the reward, for all individuals who do not meet the initial standard that is related to a health factor, in order to be reasonably designed. This approach is intended to ensure that outcome-based programs are more than mere rewards in return for re- sults in biometric screenings or responses to a health risk assessment, and are instead part of a larger wellness program designed to promote health and prevent disease, ensuring the program is not a subterfuge for discrimination or underwriting based on a health factor. 4)Uniform Availability and Reasonable Alternative Standards. An important element of these final regulations is the requirement that the full reward under a health-contingent wellness program, whether activity-only or out- come-based, be available to all similarly situated individuals.As stated earlier, the 15 Small group market means the health insurance market under which individuals obtain health insurance coverage (directly or through any arrangement) on behalf of themselves (and their dependents) through a group health plan maintained by a small employer.SeePHS Act section 2791(e)(5); 45 CFR 144.103. For this purpose, for plan years beginning on or after January 1, 2014, amendments made by the Affordable Care Act provide that the term “small employer” means, in connection with a group health plan with respect toa calendar year and a plan year, an employer who employed an average of at least 1 but not more than 100 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year.SeePHS Act section 2791(e)(4). In the case of plan years beginning before January 1, 2016, a State may elect to substitute “50 employees” for “100 employees” in its definition of a small employer.Seesection 1304(b)(3) of the Affordable Care Act. 16 45 CFR 147.102(c). 17 See www.thecommunityguide.org/index.html. 18 The preamble to the 2006 regulations stated that the “reasonably designed” standard was designed to prevent abuse, but otherwise was “intended to be aneasystandardtosatisfy...There does not need to be a scientific record that the method promotes wellness to satisfy this standard. The standard is intended to allow experimentation in diverse ways of promoting wellness.” See71 FR at 75018. The preamble also stated that the Departments did not “want plans and issuers to be constrained by a narrow range of programs ... but want plans and issuers to feel free to consider innovative programs for motivating individuals to make efforts to improve their health.” See 71 FR at 75019. July 1, 201362013–27 I.R.B. proposed regulations included require- ments that, in certain circumstances, a health-contingent wellness program pro- vide a reasonable alternative standard (or waiver of the otherwise applicable stan- dard) and, to the extent that a plan’s initial standard for obtaining a reward (or a por- tion of a reward) is based on the results of a measurement, test, or screening that is re- lated to a health factor (such as a biometric examination or a health risk assessment), provide a different, reasonable means of qualifying for the reward. Several com- menters pointed out that the interaction between these two requirements was con- fusing and unclear. As discussed earlier in this preamble, thesefinal regulations retain the same requirements contained in the proposed regulations, but the terminol- ogy has been changed to reduce confusion and provide clarity for the regulated com- munity. Many clarifications regarding the rea- sonable alternative standards are equally applicable to activity-only wellness pro- grams and outcome-based wellness pro- grams. First, in order to satisfy the require- ment to provide a reasonable alternative standard, the same, full reward must be available under a health-contingent well- ness program (whether an activity-only or outcome-based wellness program) to indi- viduals who qualify by satisfying a rea- sonable alternative standard as is provided to individuals who qualify by satisfying the program’s otherwise applicable stan- dard. Accordingly, while an individual may take some time to request, establish, and satisfy a reasonable alternative stan- dard, the same, full reward must be pro- vided to that individual as is provided to in- dividuals who meet the initial standard for that plan year. (For example, if a calendar year plan offers a health-contingent well- ness program with a premium discount and an individual who qualifies for a reason- able alternative standard satisfies that al- ternative on April 1, the plan or issuer must provide the premium discounts for Jan- uary, February, and March to that individ- ual.) Plans and issuers have flexibility to determine how to provide the portion of the reward corresponding to the period be- fore an alternative was satisfied (e.g.,pay- ment for the retroactive period orpro rata over the remainder of the year) as long as the method is reasonable and the individ- ual receives the full amount of the reward. In some circumstances, an individual may not satisfy the reasonable alternative stan- dard until the end of the year. In such cir- cumstances, the plan or issuer may provide a retroactive payment of the reward for that year within a reasonable time after the end of the year, but may not providepro rata payments over the following year (a year after the year to which the reward corre- sponds). The Departments may provide additional subregulatory guidance if ques- tions persist or if the Departments become aware of payment designs that seem un- reasonable with respect to individuals who satisfy the reasonable alternative standard. Other clarifications were retained from the proposed regulations. The final regu- lations reiterate that, in lieu of providing a reasonable alternative standard, a plan or issuer may always waive the otherwise ap- plicable standard and provide the reward. These final regulations also do not require plans and issuers to establish a particu- lar reasonable alternative standard in ad- vance of an individual’s specific request for one, as long as a reasonable alterna- tive standard is provided by the plan or is- suer (or the condition for obtaining the re- ward is waived) upon an individual’s re- quest. Plans and issuers have flexibility to determine whether to provide the same reasonable alternative standard for an en- tire class of individuals (provided that it is reasonable for that class) or provide the reasonable alternative standard on an in- dividual-by-individual basis, based on the facts and circumstances presented. The Departments received several com- ments requesting that the final regulations permit employers to retain flexibility to make reasonable alternative standards health-focused and stringent enough so that these alternatives do not become a loophole for individuals who can meet the initial standard. These final regula- tions continue to permit plans and issuers flexibility in designing reasonable alterna- tive standards (including using reasonable alternative standards that are health-con- tingent), while also providing some clar- ification of what constitutes being “rea- sonable” in the context of an alternative standard. All the facts and circumstances are taken into account in determining whether a plan or issuer has provided a reasonable alternative standard, including but not lim- ited to the following factors listed in these final regulations: •If the reasonable alternative standard is completion of an educational program, the plan or issuer must make the edu- cational program available or assist the employee in finding such a program (instead of requiring an individual to find such a program unassisted) and may not require an individual to pay for the cost of the program. •The time commitment required must be reasonable. •If the reasonable alternative standard is a diet program, the plan or issuer is not required to pay for the cost of food but must pay any membership or participation fee. •If an individual’s personal physician states that a plan standard (including, if applicable, therecommendations of the plan’s medical professional) is not medically appropriate for that individ- ual, the plan or issuer must provide a reasonable alternative standard that accommodates the recommendations of the individual’s personal physician with regard to medical appropriate- ness. The final regulations generally retain the factors that were included in the pro- posed regulations with a few added clarifi- cations. Specifically, in response to com- ments, the final rules clarify that in order for an alternative standard to be reason- able, the time commitment must be reason- able. For example, requiring attendance nightly at a one-hour class would be un- reasonable. In addition, the proposed regulations stated that if a reasonable alternative stan- dard is compliance with the recommen- dations of a medical professional who is an agent of the plan, and an individual’s personal physician states that the recom- mendations are not medically appropriate for that individual, the plan must provide a second reasonable alternative standard that accommodates the recommendations of the individual’s personal physician with regard to medical appropriateness, and that normal cost sharing could be imposed for medical items and services furnished pur- suant to the physician’s recommendations. 2013–27 I.R.B.7July 1, 2013 The final rules retain the clarification of the proposed regulations, and add an ad- ditional clarification that an individual’s personal physician can make recommen- dations regarding medical appropriateness that must be accommodated with respect to any plan standard (and is not limited to a situation in which a personal physician disagrees with the specific recommenda- tions of an agent of the plan with respect to an individual). This additional clari- fication is consistent with the final regu- lations’ overall requirement that wellness programs be designed to promote health and prevent disease, and not be a sub- terfuge for discrimination or underwriting based on a health factor. As stated in the preamble to the Departments’ regulations implementing the internal claims and ap- peals and external review processes un- der PHS Act section 2719, adverse bene- fit determinations based on whether a par- ticipant or beneficiary is entitled to a rea- sonable alternative standard for a reward under a wellness program are considered to involve medical judgment and there- fore are eligible for Federal external re- view. 19 Plans and issuers may impose stan- dard cost sharing under the plan or cov- erage for medical items and services fur- nished in accordance with the physician’s recommendations. The Departments continue to maintain that, with respect to tobacco cessation, “overcoming an addiction sometimes re- quires a cycle of failure and renewed effort,” as stated in the preamble to the proposed regulations. 20 For plans with an initial outcome-based standard that an individual not use tobacco, a reasonable alternative standard in Year 1 may be to try an educational seminar. As clarified in an example in the final regulations, an individual who attends the seminar is then entitled to the reward, regardless of whether the individual quits smoking. At the same time, in Year 2, the plan may re- quire completion of a different reasonable alternative standard, such as a comply- ing with a new recommendation from the individual’s personal physician or a new nicotine replacement therapy (and com- pletion of that standard would qualify the individual to receive the reward). It is the view of the Departments that the same can be true with respect to meeting any outcome-based standard. That is, with respect to weight lossand weight manage- ment, for example, clinical evidence sug- gests that a number of environmental fac- tors can influence an individual’s ability to achieve a desired health outcome. 21 Un- der these final regulations, plans and is- suers cannot cease to provide a reasonable alternative standard under any health-con- tingent wellness program merely because an individual was not successful in sat- isfying the initial standard before; plans and issuers must continue to offer a rea- sonable alternative standard whether it is the same or different and, to the extent the reasonable alternative standard is, itself, a health-contingent wellness program, it must meet the relevant requirements of these final regulations. Language in the final regulations clarifies that, for exam- ple, if a plan or issuer provides a walking program as a reasonable alternative stan- dard to a running program, individuals for whom it is unreasonably difficult due to a medical condition to complete the walking program (or for whom it is medically in- advisable to attempt to complete the walk- ing program) must be provided a reason- able alternative standard to the walking program. Similarly,to the extent a reason- able alternative standard is, itself, an out- come-based wellness program, the reason- able alternative standard must comply with the requirements for outcome-based well- ness programs, subject to certain special rules, described below. While, as discussed earlier, many clar- ifications regarding the reasonable alter- native standards are equally applicable to activity-only wellness programs and out- come-based wellness programs, some of the requirements apply in different ways depending on whether the program is an activity-only or an outcome-based well- ness program. a)Activity-only wellness programs. An activity-only wellness program must make the full reward under the pro- gram available to all similarly-situated individuals. Under paragraph (f)(3)(iv) of these final regulations, a reward under a wellness program is not available to all similarly situated individuals for a period unless the program allows a reasonable alternative standard (or waiver of the oth- erwise applicable standard) for obtaining the reward for any individual for whom, for that period, it iseither unreasonably difficult due to a medical condition to meet the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard. Under an activity-only wellness pro- gram, it is permissible for a plan or issuer to seek verification, such as a statement from the individual’s personal physician, that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applica- ble standard in an activity-only wellness program, if reasonable under the circum- stances. 22 Some commenters stated that it is common practice to require verification when an individual requests a reasonable alternative standard and urged the Depart- ments to permit plans and issuers to require physician verification in all circumstances involving a request for a reasonable al- ternative standard. Other commenters supported the approach set forth in the pro- posed rules that limits plans’ and issuers’ ability to impose verification require- ments to verification of claims that require the use of medical judgment to evaluate. Some of these commenters also asked the Departments to clarify that verification, when allowed, could be performed by 19 See76 FR at 37216. 20 See71 FR 75019 (December 13, 2006) and 77 FR 70624 (November 26, 2012). 21 See Katz DL, O’Connell M, Yeh MC, Nawaz H, Njike V, Anderson LM, Cory S, Dietz W: Task Force on Community Preventive Services. Public health strategies for preventing and controlling overweight and obesity in school and worksite settings: a report on recommendations of the Task Force on Community Preventive Services.MMWR Recomm Rep 2005, 7; 54 (RR–10):1–12.See alsoFiore, M., Jaen, C., Baker, T., Bailey, W., Benowitz, N., Curry, S., Healton, C. (2008). Treating tobacco use and dependence; 2008 clinical practice guideline. Rockville, MD: U.S. Department of Health and Human Services. 22 The 2006 regulations provided that it is permissible for a plan or issuer to seek verification, such as a statement from the individual’s personal physician, that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard. The Affordable Care Act amendments codified this provision with one modification: PHS Act section 2705(j)(3)(D)(ii) makes clear that verification, such as a statement from an individual’s personal physician, may be required byaplanorissuer“ifreasonable under the circumstances.” July 1, 201382013–27 I.R.B. any type of medical professional. The Departments also received comments on the example in the proposed regulations that stated it would not be reasonable for a plan or issuer to seek verification of a claim that is obviously valid based on the nature of the individual’s medical condi- tion that is known to the plan or issuer. Many commenters had questions about what the Departments would consider a plan or issuer to know or not know, cited the fact that different information technol- ogy systems exist for wellness program information and claims data, and raised concerns regarding what types of situa- tions would be “obviously valid” under this standard. The Departments originally included the example in the proposed regulations in the context of what these final regu- lations now refer to as outcome-based wellness programs, so that if an indi- vidual requested a reasonable alternative standard after failing to meet an initial standard based on a measurement, test, or screening, the plan or issuer could not then require physician verification of the need for a reasonable alternative standard. As described in more detail below, the reorganized final regulations clarify that, with respect to outcome-based wellness programs, plans and issuers cannot require verification by the individual’s physician that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard as a condition of providing a rea- sonable alternative to the initial standard. While plans and issuers may still require such verification as a condition of provid- ing a reasonable alternative standard in the context of an activity-only wellness program, the reorganization of the final regulations makes the language stating that it would not be reasonable for an is- suer to seek verification of a claim which is obviously valid, as it was included in the proposed regulations, now moot. Therefore, after reviewing the comments received in response to the proposed regu- lations, the Departments have deleted this example from the regulatory text. Plans and issuers are still permitted under these final regulations toseek verification in the case of an activity-only wellness program with respect to requests for a reasonable alternative standard for which it is reason- able to determine that medical judgment is required to evaluate the validity of the request. In addition, with respect to which type of medical professional can be required by the plan or issuer to provide verification, the final regulations repeat the statutory language. Wellness programs and reason- able alternative standards can vary greatly, and the nature of the program or alter- native standard may require different lev- els of clinical expertise to evaluate rea- sonableness with respect to any particu- lar individual. These final regulations do not expressly prohibit plan provisions that require verification to be provided by a physician in clinically appropriate circum- stances. Nor do these final regulations expressly require thatmedical profession- als other than a physician be permitted to provide verification in specific circum- stances if a physician’s expertise would be required to evaluate the validity of a re- quest. Instead, the Departments generally view any plan requirement for verification to be subject to the broader standards for reasonable design and intend to examine verification requirements in light of all the relevant facts and circumstances. The De- partments may provide future guidance on this issue. A number of commenters raised con- cerns about the privacy and confidentiality of health information provided to wellness programs, particularly with respect to em- ployer access to such information and the potentially discriminatory results of such access. As noted in section II.H later in this preamble, these final regulations are implementing only the provisions regard- ing wellness programs in the Affordable Care Act. Other State and Federal laws may apply with respect to the privacy, disclosure, and confidentiality of infor- mation provided to these programs. For example, HIPAA-covered entities, includ- ing certain health plans and providers, must comply with the HIPAA Privacy and Security Rules 23 with respect to the confidentiality of individually identifiable health information,and employers subject to the Americans with Disabilities Act of 1990 (ADA) must comply with any ap- plicable ADA requirements for disclosure and confidentiality of medical information and non-discrimination on the basis of disability. b)Outcome-based wellness programs. Outcome-based wellness programs allow plans and issuers to conduct screen- ings and employ measurement techniques in order to target wellness programs ef- fectively, as discussed earlier. For exam- ple, plans and issuers are able to target only individuals with high cholesterol for participation in cholesterol reduction pro- grams, or individuals who use tobacco for participation in tobacco cessation pro- grams, rather than the entire population of participants and beneficiaries, with the reward based on health outcomes or par- ticipation in reasonable alternatives. For outcome-based wellness programs to meet the requirement that the reward be avail- able to all similarly situated individuals, the proposed regulations generally re- quired that the program allow a reasonable alternative standard (or waiver of the oth- erwise applicable standard) for obtaining the reward for any individual who does not meet the initial standard based on a measurement, test, or screening. Several commenters asserted that a reasonable alternative standard should be required to be made available only to individuals who have a medical condition that prevents them from meeting the initial standard. As discussed earlier, programs consisting solely of a measurement, test, or screening are not reasonably designed to promote health and prevent disease. Therefore, if an individual does not meet a plan’s target biometrics (or other, similar initial stan- dards), that individual must be provided with a reasonable alternative standard re- gardless of any medical condition or other health status, to ensure that outcome-based initial standards arenot a subterfuge for discrimination or underwriting based on a health factor. The requirement to provide a reason- able alternative standard to all individuals who do not meet or achieve a partic- ular health outcome is not intended to transform all outcome-based wellness pro- grams to participatory wellness programs, although plans may choose to utilize par- ticipatory programs, such as educational 23 See45 CFR Parts 160 and 164. 2013–27 I.R.B.9July 1, 2013 programs, when designing reasonable alternative standards. Plans and issuers may provide reasonable alternative stan- dards that are themselves health-contin- gent wellness programs. To the extent a reasonable alternative standard under an outcome-based wellness program is, itself, an activity-only wellness program, the reasonable alternative standard must comply with the requirements for activ- ity-only programs as if it were an initial program standard. Therefore, for exam- ple, as discussed in more detail earlier in this preamble, if a plan or issuer provides a walking program as an alternative to a running program, the plan must provide reasonable alternatives to individuals who cannot complete the walking program be- cause of a medical condition. Moreover, to the extent that a reason- able alternative standard under an out- come-based wellness program is, itself, another outcome-based wellness program, it must generally comply with the re- quirements for outcome-based wellness programs, subject to certain special rules. Among other things, these special rules prevent a never-ending cycle of reason- able alternative standards being required to be provided by plans and issuers, while also ensuring that a reasonable alternative standard prescribed for an individual is, in fact, reasonable in light of the individual’s actual circumstances, as determined to be medically appropriate in the judgment of the individual’s personal physician. Under the first special rule, the final regulations provide that the reasonable alternative standard cannot be a requirement to meet a different level of the same standard without additional time to comply that takes into account the individual’s cir- cumstances. For example, if the initial standard is to achieve a BMI less than 30, the reasonable alternative standard cannot be to achieve a BMI less than 31 on that same date. However, if the initial standard is to achieve a BMI less than 30, a reason- able alternative standard for the individual could be to reduce the individual’s BMI by a small amount or a small percentage over a realistic period of time, such as within a year. Second, an individual must be given the opportunity to comply with the recommendations of the individual’s personal physician as a second reasonable alternative standard to meeting the rea- sonable alternative standard defined by the plan or issuer, but only if the physi- cian joins in the request. The individual can make a request to involve a personal physician’s recommendations at any time and the personal physician can adjust the physician’s recommendations at any time, consistent with medical appropriateness, as determined by the personal physician. With respect to outcome-based well- ness programs, it is not reasonable to require verification, such as a statement from the individual’s personal physician, that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard as a condition of providing a rea- sonable alternative to the initial standard. (As discussed in the preceding paragraph, however, an individual must be given the opportunity to comply with the recom- mendations of the individual’s personal physician as a second reasonable alterna- tive standard to meeting the reasonable alternative standard defined by the plan or issuer, but only if the physician joins in the request.) However, if a plan or issuer pro- vides an activity-only wellness program as an alternative to the otherwise applicable measurement, test, or screening of the out- come-based wellness program, then the plan or issuer may, if reasonable under the circumstances, seek verification with re- spect to the activity-only component of the program that it is unreasonably difficult due to a medical condition for an indi- vidual to perform or complete the activity (or it is medically inadvisable to attempt to perform or complete the activity). For example, if an outcome-based wellness program requires participants to maintain a certain healthy weight and provides a diet and exercise program for individu- als who do not meet the targeted weight (which is an activity-only standard), a plan or issuer may seek verification that a second reasonable alternative standard is needed for individuals for whom it would be unreasonably difficult due to a medical condition to comply, or medically inad- visable to attempt to comply, with the diet and exercise program, due to a medical condition. 5)Notice of Availability of Reasonable Alternative Standard. These final regulations, like the pro- posed regulations, require plans and is- suers to disclose the availability of a rea- sonable alternative standard to qualify for the reward (and, if applicable, the possi- bility of waiver of the otherwise applica- ble standard) in all plan materials describ- ing the terms of a health-contingent well- ness program (both activity-only and out- come-based wellness programs). These final regulations clarify that a disclosure of the availability of a reasonable alterna- tive standard includescontact information for obtaining the alternative and a state- ment that recommendations of an individ- ual’s personal physician will be accommo- dated. For outcome based-wellness pro- grams, this notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard. For all health contingent wellness pro- grams (both activity-only and outcome- based wellness programs), if plan materi- als merely mention that such a program is available, without describing its terms, this disclosure is not required. For example, a summary of benefits and coverage re- quired under section 2715 of the PHS Act that notes that cost sharing may vary based on participation in a diabetes wellness pro- gram, without describing the standards of the program, would not trigger this disclo- sure. In contrast, a plan disclosure that ref- erences a premium differential based on to- bacco use, or based on the results of a bio- metric exam, is a disclosure describing the terms of a health-contingent wellness pro- gram and, therefore, must include this dis- closure. The proposed regulations provided new sample language in the regulatory text and in examples that was intended to be sim- pler for individuals to understand and to in- crease the likelihood that those who qual- ify for a reasonable alternative standard will contact the plan or issuer to request one. Some commenters supported the new sample language, while others suggested additions and modifications. Several com- menters proposed adding additional infor- mation to the notice, in most cases re- lated to requests for a reasonable alter- native standard. The model notice is in- tended to be brief and many of the details regarding a wellness program are avail- July 1, 2013102013–27 I.R.B. able in other plan documents. 24 Accord- ingly, these final regulations do not adopt all of the suggestions made by commenters (for example, the sample language does not provide examples of reasons why an employee may request a reasonable alter- native or government contact information for complaints). However, the sample lan- guage now includes a statement that rec- ommendations of an individual’s personal physician will be accommodated. E.Applicable Percentage Paragraph (f)(5) of the final regulations sets the applicable percentage for the size of the reward under a health-contingent wellness program. The 2006 regulations specified 20 percent as the maximum permissible reward for participation in a health-contingent wellness program. PHS Act section 2705(j)(3)(A), effective for plan years beginning on or after January 1, 2014, increases the maximum reward to 30 percent and authorizes the Depart- ments to increase the maximum reward to as much as 50 percent, if the Depart- ments determine that such an increase is appropriate. These final regulations in- crease the applicable percentage from 20 percent to 30 percent, effective for plan years beginning on or after January 1, 2014, with an increase of an additional 20 percentage points (to 50 percent) for health-contingent wellness programs de- signed to prevent or reduce tobacco use. Examples illustrate how to calculate the applicable percentage. As described in the proposed regula- tions, the additional increase for programs designed to prevent or reduce tobacco use iswarrantedtoconformtothenewPHS Act section 2701, to avoid inconsistency across group health coverage, whether insured or self-insured, or offered in the small group or large group market, and to provide grandfathered plans the same flexibility to promote health and pre- vent disease as non-grandfathered plans. Specifically, PHS Act section 2701, the “fair health insurance premium” provi- sion, sets forth the factors that issuers may use to vary premium rates in the individual or small group market. PHS Act section 2701(a)(1)(A)(iv) provides that issuers in the individual and small group markets cannot vary rates for tobacco use by more than a ratio of 1.5 to 1 (that is, allowing up to a 50 percent premium surcharge for tobacco use). HHS published a final regulation implementing PHS Act section 2701 25 stating that health insurance issuers in the small group market are permitted to implement the tobacco use surcharge under PHS Act section 2701 to employ- ees only in connection with a wellness program meeting the standards of PHS Act section 2705(j) and its implementing regulations. As discussed in the proposed rule, to co- ordinate these regulations with the tobacco use rating provisions of PHS Act section 2701, these final regulations use the au- thority in PHS Act section 2705(j)(3)(A) (and, with respect to grandfathered health plans, the preexisting authority in the HIPAA nondiscrimination and wellness provisions) to increase the applicable per- centage for determining the size of the reward for participating in a health-con- tingent wellness program by an additional 20 percentage points (to 50 percent) to the extent that the additional percentage is attributed to tobacco use prevention or reduction. Several commenters requested clar- ification that an individual’s statement regarding tobacco use is not grounds for a permissible rescission under PHS Act section 2712 and its implementing regu- lations. Under the HHS final regulation implementing PHS Act section 2701, an issuer that must comply with the require- ments under PHS Act section 2701 may not rescind coverage on the basis that an enrollee is found to have reported false or incorrect information about their tobacco use. 26 While the HHS final regulation implementing PHS Act section 2701 ad- dresses rescission, that provision is only applicable to health insurance issuers pro- viding coverage in the individual and small group markets, and does not apply to self-insured group health plans and large insured group health plans. 27 Whether self-insured group health plans and large insured group healthplans can recoup the otherwise applicable premiums or benefits is generally determined under the plan terms and other applicable law, such as ERISA. Rescission in connection with an individual’s statement regarding tobacco use under self-insured and large, insured group health plans may be addressed by the Departments in future regulations or subregulatory guidance under PHS Act section 2712. F.Application to Grandfathered Plans Under these final regulations, the same wellness program standards apply to grandfathered health plans (under au- thority in the HIPAA nondiscrimination and wellness provisions) and non-grand- fathered plans (under the rules of PHS Act section 2705 governing rewards for adherence to certain wellness programs, which largely adopt the wellness pro- gram provisions of the 2006 regulations with some modification and clarification). While section 1251 of the Affordable Care Act provides that certain amend- ments made by the Affordable Care Act (including the amendments to PHS Act section 2705(j)) do not apply to grand- fathered health plans, 28 the Departments believe that the provisions of these fi- 24 For ERISA plans, wellness program terms (including the availability of any reasonable alternativestandard) are generally required to be disclosedin the summary plan description (SPD), a s well as in the applicable governing plan documents (which must be providedupon request), if compliance with the wellness program affects premiums,cost sharing, or other benefits under the terms of the plan. 25 See45 CFR 147.102(a)(1)(iv), published on February 27, 2013 at 78 FR 13406. 26 The remedy of recouping the tobacco premium surcharge that should have beenpaid since the beginning of the plan or policy year is provided under PHS Actsection 2701 and its imple- menting regulations. As stated in the preamble to those regulations, it is the view of the Departments (which share interpretive jurisdiction over section 2712 of the PHS Act) that this remedy of recoupment renders any misrepresentation with regard to tobacco use no longer a “material’’ fact for purposes of rescission under PHS Act section 2712 and its implementing regulations. See78 FR 13414. 27 Starting in 2017, States will have the option of allowing health insurance issuers in the large group market to participate in the Exchange. In States that elect this option, issuers in the large group market will be subject to the rating requirements of PHS section 2701 including the prohibition against rescinding based on failure to report tobacco use. 28 In these final regulations, the Departments have deleted language from the applicability date section of the proposed regulations that references the regulations regarding grandfathered health plans. This deletion was made to avoid confusion regarding the applicability of these final regulations, which apply the same wellness program standards to both grandfathered and non-grandfathered health plans. The HHS regulations continue to provide, however, that with respectto individual health insurance coverage, the nondiscrimination provisions do not apply to grandfathered health plans. 2013–27 I.R.B.11July 1, 2013 nal regulations are authorized under both HIPAA and the Affordable Care Act. This approach is intended to avoid inconsis- tency across group health coverage and to provide grandfathered plans the same flexibility to promote health and prevent disease as non-grandfathered plans. G.Application of Nondiscrimination Provisions to the Individual Health Insurance Market The HHS proposed regulations in- cluded a new 45 CFR 147.110 to apply the nondiscrimination protections of the 2006 regulations to non-grandfathered individ- ual health insurance coverage effective for policy years beginning on or after Jan- uary 1, 2014. The proposed regulation, however, did not extend the wellness pro- visions to the individual health insurance market because the wellness exception of PHS Act section 2705(j) does not apply to the individual health insurance market. Commenters requested that the well- ness provisions be extended to the indi- vidual market or that states be allowed to authorize participatory programs in the individual market. Although the proposed rule addressing the individual market is being finalized without change, it is HHS’s belief that participatory wellness programs in the individual market do not violate the nondiscrimination provisions provided that such programs are consistent with State law and available to all similarly situated individuals enrolled in the indi- vidual health insurance coverage. This is because participatory wellness programs do not base rewards on achieving a stan- dard related to a health factor, and thus do not discriminate based upon health status. H.No Effect on Other Laws Many commenters requested that the Departments address the interaction of these wellness program requirements with other laws. Paragraph (h) of the 2006 reg- ulations clarifies that compliance with the HIPAA nondiscrimination rules (which were later amended by the Affordable Care Act), including the wellness program requirements in paragraph (f), is not de- terminative of compliance with any other provision of ERISA, or any other State or Federal law, including the ADA. 29 This paragraph is unchanged by these final regulations and remains in effect. As stated in the preamble to the 2006 regu- lations, 30 the Departments recognize that many other laws may regulate plans and issuers in their provision of benefits to participants and beneficiaries. These laws include, but are not limited to, the ADA, Title VII of the Civil Rights Act of 1964, Code section 105(h) and PHS Act sec- tion 2716 (prohibiting discrimination in favor of highly compensated individuals), the Genetic Information Nondiscrimina- tion Act of 2008, the Family and Medical Leave Act, ERISA’s fiduciary provisions, and State law. The Departments did not attempt to summarize the requirements of those laws in the 2006 regulations and do not attempt to do so in these final reg- ulations. Employers, plans, issuers, and other service providers should consider the applicability of these laws to their cov- erage and contact legal counsel or other government agencies such as the Equal Employment Opportunity Commission and State Departments of Insurance if they have questions about those laws. As stated earlier in this preamble, this rulemaking does not modify paragraph (h) or any pro- visions of the 2006 regulations, other than paragraph (f). The Departments reiterate that compliance with these final regula- tions is not determinative of compliance with any other applicable requirements. I.Applicability Date These final regulations are applicable to group health plans and health insurance is- suers in the group and individual markets for plan years (in the individual market, policy years) beginning on or after January 1, 2014, consistent with the statutory effec- tive date of PHS Act section 2705, as well as PHS Act section 2701. III. Economic Impact and Paperwork Burden A.Executive Orders 12866 and 13563—Department of Labor and Department of Health and Human Services Executive Orders 12866 and 13563 direct agencies to assess all costs and ben- efits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects; distributive impacts; and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. The Of- fice of Management and Budget (OMB) has determined that this final rule is a “sig- nificant regulatory action’’ under section 3(f)(4) of ExecutiveOrder 12866, because it raises novel legal or policy issues arising from the President’spriorities. Accord- ingly, the rule has been reviewed by the OMB. 29 Moreover, in paragraph (b) of the 2006 regulations, the general rule governing the application of the nondiscrimination rules to benefits clarifiesthat whether any plan provision or practice with respect to benefits complies with paragraph (b)(2)(i) does not affect whether the provision orpractice is permitted under any other provision oftheCode,ERISA,orthePHSAct,the Americans with Disabilities Act, or any other law, whether State or Federal. 30 See71 FR 75014, 75015 (December 13, 2006). July 1, 2013122013–27 I.R.B. TABLE 1.—Accounting Table BenefitsQuantified: Minimal due to low expected use of higher reward limits. Qualitative: Benefits include the ability to increase the reward based on a health factor to incentivize individuals to meeta health standard associated withimproved health, which could improve the health of the individual and reducehealth care costs. Improved standards could reduce the use of wellness programs as a subterfuge for discrimination based on a health factor. Costs Quantified: Minimal since employers are expected tocreate or expand wellness programs only if the expected benefit exceeds the cost as well as due to low expected use of higher reward limits. Qualitative: Costs of the rule include clarifications regarding what costs individuals may pay as part of an alternative means of complying with the health standard. To the extent an individual faces an increased cost for not meeting a health standard, the individual would have reduced resources to use for other purposes. TransfersQuantified: Minimal due to low expected use of higher reward limits. Qualitative: Transfers resulting from the rule include transfers from those who do not meet a health standard to those who do meet the standard or the associated alternative standard. BasedontheDepartments’ 31 review of the most recent literature and studies regarding wellness programs, as summa- rized in Table 1, the Departments have reached the conclusion that the impact of the benefits, costs, and transfers associated with the final rules will be minimal. As discussed in this analysis, few health-con- tingent wellness programs today come close to meeting the 20 percent limit (based on the data, the usual reward per- centage ranges from three to 11 percent). 32 Therefore, the Departments do not believe that expanding the limit to 30 percent (or 50 percent for programs designed to prevent or reduce tobacco use) will re- sult in significantly higher participation of employers in such programs. The De- partments provide a qualitative discussion below and cite the survey data used to sub- stantiate this conclusion. Moreover, most wellness programs appear to be participa- tory wellness programs that do not require an individual to meet a standard related to a health factor in order to obtain a reward. As stated earlier in this preamble, these participatory wellness programs are not required to meet the five requirements that apply to health-contingent wellness pro- grams, but they are required to be made available to all similarly situated individu- als regardless of health status. Although the Departments believe few plans will expand the reward percentage, the Departments provide a qualitative discussion regarding the sources of bene- fits, costs, and transfers that could occur if plans were to expand the reward be- yond the current maximum of 20 percent. Currently, insufficient broad-based ev- idence makes it difficult to definitively assess the impact of workplace wellness programs on health outcomes and cost, although, overall,employers largely re- port that workplace wellness programs in general (participatory wellness programs and health-contingent wellness programs) are delivering on their intended objectives of improving health and reducing costs. The one source of potential additional cost discussed in the impact analysis is the clarification that plans must provide a rea- sonable alternative standard. The Depart- ments present evidence that currently em- ployers not only allow a reasonable alter- native standard, but that most employers already pay for these alternatives. The De- partments do not have an estimate of how many plans are not currently paying for al- ternatives consistent with the clarifications set forth in the final regulations, but the number appears to be small. The Depart- ments also employ economic logic to con- clude that employers will create or expand their wellness program and provide rea- sonable alternatives only if the expected benefits exceed the expected costs. There- fore, the Departments believe that the ben- efits of the final rule will justify the costs. B.Background and Need for Regulatory Action—Department of Labor and Department of Health and Human Services As discussed earlier in this preamble, on December 13, 2006, the Departments published joint final regulations imple- menting the HIPAA nondiscrimination and wellness provisions, which, among other things, allowed plans and issuers with health-contingent wellness programs to vary benefits (including cost-sharing mechanisms), premiums, or contributions based on whether an individual has met the standards of a wellness program that met five specific requirements.Seesec- tion I.B. of this preamble for a detailed discussion of the HIPAA nondiscrimina- tion and wellness provisions and the 2006 regulations. 31 In section III of this preamble, some subsections have a heading listing one or two of the three Departments. In those subsections, the term “Departments” generally refers only to the Departments listed in the heading. 32 The 2012 RAND Employer Survey found that the maximum premiumdifferential offered in a survey respondent was 16 percent. 2013–27 I.R.B.13July 1, 2013 C.Regulatory Alternatives—Department of Labor and Department of Health and Human Services The 2006 regulations outlined five spe- cific criteria that must be met for health- contingent wellness programs to comply with the nondiscrimination requirements, including that the total reward for wellness programs offered by a plan sponsor not ex- ceed 20 percent of the total cost of cover- age under the plan. 33 As amended by the Affordable Care Act, the nondiscrimina- tion and wellness provisions of PHS Act section 2705 largely reflect the 2006 regu- lations with some modification and clarifi- cation. Most notably, it increased the max- imum reward that can be provided under a health-contingent wellness program from 20 percent to 30 percent and authorized the Departments to increase the maximum re- ward to as much as 50 percent if the De- partments determine that such an increase is appropriate. PHS Act section 2701(a)(1)(A)(iv) pro- vides that issuers in the individual and small group markets cannot vary rates for tobacco use by more than a ratio of 1.5 to 1(thatis,allowinguptoa50percentpre- mium surcharge for tobacco use). PHS Act section 2701 applies to non-grandfathered health insurance coverage in the individual and small group markets, but does not ap- ply in the large group market or to self-in- sured plans. On February 27, 2013, HHS published a final regulation stating that is- suers in the small group market are per- mitted to implement the tobacco use sur- charge under PHS Act section 2701 to em- ployees only in connection with a wellness program meeting the standards of PHS Act section 2705(j) and its implementing reg- ulations. 34 An important policy goal of the De- partments is to provide the large group market and self-insured plans and grand- fathered health plans with the same flex- ibility as non-grandfathered plans in the small group market to promote tobacco- free workforces. The Departments consid- ered several regulatory alternatives to meet this objective, including the following: 1.Stacking premium differentials.One alternative considered was to permit a 50 percent premium differential for tobacco use in the small group market under PHS Act section 2701 without requiring a reasonable al- ternative standard. Under PHS Act section 2705, an additional 30 per- cent premium differential would also be permitted if the five criteria for a health-contingent wellness program were met (including the offering of a reasonable alternative standard). Un- der this option, an 80 percent premium differential would have been allow- able in the small group market based on factors related to health status. Large and self-insured plans would have been limited to the 30 percent maximum reward. Allowing such a substantial difference between what was permissible in the small group market and the large group market was not in line with the Departments’ policy goal of providing consistency in flexibility for plans. 2.Concurrent premium differentials with no reasonable alternative re- quired to be offered for tobacco use. Another alternative would be to read sections 2701 and 2705 together such that, for non-grandfathered health plans in the small group market, up to a 50 percent premium differential would be permitted based on tobacco use, as authorized under PHS Act section 2701(a)(1)(A)(iv), with no reasonable alternative standard re- quired for the tobacco use program. With respect to non-tobacco-related wellness programs, a reward could be offered only to the extent that a to- bacco use wellness program were less than 30 percent of the cost of cover- age because the two provisions apply concurrently, and a reward would not be permitted under PHS Act section 2705 if the maximum reward already were exceeded by virtue of PHS Act section 2701. Thus, the 50 percent tobacco surcharge under PHS Act section 2701 would be available only to non-grandfathered, insured, small group plans. The chosen approach is intended to avoid inconsistency and to provide grandfathered plans the same flexibility to promote health and prevent disease as non-grandfathered plans. D.Current Use of Wellness Programs and Economic Impacts—Department of Labor and Department of Health and Human Services The current use of wellness programs and economic impacts of these final reg- ulations are discussed in this analysis. Wellness programs 35 have become common among employers in the United States. The 2012 Kaiser/HRET survey indicates that 63 percent of all employers who offered health benefits also offered at least one wellness program. 36 ARAND Employer Survey found that 51 percent of employers offer wellness programs. 37 The uptake of wellness programs continues to be more common among large employers. For example, the Kaiser/HRET survey found that health risk assessments are of- fered by 38 percent of large employers offering health benefits, but only 18 per- cent of employers with fewer than 200 workers. The Kaiser/HRET survey indicates that 27 percent of all firms and 65 percent of large firms offered weight loss programs, while 29 percent and 65 percent, respec- tively, offered gym memberships or on-site exercise facilities. Meanwhile, 30 per- cent of all employers and 70 percent of large employers offered smoking cessation resources. Despite widespread availabil- ity, actual participation of employees in wellness programs remains limited. While no nationally representative data exist, a 2010 non-representative survey suggests that typically less than 20 percent of eli- 33 See26 CFR 54.9802–1(f)(2)(i), 29 CFR 2590.702(f)(2)(i), and 45 CFR 146.121(f)(2)(i). 34 See45 CFR 147.102(a)(1)(iv), published on February 27, 2013 at 78 FR 13406. 35 On behalf of the Departments, RAND researchers did a review of the current literature on this topic. “A Review of the U.S. Workplace Wellness Market” February 2012. The report can be found athttp://www.dol.gov/ebsa/pdf/workplacewellnessmarketreview2012.pdf. 36 Kaiser Family Foundation,Employer Health Benefits: 2012 Annual Survey. 2012, The Kaiser Family Foundation, Menlo Park, CA; Health Research & Educational Trust, Chicago, IL. 37 On behalf of the Departments, RAND produced the “Workplace Wellness Programs Study Final Report,” to submit to Congress contemporaneous with the issuance of these final regulations. This report includes a literature review, case studies, analysis of an employer survey conducted by RAND for the Departments, and a review of Care Continuum Alliance data. July 1, 2013142013–27 I.R.B. gible employees participate in wellness in- terventions such as smoking cessation. 38 Currently, insufficient broad-based evi- dence makes it difficult to definitively as- sess the impact of workplace wellness on health outcomes and cost; however, avail- able evidence suggests that wellness pro- grams may have some effect on improv- ing health outcomes. The RAND Corpo- ration’s analysis of the Care Continuum Alliance (CCA) database 39 found statisti- cally significant and clinically meaning- ful improvements in exercise frequency, smoking behavior, and weight control be- tween wellness program participants and non-participants. Overall, employers largely report that workplace wellness programs are deliver- ing on their intended benefit of improv- ing health and reducing costs. According to the 2012 Kaiser/HRET survey, 73 per- cent of respondents that offered wellness programs stated that these programs im- proved employee health, and 52 percent believed that they reduced costs. Larger firms (defined as those with more than 200 workers in the Kaiser/HRET survey) were more positive in believing that well- ness programs reduced costs, as 68 percent said that it reduced cost, as opposed to 51 percent among smaller firms. 40 Forty per- cent of respondents to a survey by Buck Consultants indicated that they had mea- sured the impact of their wellness pro- gram on the growth trend of their health care costs, and of these, 45 percent re- ported a reduction in that growth trend. The majority of these employers, 61 per- cent, reported that the reduction in growth trend of their health care costs was be- tween two and five percentage points per year. 41 There are numerous accounts of the positive impact of workplace wellness programs in many industries, regions, and types of employers. For example, RAND determined in their analysis that available data are suggestive that incentives above $50 are effective to encourage participa- tion in wellness programs, and that incen- tives above $200 have a small, but statisti- cally significant, effect on weight loss, ex- ercise, and smoking outcomes. Addition- ally, a recent article published by theHar- vard Business Reviewcited positive out- comes reported by private-sector employ- ers along several different dimensions, in- cluding health care savings, reduced ab- senteeism, and employee satisfaction. 42 Several studies that looked at the im- pact of smoking cessation programs found significantly higherquit rates or less to- bacco use. 43 Smoking cessation programs typically offered education and counseling to increase social support. 44 RAND found notable evidence of the effectiveness of smoking cessation programs in its analysis of the CCA database and case studies. The CCA database analysis found that partici- pation in a program targeting smoking ces- sation decreases the smoking rate among participating smokers by 30 percent in the first year. Employer D in RAND’s case studies reported that a smoking cessation program helped 33 employees quit smok- ing, which resulted in a one-percentage point decrease in the total number of smok- ers. Two other studies reported that in- dividuals in the intervention group quit smoking at a rate approximately 10 per- centage points higher than those in the con- trol group, and another reported that partic- ipants were almost four times as likely as nonparticipants to reduce tobacco use. 45 Overall, evidenceon the effectiveness of wellness programs is promising, but it is not yet conclusive. An in-depth evaluation of an extensive wellness program involv- ing a St. Louis hospital system found that the wellness program brought down inpa- tient hospitalization costs, but these cost savings were cancelled out by increased outpatient costs. 46 Additionally, a recent article published byHealth Affairsfound that employer savings from wellness pro- grams may result more from cost shift- ing, rather than from healthier outcomes and reduced health care usage. 47 Finally, a study investigating the effectiveness of a smoking cessation program showed signif- icant differences in smoking rates at a one- month follow-up, but showed no signifi- cant differences in quit rates at six months, highlighting the need to investigate the sustainability of results. 48 While employer plan sponsors gener- ally are satisfied with the results, more than half stated in a recent survey that they do not know their programs’ return on invest- 38 Nyce, S. Boosting Wellness Participation Without Breaking theBank. TowersWatson Insider. July, 2010:1–9. 39 The Care Continuum Alliance (CCA) is the trade organization of the health and wellness management industry. The CCA database includes data on health plan enrollment, medical and prescription claims, health risk assessment (HRA) responses, biometricscreening information, and employee participation in health and wellnessprograms. 40 Kaiser Family Foundation, Employer Health Benefits: 2012 Annual Survey. 2012, The Kaiser Family Foundation, Menlo Park, CA; Health Research & Educational Trust, Chicago, IL. 41 Buck Consultants, Working Well: A Global Survey of Health Promotion and Workplace Wellness Strategies. 2010, Buck Consultants: San Francisco, CA. 42 Berry, L., A. Mirabito, and W. Baun,What’s the Hard Return on Employee Wellness Programs? Harvard Business Review, 2010. 88(12): p. 104. 43 Heirich, M. and C.J. Sieck, Worksite cardiovascular wellness programs as a route to substance abuse prevention. J Occup Environ Med, 2000. 42(1): p. 47–56; 40; McMahon, S.D. and L.A. Jason, Social support in a worksite smoking intervention. A test of theoretical models. Behav Modif, 2000. 24(2): p. 184–201; Okechukwu, C.A., et al., MassBuilt: effectiveness of an apprenticeship site-based smoking cessation intervention for unionized building trades workers. Cancer Causes Control, 2009. 20(6): p. 887–94; Sorensen, G., et al., A comprehensive worksite cancer prevention intervention: behavior change results from a randomized controlled trial (United States). J Public Health Policy, 2003. 24(1): p. 5–25. Gold, D.B., D.R. Anderson, and S.A. Serxner,Impact of a telephone-based intervention on the reduction of health risks. Am J Health Promot, 2000. 15(2): p. 97–106; Herman, C.W., et al.,Effectiveness of an incentive- based online physical activity intervention on employee health status. Journal of Occupational and Environmental Medicine, 2006. 48(9): p. 889–895; Ozminkowski, R.J., et al.,The impact of the Citibank, NA, health management program on changes in employee health risks over time. J Occup Environ Med, 2000. 42(5): p. 502–11. 44 Heirich, M. and C.J. Sieck, Worksite cardiovascular wellness programs as a route to substance abuse prevention. J Occup Environ Med, 2000. 42(1): p. 47–56; McMahon, S.D. and L.A. Jason, Social support in a worksite smoking intervention. A test of theoretical models. Behav Modif, 2000. 24(2): p. 184–201. 45 Heirich, M. and C.J. Sieck, Worksite cardiovascular wellness programs as a route to substance abuse prevention. J Occup Environ Med, 2000. 42(1): p. 47–56; Okechukwu, C.A., et al., MassBuilt: effectiveness of an apprenticeship site-based smoking cessation intervention for unionized building trades workers. Cancer Causes Control, 2009. 20(6): p. 887–94. In the study, 42% of participants reduced their risk for tobaccouse. See Gold, D.B., D.R. Anderson, and S.A. Serxner, Impact of a telephone-based intervention on the reduction of health risks. Am J Health Promot, 2000. 15(2): p. 97–106. 46 Gautam Gowrisankaran, Karen Norberg, Steven Kymes, Michael E. Chernew, Dustin Stwalley, Leah Kemper and William Peck “A Hospital System’s WellnessProgram Linked To Health Plan Enrollment Cut Hospitalizations But Not Overall Costs” Health Affairs, 32, no.3 (2013):477–485. 47 Jill R. Horwitz, Brenna D. Kelly, and John E. DiNardo “Wellness Incentives In The Workplace: Cost Savings Through Cost Shifting To Unhealthy Workers”Health Affairs, 32, no.3 (2013):468–476. 48 Kechukwu, C.A., et al., MassBuilt: effectiveness of an apprenticeship site-based smoking cessation intervention for unionized building trades workers. Cancer Causes Control, 2009. 20(6): p. 887–94. 2013–27 I.R.B.15July 1, 2013 ment. 49 In the RAND Employer Survey, only about half of employers with well- ness programs stated that they had for- mally evaluated program impact, and only two percent reported actual cost savings. When RAND conducted their case stud- ies, they found that none of their employers had formally evaluated their programs, al- though three of the five case studies did ex- amine some data metrics to conduct some level of assessment. The Departments are mindful that the peer-reviewed literature, while predomi- nantly positive, covers only a small pro- portion of the universe of programs, lim- iting the generalizability of the reported findings. Evaluating such complex inter- ventions is difficult and poses substantial methodological challenges that can inval- idate findings. Further, although corre- lations often can be easily demonstrated, it can be difficult to show causal rela- tionships. For example, it can be diffi- cult to separate individuals’ varying lev- els of motivation to become healthier, and their self-selection to participate in well- ness programs, from measures of the effec- tiveness of wellness programs themselves. In the Departments’ impact analysis for the proposed rules, available data indicated that employers’ use of incentives in well- ness programs was relatively low. The De- partments’ review of more recent litera- ture indicates the use of incentives has be- come more common in wellness programs that are not health-contingent programs. Over two-thirds of RAND Employee Sur- vey respondents reported using incentives to promote employee participation in well- ness programs. The Kaiser/HRET Survey also reported that 41 percent offered any kind of incentive, which was nearly double the percent reporting some kind of incen- tive offering in 2010. Mercer Consulting’s 2011 National Survey of Employer-Spon- sored Health Plans found similar patterns, estimating 33 percent of those with 500 or more employees provided financial incen- tives for participating in at least one pro- gram, which was a 12 percentage point in- crease from the 2009 Survey. 50 Employers, especially large ones, are also looking to continue to add incen- tives to their wellness programs. For example, the 2012 Mercer Survey found that as much as 87 percent of employers with more than 200 employees plan to add or strengthen incentive programs. 51 TowersWatson found that 17 percent of all employers intend to add a reward or penalty based on tobacco-use status. 52 The use of incentives to promote employee engagement remainspoorly understood, so it is not clear how type (for exam- ple, cash or non-cash), direction (reward versus penalty), and strength of incen- tive are related to employee engagement and outcomes. The Health Enhancement Research Organization and associated organizations also recognized this defi- ciency and provided seven questions for future research. 53 There are also no data on potential unintended effects, such as discrimination against employees based on their health or health behaviors. Currently, the most commonly incen- tivized program appears to be associated with completion of a health risk assess- ment. According to the RAND Employer Survey, 30 percent of employers with a wellness program offered incentives for completing a healthrisk assessment. The 2009 Mercer survey found similar results, reporting that 10 percent of all firms and 23 percent of large employers that offered a health risk assessment provided an in- centive for completing the assessment. For other types of health management pro- grams that the survey assessed, only two to four percent of all employers and 13 to 19 percent of large employers offered incentives. 54 The Kaiser/HRET survey found that 63 percent of large firms that offered a health risk assessment provided a financial incentive to employees who completed it. Cash and cash-equivalent incentives are the most popular incentive for completion of a health risk assessment. The 2009 Mer- cer survey reports that five percent of all employers and ten percent of those with 500 or more workers provided cash incen- tives for completion of a health risk as- sessment; one percent and two percent, respectively, offering lower cost sharing; and two percent and seven percent, respec- tively, offering lower premium contribu- tions. 55 Note that in the Mercer survey, the results cited reflect the incentives provided by all firms that offer a health risk assess- ment. Incentives may be triggered by a range of different levels of employee engage- ment. The simplest incentives are trig- gered by program enrollment—that is, by merely signing up for a wellness pro- gram. At the next level, incentives are triggered by program participation–for instance, attending a class or initiating a program, such as a smoking cessation in- tervention. Other incentive programs may require completion of a program, whether or not any particular health-related goals are achieved, to earn an incentive. The health-contingent incentive programs require successfully meeting a specific health outcome (or an alternative standard) to trigger an incentive, such as verifiably quitting smoking. Health-contingent in- centive programs appear to be among the least common incentive schemes. Accord- ing to the RAND Employer Survey, only 10 percent of employers with more than 50 employees that offer a wellness program use any incentives tied to health standards, only seven percent link the incentives to health insurance premiums, and only seven percent administer results-based incentives through their health plans. The most common form of outcome- based incentives is reported to be awarded for smoking cessation. The 2010 survey by NBGH and TowersWatson indicated that while 25 percent of responding em- 49 Buck Consultants, Working Well: A Global Survey of Health Promotion and Workplace Wellness Strategies. 2010, Buck Consultants: San Francisco, CA. 50 Mercer, National Survey of Employer-Sponsored Health Plans: 2011 Survey Report. 2012, Mercer. 51 “Employers accelerate efforts to bring health benefit costs under control,” Mercer: November 16, 2011; Available from:http://www.mercer.com/press-releases/national-survey-employer- sponsored-health-plans. 52 “Employer Survey on Purchasing Value in Health Care,” 17th Annual Towers Watson/National Business Group on HealthEmployer Survey on Purchasing Value in Health Care. 53 “Guidance for a Reasonably Designed, Employer-Sponsored Wellness Program Using Outcomes-Based Incentives,” joint consensus statement of the Health Enhancement Research Organ- ization, American College of Occupational and Environmental Medicine, American Cancer Society and American Cancer Society Cancer Action Network,American Diabetes Association, and American Heart Association. 54 Mercer, National Survey of Employer-Sponsored Health Plans: 2009 Survey Report. 2010, Mercer. 55 Mercer, National Survey of Employer-Sponsored Health Plans: 2009 Survey Report. 2010, Mercer. July 1, 2013162013–27 I.R.B. ployers offered a financial incentive for employees to become tobacco-free, only four percent offered financial incentives for maintaining a BMI within target lev- els, three percent did so for maintaining blood pressure within targets, and three percent for maintaining targeted choles- terol levels. 56 The RAND Employer Sur- vey found that almost the same percent- age of employers rewarded actual smok- ing cessation (19%) as rewarded mere par- ticipation in a smoking cessation program (21%), whereas employers were three to four times as likely to reward participation as outcomes for other health factors. When RAND conducted its case studies for the Departments, they found that four of five employers targeted smoking cessation out- comes with incentives, whereas only two of five employers had incentives for other outcomes. The value of incentives can vary widely. Estimates from representative sur- veys of the average value of incentives per year range between $152 57 and $557, 58 or between three and 11 percent of the $5,049 average cost of individual coverage in 2010, 59 among employees who receive them. According to the RAND Employer Survey, the maximum incentives aver- age less than 10 percent. This suggests that companies typically are not close to reaching the 20 percent of the total cost of coverage threshold set forth in the 2006 regulations. The Departments lack sufficient infor- mation to assess how firms that currently are at the 20 percent limit will respond to the increased limits. The Departments received comments indicating that some firms may increase their limits, as permit- ted by the final rules; however, the number of these firms currently at the 20 percent limit is low. Furthermore, if a large num- ber of firms already viewed the current 20 percent reward limit as sufficient, then the Departments would not expect that in- creasing the limit would provide an incen- tive for program design changes. These findings indicate that, based on currently available data, increasing the maximum re- ward for particpating in a health-contin- gent wellness program to 30 percent (and the Departments’ decision to allow an ad- ditional 20 percentage points for programs designed to prevent or reduce tobacco use) is unlikely to have a significant impact. It is possible that the increased wellness program reward limits will incentivize firms without health-contingent well- ness programs to establish them. The Departments, however, do not expect a significant number of new programs to be created as a result of this change because firms without health-contingent wellness programs could already have provided rewards up to the 20 percent limit before the enactment of the Affordable Care Act, but did not. Two important elements of these final regulations are (1) the standard that the re- ward under a health-contingent wellness program be available to all similarly situ- ated individuals and (2) the standard that a program be reasonably designed to pro- mote health or prevent disease. 60 As discussed earlier in this preamble, the final regulations do not prescribe a particular type of alternative standard that must be provided. Instead, they permit plan sponsors flexibility to provide any reasonable alternative. The Departments expect that plan sponsors will select alter- natives that entail the minimum net costs (or, stated differently, the maximum net benefits) that are possible to achieve off- setting benefits, such as a higher smoking cessation success rate. It seems reasonable to presume that the net cost plan sponsors will incur in the pro- vision of alternatives, including transfers as well as new economic costs and ben- efits, will not exceed the transfer cost of waiving surcharges for all individuals who qualify for alternatives. The Departments expect that many plan sponsors will find more cost effective ways to satisfy this re- quirement, should theyexercise the option to provide incentives through a health-con- tingent wellness program, and that the true net cost to them will therefore be much smaller than the transfer cost of waiving surcharges for all plan participants who qualify for alternatives. The Departments have no basis for estimating the magnitude of the cost of providing alternative stan- dards or of potential offsetting benefits at this time. The Departments note that plan spon- sors will have strong motivation to identify and provide reasonable alternative stan- dards that have positive net economic effects. Plan sponsors will be disinclined to provide alternatives that undermine their overall wellness program and worsen behavioral and health outcomes, or that make financial rewards available ab- sent meaningful efforts by participants to improve their health habits and overall health. Instead, plan sponsors will be in- clined to provide alternatives that sustain or reinforce plan participants’ incentive to improve their health habits and overall health, and/or that help participants make such improvements. It therefore seems likely that gains in economic welfare from this requirement will equal or outweigh losses. The Departments intend that the requirement to provide a reasonable al- ternative standard will eliminate instances where wellness programs serve only to shift costs to higher risk individuals and in- crease instances where programs succeed at helping high risk individuals improve their health. In considering the transfers that might derive from the availability of (and par- ticipants’ satisfaction with) reasonable al- ternative standards, the transfers arising from this requirement may take the form of transfers to individuals who satisfy a reasonable alternative standard, to such in- dividuals from otherindividuals, or some combination of these. The existence of a health-contigent wellness program creates a transfer from those who do not meet the standard to those who do meet the stan- dard. Allowing individuals to satisfy a reasonable alternative standard in order to qualify for a reward is a transfer to those who satisfy the reasonable alternative stan- dard from everyone else in the risk pool. The reward associated with the well- ness program is an incentive to encourage individuals to meet health standards as- sociated with better or improved health, 56 TowersWatson, Raising the Bar on Health Care: Moving Beyond Incremental Change. 57 Mercer, National Survey of Employer-Sponsored Health Plans: 2009 Survey Report. 2010, Mercer. 58 Linnan, L., et al., Results of the 2004 national worksite health promotion survey. American Journal of Public Health, 2008. 98(8): p. 1503–1509. 59 Kaiser Family Foundation, Employer Health Benefits: 2010 Annual Survey. 60 See section II.C, earlier in this preamble for a more detailed discussion of these requirements. 2013–27 I.R.B.17July 1, 2013 which in turn is associated with lower health care costs. If the rewards are ef- fective, health care costs will be reduced as an individual’s health improves. Some of these lower health care costs could translate into lower premiums paid by em- ployers and employees, which could offset some of the transfers. To the extent larger rewards are more effective at improving health and lowering costs, these final reg- ulations will produce more benefits than the current requirements. Rewards also could create costs to in- dividuals and to the extent the new larger rewards create more costs than smaller re- wards, these final regulations may increase the costs relative to the 2006 regulations. To the extent an individual does not meet a standard or satisfy a reasonable alterna- tive standard, they could face higher costs. (For example, in the case of an individual participating in a wellness program with a tobacco cessation program, a plan or issuer is permitted to apply premium surcharge of up to 50 percent for tobacco use if certain conditions are met.) Based on the foregoing discussion, the Departments expect the benefits, costs, and transfers associated with these final regulations to be minimal. However, the Departments are not able to provide aggre- gate estimates, because they do not have sufficent data to estimate the number of plans that will take advantage of the new limits. E.Regulatory Flexibility Act — Department of Labor and Department of Health and Human Services The Regulatory Flexibility Act (5 U.S.C. 601et seq.) (RFA) applies to most Federal rules that are subject to the no- tice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551et seq.). Unless an agency certifies that such a rule will not have a significant economic impact on a substantial number of small entities, sec- tion 603 of the RFA requires the agency to present an initial regulatory flexibility analysis at the time of the publication of the rulemaking describing the impact of the rule on small entities. Small entities include small businesses, organizations and governmental jurisdictions. For purposes of analysis under the RFA, the Departments consider a small entity to be an employee benefit plan with fewer than 100 participants. The basis of this definition is found in section 104(a)(3) of ERISA, which permits the Secretary of Labor to prescribe simplified annual re- ports for welfare benefit plans that cover fewer than 100 participants. 61 While some large employers may have small plans, in general, small employers maintain most small plans. Thus, the Departments be- lieve that assessing the impact of these fi- nal regulations on small plans is an appro- priate substitute for evaluating the effect on small entities. The definition of small entity considered appropriate for this pur- pose differs, however, from a definition of small business that is based on size stan- dards promulgated by the Small Business Administration (SBA) (13 CFR §121.201) pursuant to the Small Business Act (15 U.S.C. 631et seq.). The Departments re- quested comments on the appropriateness of this size standard at the proposed rule stage and received several supportive re- sponses and no negative responses. The Departments expect that these final regulations will affect few small plans. While a large number of small plans offer a wellness program, the 2012 Kaiser/HRET survey reported thatonly seven percent of employers with fewer than 200 employees had a wellness program that offered cash or cash equivalent incentives (including gift cards, merchandise, or travel incen- tives.) 62 In addition, only two percent of these firms offered lower employee health plan premiums to wellness par- ticipants, less than one percent offered lower deductibles, and less than one per- cent offered higher health reimbursement account or health savings account con- tributions. Therefore, the Departments expect that few small plans will be af- fected by increasing the rewards threshold from 20 percent to 30 percent (50 per- cent for programs targeting tobacco use prevention or reduction), because only a small percentage of plans have health-con- tingent wellness programs. Moreover, as discussed in the Economic Impacts section earlier in this preamble, few plans that offer health-contingent wellness programs come close to reaching the 20 percent limit, and most participatory wellness programs are associated with completing the health risk assessment irrespective of the results, which are not subject to the limitation. The Kaiser/HRET survey also reports that about 80 percent of small plans had their wellness programs provided by the health plan provider. Industry experts in- dicated to the Departments that when well- ness programs are offered by the health plan provider, they typically supply alter- native education programs and offer them free of charge. This finding indicates that the requirement in the final rule for health- contingent wellness programs to provide and pay for a reasonable alternative stan- dard for individuals for whom it is either unreasonably difficult or medically inad- visable to meet the original activity-only standard or for all individuals who fail to meet the initial outcome-based standard will impose little new costs or transfers to the affected plans. The Departments received a comment suggesting that the rule would have a sig- nificant economic impact on small entities no matter how they are defined, because a final regulation issued by HHS on Febru- ary 27, 2013, provided that that issuers in the small group market can vary rates for tobacco use by up to a ratio of 1.5 to 1 (that is, allowing up to a 50 percent premium surcharge for tobacco use), pursuant to PHS Act section 2701(a)(1)(A)(iv) only in connection with a wellness program meeting the standards of PHS Act sec- tion 2705(j) and these final regulations. 63 Since there are no data available to support this prediction, andthe Departments only received one comment suggesting a sub- stantial increase in the number of wellness programs, the Departments do not believe that a substantial increase in the number of wellness programs will occur. 61 Under ERISA section 104(a)(2), the Secretary may also provide exemptions orsimplified reporting and disclosurerequirements for pension plans. Pursuant to the authority of ERISA section 104(a)(3), the Department of Labor has previously issued at 29 CFR 2520.104–20, 2520.104–21, 2520.104–41, 2520.104–46, and 2520.104b–10 certain simplified reporting provisions and limited exemptions from reporting and disclosure requirements for smallplans, including unfunded or insured welfare plans, that cover fewer than 100 participants and satisfy certain other requirements. 62 Kaiser Family Foundation,Employer Health Benefits: 2012 Annual Survey. 2012, The Kaiser Family Foundation, Menlo Park, CA; Health Research & Educational Trust, Chicago, IL. 63 78 FR 13405. July 1, 2013182013–27 I.R.B. In the event that the number of wellness programs associated with small plans does increase, the Departments believe that this final rule contains considerable regulatory flexibility for plans to design wellness pro- grams that suit their needs. With this flex- ibility in mind, the Departments expect that plans will only choose to offer a well- ness program if the benefits outweigh the costs. If plans choose to offer a wellness program, they will design one that mini- mizes costs and is not overly burdensome. With this design flexibility, this rule should not disproportionately impact small enti- ties. Thus, the commenter has highlighted the possibility that this final rule may affect a substantial number of small entities, but the Departments do not see any evidence to indicate that this final rule will have a significant impact on small entities. Based on the foregoing, the Depart- ments hereby certify that these final reg- ulations will not have a significant eco- nomic impact on a substantial number of small entities. F.Paperwork Reduction Act—Department of Labor and Department of the Treasury The 2006 regulations and the proposed regulations regarding wellness programs did not include an information collection request (ICR). As described earlier in this preamble, these final regulations, like the 2006 final regulations, require plans and issuers to disclose the availability of a rea- sonable alternative standard to qualify for the reward (and if applicable, the possi- bility of waiver of the otherwise applica- ble standard) in all plan materials describ- ing the terms of a health-contingent well- ness program (both activity-only and out- come-based wellness programs). These final regulations clarify that a disclosure of the availability of a reasonable alterna- tive standard includes contact information for obtaining the alternative and a state- ment that recommendations of an individ- ual’s personal physician will be accommo- dated. For outcome-based wellness pro- grams, this notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard. If plan materials merely mention that such a program is available, without describing its terms, this disclosure is not required. These final regulations include sample lan- guage that can be used to satisfy this re- quirement. In concluding that these final regula- tions did not include an ICR, the Depart- ments reasoned that much of the informa- tion required was likely already provided as a result of state and local requirements or the usual businesspractices of group health plans and group health insurance is- suers in connection with the offer and pro- motion of health care coverage. In addi- tion, the sample disclosures would enable group health plans to make any necessary modifications with minimal effort. Finally, although the final regulations do not include an ICR, the regulations could be interpreted to require a revision to an existing collection of information. Administrators of group health plans cov- ered under Title I of ERISA are generally required to make certain disclosures about the terms of a plan and material changes in terms through a Summary Plan De- scription (SPD) or Summary of Material Modifications (SMM) pursuant to sections 101(a) and 102(a) of ERISA and related regulations. The ICR related to the SPD and SMM is currently approved by OMB under OMB control number 1210–0039. While these materials may in some cases require revisions to comply with the fi- nal regulations, the associated burden is expected to be negligible, and is already accounted for in the SPD, SMM, and the ICR by a burden estimation methodol- ogy, which anticipates ongoing revisions. Based on the foregoing, the Departments do not expect that any change to the existing ICR arising from these final reg- ulations will be substantive or material. Accordingly, the Departments have not filed an application for approval of a re- vision to the existing ICR with OMB in connection with these final regulations. G.Paperwork Reduction Act—Department of Health and Human Services As described in earlier in this preamble, the 2006 regulations and the proposed reg- ulations regarding wellness programs did not include an information collection re- quest (ICR). As described earlier in this preamble, these final regulations, like the 2006 final regulations, require plans and issuers to disclose the availability of a rea- sonable alternative standard to qualify for the reward (and if applicable, the possi- bility of waiver of the otherwise applica- ble standard) in all plan materials describ- ing the terms of a health-contingent well- ness program (both activity-only and out- come-based wellness programs). These final regulations clarify that a disclosure of the availability of a reasonable alterna- tive standard includescontact information for obtaining the alternative and a state- ment that recommendations of an individ- ual’s personal physician will be accommo- dated. For outcome-based wellness pro- grams, this notice must also be included in any disclosure that an individual did not satisfy an initial outcome-based standard. If plan materials merely mention that such a program is available, without describing its terms, this disclosure is not required. These final regulations include sample lan- guage that can be used to satisfy this re- quirement. The burden associated with this re- quirement was previously approved under OMB control number 0938–0819. We are not seeking reinstatement of the in- formation collection request under the aforementioned OMB control number, since we believe that much of the infor- mation required is likely already provided as a result of state and local requirements or the usual business practices of group health plans and group health insurance issuers in connection with the offer and promotion of health care coverage. In addition, the sample disclosures would enable group health plans to make any necessary modifications with minimal ef- fort. H.Special Analyses — Department of the Treasury For purposes of the Department of the Treasury it has been determined that this final rule is not a significant regulatory ac- tion as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Pro- cedure Act (5 U.S.C. chapter 5) does not apply to these final regulations, and, be- cause these final regulations do not im- pose a collection of information on small entities, a Regulatory Flexibility Analy- sis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the notice of 2013–27 I.R.B.19July 1, 2013 proposed rulemaking preceding this final rule was submitted to the Small Business Administration for comment on its impact on small business. I.Congressional Review Act These final regulations are subject to the Congressional Review Act provisions of the Small Business Regulatory Enforce- ment Fairness Act of 1996 (5 U.S.C. 801 et seq.) and will be transmitted to Con- gress and the Comptroller General for re- view. These regulations, do not constitute a “major rule,” as that term is defined in 5 U.S.C. 804 because they are unlikely to result in (1) an annual effect on the econ- omy of $100 million or more; (2) a major increase in costs or prices for consumers, individual industries, or federal, State or local government agencies, or geographic regions; or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to com- pete with foreign-based enterprises in do- mestic or export markets. J.Unfunded Mandates Reform Act For purposes of the Unfunded Man- dates Reform Act of 1995 (Pub. L. 104–4), as well as Executive Order 12875, these fi- nal regulations do not include any federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector, of $100 million or more, adjusted for inflation. 64 K.Federalism Statement — Department of Labor and Department of Health and Human Services Executive Order 13132 outlines fun- damental principles of federalism, and requires the adherence to specific criteria by federal agencies in the process of their formulation and implementation of poli- cies that have “substantial direct effects” on the states, the relationship between the national government and states, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have these federalism implications must consult with state and local officials, and describe the extentof their consulta- tion and the nature of the concerns of state and local officials in the preamble to the regulation. In the Departments’ view, these final regulations have federalism implications, however, in the Departments’ view, the federalism implications of these final regu- lations are substantially mitigated because, with respect to health insurance issuers, the vast majority of states have enacted laws, which meet or exceed the federal HIPAA standards prohibiting discrimination based on health factors. Therefore, the regula- tions are not likely to require substantial additional oversight of states by the De- partment of HHS. In general, through section 514, ERISA supersedes state laws to the extent that they relate to any covered employee ben- efit plan, and preserves state laws that regulate insurance, banking, or securi- ties. While ERISA prohibits states from regulating a plan as an insurance or in- vestment company or bank, HIPAA added a new preemption provision to ERISA (as well as to the PHS Act) narrowly preempting state requirements for group health insurance coverage. With respect to the HIPAA nondiscrimination provi- sions, states may continue to apply state law requirements except to the extent that the requirements prevent the application of the portability, access, and renewability requirements of HIPAA, which include HIPAA’s nondiscrimination requirements provisions. HIPAA’s Conference Re- port states that the conferees intended the narrowest preemption of state laws with regard to health insurance issuers (H.R. Conf. Rep. No. 736, 104 th Cong. 2d Session 205, 1996). State insurance laws that are more stringent than the federal requirements are unlikely to “prevent the application of” the HIPAA nondiscrimi- nation provisions, and therefore are not preempted. Accordingly, states have sig- nificant latitude to impose requirements on health insurance issuers that are more restrictive than the federal law. Guidance conveying this interpretation was published in theFederal Registeron April 8, 1997 (62 FR 16904) and on De- cember 30, 2004 (69 FR 78720), and these final regulations clarify and implement the statute’s minimum standards and do not significantly reduce the discretion given the states by the statute. HIPAA provides that the states may en- force the provisions of HIPAA as they per- tain to issuers, but that the Secretary of HHS must enforce any provisions that a state chooses not to or fails to substan- tially enforce. When exercising its respon- sibility to enforce provisions of HIPAA, HHS works cooperatively with the State for the purpose of addressing the state’s concerns and avoiding conflicts with the exercise of state authority. 65 HHS has de- veloped procedures to implement its en- forcement responsibilities, and to afford the states the maximum opportunity to en- force HIPAA’s requirements in the first in- stance. In compliance with Executive Or- der 13132’s requirement that agencies ex- amine closely any policies that may have federalism implications or limit the policy making discretion of the States, DOL and HHS have engaged in numerous efforts to consult with and work cooperatively with affected state and local officials. The Departments received a comment letter suggesting that they failed to take into account the reduction in states’ to- bacco tax revenue that would occur if the proposed regulations result in fewer people smoking. The Departments note that reduced tobacco tax revenue is one of many indirect effects of reduced smok- ing. However, the Departments believe that any lost tax revenue will be more than offset by the benefits to the pub- lic welfare that will result from reduced smoking. As the commenter stated in its letter, “[t]hrough employees’ active par- ticipation in nondiscriminatory wellness programs, sick leave, absenteeism, health plan costs, and worker’s compensation will be reduced. Needless to mention, a healthier workforce is a more sustainable workforce. Therefore, from the point of view of public health, the rule greatly contributes to the promotion of healthy lifestyle of the states’ population. If every small and large entity improves the health 64 In 2013, that threshold level is approximately $141 million. 65 This authority applies to insurance issued with respect to group health plans generally, including plans covering employees of church organizations. Thus, this discussion of federalism applies to all group health insurance coverage that is subject to the PHS Act, including those church plans that provide coverage through a health insurance issuer (but not to church plans that do not provide coverage through a health insurance issuer). July 1, 2013202013–27 I.R.B. of their employees, the overall health of the states will be improved as well.” In conclusion, throughout the process of developing these regulations, to the extent feasible withinthe specific pre- emption provisions of HIPAA, the De- partments have attempted to balance the states’ interests in regulating health plans and health insurance issuers, and the rights of those individuals that Congress in- tended to protect through the enactment of HIPAA. IV. Statutory Authority The Department of the Treasury regula- tions are adopted pursuant to the authority contained in sections 7805 and 9833 of the Code. The Department of Labor regulations are adopted pursuant to the authority con- tained in 29 U.S.C. 1027, 1059, 1135, 1161–1168, 1169, 1181–1183, 1181 note, 1185, 1185a, 1185b, 1185d, 1191, 1191a, 1191b, and 1191c;sec. 101(g), Public Law104–191, 110 Stat. 1936; sec. 401(b), Public Law 105–200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Public Law 110–343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Public Law 111–148, 124 Stat. 119, as amended by Public Law 111–152, 124 Stat. 1029; Secretary of La- bor’s Order 1–2011, 77 FR 1088 (January 9, 2012). The Department of Health and Hu- man Services regulations are adopted, with respect to 45 CFR Part 146, pur- suant to the authority contained in sec- tions 2702 through 2705, 2711 through 2723, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg–1 through 300gg–5, 300gg–11 through 300gg–23, 300gg–91, and 300gg–92) prior to the amendments made by the Affordable Care Act and sections 2701 through 2763, 2791, and 2792 of the Public Health Service Act (42 U.S.C. 300gg through 300gg–63, 300gg–91, and 300gg–92), as amended by the Affordable Care Act; with respect to 45 CFR Part 147, pursuant to the authority contained in sections 2701 through 2763, 2791, and 2792 of the PHS Act (42 U.S.C. 300gg through 300gg–63, 300gg–91, and 300gg–92), as amended by the Affordable Care Act. ***** Beth Tucker, Deputy Commissioner for Operations Support, Internal Revenue Service. Approved May 23, 2013 Mark Mazur, Assistant Secretary oftheTreasury(TaxPolicy). Signed May 15, 2013. Phyllis C. Borzi, Assistant Secretary, Employee Benefits Security Administration, Department of Labor. Dated April 25, 2013 Marilyn Tavenner, Acting Administrator, Centers for Medicare & Medicaid Services. Dated April 29, 2013 Kathleen Sebelius, Secretary, Department of Health and Human Services. DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Chapter I Accordingly, 26 CFR Part 54 is amended as follows: PART 54—PENSION EXCISE TAXES Paragraph 1. The authority citation for part 54 is amended by adding an entry for §54.9815–2705 in numerical order to read in part as follows: Authority: 26 U.S.C. 7805. *** Section 54.9815–2705 also issued un- der 26 U.S.C. 9833. Par. 2. In §54.9802–1, paragraph (f) is revised to read as follows: §54.9802–1 Prohibiting discrimination against participants and beneficiaries based on a health factor. ***** (f)Nondiscriminatory wellness pro- grams — in general. A wellness program is a program of health promotion or dis- ease prevention. Paragraphs (b)(2)(ii) and (c)(3) of this section provide exceptions to the general prohibitions against discrim- ination based on a health factor for plan provisions that vary benefits (including cost-sharing mechanisms) or the premium or contribution for similarly situated in- dividuals in connection with a wellness program that satisfies the requirements of this paragraph (f). (1)Definitions. The definitions in this paragraph (f)(1) govern in applying the provisions of this paragraph (f). (i)Reward. Except where expressly provided otherwise, references in this sec- tion to an individual obtaining a reward in- clude both obtaining a reward (such as a discount or rebate of a premium or con- tribution, a waiver of all or part of a cost- sharing mechanism, an additional benefit, or any financial or other incentive) and avoiding a penalty (such as the absence of a premium surcharge or other finan- cial or nonfinancial disincentive). Refer- ences in this section to a plan providing a reward include both providing a reward (such as a discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism, an additional benefit, or any financial or other incen- tive) and imposing a penalty (such as a sur- charge or other financial or nonfinancial disincentive). (ii)Participatory wellness programs.If none of the conditions for obtaining a re- ward under a wellness program is based on an individual satisfying a standard that is related to a health factor (or if a wellness program does not provide a reward), the wellness program is a participatory well- ness program. Examples of participatory wellness programs are: (A) A program that reimburses employ- ees for all or part of the cost for member- ship in a fitness center. (B) A diagnostic testing program that provides a reward for participation in that program and does not base any part of the reward on outcomes. (C) A program that encourages preven- tive care through the waiver of the co- payment or deductible requirement under a group health plan for the costs of, for example, prenatal care or well-baby vis- its. (Note that, with respect to non-grand- fathered plans, §54.9815–2713T requires benefits for certain preventive health ser- vices without the imposition of cost shar- ing.) 2013–27 I.R.B.21July 1, 2013 (D) A program that reimburses employ- ees for the costs of participating, or that otherwise provides a reward for participat- ing, in a smoking cessation program with- out regard to whether the employee quits smoking. (E) A program that provides a reward to employees for attending a monthly, no-cost health education seminar. (F) A program that provides a reward to employees who complete a health risk assessment regarding current health status, without any further action (educational or otherwise) required by the employee with regard to the health issues identified as part of the assessment. (See also§54.9802–3T for rules prohibiting collection of genetic information.) (iii)Health-contingent wellness pro- grams. A health-contingent wellness program is a program that requires an individual to satisfy a standard related to a health factor to obtain a reward (or requires an individual to undertake more than a similarly situated individual based on a health factor in order to obtain the same reward). A health-contingent well- ness program may bean activity-only wellness program or an outcome-based wellness program. (iv)Activity-only wellness programs. An activity-only wellness program is a type of health-contingent wellness pro- gram that requires an individual to perform or complete an activity related to a health factor in order to obtain a reward but does not require the individual to attain or maintain a specific health outcome. Ex- amples include walking, diet, or exercise programs, which some individuals may be unable to participate in or complete (or have difficulty participating in or complet- ing) due to a health factor, such as severe asthma, pregnancy, or a recent surgery. Seeparagraph (f)(3) of this section for requirements applicable to activity-only wellness programs. (v)Outcome-based wellness programs. An outcome-based wellness program is a type of health-contingent wellness pro- gram that requires an individual to attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometricscreenings) in order to obtain a reward. To comply with the rules of this paragraph (f), an outcome-based wellness program typically has two tiers. That is, for individuals who do not attain or maintain the specific health outcome, compliance with an educational program or an activity may be offered as an alter- native to achieve the same reward. This alternative pathway, however, does not mean that the overall program, which has an outcome-based component, is not an outcome-based wellness program. That is, if a measurement, test, or screening is used as part of an initial standard and indi- viduals who meet the standard are granted the reward, the program is considered an outcome-based wellness program. For example, if a wellnessprogram tests indi- viduals for specifiedmedical conditions or risk factors (includingbiometric screening such as testing for high cholesterol, high blood pressure, abnormal body mass in- dex, or high glucose level) and provides a reward to individuals identified as within a normal or healthy range for these medical conditions or risk factors, while requiring individuals who are identified as outside the normal or healthy range (or at risk) to take additional steps (such as meeting with a health coach, taking a health or fitness course, adhering toa health improvement action plan, complying with a walking or exercise program, or complying with a health care provider’s plan of care) to obtain the same reward, the program is an outcome-based wellness program.See paragraph (f)(4) of this section for re- quirements applicable to outcome-based wellness programs. (2)Requirement for participatory well- ness programs. A participatory well- ness program, as described in paragraph (f)(1)(ii) of this section, does not violate the provisions of this section only if par- ticipation in the program is made available to all similarly situated individuals, re- gardless of health status. (3)Requirements for activity-only well- ness programs. A health-contingent well- ness program that is an activity-only well- ness program, as described in paragraph (f)(1)(iv) of this section, does not violate the provisions of this section only if all of the following requirements are satisfied: (i)Frequency of opportunity to qual- ify. The program must give individuals el- igible for the program the opportunity to qualify for the reward under the program at least once per year. (ii)Size of reward. The reward for the activity-only wellness program, together with the reward for other health-contingent wellness programs with respect to the plan, must not exceed the applicable percentage (as defined in paragraph (f)(5) of this sec- tion) of the total cost of employee-only coverage under the plan. However, if, in addition to employees, any class of depen- dents (such as spouses, or spouses and de- pendent children) may participate in the wellness program, the reward must not ex- ceed the applicable percentage of the total cost of the coverage in which an employee and any dependents are enrolled. For pur- poses of this paragraph (f)(3)(ii), the cost of coverage is determined based on the to- tal amount of employer and employee con- tributions towards the cost of coverage for the benefit package under which the em- ployee is (or the employee and any depen- dents are) receiving coverage. (iii)Reasonable design. The program must be reasonably designed to promote health or prevent disease. A program sat- isfies this standard if it has a reasonable chance of improving the health of, or pre- venting disease in, participating individu- als, and it is not overly burdensome, is not a subterfuge for discriminating based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease. This determination is based on all the relevant facts and circum- stances. (iv)Uniform availability and reason- able alternative standards.Thefullre- ward under the activity-only wellness pro- gram must be available to all similarly sit- uated individuals. (A) Under this paragraph (f)(3)(iv), a reward under an activity-only wellness program is not available to all similarly situated individuals for a period unless the program meets both of the following requirements: (1) The program allows a reasonable al- ternative standard (or waiver of the other- wise applicable standard) for obtaining the reward for any individual for whom, for that period, it is unreasonably difficult due to a medical condition to satisfy the other- wise applicable standard; and (2) The program allows a reasonable al- ternative standard (or waiver of the other- wise applicable standard) for obtaining the reward for any individual for whom, for that period, it is medically inadvisable to attempt to satisfy the otherwise applicable standard. July 1, 2013222013–27 I.R.B. (B) While plans and issuers are not required to determine a particular rea- sonable alternative standard in advance of an individual’s request for one, if an individual is described in either paragraph (f)(3)(iv)(A)(1)or(2)ofthissection,a reasonable alternative standard must be furnished by the plan or issuer upon the individual’s request or the condition for obtaining the reward must be waived. (C) All the facts and circumstances are taken into account in determining whether a plan or issuer has furnished a reasonable alternative standard, including but not lim- ited to the following: (1) If the reasonable alternative stan- dard is completion ofan educational pro- gram, the plan or issuer must make the ed- ucational program available or assist the employee in finding such a program (in- stead of requiring an individual to find such a program unassisted), and may not require an individual to pay for the cost of the program. (2) The time commitment required must be reasonable (for example, requiring at- tendance nightly at a one-hour class would be unreasonable). (3) If the reasonable alternative stan- dard is a diet program, the plan or issuer is not required to pay for the cost of food but must pay any membership or participa- tion fee. (4) If an individual’s personal physi- cian states that a plan standard (including, if applicable, the recommendations of the plan’s medical professional) is not med- ically appropriate for that individual, the plan or issuer must provide a reasonable al- ternative standard that accommodates the recommendations of the individual’s per- sonal physician with regard to medical ap- propriateness. Plans and issuers may im- pose standard cost sharing under the plan or coverage for medical items and services furnished pursuant to the physician’s rec- ommendations. (D) To the extent that a reasonable al- ternative standard under an activity-only wellness program is,itself, an activ- ity-only wellness program, it must comply with the requirements of this paragraph (f)(3) in the same manner as if it were an initial program standard. (Thus, for exam- ple, if a plan or issuer provides a walking program as a reasonable alternative stan- dard to a running program, individuals for whom it is unreasonably difficult due to a medical condition to complete the walking program (or for whom it is med- ically inadvisable to attempt to complete the walking program) must be provided a reasonable alternative standard to the walking program.) To the extent that a reasonable alternative standard under an activity-only wellness program is, itself, an outcome-based wellness program, it must comply with the requirements of paragraph (f)(4) of this section, including paragraph (f)(4)(iv)(D). (E) If reasonable under the circum- stances, a plan or issuer may seek verifi- cation, such as a statement from an indi- vidual’s personal physician, that a health factor makes it unreasonably difficult for the individual to satisfy, or medically in- advisable for the individual to attempt to satisfy, the otherwise applicable stan- dard of an activity-only wellness program. Plans and issuers may seek verification with respect to requests for a reasonable alternative standard for which it is reason- able to determine that medical judgment is required to evaluate the validity of the request. (v)Notice of availability of reasonable alternative standard. The plan or issuer must disclose in all plan materials describ- ing the terms of an activity-only wellness program the availability of a reasonable alternative standard to qualify for the re- ward (and, if applicable, the possibility of waiver of the otherwise applicable stan- dard), including contact information for obtaining a reasonable alternative standard and a statement that recommendations of an individual’s personal physician will be accommodated. If plan materials merely mention that such a program is available, without describing itsterms, this disclo- sure is not required. Sample language is provided in paragraph (f)(6) of this section, as well as in certain examples of this sec- tion. (vi)Example. The provisions of this paragraph (f)(3) are illustrated by the fol- lowing example: Example.(i)Facts. A group health plan provides a reward to individuals who participate in a reason- able specified walking program. If it is unreason- ably difficult due to a medical condition for an indi- vidual to participate (or if it is medically inadvisable for an individual to attempt to participate), the plan will waive the walking program requirement and pro- vide the reward. All materials describing the terms of the walking program disclose the availability of the waiver. (ii) Conclusion.InthisExample, the program satisfies the requirements of paragraph (f)(3)(iii) of this section because the walking program is reason- ably designed to promote health and prevent disease. The program satisfies the requirements of paragraph (f)(3)(iv) of this section because the reward under the program is available to all similarly situated in- dividuals. It accommodates individuals for whom it is unreasonably difficult to participate in the walk- ing program due to a medical condition (or for whom it would be medically inadvisable to attempt to par- ticipate) by providing them with the reward even if they do not participate in the walking program (that is, by waiving the condition). The plan also complies with the disclosure requirement of paragraph (f)(3)(v) of this section. Thus, the plan satisfies paragraphs (f)(3)(iii), (iv), and (v) of this section. (4)Requirements for outcome-based wellness programs. A health-contingent wellness program that is an outcome-based wellness program, asdescribed in para- graph (f)(1)(v) of this section, does not violate the provisions of this section only if all of the following requirements are satisfied: (i)Frequency of opportunity to qual- ify. The program must give individuals el- igible for the program the opportunity to qualify for the reward under the program at least once per year. (ii)Size of reward. The reward for the outcome-based wellness program, to- gether with the reward for other health- contingent wellness programs with respect to the plan, must not exceed the appli- cable percentage (as defined in paragraph (f)(5) of this section) of the total cost of employee-only coverage under the plan. However, if, in addition to employees, any class of dependents (such as spouses, or spouses and dependent children) may par- ticipate in the wellness program, the re- ward must not exceed the applicable per- centage of the total cost of the coverage in which an employee and any dependents are enrolled. For purposes of this para- graph (f)(4)(ii), the cost of coverage is determined based on the total amount of employer and employee contributions to- wards the cost of coverage for the benefit package under which the employee is (or the employee and any dependents are) re- ceiving coverage. (iii)Reasonable design. The program must be reasonably designed to promote health or prevent disease. A program sat- isfies this standard if it has a reasonable chance of improving the health of, or pre- venting disease in, participating individu- als, and it is not overly burdensome, is not 2013–27 I.R.B.23July 1, 2013 a subterfuge for discriminating based on a health factor, and is not highly suspect inthemethodchosentopromotehealth or prevent disease. This determination is based on all the relevant facts and circum- stances. To ensure that an outcome-based wellness program is reasonably designed to improve health and does not act as a sub- terfuge for underwriting or reducing ben- efits based on a health factor, a reason- able alternative standard to qualify for the reward must be provided to any individ- ual who does not meet the initial standard based on a measurement, test, or screen- ing that is related to a health factor, as ex- plained in paragraph(f)(4)(iv) of this sec- tion. (iv)Uniform availability and reason- able alternative standards.Thefullre- ward under the outcome-based wellness program must be available to all similarly situated individuals. (A) Under this paragraph (f)(4)(iv), a reward under an outcome-based wellness program is not available to all similarly sit- uated individuals for a period unless the program allows a reasonable alternative standard (or waiver of the otherwise ap- plicable standard) for obtaining the reward for any individual who does not meet the initial standard based on the measurement, test, or screening, as described in this para- graph (f)(4)(iv). (B) While plans and issuers are not re- quired to determine a particular reasonable alternative standard in advance of an indi- vidual’s request for one, if an individual is described in paragraph (f)(4)(iv)(A) of this section, a reasonable alternative stan- dard must be furnished by the plan or is- suer upon the individual’s request or the condition for obtaining the reward must be waived. (C) All the facts and circumstances are taken into account in determining whether a plan or issuer has furnished a reasonable alternative standard, including but not lim- ited to the following: (1) If the reasonable alternative stan- dard is completion ofan educational pro- gram, the plan or issuer must make the ed- ucational program available or assist the employee in finding such a program (in- stead of requiring an individual to find such a program unassisted), and may not require an individual to pay for the cost of the program. (2) The time commitment required must be reasonable (for example, requiring at- tendance nightly at a one-hour class would be unreasonable). (3) If the reasonable alternative stan- dard is a diet program, the plan or issuer is not required to pay for the cost of food but must pay any membership or participa- tion fee. (4) If an individual’s personal physi- cian states that a plan standard (including, if applicable, the recommendations of the plan’s medical professional) is not med- ically appropriate forthat individual, the plan or issuer must provide a reasonable al- ternative standard that accommodates the recommendations of the individual’s per- sonal physician with regard to medical ap- propriateness. Plans and issuers may im- pose standard cost sharing under the plan or coverage for medical items and services furnished pursuant to the physician’s rec- ommendations. (D) To the extent that a reasonable alter- native standard under an outcome-based wellness program is, itself, an activ- ity-only wellness program, it must comply with the requirements of paragraph (f)(3) of this section in the same manner as if it were an initial program standard. To the extent that a reasonable alternative stan- dard under an outcome-based wellness program is, itself, another outcome-based wellness program, it must comply with the requirements of this paragraph (f)(4), subject to the following special rules: (1) The reasonable alternative standard cannot be a requirement to meet a differ- ent level of the same standard without ad- ditional time to comply that takes into ac- count the individual’s circumstances. For example, if the initial standard is to achieve a BMI less than 30, the reasonable alterna- tive standard cannot be to achieve a BMI less than 31 on that same date. However, if the initial standard is to achieve a BMI less than 30, a reasonable alternative stan- dard for the individual could be to reduce the individual’s BMI by a small amount or small percentage, over a realistic period of time, such as within a year. (2) An individual must be given the op- portunity to comply with the recommenda- tions of the individual’s personal physician as a second reasonable alternative standard to meeting the reasonable alternative stan- dard defined by the plan or issuer, but only if the physician joins in the request. The individual can make a request to involve a personal physician’s recommendations at any time and the personal physician can adjust the physician’s recommendations at any time, consistent with medical appro- priateness. (E) It is not reasonable to seek verifi- cation, such as a statement from an indi- vidual’s personal physician, under an out- come-based wellness program that a health factor makes it unreasonably difficult for the individual to satisfy, or medically in- advisable for the individual to attempt to satisfy, the otherwise applicable standard as a condition of providing a reasonable al- ternative to the initial standard. However, if a plan or issuer provides an alternative standard to the otherwise applicable mea- surement, test, or screening that involves an activity that is related to a health fac- tor, then the rules of paragraph (f)(3) of this section for activity-only wellness pro- grams apply to that component of the well- ness program and the plan or issuer may, if reasonable under the circumstances, seek verification that it is unreasonably diffi- cult due to a medical condition for an indi- vidual to perform or complete the activity (or it is medically inadvisable to attempt to perform or complete the activity). (For ex- ample, if an outcome-based wellness pro- gram requires participants to maintain a certain healthy weight and provides a diet and exercise program for individuals who do not meet the targeted weight, a plan or issuer may seek verification, as described in paragraph (f)(3)(iv)(D) of this section, if reasonable under the circumstances, that a second reasonable alternative standard is needed for certain individuals because, for those individuals, it would be unreason- ably difficult due toa medical condition to comply, or medically inadvisable to at- tempt to comply, with the diet and exercise program, due to a medical condition.) (v)Notice of availability of reasonable alternative standard. The plan or issuer must disclose in all plan materials describ- ing the terms of an outcome-based well- ness program, and in any disclosure that an individual did not satisfy an initial out- come-based standard, the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the pos- sibility of waiver of the otherwise applica- ble standard), including contact informa- tion for obtaining a reasonable alternative standard and a statement that recommen- July 1, 2013242013–27 I.R.B. dations of an individual’s personal physi- cian will be accommodated. If plan mate- rials merely mention that such a program is available, without describing its terms, this disclosure is not required. Sample lan- guage is provided in paragraph (f)(6) of this section, as well as in certain examples of this section. (vi)Examples. The rules of this para- graph (f)(4) are illustrated by the following examples: Example 1 — Cholesterol screening with rea- sonable alternative standard to work with personal physician .(i)Facts. A group health plan offers a reward to participantswho achieve a count un- der 200 on a total cholesterol test. If a participant does not achieve the targeted cholesterol count, the plan allows the participant to develop an alterna- tive cholesterol action plan in conjunction with the participant’s personal physician that may include recommendations for medication and additional screening. The plan allows the physician to modify the standards, as medically necessary, over the year. (For example, if a participant develops asthma or depression, requires surgery and convalescence, or some other medical condition or consideration makes completion of the original action plan inadvisable or unreasonably difficult, the physician may modify the original action plan.) All plan materials describ- ing the terms of the program include the following statement: “Your health plan wants to help you take charge of your health. Rewards are available to all employees who participate in our Cholesterol Aware- ness Wellness Program. If your total cholesterol count is under 200, you will receive the reward. If not, you will still have an opportunity to qualify for the reward. We will work with you and your doctor to find a Health Smart program that is right for you.” In addition, when any individual participant receives notification that his or her cholesterol count is 200 or higher, the notification includes the following statement: “Your plan offers a Health Smart program under which we will work with you and your doctor to try to lower your cholesterol. If you complete this program, you will qualify for a reward. Please contact us at [contact information] to get started.” (ii) Conclusion.InthisExample 1, the program is an outcome-based wellness program because the initial standard requires an individual to attain or maintain a specific health outcome (a certain choles- terol level) to obtain a reward. The program satisfies the requirements of paragraph (f)(4)(iii) of this sec- tion because the cholesterol program is reasonably designed to promote health and prevent disease. The program satisfies the requirements of paragraph (f)(4)(iv) of this section because it makes available to all participants who do not meet the cholesterol standard a reasonable alternative standard to qualify for the reward. Lastly, the plan also discloses in all materials describing the terms of the program and in any disclosure that an individual did not satisfy the initial outcome-based standard the availability of a reasonable alternative standard (including contact information and the individual’s ability to involve his or her personal physician), as required by paragraph (f)(4)(v) of this section. Thus, the program satisfies the requirements of paragraphs (f)(4)(iii), (iv), and (v) of this section. Example 2 — Cholesterol screening with plan al- ternative and no opportunity for personal physician involvement .(i)Facts. Same facts asExample 1, except that the wellness program’s physician or nurse practitioner (rather than the individual’s personal physician) determines the alternative cholesterol ac- tion plan. The plan does not provide an opportunity for a participant’s personal physician to modify the action plan if it is not medically appropriate for that individual. (ii) Conclusion.InthisExample 2,thewellness program does not satisfy the requirements of para- graph (f)(4)(iii) of this section because the program does not accommodate the recommendations of the participant’s personal physician with regard to med- ical appropriateness, as required under paragraph (f)(4)(iv)(C)( 3) of this section. Thus, the program is not reasonably designed under paragraph (f)(4)(iii) of this section and is not available to all similarly situated individuals under paragraph (f)(4)(iv) of this section. The notice also does not provide all the content required under paragraph (f)(4)(v) of this section. Example 3 — Cholesterol screening with plan al- ternative that can be modified by personal physician . (i) Facts. Same facts asExample 2,exceptthatifa participant’s personal physician disagrees with any part of the action plan, the personal physician may modify the action plan at any time, and the plan dis- closes this to participants. (ii) Conclusion.InthisExample 3,thewellness program satisfies the requirements of paragraph (f)(4)(iii) of this section because the participant’s personal physician may modify the action plan deter- mined by the wellness program’s physician or nurse practitioner at any time if the physician states that the recommendations are not medically appropriate, as required under paragraph (f)(4)(iv)(C)( 3)ofthissec- tion. Thus, the program is reasonably designed under paragraph (f)(4)(iii) of this section and is available to all similarly situated individuals under paragraph (f)(4)(iv) of this section. The notice, which includes a statement that recommendations of an individual’s personal physician will be accommodated, also com- plies with paragraph (f)(4)(v) of this section. Example 4 — BMI screening with walking pro- gram alternative .(i)Facts. A group health plan will provide a reward to participants who have a body mass index (BMI) that is 26 or lower, determined shortly before the beginning of the year. Any par- ticipant who does not meet the target BMI is given the same discount if the participant complies with an exercise program that consists of walking 150 min- utes a week. Any participant for whom it is unrea- sonably difficult due to a medical condition to com- ply with this walking program (and any participant for whom it is medically inadvisable to attempt to comply with the walking program) during the year is given the same discount if the participant satisfies an alternative standard that is reasonable taking into con- sideration the participant’s medical situation, is not unreasonably burdensome or impractical to comply with, and is otherwise reasonably designed based on all the relevant facts and circumstances. All plan ma- terials describing the terms of the wellness program include the following statement: “Fitness is Easy! Start Walking! Your health plan cares about your health. If you are considered overweight because you have a BMI of over 26, our Start Walking program will help you lose weight and feel better. We will help you enroll. (**If your doctor says that walk- ing isn’t right for you, that’s okay too. We will work with you (and, if you wish, your own doctor) to de- velop a wellness program that is.)” Participant Eis unable to achieve a BMI that is 26 or lower within the plan’s timeframe and receives notification that com- plies with paragraph (f)(4)(v) of this section. Never- theless, it is unreasonably difficult due to a medical condition for Eto comply with the walking program. Eproposes a program based on the recommendations of E’s physician. The plan agrees to make the same discount available to Ethat is available to other par- ticipants in the BMI program or the alternative walk- ing program, but only if Eactually follows the physi- cian’s recommendations. (ii) Conclusion.InthisExample 4, the program is an outcome-based wellness program because the ini- tial standard requires an individual to attain or main- tain a specific health outcome (a certain BMI level) to obtain a reward. The program satisfies the require- ments of paragraph (f)(4)(iii) of this section because it is reasonably designed to promote health and pre- vent disease. The program also satisfies the require- ments of paragraph (f)(4)(iv) of this section because it makes available to all individuals who do not satisfy the BMI standard a reasonable alternative standard to qualify for the reward (in this case, a walking program that is not unreasonably burdensome or impractical for individuals to comply with and that is otherwise reasonably designed based on all the relevant facts and circumstances). In addition, the walking pro- gram is, itself, an activity-only standard and the plan complies with the requirements of paragraph (f)(3) of this section (including the requirement of paragraph (f)(3)(iv) that, if there are individuals for whom it is unreasonably difficult due to a medical condition to comply, or for whom it is medically inadvisable to at- tempt to comply, with the walking program, the plan provide a reasonable alternative to those individuals). Moreover, the plan satisfies the requirements of para- graph (f)(4)(v) of this section because it discloses, in all materials describing the terms of the program and in any disclosure that an individual did not satisfy the initial outcome-based standard, the availability of a reasonable alternative standard (including contact in- formation and the individual’s option to involve his or her personal physician) to qualify for the reward or the possibility of waiver of the otherwise applica- ble standard. Thus, the program satisfies the require- ments of paragraphs (f)(4)(iii), (iv), and (v) of this section. Example 5 — BMI screening with alternatives available to either lower BMI or meet personal physi- cian’s recommendations . (i) Facts. Same facts as Example 4except that, with respect to any partici- pant who does not meet the target BMI, instead of a walking program, the participant is expected to re- duce BMI by one point. At any point during the year upon request, any individual can obtain a second reasonable alternative standard, which is compliance with the recommendations of the participant’s per- sonal physician regarding weight, diet, and exercise as set forth in a treatment plan that the physician rec- ommends or to which the physician agrees. The par- ticipant’s personal physician is permitted to change or adjust the treatment plan at any time and the option of 2013–27 I.R.B.25July 1, 2013 following the participant’s personal physician’s rec- ommendations is clearly disclosed. (ii) Conclusion.InthisExample 5, the reasonable alternative standard to qualify for the reward (the al- ternative BMI standard requiring a one-point reduc- tion) does not make the program unreasonable under paragraph (f)(4)(iii) or (iv) of this section because the program complies with paragraph (f)(4)(iv)(C)( 4)of this section by allowing a second reasonable alterna- tive standard to qualify for the reward (compliance with the recommendations of the participant’s per- sonal physician, which can be changed or adjusted at any time). Accordingly, the program continues to satisfy the applicable requirements of paragraph (f) of this section. Example 6 — Tobacco use surcharge with smok- ing cessation program alternative .(i)Facts.Incon- junction with an annual open enrollment period, a group health plan provides a premium differential based on tobacco use, determined using a health risk assessment. The following statement is included in all plan materials describing the tobacco premium differential: “Stop smoking today! We can help! If you are a smoker, we offer a smoking cessation pro- gram. If you complete theprogram, you can avoid this surcharge.” The plan accommodates participants who smoke by facilitating their enrollment in a smok- ing cessation program that requires participation at a time and place that are notunreasonably burden- some or impractical for participants, and that is oth- erwise reasonably designed based on all the relevant facts and circumstances, and discloses contact infor- mation and the individual’s option to involve his or her personal physician. The plan pays for the cost of participation in the smoking cessation program. Any participant can avoid the surcharge for the plan year by participating in the program, regardless of whether the participant stops smoking, but the plan can require a participant who wants to avoid the surcharge in a subsequent year to complete the smoking cessation program again. (ii) Conclusion.InthisExample 6, the premium differential satisfies the requirements of paragraphs (f)(4)(iii), (iv), and (v). The program is an outcome- based wellness program because the initial standard for obtaining a reward is dependent on the results of a health risk assessment (a measurement, test, or screening). The program is reasonably designed un- der paragraph (f)(4)(iii) because the plan provides a reasonable alternative standard (as required under paragraph (f)(4)(iv) of this section) to qualify for the reward to all tobacco users (a smoking cessation pro- gram). The plan discloses, in all materials describing the terms of the program, the availability of the rea- sonable alternative standard (including contact infor- mation and the individual’s option to involve his or her personal physician). Thus, the program satisfies the requirements of paragraphs (f)(4)(iii), (iv), and (v) of this section. Example 7 — Tobacco use surcharge with alter- native program requiring actual cessation .(i)Facts. Same facts as Example 6, except the plan does not provide participant Fwith the reward in subsequent years unless Factually stops smoking after participat- ing in the tobacco cessation program. (ii) Conclusion.InthisExample 7, the program is not reasonably designed under paragraph (f)(4)(iii) of this section and does not provide a reasonable alterna- tive standard as required under paragraph (f)(4)(iv) of this section. The plan cannot cease to provide a rea- sonable alternative standard merely because the par- ticipant did not stop smoking after participating in a smoking cessation program. The plan must continue to offer a reasonable alternative standard whether it is the same or different (such as a new recommen- dation from F’s personal physician or a new nicotine replacement therapy). Example 8 — Tobacco use surcharge with smok- ing cessation program alternative that is not reason- able .(i)Facts. Same facts asExample 6,exceptthe plan does not facilitate participant F’s enrollment in a smoking cessation program. Instead the plan advises Fto find a program, pay for it, and provide a certifi- cate of completion to the plan. (ii) Conclusion.InthisExample 8, the require- ment for Fto find and pay forF’s own smoking ces- sation program means that the alternative program is not reasonable. Accordingly, the plan has not offered a reasonable alternative standard that complies with paragraphs (f)(4)(iii) and (iv) of this section and the program fails to satisfy the requirements of paragraph (f)ofthissection. (5)Applicable percentage—(i) For pur- poses of this paragraph (f), the applicable percentage is 30 percent, except that the applicable percentage is increased by an additional 20 percentage points (to 50 per- cent) to the extent that the additional per- centage is in connection with a program designed to prevent or reduce tobacco use. (ii) The provisions of this paragraph (f)(5) are illustrated by the following ex- amples: Example 1.(i)Facts. An employer sponsors a group health plan. The annual premium for employee-only coverage is $6,000 (of which the employer pays $4,500 per year and the employee pays $1,500 per year). The plan offers employees a health-contingent wellness program with sev- eral components, focusedon exercise, blood sugar, weight, cholesterol, and blood pressure. The reward for compliance is an annual premium rebate of $600. (ii) Conclusion.InthisExample 1, the reward for the wellness program, $600, does not exceed the applicable percentage of 30 percent of the total annual cost of employee-only coverage, $1,800. ($6,000 x 30% = $1,800.) Example 2.(i)Facts. Same facts asExample 1, except the wellness program is exclusively a tobacco prevention program. Employees who have used to- bacco in the last 12 months and who are not enrolled in the plan’s tobacco cessation program are charged a $1,000 premium surcharge (in addition to their em- ployee contribution towards the coverage). (Those who participate in the plan’s tobacco cessation pro- gram are not assessed the $1,000 surcharge.) (ii) Conclusion.InthisExample 2, the reward for the wellness program (absence of a $1,000 sur- charge), does not exceed the applicable percentage of 50 percent of the total annual cost of employee-only coverage, $3,000. ($6,000 x 50% = $3,000.) Example 3.(i)Facts. Same facts asExample 1, except that, in addition to the $600 reward for com- pliance with the health-contingent wellness program, the plan also imposes an additional $2,000 tobacco premium surcharge on employees who have used to- bacco in the last 12 months and who are not enrolled in the plan’s tobacco cessation program. (Those who participate in the plan’s tobacco cessation program are not assessed the $2,000 surcharge.) (ii) Conclusion.InthisExample 3, the total of all rewards (including absence of a surcharge for par- ticipating in the tobaccoprogram) is $2,600 ($600 + $2,000 = $2,600), which does not exceed the applica- ble percentage of 50 percent of the total annual cost of employee-only coverage ($3,000); and, tested sep- arately, the $600 reward for the wellness program un- related to tobacco use does not exceed the applicable percentage of 30 percent of the total annual cost of employee-only coverage ($1,800). Example 4.(i)Facts. An employer sponsors a group health plan. The total annual premium for employee-only coverage (including both employer and employee contributions towards the coverage) is $5,000. The plan provides a $250 reward to employ- ees who complete a health risk assessment, without regard to the health issues identified as part of the assessment. The plan also offers a Healthy Heart program, which is a health-contingent wellness pro- gram, with an opportunity to earn a $1,500 reward. (ii) Conclusion.InthisExample 4, even though the total reward for all wellness programs under the plan is $1,750 ($250 + $1,500 = $1,750, which ex- ceeds the applicable percentage of 30 percent of the cost of the annual premium for employee-only cov- erage ($5,000 x 30% = $1,500)), only the reward of- fered for compliance with the health-contingent well- ness program ($1,500) is taken into account in deter- mining whether the rules of this paragraph (f)(5) are met. (The $250 reward is offered in connection with a participatory wellness program and therefore is not taken into account.) Accordingly, the health-contin- gent wellness program offers a reward that does not exceed the applicable percentage of 30 percent of the total annual cost of employee-only coverage. (6)Sample language. The following language, or substantially similar lan- guage, can be used to satisfy the notice requirement of paragraphs (f)(3)(v) or (f)(4)(v) of this section: “Your health plan is committed to helping you achieve your best health. Rewardsfor participating in a wellness program are available to all em- ployees. If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert con- tact information] and we will work with you (and, if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status.” ***** 3. Section 54.9815–2705 is added to read as follows: July 1, 2013262013–27 I.R.B. §54.9815–2705 Prohibiting discrimination againstparticipants and beneficiaries based on a health factor. (a)In general. A group health plan and a health insurance issuer offering group health insurance coverage must comply with the requirements of §54.9802–1. (b)Applicability date. This section is applicable to group health plans and health insurance issuers offering group health in- surance coverage for plan years beginning on or after January 1, 2014. (Filed by the Office of the Federal Register on May 29, 2013, 11:15 a.m., and published in the issue of the Federal Register for June 3, 2013, 78 FR 33158) 2013–27 I.R.B.27July 1, 2013 Part III. Administrative, Procedural, and Miscellaneous Rev. Proc. 2013–28 SECTION 1. PURPOSE This revenue procedure provides is- suers of qualified mortgage bonds, as defined in section 143(a) of the Internal Revenue Code, and issuers of mortgage credit certificates, asdefined in section 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. SECTION 2. BACKGROUND .01 Section 103(a) provides that, except as provided in section 103(b), gross in- come does not include interest on any state or local bond. Section 103(b)(1) provides that section 103(a) shall not apply to any private activity bond that is not a “qualified bond” within the meaning of section 141. Section 141(e) provides, in part, that the term “qualified bond” means any private activity bond if such bond (1) is a quali- fied mortgage bond under section 143, (2) meets the volume cap requirements under section 146, and (3) meets the applicable requirements under section 147. .02 Section 143(a)(1) provides that the term “qualified mortgage bond” means a bond that is issued as part of a qualified mortgage issue. Section 143(a)(2)(A) pro- vides that the term “qualified mortgage is- sue” means an issue of one or more bonds by a state or political subdivision thereof, but only if: (i) all proceeds of the issue (ex- clusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences; (ii) the issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7) of sec- tion 143; (iii) the issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of principal on mortgage financing provided by the issue are used by the close of the first semiannual period be- ginning after the date the prepayment (or complete repayment) is received to redeem bonds that are part of the issue. Average Area Purchase Price .03 Section 143(e)(1) provides that an issue of bonds meets the purchase price requirements of section 143(e) if the ac- quisition cost of each residence financed by the issue does not exceed 90 percent of the average area purchase price applicable to such residence. Section 143(e)(5) pro- vides that, in the case of a targeted area res- idence (as defined in section 143(j)), sec- tion 143(e)(1) shall be applied by substi- tuting 110 percent for 90 percent. .04 Section 143(e)(2) provides that the term “average area purchase price” means, with respect to any residence, the average purchase price of single-family residences (in the statistical area in which the resi- dence is located) that were purchased dur- ing the most recent 12-month period for which sufficient statistical information is available. Under sections 143(e)(3) and (4), respectively, separate determinations are to be made for new and existing resi- dences, and for two-, three-, and four-fam- ily residences. .05 Section 143(e)(2) provides that the determination of theaverage area purchase price for a statistical area shall be made as of the date on which the commitment to provide the financing is made or, if earlier, the date of the purchase of the residence. .06 Section 143(k)(2)(A) provides that the term “statistical area” means (i) a metropolitan statistical area (MSA), and (ii) any county (or the portion thereof) that is not within an MSA. Section 143(k)(2)(C) further provides that if suf- ficient recent statistical information with respect to a county (or portion thereof) is unavailable, the Secretary may sub- stitute another area for which there is sufficient recent statistical information for such county (or portion thereof). In the case of any portion of a State which is not within a county, section 143(k)(2)(D) provides that the Secretary may designate as a county any area that is the equivalent of a county. Section 6a.103A–1(b)(4)(i) of the Temporary Income Tax Regulations (issued under section 103A of the Internal Revenue Code of 1954, the predecessor of section 143) provides that the term “State” includes a possession of the United States and the District of Columbia. .07 Section 6a.103A–2(f)(5)(i) pro- vides that an issuer may rely upon the aver- age area purchase price safe harbors pub- lished by the Department of the Treasury for the statistical area in which a residence is located. Section 6a.103A–2(f)(5)(i) further provides that an issuer may use an average area purchase price limitation different from the published safe harbor if the issuer has more accurate and compre- hensive data for the statistical area. Qualified Mortgage Credit Certificate Program .08 Section 25(c) permits a state or political subdivision to establish a quali- fied mortgage credit certificate program. In general, a qualified mortgage credit certificate program is a program under which the issuing authority elects not to issue an amount of private activity bonds that it may otherwise issue during the calendar year under section 146, and in their place, issues mortgage credit certifi- cates to taxpayers in connection with the acquisition of their principal residences. Section 25(a)(1) provides, in general, that the holder of a mortgage credit certificate may claim a federal income tax credit equal to the product of the credit rate specified in the certificate and the interest paid or accrued during the tax year on the remaining principal of the indebtedness incurred to acquire the residence. Section 25(c)(2)(A)(iii)(III) generally provides that residences acquired in connection with the issuance of mortgage credit cer- tificates must meet the purchase price requirements of section 143(e). Income Limitations for Qualified Mortgage Bonds and Mortgage Credit Certificates .09 Section 143(f) imposes limitations on the income of mortgagors for whom financing may be provided by qualified mortgage bonds. In addition, section 25(c)(2)(A)(iii)(IV) provides that holders of mortgage credit certificates must meet the income requirement of section 143(f). Generally, under sections 143(f)(1) and 25(c)(2)(A)(iii)(IV), the income require- ment is met only if all owner-financing under a qualified mortgage bond and all mortgage credit certificates issued under a July 1, 2013282013–27 I.R.B. qualified mortgage credit certificate pro- gram are provided to mortgagors whose family income is 115 percent or less of the applicable median family income. Section 143(f)(5), however, generally provides for an upward adjustment to the percent- age limitation in high housing cost areas. High housing cost areas are defined in section 143(f)(5)(C) as any statistical area for which the housing cost/income ratio is greater than 1.2. .10 Under section 143(f)(5)(D), the housing cost/income ratio with respect to any statistical area is determined by divid- ing (a) the applicable housing price ratio for such area by (b) the ratio that the area median gross income for such area bears to the median gross income for the United States. The applicable housing price ratio is the new housing price ratio (new hous- ing average area purchase price divided by the new housing average purchase price for the United States) or the existing hous- ing price ratio (existing housing average area purchase price divided by the existing housing average purchase price for the United States), whichever results in the housing cost/income ratio being closer to 1. Average Area and Nationwide Purchase Price Limitations .11 Average area purchase price safe harbors for each state, the District of Co- lumbia, Puerto Rico, the Northern Mari- ana Islands, American Samoa, the Virgin Islands, and Guam were last published in Rev. Proc. 2012–25, 2012–20 I.R.B. 915. .12 The nationwideaverage purchase price limitation was last published in section 4.02 of Rev. Proc. 2012–25. Guidance with respect to the United States and area median grossincome figures that are to be used in computing the housing cost/income ratio described in section 143(f)(5) was last published in Rev. Proc. 2013–27, 2013–24 I.R.B. 1243. .13 This revenue procedure uses FHA loan limits for a given statistical area to calculate the average area purchase price safe harbor for that area. FHA sets lim- its on the dollar value of loans it will in- sure based on median home prices and conforming loan limits established by the Federal Home Loan Mortgage Corpora- tion. In particular, FHA sets an area’s loan limit at 95 percent of the median home sales price for the area, subject to certain floors and caps measured against conform- ing loan limits. .14 To calculate the average area pur- chase price safe harbors in this revenue procedure, the FHAloan limits are ad- justed to take into account the differences between average and median purchase prices. Because FHA loan limits do not differentiate between new and existing residences, this revenue procedure con- tains a single average area purchase price safe harbor for both new and existing residences in a statistical area. The Trea- sury Department and the Internal Revenue Service have determined that FHA loan limits provide a reasonable basis for de- termining average area purchase price safe harbors. If the Treasury Department and the Internal Revenue Service become aware of other sources of average purchase price data, including data that differentiate between new and existing residences, con- sideration will be given as to whether such data provide a more accurate method for calculating average area purchase price safe harbors. .15 The average area purchase price safe harbors listed in section 4.01 of this revenue procedure are based on FHA loan limits released December 06, 2012. FHA loan limits are available for statistical ar- eas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. See section 3.03 of this revenue procedure with respect to FHA loan lim- its revised after December 06, 2012. .16 OMB Bulletin No. 03–04, dated and effective June 6, 2003, revised the def- initions of the nation’s metropolitan areas and recognized 49 new metropolitan sta- tistical areas. The OMB bulletin no longer includes primary metropolitan statistical areas. SECTION 3. APPLICATION Average Area Purchase Price Safe Harbors .01 Average area purchase price safe harbors for statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam are set forth in section 4.01 of this revenue procedure. Average area purchase price safe harbors are provided for single-family and two to four-family residences. For each type of residence,section 4.01 of this revenue procedure contains a single safe harbor that may be used for both new and existing residences. Issuers of qualified mortgage bonds and issuers of mortgage credit certificates may rely on these safe harbors to satisfy the requirements of sec- tions 143(e) and (f). Section 4.01 of this revenueprocedureprovidessafeharbors for MSAs and for certain counties and county equivalents. If no purchase price safe harbor is available for a statistical area, the safe harbor for “ALL OTHER AREAS” may be used for that statistical area. .02IfaresidenceisinanMSA,thesafe harbor applicable to it is the limitation of that MSA. If an MSA falls in more than one state, the MSA is listed in section 4.01 of this revenue procedure under each state. .03 If the FHA revises the FHA loan limit for any statistical area after Decem- ber 06, 2012, an issuer of qualified mort- gage bonds or mortgage credit certificates may use the revised FHA loan limit for that statistical area to compute (as provided in the next sentence) a revised average area purchase price safe harbor for the statisti- cal area provided that the issuer maintains records evidencing the revised FHA loan limit. The revised average area purchase price safe harbor for that statistical area is computed by dividing the revised FHA loan limit by .975. .04 If, pursuant to section 6a.103A–2(f)(5)(i), an issuer uses more accurate and comprehensive data to determine the average area purchase price for a statistical area, the issuer must make separate average area purchase price determinations for new and existing resi- dences. Moreover, when computing the average area purchase price for a statistical area that is an MSA, as defined in OMB Bulletin No. 03–04, the issuer must make the computation for the entire applicable MSA. When computing the average area purchase price for a statistical area that is not an MSA, the issuer must make the computation for the entire statistical area and may not combine statistical areas. Thus, for example, the issuer may not combine two or more counties. .05 If an issuer receives a ruling permit- ting it to rely on an average area purchase price limitation that is higher than the applicable safe harbor in this revenue procedure, the issuer may rely on that 2013–27 I.R.B.29July 1, 2013 higher limitation for the purpose of satis- fying the requirements of section 143(e) and (f) for bonds sold, and mortgage credit certificates issued, not more than 30 months following the termination date of the12-monthperiodusedbytheissuerto compute the limitation. Nationwide Average Purchase Price .06 Section 4.02 of this revenue proce- dure sets forth a single nationwide average purchase price for purposes of computing the housing cost/income ratio under sec- tion 143(f)(5). .07 Issuers must use the nationwide av- erage purchase price set forth in section 4.02 of this revenue procedure when com- puting the housing cost/income ratio un- der section 143(f)(5) regardless of whether they are relying on the average area pur- chase price safe harbors contained in this revenue procedure or using more accurate and comprehensive data to determine av- erage area purchase prices for new and ex- isting residences for a statistical area that are different from the published safe har- bors in this revenue procedure. .08 If, pursuant to section 6.02 of this revenue procedure, an issuer relies on the average area purchase price safe harbors contained in Rev. Proc. 2012–25, the is- suer must use the nationwide average pur- chase price set forth in section 4.02 of Rev. Proc. 2012–25 in computing the housing cost/income ratio under section 143(f)(5). Likewise, if, pursuant to section 6.05 of this revenue procedure, an issuer relies on the nationwide average purchase price published in Rev. Proc. 2012–25, the is- suer may not rely on the average area pur- chase price safe harbors published in this revenue procedure. SECTION 4. AVERAGE AREA AND NATIONWIDE AVERAGE PURCHASE PRICES .01 Average area purchase prices for single-family and two to four-family res- idences in MSAs, and for certain counties and county equivalents are set forth below. The safe harbor for “ALL OTHER AR- EAS” (found at the end of the table below) may be used for a statistical area that is not listed below. 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit ALEUTIANS WESTAK $389,231$498,256$602,308$748,513 ANCHORAGEAK $364,462$466,564$563,949$700,872 BRISTOL BAYAK $300,769$385,026$465,385$578,410 DENALIAK $324,359$415,231$501,897$623,744 DILLINGHAMAK $341,026$436,564$527,692$655,795 FAIRBANKS NORTHAK $324,359$415,231$501,897$623,744 HAINESAK $291,333$372,923$450,821$560,256 JUNEAUAK $408,974$523,538$632,872$786,513 KETCHIKAN GATEWAK $330,256$422,769$511,026$635,128 KODIAK ISLANDAK $351,487$449,949$543,897$675,949 MATANUSKA-SUSITAK $364,462$466,564$563,949$700,872 NOMEAK $281,897$360,872$436,205$542,103 NORTH SLOPEAK $334,974$428,821$518,359$644,154 PETERSBURG CENSAK $334,974$428,821$518,359$644,154 SITKAAK $442,308$566,205$684,462$850,615 VALDEZ-CORDOVAAK $296,051$378,974$458,103$569,333 YAKUTAT CITYAK $423,436$542,051$655,231$814,308 BALDWINAL $292,308$374,205$452,308$562,103 RUSSELLAL $297,231$380,513$459,949$571,590 APACHEAZ $288,462$369,282$446,359$554,718 COCONINOAZ $461,538$590,821$714,205$887,590 GILAAZ $333,333$426,718$515,795$641,026 MARICOPAAZ $355,128$454,615$549,538$682,923 MOHAVEAZ $330,769$423,436$511,846$636,103 NAVAJOAZ $316,667$405,385$490,000$608,974 PIMAAZ $324,359$415,231$501,897$623,744 PINALAZ $355,128$454,615$549,538$682,923 YAVAPAIAZ $400,000$512,051$618,974$769,231 ALAMEDACA $748,462$958,154$1,158,205$1,439,385 CONTRA COSTACA $748,462$958,154$1,158,205$1,439,385 LOS ANGELESCA $748,462$958,154$1,158,205$1,439,385 MARINCA $748,462$958,154$1,158,205$1,439,385 MONTEREYCA $748,462$958,154$1,158,205$1,439,385 NAPACA $748,462$958,154$1,158,205$1,439,385 ORANGECA $748,462$958,154$1,158,205$1,439,385 July 1, 2013302013–27 I.R.B. 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit SAN BENITOCA $748,462$958,154$1,158,205$1,439,385 SAN FRANCISCOCA $748,462$958,154$1,158,205$1,439,385 SAN MATEOCA $748,462$958,154$1,158,205$1,439,385 SANTA BARBARACA $748,462$958,154$1,158,205$1,439,385 SANTA CLARACA $748,462$958,154$1,158,205$1,439,385 SANTA CRUZCA $748,462$958,154$1,158,205$1,439,385 VENTURACA $748,462$958,154$1,158,205$1,439,385 ALPINECA $561,538$718,872$868,923$1,079,897 AMADORCA $455,128$582,615$704,256$875,231 BUTTECA $410,256$525,179$634,821$788,974 CALAVERASCA $474,359$607,231$734,051$912,256 COLUSACA $407,692$521,897$630,872$784,000 DEL NORTECA $319,231$408,667$494,000$613,897 EL DORADOCA $594,872$761,538$920,513$1,144,000 FRESNOCA $391,026$500,564$605,077$751,949 GLENNCA $294,872$377,487$456,308$567,077 HUMBOLDTCA $403,846$516,974$624,923$776,615 IMPERIALCA $333,333$426,718$515,795$641,026 INYOCA $448,718$574,410$694,359$862,923 KERNCA $378,205$484,154$585,231$727,333 KINGSCA $333,333$426,718$515,795$641,026 LAKECA $411,538$526,821$636,821$791,436 LASSENCA $292,308$374,205$452,308$562,103 MADERACA $435,897$558,000$674,513$838,256 MARIPOSACA $423,077$541,590$654,667$813,590 MENDOCINOCA $525,641$672,923$813,385$1,010,872 MERCEDCA $484,615$620,410$749,897$931,949 MONOCA $542,564$694,564$839,590$1,043,385 NEVADACA $576,923$738,564$892,769$1,109,487 PLACERCA $594,872$761,538$920,513$1,144,000 PLUMASCA $420,513$538,308$650,718$808,667 RIVERSIDECA $512,821$656,513$793,538$986,205 SACRAMENTOCA $594,872$761,538$920,513$1,144,000 SAN BERNARDINOCA $512,821$656,513$793,538$986,205 SAN DIEGOCA $715,385$915,846$1,107,026$1,375,744 SAN JOAQUINCA $501,282$641,744$775,692$964,000 SAN LUIS OBISPOCA $705,128$902,667$1,091,128$1,356,051 SHASTACA $434,615$556,359$672,513$835,795 SIERRACA $312,564$400,103$483,641$601,077 SISKIYOUCA $301,282$385,692$466,205$579,385 SOLANOCA $571,795$732,000$884,821$1,099,641 SONOMACA $679,487$869,846$1,051,487$1,306,718 STANISLAUSCA $434,615$556,359$672,513$835,795 SUTTERCA $435,897$558,000$674,513$838,256 TEHAMACA $320,513$410,308$495,949$616,359 TULARECA $333,333$426,718$515,795$641,026 TUOLUMNECA $448,718$574,410$694,359$862,923 YOLOCA $594,872$761,538$920,513$1,144,000 YUBACA $435,897$558,000$674,513$838,256 ADAMSCO $416,667$533,385$644,769$801,282 ARAPAHOECO $416,667$533,385$644,769$801,282 ARCHULETACO $325,641$416,872$503,897$626,205 BOULDERCO $471,795$603,949$730,051$907,282 BROOMFIELDCO $416,667$533,385$644,769$801,282 CHAFFEECO $287,179$367,641$444,359$552,256 CLEAR CREEKCO $416,667$533,385$644,769$801,282 DENVERCO $416,667$533,385$644,769$801,282 DOUGLASCO $416,667$533,385$644,769$801,282 2013–27 I.R.B.31July 1, 2013 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit EAGLECO $748,462$958,154$1,158,205$1,439,385 EL PASOCO $333,333$426,718$515,795$641,026 ELBERTCO $416,667$533,385$644,769$801,282 GARFIELDCO $435,897$558,000$674,513$838,256 GILPINCO $416,667$533,385$644,769$801,282 GRANDCO $365,385$467,744$565,385$702,667 GUNNISONCO $444,872$569,487$688,410$855,538 HINSDALECO $571,795$732,000$884,821$1,099,641 JEFFERSONCO $416,667$533,385$644,769$801,282 LA PLATACO $455,128$582,615$704,256$875,231 LAKECO $748,462$958,154$1,158,205$1,439,385 LARIMERCO $320,513$410,308$495,949$616,359 MESACO $380,769$487,436$589,231$732,256 MINERALCO $307,692$393,897$476,103$591,692 OURAYCO $494,872$633,538$765,795$951,692 PARKCO $416,667$533,385$644,769$801,282 PITKINCO $748,462$958,154$1,158,205$1,439,385 ROUTTCO $692,308$886,256$1,071,333$1,331,385 SAN JUANCO $435,897$558,000$674,513$838,256 SAN MIGUELCO $748,462$958,154$1,158,205$1,439,385 SUMMITCO $748,462$958,154$1,158,205$1,439,385 TELLERCO $333,333$426,718$515,795$641,026 WELDCO $428,205$548,154$662,615$823,487 FAIRFIELDCT $726,923$930,615$1,124,872$1,397,949 HARTFORDCT $451,282$577,692$698,308$867,846 LITCHFIELDCT $384,615$492,359$595,179$739,641 MIDDLESEXCT $451,282$577,692$698,308$867,846 NEW HAVENCT $397,436$508,769$614,974$764,308 NEW LONDONCT $408,974$523,538$632,872$786,513 TOLLANDCT $451,282$577,692$698,308$867,846 WINDHAMCT $279,487$357,795$432,462$537,487 DISTRICT OF COLUMBIADC $748,462$958,154$1,158,205$1,439,385 KENTDE $385,897$494,000$597,128$742,103 NEW CASTLEDE $430,769$551,436$666,564$828,410 SUSSEXDE $384,615$492,359$595,179$739,641 BAKERFL $397,436$508,769$614,974$764,308 BAYFL $406,410$520,256$628,872$781,538 BREVARDFL $298,718$382,410$462,256$574,462 BROWARDFL $434,615$556,359$672,513$835,795 CHARLOTTEFL $303,846$388,974$470,154$584,308 CLAYFL $397,436$508,769$614,974$764,308 COLLIERFL $544,872$697,538$843,128$1,047,846 DUVALFL $397,436$508,769$614,974$764,308 FLAGLERFL $294,872$377,487$456,308$567,077 FRANKLINFL $312,821$400,462$484,051$601,590 HERNANDOFL $300,000$384,051$464,205$576,923 HILLSBOROUGHFL $300,000$384,051$464,205$576,923 INDIAN RIVERFL $291,026$372,564$450,308$559,641 LAKEFL $362,821$464,462$561,436$697,744 LEEFL $365,385$467,744$565,385$702,667 MANATEEFL $453,846$580,974$702,308$872,769 MARTINFL $384,615$492,359$595,179$739,641 MIAMI-DADEFL $434,615$556,359$672,513$835,795 MONROEFL $748,462$958,154$1,158,205$1,439,385 NASSAUFL $397,436$508,769$614,974$764,308 July 1, 2013322013–27 I.R.B. 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit OKALOOSAFL $320,513$410,308$495,949$616,359 ORANGEFL $362,821$464,462$561,436$697,744 OSCEOLAFL $362,821$464,462$561,436$697,744 PALM BEACHFL $434,615$556,359$672,513$835,795 PASCOFL $300,000$384,051$464,205$576,923 PINELLASFL $300,000$384,051$464,205$576,923 SARASOTAFL $453,846$580,974$702,308$872,769 SEMINOLEFL $362,821$464,462$561,436$697,744 ST. JOHNSFL $397,436$508,769$614,974$764,308 ST. LUCIEFL $384,615$492,359$595,179$739,641 SUMTERFL $285,897$366,000$442,410$549,795 VOLUSIAFL $311,538$398,821$482,051$599,128 WALTONFL $372,092$476,308$575,795$715,538 BARROWGA $355,128$454,615$549,538$682,923 BARTOWGA $355,128$454,615$549,538$682,923 BRANTLEYGA $283,333$362,718$438,410$544,872 BUTTSGA $355,128$454,615$549,538$682,923 CARROLLGA $355,128$454,615$549,538$682,923 CHATTAHOOCHEEGA $297,231$380,513$459,949$571,590 CHEROKEEGA $355,128$454,615$549,538$682,923 CLARKEGA $306,410$392,256$474,154$589,231 CLAYTONGA $355,128$454,615$549,538$682,923 COBBGA $355,128$454,615$549,538$682,923 COWETAGA $355,128$454,615$549,538$682,923 DAWSONGA $355,128$454,615$549,538$682,923 DEKALBGA $355,128$454,615$549,538$682,923 DOUGLASGA $355,128$454,615$549,538$682,923 FAYETTEGA $355,128$454,615$549,538$682,923 FORSYTHGA $355,128$454,615$549,538$682,923 FULTONGA $355,128$454,615$549,538$682,923 GLYNNGA $283,333$362,718$438,410$544,872 GREENEGA $679,487$869,846$1,051,487$1,306,718 GWINNETTGA $355,128$454,615$549,538$682,923 HARALSONGA $355,128$454,615$549,538$682,923 HARRISGA $297,231$380,513$459,949$571,590 HEARDGA $355,128$454,615$549,538$682,923 HENRYGA $355,128$454,615$549,538$682,923 JASPERGA $355,128$454,615$549,538$682,923 LAMARGA $355,128$454,615$549,538$682,923 MADISONGA $306,410$392,256$474,154$589,231 MARIONGA $297,231$380,513$459,949$571,590 MCINTOSHGA $283,333$362,718$438,410$544,872 MERIWETHERGA $355,128$454,615$549,538$682,923 MUSCOGEEGA $297,231$380,513$459,949$571,590 NEWTONGA $355,128$454,615$549,538$682,923 OCONEEGA $306,410$392,256$474,154$589,231 OGLETHORPEGA $306,410$392,256$474,154$589,231 PAULDINGGA $355,128$454,615$549,538$682,923 PICKENSGA $355,128$454,615$549,538$682,923 PIKEGA $355,128$454,615$549,538$682,923 ROCKDALEGA $355,128$454,615$549,538$682,923 SPALDINGGA $355,128$454,615$549,538$682,923 WALTONGA $355,128$454,615$549,538$682,923 HAWAIIHI $634,615$812,410$982,051$1,220,410 HONOLULUHI $814,103$1,042,205$1,259,795$1,565,590 KALAWAOHI $734,615$940,462$1,136,769$1,412,769 KAUAIHI $793,590$1,015,949$1,228,051$1,526,154 2013–27 I.R.B.33July 1, 2013 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit MAUIHI $810,256$1,037,282$1,253,846$1,558,205 ADAID $311,538$398,821$482,051$599,128 ADAMSID $280,769$359,436$434,462$539,949 BLAINEID $748,462$958,154$1,158,205$1,439,385 BOISEID $311,538$398,821$482,051$599,128 CANYONID $311,538$398,821$482,051$599,128 GEMID $311,538$398,821$482,051$599,128 KOOTENAIID $293,590$375,846$454,308$564,564 OWYHEEID $311,538$398,821$482,051$599,128 TETONID $711,538$910,872$1,101,077$1,368,359 VALLEYID $474,359$607,231$734,051$912,256 BONDIL $288,462$369,282$446,359$554,718 BOONEIL $347,949$445,436$538,410$669,128 CALHOUNIL $288,462$369,282$446,359$554,718 CLINTONIL $288,462$369,282$446,359$554,718 COOKIL $420,513$538,308$650,718$808,667 DEKALBIL $420,513$538,308$650,718$808,667 DUPAGEIL $420,513$538,308$650,718$808,667 GRUNDYIL $420,513$538,308$650,718$808,667 JERSEYIL $288,462$369,282$446,359$554,718 KANEIL $420,513$538,308$650,718$808,667 KENDALLIL $420,513$538,308$650,718$808,667 LAKEIL $420,513$538,308$650,718$808,667 MACOUPINIL $288,462$369,282$446,359$554,718 MADISONIL $288,462$369,282$446,359$554,718 MCHENRYIL $420,513$538,308$650,718$808,667 MONROEIL $288,462$369,282$446,359$554,718 ST. CLAIRIL $288,462$369,282$446,359$554,718 WILLIL $420,513$538,308$650,718$808,667 WINNEBAGOIL $347,949$445,436$538,410$669,128 CLARKIN $310,256$397,179$480,103$596,667 DEARBORNIN $346,154$443,128$535,641$665,692 FLOYDIN $310,256$397,179$480,103$596,667 FRANKLININ $346,154$443,128$535,641$665,692 HARRISONIN $310,256$397,179$480,103$596,667 JASPERIN $420,513$538,308$650,718$808,667 LAKEIN $420,513$538,308$650,718$808,667 NEWTONIN $420,513$538,308$650,718$808,667 OHIOIN $346,154$443,128$535,641$665,692 PORTERIN $420,513$538,308$650,718$808,667 WASHINGTONIN $310,256$397,179$480,103$596,667 BOONEKY $346,154$443,128$535,641$665,692 BRACKENKY $346,154$443,128$535,641$665,692 BULLITTKY $310,256$397,179$480,103$596,667 CAMPBELLKY $346,154$443,128$535,641$665,692 GALLATINKY $346,154$443,128$535,641$665,692 GRANTKY $346,154$443,128$535,641$665,692 HENRYKY $310,256$397,179$480,103$596,667 JEFFERSONKY $310,256$397,179$480,103$596,667 KENTONKY $346,154$443,128$535,641$665,692 MEADEKY $310,256$397,179$480,103$596,667 NELSONKY $310,256$397,179$480,103$596,667 OLDHAMKY $310,256$397,179$480,103$596,667 PENDLETONKY $346,154$443,128$535,641$665,692 SHELBYKY $310,256$397,179$480,103$596,667 July 1, 2013342013–27 I.R.B. 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit SPENCERKY $310,256$397,179$480,103$596,667 TRIMBLEKY $310,256$397,179$480,103$596,667 ASCENSIONLA $287,179$367,641$444,359$552,256 EAST BATON ROUGLA $287,179$367,641$444,359$552,256 EAST FELICIANALA $287,179$367,641$444,359$552,256 IBERVILLELA $287,179$367,641$444,359$552,256 JEFFERSONLA $294,872$377,487$456,308$567,077 LIVINGSTONLA $287,179$367,641$444,359$552,256 ORLEANSLA $294,872$377,487$456,308$567,077 PLAQUEMINESLA $294,872$377,487$456,308$567,077 POINTE COUPEELA $287,179$367,641$444,359$552,256 ST. BERNARDLA $294,872$377,487$456,308$567,077 ST. CHARLESLA $294,872$377,487$456,308$567,077 ST. HELENALA $287,179$367,641$444,359$552,256 ST. JOHN THE BALA $294,872$377,487$456,308$567,077 ST. TAMMANYLA $294,872$377,487$456,308$567,077 WEST BATON ROUGLA $287,179$367,641$444,359$552,256 WEST FELICIANALA $287,179$367,641$444,359$552,256 BARNSTABLEMA $474,359$607,231$734,051$912,256 BRISTOLMA $487,179$623,692$753,897$936,872 DUKESMA $748,462$958,154$1,158,205$1,439,385 ESSEXMA $537,179$687,692$831,231$1,033,026 FRANKLINMA $326,923$418,513$505,897$628,718 HAMPDENMA $326,923$418,513$505,897$628,718 HAMPSHIREMA $326,923$418,513$505,897$628,718 MIDDLESEXMA $537,179$687,692$831,231$1,033,026 NANTUCKETMA $748,462$958,154$1,158,205$1,439,385 NORFOLKMA $537,179$687,692$831,231$1,033,026 PLYMOUTHMA $537,179$687,692$831,231$1,033,026 SUFFOLKMA $537,179$687,692$831,231$1,033,026 WORCESTERMA $394,872$505,487$611,026$759,385 ANNE ARUNDELMD $574,359$735,282$888,769$1,104,564 BALTIMOREMD $574,359$735,282$888,769$1,104,564 BALTIMORE CITYMD $574,359$735,282$888,769$1,104,564 CALVERTMD $748,462$958,154$1,158,205$1,439,385 CARROLLMD $574,359$735,282$888,769$1,104,564 CECILMD $430,769$551,436$666,564$828,410 CHARLESMD $748,462$958,154$1,158,205$1,439,385 FREDERICKMD $748,462$958,154$1,158,205$1,439,385 GARRETTMD $448,718$574,410$694,359$862,923 HARFORDMD $574,359$735,282$888,769$1,104,564 HOWARDMD $574,359$735,282$888,769$1,104,564 KENTMD $352,564$451,333$545,538$678,000 MONTGOMERYMD $748,462$958,154$1,158,205$1,439,385 PRINCE GEORGE’SMD $748,462$958,154$1,158,205$1,439,385 QUEEN ANNE’SMD $574,359$735,282$888,769$1,104,564 SOMERSETMD $337,179$431,641$521,744$648,410 ST. MARY’SMD $410,256$525,179$634,821$788,974 TALBOTMD $455,128$582,615$704,256$875,231 WASHINGTONMD $387,179$495,641$599,128$744,564 WICOMICOMD $337,179$431,641$521,744$648,410 WORCESTERMD $448,718$574,410$694,359$862,923 CUMBERLANDME $346,154$443,128$535,641$665,692 HANCOCKME $279,487$357,795$432,462$537,487 KNOXME $286,615$366,923$443,487$551,179 2013–27 I.R.B.35July 1, 2013 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit LINCOLNME $326,923$418,513$505,897$628,718 SAGADAHOCME $346,154$443,128$535,641$665,692 YORKME $346,154$443,128$535,641$665,692 BERRIENMI $306,410$392,256$474,154$589,231 KALAMAZOOMI $293,590$375,846$454,308$564,564 LAPEERMI $305,128$390,615$472,154$586,769 LENAWEEMI $305,128$390,615$472,154$586,769 LIVINGSTONMI $305,128$390,615$472,154$586,769 MACOMBMI $305,128$390,615$472,154$586,769 MONROEMI $305,128$390,615$472,154$586,769 OAKLANDMI $305,128$390,615$472,154$586,769 ST. CLAIRMI $305,128$390,615$472,154$586,769 VAN BURENMI $293,590$375,846$454,308$564,564 WASHTENAWMI $353,846$452,974$547,538$680,462 WAYNEMI $305,128$390,615$472,154$586,769 ANOKAMN $374,359$479,231$579,282$719,897 CARVERMN $374,359$479,231$579,282$719,897 CHISAGOMN $374,359$479,231$579,282$719,897 COOKMN $303,846$388,974$470,154$584,308 DAKOTAMN $374,359$479,231$579,282$719,897 HENNEPINMN $374,359$479,231$579,282$719,897 ISANTIMN $374,359$479,231$579,282$719,897 RAMSEYMN $374,359$479,231$579,282$719,897 SCOTTMN $374,359$479,231$579,282$719,897 SHERBURNEMN $374,359$479,231$579,282$719,897 WASHINGTONMN $374,359$479,231$579,282$719,897 WRIGHTMN $374,359$479,231$579,282$719,897 CRAWFORDMO $288,462$369,282$446,359$554,718 FRANKLINMO $288,462$369,282$446,359$554,718 JEFFERSONMO $288,462$369,282$446,359$554,718 LINCOLNMO $288,462$369,282$446,359$554,718 ST. CHARLESMO $288,462$369,282$446,359$554,718 ST. LOUISMO $288,462$369,282$446,359$554,718 ST. LOUIS CITYMO $288,462$369,282$446,359$554,718 WARRENMO $288,462$369,282$446,359$554,718 WASHINGTONMO $288,462$369,282$446,359$554,718 CARBONMT $298,718$382,410$462,256$574,462 FLATHEADMT $309,026$395,590$478,205$594,256 GALLATINMT $396,154$507,128$613,026$761,846 JEFFERSONMT $350,000$448,051$541,590$673,077 LAKEMT $308,974$395,538$478,103$594,154 LEWIS AND CLARKMT $350,000$448,051$541,590$673,077 MADISONMT $288,974$369,949$447,179$555,692 MISSOULAMT $298,718$382,410$462,256$574,462 RAVALLIMT $311,538$398,821$482,051$599,128 SWEET GRASSMT $355,128$454,615$549,538$682,923 YELLOWSTONEMT $298,718$382,410$462,256$574,462 ANSONNC $311,538$398,821$482,051$599,128 BRUNSWICKNC $311,538$398,821$482,051$599,128 BUNCOMBENC $311,538$398,821$482,051$599,128 CABARRUSNC $311,538$398,821$482,051$599,128 CAMDENNC $748,462$958,154$1,158,205$1,439,385 CARTERETNC $294,872$377,487$456,308$567,077 CHATHAMNC $343,231$439,385$531,128$660,051 July 1, 2013362013–27 I.R.B. 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit CURRITUCKNC $470,615$602,462$728,256$905,026 DARENC $471,795$603,949$730,051$907,282 DURHAMNC $343,231$439,385$531,128$660,051 FRANKLINNC $302,564$387,333$468,205$581,846 GASTONNC $311,538$398,821$482,051$599,128 HAYWOODNC $311,538$398,821$482,051$599,128 HENDERSONNC $311,538$398,821$482,051$599,128 HYDENC $495,385$634,154$766,564$952,667 JOHNSTONNC $302,564$387,333$468,205$581,846 MADISONNC $311,538$398,821$482,051$599,128 MECKLENBURGNC $311,538$398,821$482,051$599,128 NEW HANOVERNC $311,538$398,821$482,051$599,128 ONSLOWNC $314,103$402,103$486,051$604,051 ORANGENC $343,231$439,385$531,128$660,051 PASQUOTANKNC $748,462$958,154$1,158,205$1,439,385 PENDERNC $311,538$398,821$482,051$599,128 PERQUIMANSNC $748,462$958,154$1,158,205$1,439,385 PERSONNC $343,231$439,385$531,128$660,051 TRANSYLVANIANC $301,282$385,692$466,205$579,385 UNIONNC $311,538$398,821$482,051$599,128 WAKENC $302,564$387,333$468,205$581,846 WATAUGANC $292,308$374,205$452,308$562,103 BILLINGSND $312,564$400,103$483,641$601,077 STARKND $312,564$400,103$483,641$601,077 BELKNAPNH $288,462$369,282$446,359$554,718 GRAFTONNH $288,462$369,282$446,359$554,718 HILLSBOROUGHNH $412,821$528,462$638,821$793,897 MERRIMACKNH $310,256$397,179$480,103$596,667 ROCKINGHAMNH $537,179$687,692$831,231$1,033,026 STRAFFORDNH $537,179$687,692$831,231$1,033,026 ATLANTICNJ $465,385$595,744$720,154$894,974 BERGENNJ $748,462$958,154$1,158,205$1,439,385 BURLINGTONNJ $430,769$551,436$666,564$828,410 CAMDENNJ $430,769$551,436$666,564$828,410 CAPE MAYNJ $500,000$640,103$773,692$961,538 CUMBERLANDNJ $415,385$531,744$642,769$798,821 ESSEXNJ $748,462$958,154$1,158,205$1,439,385 GLOUCESTERNJ $430,769$551,436$666,564$828,410 HUDSONNJ $748,462$958,154$1,158,205$1,439,385 HUNTERDONNJ $748,462$958,154$1,158,205$1,439,385 MERCERNJ $451,282$577,692$698,308$867,846 MIDDLESEXNJ $748,462$958,154$1,158,205$1,439,385 MONMOUTHNJ $748,462$958,154$1,158,205$1,439,385 MORRISNJ $748,462$958,154$1,158,205$1,439,385 OCEANNJ $748,462$958,154$1,158,205$1,439,385 PASSAICNJ $748,462$958,154$1,158,205$1,439,385 SALEMNJ $430,769$551,436$666,564$828,410 SOMERSETNJ $748,462$958,154$1,158,205$1,439,385 SUSSEXNJ $748,462$958,154$1,158,205$1,439,385 UNIONNJ $748,462$958,154$1,158,205$1,439,385 WARRENNJ $412,821$528,462$638,821$793,897 LOS ALAMOSNM $390,410$499,795$604,103$750,769 SAN JUANNM $288,462$369,282$446,359$554,718 SANTA FENM $438,462$561,282$678,462$843,179 TAOSNM $293,692$375,949$454,462$564,769 2013–27 I.R.B.37July 1, 2013 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit CARSON CITYNV $408,974$523,538$632,872$786,513 CLARKNV $410,256$525,179$634,821$788,974 DOUGLASNV $480,769$615,487$743,949$924,564 ELKONV $333,333$426,718$515,795$641,026 EUREKANV $333,333$426,718$515,795$641,026 LYONNV $339,744$434,923$525,744$653,333 NYENV $333,333$426,718$515,795$641,026 STOREYNV $414,103$530,103$640,769$796,359 WASHOENV $414,103$530,103$640,769$796,359 ALBANYNY $320,513$410,308$495,949$616,359 BRONXNY $748,462$958,154$1,158,205$1,439,385 COLUMBIANY $283,333$362,718$438,410$544,872 DUTCHESSNY $455,128$582,615$704,256$875,231 ERIENY $283,333$362,718$438,410$544,872 KINGSNY $748,462$958,154$1,158,205$1,439,385 MADISONNY $288,462$369,282$446,359$554,718 NASSAUNY $748,462$958,154$1,158,205$1,439,385 NEW YORKNY $748,462$958,154$1,158,205$1,439,385 NIAGARANY $283,333$362,718$438,410$544,872 ONONDAGANY $288,462$369,282$446,359$554,718 ORANGENY $455,128$582,615$704,256$875,231 OSWEGONY $288,462$369,282$446,359$554,718 PUTNAMNY $748,462$958,154$1,158,205$1,439,385 QUEENSNY $748,462$958,154$1,158,205$1,439,385 RENSSELAERNY $320,513$410,308$495,949$616,359 RICHMONDNY $748,462$958,154$1,158,205$1,439,385 ROCKLANDNY $748,462$958,154$1,158,205$1,439,385 SARATOGANY $320,513$410,308$495,949$616,359 SCHENECTADYNY $320,513$410,308$495,949$616,359 SCHOHARIENY $320,513$410,308$495,949$616,359 SUFFOLKNY $748,462$958,154$1,158,205$1,439,385 ULSTERNY $416,667$533,385$644,769$801,282 WESTCHESTERNY $748,462$958,154$1,158,205$1,439,385 ASHTABULAOH $298,718$382,410$462,256$574,462 ATHENSOH $443,590$567,846$686,410$853,077 BROWNOH $346,154$443,128$535,641$665,692 BUTLEROH $346,154$443,128$535,641$665,692 CARROLLOH $284,615$364,359$440,410$547,333 CLERMONTOH $346,154$443,128$535,641$665,692 CUYAHOGAOH $306,410$392,256$474,154$589,231 DELAWAREOH $350,000$448,051$541,590$673,077 FAIRFIELDOH $350,000$448,051$541,590$673,077 FRANKLINOH $350,000$448,051$541,590$673,077 GEAUGAOH $306,410$392,256$474,154$589,231 GREENEOH $278,205$356,154$430,513$535,026 HAMILTONOH $346,154$443,128$535,641$665,692 LAKEOH $306,410$392,256$474,154$589,231 LICKINGOH $350,000$448,051$541,590$673,077 LORAINOH $306,410$392,256$474,154$589,231 MADISONOH $350,000$448,051$541,590$673,077 MEDINAOH $306,410$392,256$474,154$589,231 MERCEROH $300,000$384,051$464,205$576,923 MIAMIOH $278,205$356,154$430,513$535,026 MONTGOMERYOH $278,205$356,154$430,513$535,026 MORROWOH $350,000$448,051$541,590$673,077 PICKAWAYOH $350,000$448,051$541,590$673,077 PORTAGEOH $338,462$433,282$523,744$650,872 July 1, 2013382013–27 I.R.B. 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit PREBLEOH $278,205$356,154$430,513$535,026 STARKOH $284,615$364,359$440,410$547,333 SUMMITOH $338,462$433,282$523,744$650,872 UNIONOH $350,000$448,051$541,590$673,077 VAN WERTOH $308,974$395,538$478,103$594,154 WARRENOH $346,154$443,128$535,641$665,692 BENTONOR $346,154$443,128$535,641$665,692 CLACKAMASOR $429,487$549,795$664,615$825,949 CLATSOPOR $356,410$456,256$551,538$685,385 COLUMBIAOR $429,487$549,795$664,615$825,949 CURRYOR $360,256$461,179$557,487$692,821 DESCHUTESOR $458,974$587,538$710,205$882,667 HOOD RIVEROR $403,846$516,974$624,923$776,615 JACKSONOR $433,333$554,718$670,564$833,333 JOSEPHINEOR $333,333$426,718$515,795$641,026 LANEOR $352,564$451,333$545,538$678,000 LINCOLNOR $320,513$410,308$495,949$616,359 MARIONOR $302,564$387,333$468,205$581,846 MULTNOMAHOR $429,487$549,795$664,615$825,949 POLKOR $302,564$387,333$468,205$581,846 TILLAMOOKOR $352,564$451,333$545,538$678,000 WASHINGTONOR $429,487$549,795$664,615$825,949 YAMHILLOR $429,487$549,795$664,615$825,949 ALLEGHENYPA $335,897$430,000$519,795$645,949 ARMSTRONGPA $335,897$430,000$519,795$645,949 BEAVERPA $335,897$430,000$519,795$645,949 BERKSPA $307,692$393,897$476,103$591,692 BUCKSPA $430,769$551,436$666,564$828,410 BUTLERPA $335,897$430,000$519,795$645,949 CARBONPA $412,821$528,462$638,821$793,897 CENTREPA $287,179$367,641$444,359$552,256 CHESTERPA $430,769$551,436$666,564$828,410 DELAWAREPA $430,769$551,436$666,564$828,410 FAYETTEPA $335,897$430,000$519,795$645,949 LANCASTERPA $393,590$503,846$609,026$756,923 LEHIGHPA $412,821$528,462$638,821$793,897 MONTGOMERYPA $430,769$551,436$666,564$828,410 NORTHAMPTONPA $412,821$528,462$638,821$793,897 PHILADELPHIAPA $430,769$551,436$666,564$828,410 PIKEPA $748,462$958,154$1,158,205$1,439,385 WASHINGTONPA $335,897$430,000$519,795$645,949 WESTMORELANDPA $335,897$430,000$519,795$645,949 YORKPA $435,897$558,000$674,513$838,256 BRISTOLRI $487,179$623,692$753,897$936,872 KENTRI $487,179$623,692$753,897$936,872 NEWPORTRI $487,179$623,692$753,897$936,872 PROVIDENCERI $487,179$623,692$753,897$936,872 WASHINGTONRI $487,179$623,692$753,897$936,872 BEAUFORTSC $397,436$508,769$614,974$764,308 BERKELEYSC $343,590$439,846$531,692$660,769 CHARLESTONSC $343,590$439,846$531,692$660,769 DORCHESTERSC $343,590$439,846$531,692$660,769 GEORGETOWNSC $405,128$518,615$626,923$779,077 GREENVILLESC $302,564$387,333$468,205$581,846 HORRYSC $293,590$375,846$454,308$564,564 2013–27 I.R.B.39July 1, 2013 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit JASPERSC $397,436$508,769$614,974$764,308 LAURENSSC $302,564$387,333$468,205$581,846 PICKENSSC $302,564$387,333$468,205$581,846 YORKSC $311,538$398,821$482,051$599,128 CANNONTN $443,590$567,846$686,410$853,077 CHEATHAMTN $443,590$567,846$686,410$853,077 DAVIDSONTN $443,590$567,846$686,410$853,077 DICKSONTN $443,590$567,846$686,410$853,077 HICKMANTN $443,590$567,846$686,410$853,077 MACONTN $443,590$567,846$686,410$853,077 ROBERTSONTN $443,590$567,846$686,410$853,077 RUTHERFORDTN $443,590$567,846$686,410$853,077 SMITHTN $443,590$567,846$686,410$853,077 SUMNERTN $443,590$567,846$686,410$853,077 TROUSDALETN $443,590$567,846$686,410$853,077 WILLIAMSONTN $443,590$567,846$686,410$853,077 WILSONTN $443,590$567,846$686,410$853,077 ATASCOSATX $341,026$436,564$527,692$655,795 AUSTINTX $279,538$357,846$432,564$537,590 BANDERATX $341,026$436,564$527,692$655,795 BASTROPTX $296,154$379,128$458,256$569,538 BEXARTX $341,026$436,564$527,692$655,795 BRAZORIATX $279,538$357,846$432,564$537,590 CALDWELLTX $296,154$379,128$458,256$569,538 CHAMBERSTX $279,538$357,846$432,564$537,590 COMALTX $341,026$436,564$527,692$655,795 FORT BENDTX $279,538$357,846$432,564$537,590 GALVESTONTX $279,538$357,846$432,564$537,590 GUADALUPETX $341,026$436,564$527,692$655,795 HARRISTX $279,538$357,846$432,564$537,590 HAYSTX $296,154$379,128$458,256$569,538 JEFF DAVISTX $278,205$356,154$430,513$535,026 KENDALLTX $341,026$436,564$527,692$655,795 LIBERTYTX $279,538$357,846$432,564$537,590 MEDINATX $341,026$436,564$527,692$655,795 MONTGOMERYTX $279,538$357,846$432,564$537,590 SAN JACINTOTX $279,538$357,846$432,564$537,590 TRAVISTX $296,154$379,128$458,256$569,538 WALLERTX $279,538$357,846$432,564$537,590 WILLIAMSONTX $296,154$379,128$458,256$569,538 WILSONTX $341,026$436,564$527,692$655,795 DAGGETTUT $310,205$397,128$480,000$596,564 DAVISUT $407,692$521,897$630,872$784,000 JUABUT $332,051$425,077$513,795$638,564 KANEUT $393,590$503,846$609,026$756,923 MORGANUT $407,692$521,897$630,872$784,000 RICHUT $304,308$389,538$470,872$585,179 SALT LAKEUT $748,462$958,154$1,158,205$1,439,385 SUMMITUT $748,462$958,154$1,158,205$1,439,385 TOOELEUT $748,462$958,154$1,158,205$1,439,385 UTAHUT $332,051$425,077$513,795$638,564 WASATCHUT $442,308$566,205$684,462$850,615 WASHINGTONUT $382,051$489,077$591,179$734,718 WEBERUT $407,692$521,897$630,872$784,000 ALBEMARLEVA $448,205$573,795$693,538$861,949 July 1, 2013402013–27 I.R.B. 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit ALEXANDRIAVA $748,462$958,154$1,158,205$1,439,385 AMELIAVA $549,641$703,641$850,513$1,057,026 AMHERSTVA $299,590$383,538$463,590$576,103 APPOMATTOXVA $299,590$383,538$463,590$576,103 ARLINGTONVA $748,462$958,154$1,158,205$1,439,385 BEDFORDVA $299,590$383,538$463,590$576,103 BEDFORD INDVA $299,590$383,538$463,590$576,103 BOTETOURTVA $287,179$367,641$444,359$552,256 CAMPBELLVA $299,590$383,538$463,590$576,103 CAROLINEVA $549,641$703,641$850,513$1,057,026 CHARLES CITYVA $549,641$703,641$850,513$1,057,026 CHARLOTTESVILLEVA $448,205$573,795$693,538$861,949 CHESAPEAKEVA $470,615$602,462$728,256$905,026 CHESTERFIELDVA $549,641$703,641$850,513$1,057,026 CLARKEVA $748,462$958,154$1,158,205$1,439,385 COLONIAL HEIGHTVA $549,641$703,641$850,513$1,057,026 CRAIGVA $287,179$367,641$444,359$552,256 CULPEPERVA $392,308$502,205$607,077$754,462 CUMBERLANDVA $549,641$703,641$850,513$1,057,026 DINWIDDIEVA $549,641$703,641$850,513$1,057,026 ESSEXVA $384,615$492,359$595,179$739,641 FAIRFAXVA $748,462$958,154$1,158,205$1,439,385 FAIRFAX INDVA $748,462$958,154$1,158,205$1,439,385 FALLS CHURCHVA $748,462$958,154$1,158,205$1,439,385 FAUQUIERVA $748,462$958,154$1,158,205$1,439,385 FLUVANNAVA $448,205$573,795$693,538$861,949 FRANKLINVA $287,179$367,641$444,359$552,256 FREDERICKVA $487,179$623,692$753,897$936,872 FREDERICKSBURGVA $748,462$958,154$1,158,205$1,439,385 GILESVA $299,590$383,538$463,590$576,103 GLOUCESTERVA $470,615$602,462$728,256$905,026 GOOCHLANDVA $549,641$703,641$850,513$1,057,026 GREENEVA $448,205$573,795$693,538$861,949 HAMPTONVA $470,615$602,462$728,256$905,026 HANOVERVA $549,641$703,641$850,513$1,057,026 HARRISONBURGVA $284,256$363,897$439,846$546,615 HENRICOVA $549,641$703,641$850,513$1,057,026 HIGHLANDVA $294,872$377,487$456,308$567,077 HOPEWELLVA $549,641$703,641$850,513$1,057,026 ISLE OF WIGHTVA $470,615$602,462$728,256$905,026 JAMES CITYVA $470,615$602,462$728,256$905,026 KING AND QUEENVA $549,641$703,641$850,513$1,057,026 KING GEORGEVA $396,154$507,128$613,026$761,846 KING WILLIAMVA $549,641$703,641$850,513$1,057,026 LANCASTERVA $558,974$715,590$864,974$1,074,974 LEXINGTONVA $303,846$388,974$470,154$584,308 LOUDOUNVA $748,462$958,154$1,158,205$1,439,385 LOUISAVA $549,641$703,641$850,513$1,057,026 LYNCHBURGVA $299,590$383,538$463,590$576,103 MADISONVA $284,615$364,359$440,410$547,333 MANASSASVA $748,462$958,154$1,158,205$1,439,385 MANASSAS PARKVA $748,462$958,154$1,158,205$1,439,385 MATHEWSVA $470,615$602,462$728,256$905,026 MIDDLESEXVA $338,462$433,282$523,744$650,872 MONTGOMERYVA $299,590$383,538$463,590$576,103 NELSONVA $448,205$573,795$693,538$861,949 NEW KENTVA $549,641$703,641$850,513$1,057,026 NEWPORT NEWSVA $470,615$602,462$728,256$905,026 NORFOLKVA $470,615$602,462$728,256$905,026 2013–27 I.R.B.41July 1, 2013 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit NORTHUMBERLANDVA $402,564$515,333$622,923$774,154 ORANGEVA $339,744$434,923$525,744$653,333 PETERSBURGVA $549,641$703,641$850,513$1,057,026 POQUOSONVA $470,615$602,462$728,256$905,026 PORTSMOUTHVA $470,615$602,462$728,256$905,026 POWHATANVA $549,641$703,641$850,513$1,057,026 PRINCE GEORGEVA $549,641$703,641$850,513$1,057,026 PRINCE WILLIAMVA $748,462$958,154$1,158,205$1,439,385 PULASKIVA $299,590$383,538$463,590$576,103 RADFORDVA $299,590$383,538$463,590$576,103 RAPPAHANNOCKVA $369,179$472,615$571,282$709,949 RICHMONDVA $307,692$393,897$476,103$591,692 RICHMOND INDVA $549,641$703,641$850,513$1,057,026 ROANOKE INDVA $287,179$367,641$444,359$552,256 ROANOKEVA $287,179$367,641$444,359$552,256 ROCKINGHAMVA $284,256$363,897$439,846$546,615 SALEMVA $287,179$367,641$444,359$552,256 SPOTSYLVANIAVA $748,462$958,154$1,158,205$1,439,385 STAFFORDVA $748,462$958,154$1,158,205$1,439,385 SUFFOLKVA $470,615$602,462$728,256$905,026 SURRYVA $470,615$602,462$728,256$905,026 SUSSEXVA $549,641$703,641$850,513$1,057,026 VIRGINIA BEACHVA $470,615$602,462$728,256$905,026 WARRENVA $748,462$958,154$1,158,205$1,439,385 WILLIAMSBURGVA $470,615$602,462$728,256$905,026 WINCHESTERVA $487,179$623,692$753,897$936,872 YORKVA $470,615$602,462$728,256$905,026 BENNINGTONVT $284,256$363,897$439,846$546,615 CHITTENDENVT $326,923$418,513$505,897$628,718 FRANKLINVT $326,923$418,513$505,897$628,718 GRAND ISLEVT $326,923$418,513$505,897$628,718 LAMOILLEVT $283,077$362,359$438,051$544,359 ORANGEVT $288,462$369,282$446,359$554,718 WINDSORVT $288,462$369,282$446,359$554,718 BENTONWA $282,051$361,077$436,462$542,410 CHELANWA $351,487$449,949$543,897$675,949 CLALLAMWA $393,949$504,308$609,590$757,590 CLARKWA $429,487$549,795$664,615$825,949 DOUGLASWA $351,487$449,949$543,897$675,949 FRANKLINWA $282,051$361,077$436,462$542,410 ISLANDWA $391,026$500,564$605,077$751,949 JEFFERSONWA $448,718$574,410$694,359$862,923 KINGWA $582,051$745,128$900,667$1,119,333 KITSAPWA $487,179$623,692$753,897$936,872 KITTITASWA $337,179$431,641$521,744$648,410 MASONWA $317,949$407,026$492,000$611,436 PIERCEWA $582,051$745,128$900,667$1,119,333 SAN JUANWA $608,974$779,590$942,359$1,171,128 SKAGITWA $383,333$490,718$593,179$737,179 SKAMANIAWA $429,487$549,795$664,615$825,949 SNOHOMISHWA $582,051$745,128$900,667$1,119,333 THURSTONWA $370,513$474,308$573,333$712,513 WHATCOMWA $384,615$492,359$595,179$739,641 COLUMBIAWI $301,282$385,692$466,205$579,385 DANEWI $301,282$385,692$466,205$579,385 IOWAWI $301,282$385,692$466,205$579,385 July 1, 2013422013–27 I.R.B. 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit KENOSHAWI $420,513$538,308$650,718$808,667 MILWAUKEEWI $323,077$413,590$499,949$621,282 OZAUKEEWI $323,077$413,590$499,949$621,282 PIERCEWI $374,359$479,231$579,282$719,897 ST. CROIXWI $374,359$479,231$579,282$719,897 WALWORTHWI $285,897$366,000$442,410$549,795 WASHINGTONWI $323,077$413,590$499,949$621,282 WAUKESHAWI $323,077$413,590$499,949$621,282 BERKELEYWV $387,179$495,641$599,128$744,564 HAMPSHIREWV $487,179$623,692$753,897$936,872 JEFFERSONWV $748,462$958,154$1,158,205$1,439,385 MORGANWV $387,179$495,641$599,128$744,564 SHERIDANWY $279,487$357,795$432,462$537,487 SUBLETTEWY $306,410$392,256$474,154$589,231 TETONWY $711,538$910,872$1,101,077$1,368,359 MANUAAS $312,821$400,462$484,051$601,590 GUAMGU $667,949$855,077$1,033,590$1,284,513 NORTHERN ISLANDMP $620,513$794,359$960,205$1,193,333 ROTAMP $485,897$622,051$751,897$934,410 SAIPANMP $625,641$800,923$968,154$1,203,179 TINIANMP $629,487$805,846$974,103$1,210,564 AGUAS BUENASPR $621,795$796,000$962,205$1,195,795 AIBONITOPR $621,795$796,000$962,205$1,195,795 ARECIBOPR $621,795$796,000$962,205$1,195,795 BARCELONETAPR $621,795$796,000$962,205$1,195,795 BARRANQUITASPR $621,795$796,000$962,205$1,195,795 BAYAMONPR $621,795$796,000$962,205$1,195,795 CAGUASPR $621,795$796,000$962,205$1,195,795 CAMUYPR $621,795$796,000$962,205$1,195,795 CANOVANASPR $621,795$796,000$962,205$1,195,795 CAROLINAPR $621,795$796,000$962,205$1,195,795 CATANOPR $621,795$796,000$962,205$1,195,795 CAYEYPR $621,795$796,000$962,205$1,195,795 CEIBAPR $333,333$426,718$515,795$641,026 CIALESPR $621,795$796,000$962,205$1,195,795 CIDRAPR $621,795$796,000$962,205$1,195,795 COMERIOPR $621,795$796,000$962,205$1,195,795 COROZALPR $621,795$796,000$962,205$1,195,795 DORADOPR $621,795$796,000$962,205$1,195,795 FAJARDOPR $333,333$426,718$515,795$641,026 FLORIDAPR $621,795$796,000$962,205$1,195,795 GUAYNABOPR $621,795$796,000$962,205$1,195,795 GURABOPR $621,795$796,000$962,205$1,195,795 HATILLOPR $621,795$796,000$962,205$1,195,795 HUMACAOPR $621,795$796,000$962,205$1,195,795 JUNCOSPR $621,795$796,000$962,205$1,195,795 LAS PIEDRASPR $621,795$796,000$962,205$1,195,795 LOIZAPR $621,795$796,000$962,205$1,195,795 LUQUILLOPR $333,333$426,718$515,795$641,026 MANATIPR $621,795$796,000$962,205$1,195,795 MAUNABOPR $621,795$796,000$962,205$1,195,795 MOROVISPR $621,795$796,000$962,205$1,195,795 NAGUABOPR $621,795$796,000$962,205$1,195,795 2013–27 I.R.B.43July 1, 2013 2013 Average Area Purchase Prices for Mortgage Revenue Bonds County NameState One-Unit Limit Two-Unit Limit Three-Unit Limit Four-Unit Limit NARANJITOPR $621,795$796,000$962,205$1,195,795 OROCOVISPR $621,795$796,000$962,205$1,195,795 QUEBRADILLASPR $621,795$796,000$962,205$1,195,795 RIO GRANDEPR $621,795$796,000$962,205$1,195,795 SAN JUANPR $621,795$796,000$962,205$1,195,795 SAN LORENZOPR $621,795$796,000$962,205$1,195,795 TOA ALTAPR $621,795$796,000$962,205$1,195,795 TOA BAJAPR $621,795$796,000$962,205$1,195,795 TRUJILLO ALTOPR $621,795$796,000$962,205$1,195,795 VEGA ALTAPR $621,795$796,000$962,205$1,195,795 VEGA BAJAPR $621,795$796,000$962,205$1,195,795 YABUCOAPR $621,795$796,000$962,205$1,195,795 ST. CROIXVI $336,154$430,308$520,154$646,462 ST. JOHN,VIVI $639,282$818,410$989,231$1,229,385 ST. THOMASVI $457,641$585,846$708,154$880,103 All other areas (floor): $278,000$355,897$430,154$534,615 .02 The nationwideaverage purchase price (for use in the housing cost/income ratio for new and existing residences) is $225,400. SECTION 5. EFFECT ON OTHER DOCUMENTS Rev. Proc. 2012–25 is obsolete except as provided in section 6 of this revenue procedure. SECTION 6. EFFECTIVE DATES .01 Issuers may rely on this revenue procedure to determine average area pur- chase price safe harbors for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on June 13, 2013, and ends on the date as of which the safe harbors contained in section 4.01 of this revenue procedure are rendered obsolete by a new revenue procedure. .02 Notwithstanding section 5 of this revenue procedure, issuers may continue to rely on the average area purchase price safe harbors contained in Rev. Proc. 2012–25, with respect to bonds sold, or for mortgage credit certificates issued with respect to bond authority exchanged, be- fore July 13, 2013, if the commitments to provide financing or issue mortgage credit certificates are made on or before August 12, 2013. .03 Except as provided in section 6.04, issuers must use the nationwide average purchase price limitation contained in this revenue procedure for commitments to provide financingor issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on June 13, 2013, and ends on the date when the nationwide av- erage purchase price limitation is rendered obsolete by a new revenue procedure. .04 Notwithstanding sections 5 and 6.03 of this revenue procedure, issuers may continue to rely on the nationwide average purchase price set forth in Rev. Proc. 2012–25 with respect to bonds sold, or for mortgage credit certificates issued with respect to bond authority exchanged, before July 13, 2013, if the commitments to provide financingor issue mortgage credit certificates are made on or before August 12, 2013. SECTION 7. PAPERWORK REDUCTION ACT The collection of information con- tained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accor- dance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–1877. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. This revenue procedure contains a col- lection of information requirement in sec- tion 3.03. The purpose of the collection of information is to verify the applica- ble FHA loan limit that issuers of quali- fied mortgage bonds and qualified mort- gage certificates have used to calculate the average area purchase price for a given metropolitan statistical area for purposes of section 143(e) and 25(c). The collec- tion of information is required to obtain the benefit of using revisions to FHA loan limits to determine average area purchase prices. The likely respondents are state and local governments. The estimated total annual reporting and/or recordkeeping burden is: 15 hours. The estimated annual burden per re- spondent and/or recordkeeper: 15 minutes. The estimated number of respondents and/or recordkeepers: 60. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. SECTION 8. DRAFTING INFORMATION The principal authors of this rev- enue procedure are David White and James Polfer of the Office of Associate Chief Counsel (Financial Institutions July 1, 2013442013–27 I.R.B. & Products). For further information regarding this revenue procedure contact David White on (202) 622–3980 (not a toll-free call). 2013–27 I.R.B.45July 1, 2013 Part IV. Items o fGeneralInterest Noncompensat ory Partnership O ptions; Correction Announcemen t 2013–35 AGENCY: Inte rnal Revenue Service (IRS), Treas ury. ACTION: Corr ecting amendment. SUMMARY: Thi s document contains cor- rections to f inal regulations (TD 9612) that were publish ed in theFederal Registeron Tuesday, Fe bruary 5, 2013 (78 FR 7997) relating to the tax treatment of noncom- pensatory o ptions and convertible instru- ments issue dbyapartnership. Thefinal regulatio ns generally provide that the exer- cise of a no ncompensatory option does not cause the r ecognition of immediate income or loss by e ither the issuing partnership or the option holder. The final regulations also modi fy the regulations under section 704(b) re garding the maintenance of the partners ’ capital accounts and the determi- nation of the partners’ distributive shares of partn ership items. The final regulations also con tain a characterization rule provid- ing that the holder of a noncompensatory option is trea ted as a partner under certain circumstance s. DATES: This co rrection is effective on June 13, 2013 a nd is applicable on or af- ter February 5 , 2013. FOR FURTHER IN FORMATION CONTACT: Ben jamin Weaver, at (202) 622–3050 (no t a toll-free number). SUPPLEMENTA RY INFORMATION: Background The final reg ulations that are the subject of this docum ent are under sections 171, 704, 721, 761 , 1272, 1273, and 1275 of the Internal Rev enue Code. Need for Corr ection As publishe d, the final regulations (TD 9612) conta ins an error that may prove to be misleadi ng and is in need of clarifica- tion. ***** Correction of Publication Accordingly, 26 CFR part 1 is cor- rected by making the following correcting amendments: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.704–1 is amended by revising the third sentence of paragraph (b)(5)Example 32(v) to read as follows: § 1.704–1 Partner’s distributive share. ***** (b) * * * (5) * * * Example 32.*** (v) * * * Under paragraph (b)(4)(x)(c ) of this section, LLC must allocate the book gross income of $3,000 equally among A, B, and C, but for tax purposes, however, LLC must allocate all of its gross income ($3,000) to C. * * * ***** Martin Franks, Chief, Publications and Regulations Branch Legal Processing Division Associate Chief Counsel (Procedure and Administration) (Filed by th e Office of the Federal Register on June 12, 2013, 8:45 a.m., and published in the issue of the Federal Register for June 13, 2013, 78 FR 35559) July 1, 2013462013–27 I.R.B. Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the ef- fect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is be- ingextendedtoapplytoavariationofthe fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare withmodi- fied,below). Clarifiedis used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare withamplifiedandclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is beingstatedinanewruling. Supersededdescribes a situation where the new ruling does nothing more than re- state the substance and situation of a previ- ously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same po- sition published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single rul- ing a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new rul- ing does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsu- persededdescribes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case,the previously pub- lished ruling is first modified and then, as modified, is superseded. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original rul- ing has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the ad- ditions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rulings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The fol lowing abbreviations in current use and for merly used will appear in material publis hedintheBulletin. A—Individual. Acq.—A cquiescence. B—Individual. BE—Beneficiary. BK—Bank . B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cu mulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Coo perative. Ct.D.—Court Decision. CY—County. D—Decede nt. DC—Dummy Corporation. DE—Donee. Del. Order —Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Emp loyer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduc iary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Fo reign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Fed eral Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grante e. GP—General Partner. GR—Grantor. IC—Insura nce Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—No nacquiescence. O—Organization. P—Parent Corporation. PHC—Persona l Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Pa rtnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Re al Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsi diary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Trans feree. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpay er. TR—Trust. TT—Trustee. U.S.C.—Uni ted States Code. X—Corporation. Y—Corporation. Z—Corporat ion. 2013–27 I.R.B.iJuly 1, 2013 Numerical Finding List 1 Bulletin 2013–27 Announcements: 2013-35, 2013-27 I.R.B.46 Revenue Procedures: 2013-28, 2013-27 I.R.B.28 Treasury Decisions: 9620, 2013-27 I.R.B.1 1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2013–1 through 2013–26 is in Internal Revenue Bulletin 2013–26, dated June 24, 2013. July 1, 2013ii2013–27 I.R.B. Finding List of Current Actions on Previously Published Items 1 Bulletin 2013–27 Revenue Procedures: 2012-25 Obsoleted in part by Rev. Proc. 2013-28, 2013-27 I.R.B. 28 Treasury Decisions: 9612 Corrected by Ann. 2013-35, 2013-27 I.R.B. 46 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2013–1 through 2013–26 is in Internal Revenue Bulletin 2013–26, dated June 24, 2013. 2013–27 I.R.B.iiiJuly 1, 2013 Internal Revenue Service W ashington,DC20224 Official Business Penalty for Private Use, $300 INTERNAL REVENUE BULLETIN The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue Bulletins are available atwww.irs.gov/irb/. CUMULATIVE BULLETINS The contents of the weekly Bulletins were consolidated semiannually into permanent, indexed, Cumulative Bulletins through the 2008–2 edition. INTERNAL REVENUE BULLETINS ON CD-ROM Internal Revenue Bulletins are available annually as partof Publication 1796 (Tax Products CD-ROM). The CD-ROM can be purchased from National Technical Information Service (NTIS)on the Internet atwww.irs.gov/cdorders(discount for online orders) or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January. WE WELCOME COMMENTS ABOUT THE INTERNAL REVENUE BUL LETIN If you have c omments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we would be ple ased to hear from you. You can email us your suggestionsor comments through the IRS Internet Home Page (www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:P:SPA, Washington, DC 20224.
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