Bulletin No. 2013-27July 1, 2013

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied 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) withaverage area purchase price safe harbors for statistical areasin the United States and with a nationwide average purchaseprice for residences in the United States for purposes of theQMB rules under section 143 of the Code and the MCC rulesunder section 25. Rev. Proc. 2012–25 obsoleted in part.

Announcement 2013–35, page 46.This announcement corrects final regulations (TD 9612) thatwere published in the Federal Register on February 5, 2013 (78FR 7997), relating to the tax treatment of noncompensatoryoptions and convertible instruments issued by a partnership.The final regulations generally provide that the exercise of anoncompensatory option does not cause the recognition of im-mediate income or loss by either the issuing partnership or theoption holder. The final regulations also modify the regulationsunder 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 regulationsalso contain a characterization rule providing that the holder ofa 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 ahealth-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 clarificationsrelated to the reasonable design of health-contingent wellnessprograms and reasonable alternatives that must be offered toavoid 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 ahealth-contingent wellness program from 20 percent to 30 per-cent of the cost of coverage and increase the maximum rewardto 50 percent for a wellness program designed to prevent or re-duce tobacco use. These regulations also include clarificationsrelated to the reasonable design of health-contingent wellnessprograms and reasonable alternatives that must be offered toavoid prohibited discrimination.

ADMINISTRATIVE

Rev. Proc. 2013–28, page 28.This procedure provides issuers of qualified mortgage bonds(QMBs) and qualified mortgage credit certificates (MCCs) withaverage area purchase price safe harbors for statistical areasin the United States and with a nationwide average purchaseprice for residences in the United States for purposes of theQMB rules under section 143 of the Code and the MCC rulesunder section 25. Rev. Proc. 2012–25 obsoleted in part.

Finding Lists begin on page ii.

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-

force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe 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 ofthe 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 thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe 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 indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents 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, 2013 2013–27 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 9815.—AdditionalMarket Reforms

T.D. 9620

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 54

DEPARTMENT OF LABOREmployee Benefits SecurityAdministration29 CFR Part 2590

DEPARTMENT OF HEALTHAND HUMAN SERVICES45 CFR Parts 146 and 147

Incentives forNondiscriminatory WellnessPrograms in Group HealthPlans

AGENCIES: Internal Revenue Service,Department of the Treasury; EmployeeBenefits Security Administration, Depart-ment of Labor; Centers for Medicare &Medicaid Services, Department of Healthand Human Services.

ACTION: Final rule.

SUMMARY: This document contains fi-nal regulations, consistent with the Af-fordable Care Act, regarding nondiscrim-inatory wellness programs in group healthcoverage. Specifically, these final reg-ulations increase the maximum permissi-ble reward under a health-contingent well-ness program offered in connection with agroup health plan (and any related healthinsurance coverage) from 20 percent to 30percent of the cost of coverage. The fi-nal regulations further increase the max-imum permissible reward to 50 percent

for wellness programs designed to preventor reduce tobacco use. These regulationsalso include other clarifications regardingthe reasonable design of health-contingentwellness programs and the reasonable al-ternatives they must offer in order to avoidprohibited discrimination.

DATES: Effective date: These regulationsare effective on August 2, 2013.

Applicability date: These final regula-tions generally apply to group health plansand group health insurance issuers forplan years beginning on or after January1, 2014. These final regulations gener-ally apply to individual health insuranceissuers for policy years beginning on orafter January 1, 2014.

FOR FURTHER INFORMATIONCONTACT: Amy Turner orBeth Baum, Employee Benefits SecurityAdministration, Department of Labor,at (202) 693–8335; Karen Levin,Internal Revenue Service, Departmentof the Treasury, at (202) 927–9639; orJacob Ackerman, Centers for Medicare &Medicaid Services, Department of Healthand Human Services, at (410) 786–1565.Customer Service Information: Indi-viduals interested in obtaining infor-mation from the Department of Laborconcerning employment-based healthcoverage laws may call the EBSAToll-Free Hotline at 1–866–444–EBSA(3272) or visit the Department of La-bor’s website (www.dol.gov/ebsa). Inaddition, information from HHS onprivate health insurance for consumerscan be found on the Centers for Medicare& Medicaid Services (CMS) website(www.cciio.cms.gov) and informationon health reform can be found atwww.HealthCare.gov.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

The Patient Protection and AffordableCare Act, Pub. L. 111–148, was enactedon March 23, 2010; the Health Care andEducation Reconciliation Act, Pub. L.111–152, was enacted on March 30, 2010(these are collectively known as the “Af-fordable Care Act”). The Affordable CareAct reorganizes, amends, and adds to theprovisions of part A of title XXVII of thePublic Health Service Act (PHS Act) re-lating to group health plans and health in-surance issuers in the group and individualmarkets. The term “group health plan” in-cludes both insured and self-insured grouphealth plans.1 The Affordable Care Actadds section 715(a)(1) to the EmployeeRetirement Income Security Act (ERISA)and section 9815(a)(1) to the Internal Rev-enue Code (the Code) to incorporate theprovisions of part A of title XXVII of thePHS Act into ERISA and the Code, andto make them applicable to group healthplans and health insurance issuers provid-ing health insurance coverage in connec-tion with group health plans. The PHS Actsections incorporated by these referencesare sections 2701 through 2728.

B. Wellness Exception to HIPAANondiscrimination Provisions

Prior to the enactment of the Afford-able Care Act, titles I and IV of the HealthInsurance Portability and AccountabilityAct of 1996 (HIPAA), Pub. L. 104–191,added section 9802 of the Code, section702 of ERISA, and section 2702 of thePHS Act (HIPAA nondiscrimination andwellness provisions). These provisionsgenerally prohibit group health plans andgroup health insurance issuers from dis-criminating against individual participantsand beneficiaries in eligibility, benefits, orpremiums 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 oftitle 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 2006regulations, 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 mentalillnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), and disability.See 66 FR 1379, January 8, 2001.

2013–27 I.R.B. 1 July 1, 2013

ception to the general rule allows premiumdiscounts or rebates or modification to oth-erwise applicable cost sharing (includingcopayments, deductibles, or coinsurance)in return for adherence to certain programsof health promotion and disease preven-tion.

The Departments of Labor, Health andHuman Services (HHS), and the Treasury(collectively, the Departments3) publishedjoint final regulations implementing theHIPAA nondiscrimination and wellnessprovisions on December 13, 2006 at 71 FR75014 (the 2006 regulations).4 The 2006regulations divided wellness programsinto two general categories: participatorywellness programs and health-contingentwellness programs. Under the 2006 regu-lations, participatory wellness programs5

are considered to comply with the HIPAAnondiscrimination requirements withouthaving to satisfy any additional standardsif participation in the program is madeavailable to all similarly situated individu-als, regardless of health status. Paragraph(d) of the 2006 regulations provided that,generally, distinctions among groups ofsimilarly situated participants in a healthplan must be based on bona fide employ-ment-based classifications consistent withthe employer’s usual business practice. Aplan may also distinguish between ben-eficiaries based on, for example, theirrelationship to the plan participant (suchas spouse or dependent child) or basedon the age of dependent children. Dis-tinctions are not permitted to be based onany of the health factors listed in the 2006regulations.

Under the 2006 regulations, plans andissuers with health-contingent wellnessprograms6 were permitted to vary benefits(including cost-sharing mechanisms), pre-miums, or contributions based on whetheran individual has met the standards of awellness program that meets the require-ments of paragraph (f)(2), which outlinedfive specific criteria.

C. Amendments Made by the AffordableCare Act

The Affordable Care Act (section 1201)amended the HIPAA nondiscriminationand wellness provisions of the PHS Act(but not of ERISA section 702 or Code sec-tion 9802). (Affordable Care Act section1201 also moved those provisions fromPHS Act section 2702 to PHS Act section2705.) As amended by the AffordableCare Act, the nondiscrimination and well-ness provisions of PHS Act section 2705largely reflect the 2006 regulations (ex-cept as discussed later in this preamble),and extend the HIPAA nondiscriminationprotections to the individual market.7 Thewellness program exception to the prohi-bition on discrimination under PHS Actsection 2705 applies with respect to grouphealth plans (and any health insurancecoverage offered in connection with suchplans), but does not apply to coverage inthe individual market.

D. Proposed Regulations ImplementingPHS Act section 2705 and Amending the2006 Regulations

On November 26, 2012, the Depart-ments published proposed regulations at77 FR 70620, to implement PHS Act sec-tion 2705 and amend the 2006 regulationsregarding nondiscriminatory wellness pro-grams in group health coverage. Like the2006 regulations, the proposed regulationscontinued to divide wellness programsinto participatory wellness programs andhealth-contingent wellness programs. Ex-amples of participatory wellness programsprovided in the proposed regulations in-cluded a program that reimburses for all orpart of the cost of membership in a fitnesscenter; a diagnostic testing program thatprovides a reward for participation anddoes not base any part of the reward onoutcomes; and a program that providesa reward to employees for attending amonthly, no-cost health education seminar.

Examples of health-contingent wellnessprograms in the proposed regulations in-cluded a program that imposes a premiumsurcharge based on tobacco use; and aprogram that uses a biometric screeningor a health risk assessment to identify em-ployees with specified medical conditionsor risk factors (such as high cholesterol,high blood pressure, abnormal body massindex, or high glucose level) and providesa reward to employees identified as withina normal or healthy range (or at low riskfor certain medical conditions), while re-quiring employees who are identified asoutside the normal or healthy range (or atrisk) to take additional steps (such as meet-ing with a health coach, taking a healthor fitness course, adhering to a health im-provement action plan, or complying witha health care provider’s plan of care) toobtain the same reward.

The proposed regulations re-stated thatparticipatory 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-contingentwellness programs, as follows:

1. The program must give eligible indi-viduals an opportunity to qualify forthe reward at least once per year.

2. The reward for a health-contingentwellness program, together with thereward for other health-contingentwellness programs with respect to theplan, must not exceed 30 percent ofthe total cost of employee-only cov-erage under the plan, or 50 percent tothe extent the program is designed toprevent or reduce tobacco use.

3. The reward must be available to allsimilarly situated individuals. For thispurpose, 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 See 26 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 commentimplementing 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 based on an individual satisfying a standardrelated 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 based on an individual satisfying astandard 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 PHS Act section 2702, and extendedthose requirements to the individual market.

July 1, 2013 2 2013–27 I.R.B.

satisfy the otherwise applicable 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 preventdisease. For this purpose, it musthave a reasonable chance of improv-ing the health of, or preventing diseasein, participating individuals, and notbe overly burdensome, not be a sub-terfuge for discriminating based on ahealth factor, and not be highly sus-pect in the method chosen to promotehealth or prevent disease. The pro-posed regulations also stated that, tothe extent a plan’s initial standard forobtaining a reward (or a portion of areward) 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 reasonablydesigned unless it makes available toall individuals who do not meet thestandard 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 ofqualifying 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 thepotential to contribute importantly to pro-moting health and preventing disease. Af-ter consideration of all the comments, theDepartments are issuing these final reg-ulations to provide comprehensive guid-ance with respect to the general require-ments for wellness programs. At the sametime, the Departments recognize that eachwellness program is unique and questionsmay remain regarding the application ofthese 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 forgroup 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 Codesection 9802, as amended by the Afford-able Care Act. These final regulationsreplace the wellness program provisionsof paragraph (f) of the 2006 regulationsand are applicable to both grandfatheredand non-grandfathered group health plansand group health insurance coverage forplan years beginning on or after January 1,2014.8 These regulations also implementthe nondiscrimination provisions of PHSAct section 2705 applicable to non-grand-fathered individual health insurance cover-age for policy years beginning on or afterJanuary 1, 2014. This rulemaking does notmodify provisions of the 2006 regulationsother than paragraph (f).

Stakeholder feedback suggested thatthere is some degree of confusion regard-ing the scope of the HIPAA and AffordableCare Act rules governing wellness pro-grams, which is clarified in these finalregulations. Specifically, these final reg-ulations do not establish requirements forall types of programs or information tech-nology platforms offered by an employer,health plan, or health insurance issuerthat could be labeled a wellness program,disease management program, case man-agement program, or similar term. Instead,these final regulations set forth criteria fora program of health promotion or diseaseprevention offered or provided by a grouphealth plan or group health insurance is-suer that must be satisfied in order for theplan or issuer to qualify for an exception tothe prohibition on discrimination based onhealth status under paragraphs (b)(2)(ii)and (c)(3) of the 2006 regulations (whichprovide exceptions to the general prohi-bition against discrimination based on ahealth factor in benefits and premiumsor 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 planor issuer discriminated under the HIPAAnondiscrimination provisions.

These final regulations are restructured,as compared to the proposed regulations,to help clarify this relationship and how thefive statutory requirements apply to differ-ent types of programs, including differenttypes of health-contingent wellness pro-grams (described below as activity-onlywellness programs and outcome-basedwellness programs). The final regulationsalso reorganize the presentation of thesteps a plan or issuer must take to ensure awellness program: is reasonably designedto promote health or prevent disease; has areasonable chance of improving the healthof, or preventing disease in, participatingindividuals; is not overly burdensome; isnot a subterfuge for discriminating basedon a health factor; and is not highly sus-pect in the method chosen to promotehealth or prevent disease. To meet thesestandards, health-contingent wellness pro-grams that are outcome-based wellnessprograms must offer a “reasonable alterna-tive standard” (or waiver of the otherwiseapplicable standard) to a broader groupof individuals than is required for activ-ity-only wellness programs. Specifically,for activity-only wellness programs, areasonable alternative standard for ob-taining the reward must be provided forany individual for whom, for that period,it is either unreasonably difficult due toa medical condition to meet the other-wise applicable standard, or for whomit is medically inadvisable to attempt tosatisfy the otherwise applicable standard.For outcome-based wellness programs,which generally provide rewards basedon whether an individual has attained acertain health outcome (such as a partic-ular body mass index (BMI), cholesterollevel, or non-smoking status, determinedthrough a biometric screening or healthrisk assessment), a reasonable alternativestandard must be provided to all individ-uals who do not meet the initial standard,to ensure that the program is reasonablydesigned to improve health and is not asubterfuge for underwriting or reducingbenefits based on health status.10 Theserequirements are generally intended to be

8 See section 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 grandfatheredhealth 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 See 77 FR 70625.

2013–27 I.R.B. 3 July 1, 2013

the same as those included in the proposedrules, but the terminology has changed(for example, the term “different, rea-sonable means,” which was used side byside with the term “reasonable alternativestandard,” has been dropped to reduceconfusion). These changes help to clarifythat the group of individuals that must beoffered a reasonable alternative standarddiffers when comparing the requirementsfor an activity-only wellness program tothe requirements for an outcome-basedwellness program. The requirements thatthe alternative be reasonable taking intoaccount an individual’s medical condi-tion, and the option of waiving the initialstandard, remain the same. The term “rea-sonable alternative standard” is used inthese final rules as it is in the statute.11

The intention of the Departments inthese final regulations is that, regardlessof the type of wellness program, everyindividual participating in the programshould be able to receive the full amountof any reward or incentive, regardless ofany health factor. The reorganized re-quirements of the final regulations explainhow a plan or issuer is required to providesuch an opportunity for each category ofwellness program.

B. Definitions

Paragraph (f)(1) provides several defi-nitions that govern for purposes of thesefinal regulations.

Reward. References in these final regu-lations to an individual obtaining a rewardinclude both obtaining a reward (such asa 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 additionalbenefit, or any financial or other incen-tive) and avoiding a penalty (such as theabsence of a surcharge or other financialor nonfinancial disincentives). Referencesin 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 orpart of a cost-sharing mechanism, an ad-

ditional benefit, or any financial or otherincentive) and imposing a penalty (such asa surcharge or other financial or nonfinan-cial disincentive).

Participatory wellness programs. Con-sistent with the 2006 regulations and PHSAct section 2705(j), these final regula-tions continue to divide wellness programsinto two categories: “participatory well-ness programs,” which are a majority ofwellness 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 rewardor do not include any conditions for ob-taining a reward that are based on an indi-vidual satisfying a standard that is relatedto a health factor. Several examples ofparticipatory wellness programs are pro-vided in these final regulations, including:(1) a program that reimburses employeesfor all or part of the cost of membershipin a fitness center; (2) a diagnostic testingprogram that provides a reward for partic-ipation and does not base any part of thereward on outcomes; and (3) a programthat provides a reward to employees forattending a monthly, no-cost health educa-tion seminar.

Health-contingent wellness programs.In contrast, health-contingent wellnessprograms require an individual to satisfya standard related to a health factor toobtain a reward (or require an individualto undertake more than a similarly situ-ated individual based on a health factorin order to obtain the same reward). Thisstandard may be performing or completingan activity relating to a health factor, or itmay be attaining or maintaining a specifichealth outcome. In these final regula-tions, the category of health-contingentwellness programs is subdivided into: (1)activity-only wellness programs, and (2)outcome-based wellness programs. Underparagraphs (b)(2)(ii) and (c)(3) of the 2006regulations (which remain unchanged),12

both of these types of health-contingentwellness programs are permissible only ifthey comply with the criteria of these finalregulations.13

Activity-only wellness programs. Ac-tivity-only wellness programs are a subcat-egory of health-contingent wellness pro-grams. Under an activity-only wellnessprogram, an individual is required to per-form or complete an activity related to ahealth factor in order to obtain a reward.Activity-only wellness programs do notrequire 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 havedifficulty participating in or completing)the program’s prescribed activity due to ahealth factor. For example, an individualmay be unable to participate in a walkingprogram due to a recent surgery or preg-nancy, or may have difficulty participatingdue 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 asubcategory of health-contingent wellnessprograms. Under an outcome-based well-ness program, an individual must attain ormaintain a specific health outcome (suchas not smoking or attaining certain resultson biometric screenings) in order to ob-tain a reward. Generally, these programshave two tiers: (a) a measurement, test,or screening as part of an initial standard;and (b) a larger program that then targetsindividuals who do not meet the initialstandard with wellness activities. For in-dividuals who do not attain or maintainthe specific health outcome, compliancewith an educational program or an ac-tivity may be offered as an alternativeto achieve the same reward. However,this alternative pathway does not meanthat the overall program, which has anoutcome-based initial standard, is not anoutcome-based wellness program. Thatis, if a measurement, test, or screening isused as part of an initial standard and indi-viduals who meet the standard are grantedthe 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 relatedlaws, regulations and guidance. See section II.H later in this preamble for a discussion of how compliance with the nondiscrimination rules (including the wellness program provisions) is notdeterminative 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 remainapplicable to group health plans and group health insurance issuers.

July 1, 2013 4 2013–27 I.R.B.

outcome-based wellness program. Exam-ples of outcome-based wellness programsinclude a program that tests individuals forspecified medical conditions or risk fac-tors (such as high cholesterol, high bloodpressure, abnormal BMI, or high glucoselevel) and provides a reward to employeesidentified as within a normal or healthyrange (or at low risk for certain medicalconditions), while requiring employeeswho are identified as outside the normal orhealthy range (or at risk) to take additionalsteps (such as meeting with a health coach,taking a health or fitness course, adheringto a health improvement action plan, orcomplying with a health care provider’splan of care) to obtain the same reward.

C. Requirement for Participatory WellnessPrograms

Paragraph (f)(2) of these final regula-tions requires a participatory wellness pro-gram to be made available to all similarlysituated individuals, regardless of healthstatus. Participatory wellness programsare not required to meet the requirementsapplicable to health-contingent wellnessprograms under these final regulations.Some comments requested that the De-partments impose additional requirementswith respect to participatory wellness pro-grams. Other commenters proposed thatthe Departments require that plans andissuers take into account an individual’sincome or other personal circumstances indetermining whether a participatory well-ness program is available or accessible toall similarly situated individuals.

As discussed earlier, the HIPAAnondiscrimination provisions generallyprohibit group health plans and healthinsurance issuers from discriminatingagainst individual participants and benefi-ciaries in eligibility, benefits, or premiumsbased on a health factor. To the extenta plan or issuer establishes a wellnessprogram that does not adjust benefits orpremiums based on a health factor, thesewellness program provisions are generallynot implicated. These final rules makeclear that such “participatory” wellnessprograms (in contrast to “health-contin-gent wellness programs”) are permissibleunder the HIPAA nondiscrimination rules,as amended by the Affordable Care Act,

provided they are available to all similarlysituated individuals regardless of healthstatus.

Availability regardless of health statusensures that the general prohibition againstdiscrimination based on a health factor isnot implicated. If factors other than healthstatus (such as scheduling limitations)limit an individual’s ability to take part ina program, that does not mean that the planhas violated the general rule prohibitingdiscrimination based on a health factorbecause the program was not discrimina-tory under the HIPAA nondiscriminationrules to begin with. For example, if aplan made available a premium discountin return for attendance at an educationalseminar, but only healthy individuals wereprovided the opportunity to attend, theprogram would discriminate based on ahealth factor because only healthy indi-viduals were provided the opportunity toreduce their premiums. However, if allsimilarly situated individuals were permit-ted to attend, but a particular individualcould not attend because the seminar washeld on a weekend day and the individualwas unavailable to attend at that time, thatdoes not mean the program discriminatedagainst that individual based on a healthfactor. Because there is no discriminationbased on a health factor under HIPAA,the wellness exception is not relevant.At the same time, as discussed in sectionII.H of this preamble, compliance with theHIPAA nondiscrimination and wellnessprovisions is not determinative of compli-ance with any other applicable Federal orState law, which may impose additionalaccessibility standards for wellness pro-grams.

D. Requirements for Health-ContingentWellness Programs

These final regulations generally re-tain the proposed five requirements forhealth-contingent wellness programs, butthe regulations have been reorganized,subdividing health-contingent wellnessprograms into activity-only wellness pro-grams and outcome-based wellness pro-grams, to make it clearer to whom a plan orissuer is required to provide a reasonablealternative standard. The final regulationsretain the proposed modification relating

to the size of the reward, as well as clar-ifications that were proposed to addressquestions and issues raised by stakehold-ers since the 2006 regulations were issuedand to be consistent with the amendmentsmade 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 giventhe opportunity to qualify for the reward atleast 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-linestandard for determining the minimum fre-quency that is consistent with a reasonabledesign 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 totalamount of the reward for health-contin-gent wellness programs (both activity-onlyand outcome-based) with respect to a plan,whether offered alone or coupled with thereward for other health-contingent well-ness programs. Specifically, as in the pro-posed regulations, the total reward offeredto an individual under all health-contin-gent wellness programs with respect to aplan cannot exceed the applicable percent-age (as defined in paragraph (f)(5) of thefinal 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 ofcoverage for the benefit package underwhich the employee is (or the employeeand any dependents are) receiving cover-age. If, in addition to employees, any classof dependents (such as spouses, or spousesand dependent children) may participatein the health-contingent wellness program,the reward cannot exceed the applicablepercentage of the total cost of the cover-age in which the employee and any depen-dents are enrolled (such as family coverageor employee-plus-one coverage).

Several comments addressed health-contingent wellness programs that allow

14 See 71 FR at 75018. See also 77 FR at 70623.

2013–27 I.R.B. 5 July 1, 2013

dependents to participate, and what portionof the reward should be attributable to eachparticipating dependent. For health-con-tingent wellness programs that allow aclass of dependents to participate, somecommenters suggested that the maximumallowed reward or incentive be proratedbased on the portion of the premium orcontribution attributable to that familymember. These commenters argued thatif, for example, one family member fails tomeet the standard related to a health factor,the entire family should not be faced withthe maximum penalty. Other commentersrequested that the Departments not setforth rules for the apportionment of thereward where dependent coverage exists.These commenters argued that it wouldbe an administrative challenge to appor-tion the reward to each covered familymember. While final regulations issuedby HHS under PHS Act section 2701 re-quire health insurance issuers in the smallgroup market15 to apply rating variationsto family coverage based on the portionof the premium attributable to each familymember covered under the coverage,16

these final regulations do not set forthdetailed rules governing apportionmentof the reward under a health-contingentwellness program. Instead, plans andissuers have flexibility to determine ap-portionment of the reward among familymembers, as long as the method is reason-able. Additional subregulatory guidancemay be provided by the Departments ifquestions persist or if the Departmentsbecome aware of apportionment designsthat seem unreasonable.

3) Reasonable Design.

Consistent with the 2006 regulationsand PHS Act section 2705(j), these fi-nal regulations continue to require thathealth-contingent wellness programs bereasonably designed to promote health orprevent disease, whether activity-only or

outcome-based. Some commenters urgedthat the Departments not impose a rigid setof pre-approved wellness program struc-tures or guidelines, which may inhibit in-novation in designing wellness programs.On the other hand, other commentersrequested that the Departments requirethat all wellness programs be based onevidence-based clinical guidelines and na-tional standards established by bodies suchas the Centers for Disease Control andPrevention (CDC), Centers for Medicare& Medicaid Services, or the National In-stitutes of Health. These final regulationsstate that a wellness program is reasonablydesigned if it has a reasonable chance ofimproving the health of, or preventingdisease in, participating individuals, and isnot overly burdensome, is not a subterfugefor discrimination based on a health factor,and is not highly suspect in the methodchosen to promote health or prevent dis-ease. The determination of whether ahealth-contingent wellness program isreasonably designed is based on all therelevant facts and circumstances. Whileprograms are not required to be accred-ited or based on particular evidence-basedclinical standards, these practices, such asthose found in CDC’s Guide to Commu-nity Preventive Services,17 may increasethe 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 commentersrequested confirmation that plans and is-suers could design wellness programs thatare 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 regulationsprevents a plan or issuer from establish-ing more favorable rules for eligibility orpremium rates (including rewards for ad-herence to certain wellness programs) forindividuals with an adverse health factor

than for individuals without the adversehealth factor.

Several comments requested that thereasonable design requirement includestrong consumer protections to ensure thatthe opportunity for a discount is availablein practice and accessible to all individualsregardless of health status. Some com-menters argued that wellness programswhich set clear markers of medical ill-ness, disability, or largely non-preventableconditions as standards are not reasonablydesigned and should therefore be prohib-ited under the final regulations. Othercommenters suggested that a “reasonablydesigned” wellness program must includea set of programs, resources, and worksitepolicies designed to promote health andprevent disease and must include morethan a biometric test.

After consideration of all the com-ments, as in the proposed rules, the finalregulations direct that an outcome-basedwellness program must provide a reason-able alternative standard to qualify forthe reward, for all individuals who do notmeet the initial standard that is related toa health factor, in order to be reasonablydesigned. This approach is intended toensure that outcome-based programs aremore than mere rewards in return for re-sults in biometric screenings or responsesto a health risk assessment, and are insteadpart of a larger wellness program designedto promote health and prevent disease,ensuring the program is not a subterfugefor discrimination or underwriting basedon a health factor.

4) Uniform Availability and ReasonableAlternative Standards.

An important element of these finalregulations is the requirement that the fullreward under a health-contingent wellnessprogram, whether activity-only or out-come-based, be available to all similarlysituated 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 theirdependents) through a group health plan maintained by a small employer. See PHS Act section 2791(e)(5); 45 CFR 144.103. For this purpose, for plan years beginning on or after January1, 2014, amendments made by the Affordable Care Act provide that the term “small employer” means, in connection with a group health plan with respect to a 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 firstday of the plan year. See PHS 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 itsdefinition of a small employer. See section 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 an easy standard to satisfy ... Theredoes 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.”See 71 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 freeto consider innovative programs for motivating individuals to make efforts to improve their health.” See 71 FR at 75019.

July 1, 2013 6 2013–27 I.R.B.

proposed regulations included require-ments that, in certain circumstances, ahealth-contingent wellness program pro-vide a reasonable alternative standard (orwaiver of the otherwise applicable stan-dard) and, to the extent that a plan’s initialstandard for obtaining a reward (or a por-tion of a reward) is based on the results of ameasurement, test, or screening that is re-lated to a health factor (such as a biometricexamination or a health risk assessment),provide a different, reasonable means ofqualifying for the reward. Several com-menters pointed out that the interactionbetween these two requirements was con-fusing and unclear. As discussed earlierin this preamble, these final regulationsretain the same requirements contained inthe proposed regulations, but the terminol-ogy has been changed to reduce confusionand provide clarity for the regulated com-munity.

Many clarifications regarding the rea-sonable alternative standards are equallyapplicable to activity-only wellness pro-grams and outcome-based wellness pro-grams. First, in order to satisfy the require-ment to provide a reasonable alternativestandard, the same, full reward must beavailable under a health-contingent well-ness program (whether an activity-only oroutcome-based wellness program) to indi-viduals who qualify by satisfying a rea-sonable alternative standard as is providedto individuals who qualify by satisfyingthe program’s otherwise applicable stan-dard. Accordingly, while an individualmay 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 forthat plan year. (For example, if a calendaryear plan offers a health-contingent well-ness program with a premium discount andan individual who qualifies for a reason-able alternative standard satisfies that al-ternative on April 1, the plan or issuer mustprovide the premium discounts for Jan-uary, February, and March to that individ-ual.) Plans and issuers have flexibility todetermine how to provide the portion ofthe reward corresponding to the period be-fore an alternative was satisfied (e.g., pay-ment for the retroactive period or pro rataover the remainder of the year) as long asthe method is reasonable and the individ-ual receives the full amount of the reward.

In some circumstances, an individual maynot satisfy the reasonable alternative stan-dard until the end of the year. In such cir-cumstances, the plan or issuer may providea retroactive payment of the reward for thatyear within a reasonable time after the endof the year, but may not provide pro ratapayments over the following year (a yearafter the year to which the reward corre-sponds). The Departments may provideadditional subregulatory guidance if ques-tions persist or if the Departments becomeaware of payment designs that seem un-reasonable with respect to individuals whosatisfy the reasonable alternative standard.

Other clarifications were retained fromthe proposed regulations. The final regu-lations reiterate that, in lieu of providing areasonable alternative standard, a plan orissuer may always waive the otherwise ap-plicable standard and provide the reward.These final regulations also do not requireplans and issuers to establish a particu-lar reasonable alternative standard in ad-vance of an individual’s specific requestfor 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 flexibilityto determine whether to provide the samereasonable alternative standard for an en-tire class of individuals (provided that itis reasonable for that class) or provide thereasonable alternative standard on an in-dividual-by-individual basis, based on thefacts and circumstances presented.

The Departments received several com-ments requesting that the final regulationspermit employers to retain flexibility tomake reasonable alternative standardshealth-focused and stringent enough sothat these alternatives do not become aloophole for individuals who can meetthe initial standard. These final regula-tions continue to permit plans and issuersflexibility in designing reasonable alterna-tive standards (including using reasonablealternative standards that are health-con-tingent), while also providing some clar-ification of what constitutes being “rea-sonable” in the context of an alternativestandard.

All the facts and circumstances aretaken into account in determining whethera plan or issuer has provided a reasonablealternative standard, including but not lim-

ited to the following factors listed in thesefinal regulations:

• If the reasonable alternative standard iscompletion of an educational program,the plan or issuer must make the edu-cational program available or assist theemployee in finding such a program(instead of requiring an individual tofind such a program unassisted) andmay not require an individual to payfor the cost of the program.

• The time commitment required mustbe reasonable.

• If the reasonable alternative standardis a diet program, the plan or issueris not required to pay for the cost offood but must pay any membership orparticipation fee.

• If an individual’s personal physicianstates that a plan standard (including,if applicable, the recommendations ofthe plan’s medical professional) is notmedically appropriate for that individ-ual, the plan or issuer must providea reasonable alternative standard thataccommodates the recommendationsof the individual’s personal physicianwith regard to medical appropriate-ness.

The final regulations generally retainthe 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 orderfor an alternative standard to be reason-able, the time commitment must be reason-able. For example, requiring attendancenightly at a one-hour class would be un-reasonable.

In addition, the proposed regulationsstated that if a reasonable alternative stan-dard is compliance with the recommen-dations of a medical professional who isan agent of the plan, and an individual’spersonal physician states that the recom-mendations are not medically appropriatefor that individual, the plan must providea second reasonable alternative standardthat accommodates the recommendationsof the individual’s personal physician withregard to medical appropriateness, and thatnormal cost sharing could be imposed formedical items and services furnished pur-suant to the physician’s recommendations.

2013–27 I.R.B. 7 July 1, 2013

The final rules retain the clarification ofthe proposed regulations, and add an ad-ditional clarification that an individual’spersonal physician can make recommen-dations regarding medical appropriatenessthat must be accommodated with respectto any plan standard (and is not limited toa situation in which a personal physiciandisagrees with the specific recommenda-tions of an agent of the plan with respectto an individual). This additional clari-fication is consistent with the final regu-lations’ overall requirement that wellnessprograms be designed to promote healthand prevent disease, and not be a sub-terfuge for discrimination or underwritingbased on a health factor. As stated in thepreamble to the Departments’ regulationsimplementing 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 rewardunder a wellness program are consideredto 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’srecommendations.

The Departments continue to maintainthat, with respect to tobacco cessation,“overcoming an addiction sometimes re-quires a cycle of failure and renewedeffort,” as stated in the preamble to theproposed regulations.20 For plans withan initial outcome-based standard that anindividual not use tobacco, a reasonablealternative standard in Year 1 may be totry an educational seminar. As clarifiedin an example in the final regulations,an individual who attends the seminar isthen entitled to the reward, regardless ofwhether the individual quits smoking. Atthe same time, in Year 2, the plan may re-quire completion of a different reasonablealternative standard, such as a comply-

ing with a new recommendation from theindividual’s personal physician or a newnicotine replacement therapy (and com-pletion of that standard would qualify theindividual to receive the reward).

It is the view of the Departments that thesame can be true with respect to meetingany outcome-based standard. That is, withrespect to weight loss and weight manage-ment, for example, clinical evidence sug-gests that a number of environmental fac-tors can influence an individual’s ability toachieve a desired health outcome.21 Un-der these final regulations, plans and is-suers cannot cease to provide a reasonablealternative standard under any health-con-tingent wellness program merely becausean individual was not successful in sat-isfying the initial standard before; plansand issuers must continue to offer a rea-sonable alternative standard whether it isthe same or different and, to the extent thereasonable alternative standard is, itself,a health-contingent wellness program, itmust meet the relevant requirements ofthese final regulations. Language in thefinal regulations clarifies that, for exam-ple, if a plan or issuer provides a walkingprogram as a reasonable alternative stan-dard to a running program, individuals forwhom it is unreasonably difficult due to amedical condition to complete the walkingprogram (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 walkingprogram. Similarly, to the extent a reason-able alternative standard is, itself, an out-come-based wellness program, the reason-able alternative standard must comply withthe requirements for outcome-based well-ness programs, subject to certain specialrules, described below.

While, as discussed earlier, many clar-ifications regarding the reasonable alter-native standards are equally applicable toactivity-only wellness programs and out-come-based wellness programs, some ofthe requirements apply in different ways

depending on whether the program is anactivity-only or an outcome-based well-ness program.

a) Activity-only wellness programs.

An activity-only wellness programmust make the full reward under the pro-gram available to all similarly-situatedindividuals. Under paragraph (f)(3)(iv) ofthese final regulations, a reward under awellness program is not available to allsimilarly situated individuals for a periodunless the program allows a reasonablealternative standard (or waiver of the oth-erwise applicable standard) for obtainingthe reward for any individual for whom,for that period, it is either unreasonablydifficult due to a medical condition tomeet the otherwise applicable standard, orfor whom it is medically inadvisable toattempt to satisfy the otherwise applicablestandard.

Under an activity-only wellness pro-gram, it is permissible for a plan or issuerto seek verification, such as a statementfrom the individual’s personal physician,that a health factor makes it unreasonablydifficult for the individual to satisfy, ormedically inadvisable for the individual toattempt to satisfy, the otherwise applica-ble standard in an activity-only wellnessprogram, if reasonable under the circum-stances.22 Some commenters stated that itis common practice to require verificationwhen an individual requests a reasonablealternative standard and urged the Depart-ments to permit plans and issuers to requirephysician verification in all circumstancesinvolving a request for a reasonable al-ternative standard. Other commenterssupported 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 requirethe use of medical judgment to evaluate.Some of these commenters also asked theDepartments to clarify that verification,when allowed, could be performed by

19 See 76 FR at 37216.

20 See 71 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 andcontrolling 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 also Fiore, 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 itunreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy, the otherwise applicable standard. The Affordable Care Act amendmentscodified 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 requiredby a plan or issuer “if reasonable under the circumstances.”

July 1, 2013 8 2013–27 I.R.B.

any type of medical professional. TheDepartments also received comments onthe example in the proposed regulationsthat stated it would not be reasonable fora plan or issuer to seek verification of aclaim that is obviously valid based on thenature of the individual’s medical condi-tion that is known to the plan or issuer.Many commenters had questions aboutwhat the Departments would consider aplan or issuer to know or not know, citedthe fact that different information technol-ogy systems exist for wellness programinformation and claims data, and raisedconcerns regarding what types of situa-tions would be “obviously valid” underthis standard.

The Departments originally includedthe example in the proposed regulationsin the context of what these final regu-lations now refer to as outcome-basedwellness programs, so that if an indi-vidual requested a reasonable alternativestandard after failing to meet an initialstandard based on a measurement, test,or screening, the plan or issuer could notthen require physician verification of theneed for a reasonable alternative standard.As described in more detail below, thereorganized final regulations clarify that,with respect to outcome-based wellnessprograms, plans and issuers cannot requireverification by the individual’s physicianthat a health factor makes it unreasonablydifficult for the individual to satisfy, ormedically inadvisable for the individual toattempt to satisfy, the otherwise applicablestandard as a condition of providing a rea-sonable alternative to the initial standard.While plans and issuers may still requiresuch verification as a condition of provid-ing a reasonable alternative standard inthe context of an activity-only wellnessprogram, the reorganization of the finalregulations makes the language statingthat it would not be reasonable for an is-suer to seek verification of a claim whichis obviously valid, as it was includedin the proposed regulations, now moot.Therefore, after reviewing the commentsreceived in response to the proposed regu-lations, the Departments have deleted thisexample from the regulatory text. Plansand issuers are still permitted under thesefinal regulations to seek verification in thecase of an activity-only wellness program

with respect to requests for a reasonablealternative standard for which it is reason-able to determine that medical judgmentis required to evaluate the validity of therequest.

In addition, with respect to which typeof medical professional can be required bythe plan or issuer to provide verification,the final regulations repeat the statutorylanguage. 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 donot expressly prohibit plan provisions thatrequire verification to be provided by aphysician in clinically appropriate circum-stances. Nor do these final regulationsexpressly require that medical profession-als other than a physician be permittedto provide verification in specific circum-stances if a physician’s expertise would berequired to evaluate the validity of a re-quest. Instead, the Departments generallyview any plan requirement for verificationto be subject to the broader standards forreasonable design and intend to examineverification requirements in light of all therelevant facts and circumstances. The De-partments may provide future guidance onthis issue.

A number of commenters raised con-cerns about the privacy and confidentialityof health information provided to wellnessprograms, particularly with respect to em-ployer access to such information and thepotentially discriminatory results of suchaccess. As noted in section II.H later inthis preamble, these final regulations areimplementing only the provisions regard-ing wellness programs in the AffordableCare Act. Other State and Federal lawsmay apply with respect to the privacy,disclosure, and confidentiality of infor-mation provided to these programs. Forexample, HIPAA-covered entities, includ-ing certain health plans and providers,must comply with the HIPAA Privacyand Security Rules23 with respect to theconfidentiality of individually identifiablehealth information, and employers subjectto the Americans with Disabilities Act of1990 (ADA) must comply with any ap-plicable ADA requirements for disclosure

and confidentiality of medical informationand non-discrimination on the basis ofdisability.

b) Outcome-based wellness programs.

Outcome-based wellness programsallow plans and issuers to conduct screen-ings and employ measurement techniquesin order to target wellness programs ef-fectively, as discussed earlier. For exam-ple, plans and issuers are able to targetonly individuals with high cholesterol forparticipation in cholesterol reduction pro-grams, or individuals who use tobaccofor participation in tobacco cessation pro-grams, rather than the entire populationof participants and beneficiaries, with thereward based on health outcomes or par-ticipation in reasonable alternatives. Foroutcome-based wellness programs to meetthe requirement that the reward be avail-able to all similarly situated individuals,the proposed regulations generally re-quired that the program allow a reasonablealternative standard (or waiver of the oth-erwise applicable standard) for obtainingthe reward for any individual who doesnot meet the initial standard based on ameasurement, test, or screening. Severalcommenters asserted that a reasonablealternative standard should be required tobe made available only to individuals whohave a medical condition that preventsthem from meeting the initial standard.As discussed earlier, programs consistingsolely of a measurement, test, or screeningare not reasonably designed to promotehealth and prevent disease. Therefore, ifan individual does not meet a plan’s targetbiometrics (or other, similar initial stan-dards), that individual must be providedwith a reasonable alternative standard re-gardless of any medical condition or otherhealth status, to ensure that outcome-basedinitial standards are not a subterfuge fordiscrimination or underwriting based on ahealth factor.

The requirement to provide a reason-able alternative standard to all individualswho do not meet or achieve a partic-ular health outcome is not intended totransform all outcome-based wellness pro-grams to participatory wellness programs,although plans may choose to utilize par-ticipatory programs, such as educational

23 See 45 CFR Parts 160 and 164.

2013–27 I.R.B. 9 July 1, 2013

programs, when designing reasonablealternative standards. Plans and issuersmay provide reasonable alternative stan-dards that are themselves health-contin-gent wellness programs. To the extenta reasonable alternative standard underan outcome-based wellness program is,itself, an activity-only wellness program,the reasonable alternative standard mustcomply with the requirements for activ-ity-only programs as if it were an initialprogram standard. Therefore, for exam-ple, as discussed in more detail earlier inthis preamble, if a plan or issuer providesa walking program as an alternative to arunning program, the plan must providereasonable alternatives to individuals whocannot 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 wellnessprograms, subject to certain special rules.Among other things, these special rulesprevent a never-ending cycle of reason-able alternative standards being requiredto be provided by plans and issuers, whilealso ensuring that a reasonable alternativestandard prescribed for an individual is, infact, reasonable in light of the individual’sactual circumstances, as determined to bemedically appropriate in the judgment ofthe individual’s personal physician. Underthe first special rule, the final regulationsprovide that the reasonable alternativestandard cannot be a requirement to meeta different level of the same standardwithout additional time to comply thattakes into account the individual’s cir-cumstances. For example, if the initialstandard is to achieve a BMI less than 30,the reasonable alternative standard cannotbe to achieve a BMI less than 31 on thatsame date. However, if the initial standardis to achieve a BMI less than 30, a reason-able alternative standard for the individualcould be to reduce the individual’s BMIby a small amount or a small percentageover a realistic period of time, such aswithin a year. Second, an individual mustbe given the opportunity to comply withthe recommendations of the individual’spersonal physician as a second reasonablealternative 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 individualcan make a request to involve a personalphysician’s recommendations at any timeand the personal physician can adjust thephysician’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 torequire verification, such as a statementfrom the individual’s personal physician,that a health factor makes it unreasonablydifficult for the individual to satisfy, ormedically inadvisable for the individual toattempt to satisfy, the otherwise applicablestandard 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 theopportunity to comply with the recom-mendations of the individual’s personalphysician as a second reasonable alterna-tive standard to meeting the reasonablealternative standard defined by the plan orissuer, but only if the physician joins in therequest.) However, if a plan or issuer pro-vides an activity-only wellness program asan alternative to the otherwise applicablemeasurement, test, or screening of the out-come-based wellness program, then theplan or issuer may, if reasonable under thecircumstances, seek verification with re-spect to the activity-only component of theprogram that it is unreasonably difficultdue to a medical condition for an indi-vidual to perform or complete the activity(or it is medically inadvisable to attemptto perform or complete the activity). Forexample, if an outcome-based wellnessprogram requires participants to maintaina certain healthy weight and provides adiet and exercise program for individu-als who do not meet the targeted weight(which is an activity-only standard), aplan or issuer may seek verification that asecond reasonable alternative standard isneeded for individuals for whom it wouldbe unreasonably difficult due to a medicalcondition to comply, or medically inad-visable to attempt to comply, with the dietand exercise program, due to a medicalcondition.

5) Notice of Availability of ReasonableAlternative 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 forthe 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). Thesefinal regulations clarify that a disclosureof the availability of a reasonable alterna-tive standard includes contact informationfor 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 includedin any disclosure that an individual did notsatisfy 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 isavailable, without describing its terms, thisdisclosure is not required. For example,a summary of benefits and coverage re-quired under section 2715 of the PHS Actthat notes that cost sharing may vary basedon participation in a diabetes wellness pro-gram, without describing the standards ofthe 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 theterms of a health-contingent wellness pro-gram and, therefore, must include this dis-closure.

The proposed regulations provided newsample language in the regulatory text andin 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 standardwill contact the plan or issuer to requestone. Some commenters supported the newsample language, while others suggestedadditions 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 detailsregarding a wellness program are avail-

July 1, 2013 10 2013–27 I.R.B.

able in other plan documents.24 Accord-ingly, these final regulations do not adoptall of the suggestions made by commenters(for example, the sample language doesnot provide examples of reasons why anemployee may request a reasonable alter-native or government contact informationfor complaints). However, the sample lan-guage now includes a statement that rec-ommendations of an individual’s personalphysician will be accommodated.

E. Applicable Percentage

Paragraph (f)(5) of the final regulationssets the applicable percentage for the sizeof the reward under a health-contingentwellness program. The 2006 regulationsspecified 20 percent as the maximumpermissible reward for participation in ahealth-contingent wellness program. PHSAct section 2705(j)(3)(A), effective forplan years beginning on or after January1, 2014, increases the maximum rewardto 30 percent and authorizes the Depart-ments to increase the maximum rewardto as much as 50 percent, if the Depart-ments determine that such an increase isappropriate. These final regulations in-crease the applicable percentage from 20percent to 30 percent, effective for planyears beginning on or after January 1,2014, with an increase of an additional20 percentage points (to 50 percent) forhealth-contingent wellness programs de-signed to prevent or reduce tobacco use.Examples illustrate how to calculate theapplicable percentage.

As described in the proposed regula-tions, the additional increase for programsdesigned to prevent or reduce tobacco useis warranted to conform to the new PHSAct section 2701, to avoid inconsistencyacross group health coverage, whetherinsured or self-insured, or offered in thesmall group or large group market, and

to provide grandfathered plans the sameflexibility 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 mayuse to vary premium rates in the individualor small group market. PHS Act section2701(a)(1)(A)(iv) provides that issuers inthe individual and small group marketscannot vary rates for tobacco use by morethan a ratio of 1.5 to 1 (that is, allowingup to a 50 percent premium surchargefor tobacco use). HHS published a finalregulation implementing PHS Act section270125 stating that health insurance issuersin the small group market are permittedto implement the tobacco use surchargeunder PHS Act section 2701 to employ-ees only in connection with a wellnessprogram meeting the standards of PHSAct section 2705(j) and its implementingregulations.

As discussed in the proposed rule, to co-ordinate these regulations with the tobaccouse rating provisions of PHS Act section2701, these final regulations use the au-thority in PHS Act section 2705(j)(3)(A)(and, with respect to grandfathered healthplans, the preexisting authority in theHIPAA nondiscrimination and wellnessprovisions) to increase the applicable per-centage for determining the size of thereward for participating in a health-con-tingent wellness program by an additional20 percentage points (to 50 percent) tothe extent that the additional percentageis attributed to tobacco use prevention orreduction.

Several commenters requested clar-ification that an individual’s statementregarding tobacco use is not grounds fora permissible rescission under PHS Actsection 2712 and its implementing regu-lations. Under the HHS final regulationimplementing PHS Act section 2701, an

issuer that must comply with the require-ments under PHS Act section 2701 maynot rescind coverage on the basis that anenrollee is found to have reported false orincorrect information about their tobaccouse.26 While the HHS final regulationimplementing PHS Act section 2701 ad-dresses rescission, that provision is onlyapplicable to health insurance issuers pro-viding coverage in the individual andsmall group markets, and does not apply toself-insured group health plans and largeinsured group health plans.27 Whetherself-insured group health plans and largeinsured group health plans can recoup theotherwise applicable premiums or benefitsis generally determined under the planterms and other applicable law, such asERISA. Rescission in connection with anindividual’s statement regarding tobaccouse under self-insured and large, insuredgroup health plans may be addressed bythe Departments in future regulations orsubregulatory guidance under PHS Actsection 2712.

F. Application to Grandfathered Plans

Under these final regulations, thesame wellness program standards applyto grandfathered health plans (under au-thority in the HIPAA nondiscriminationand wellness provisions) and non-grand-fathered plans (under the rules of PHSAct section 2705 governing rewards foradherence to certain wellness programs,which largely adopt the wellness pro-gram provisions of the 2006 regulationswith some modification and clarification).While section 1251 of the AffordableCare Act provides that certain amend-ments made by the Affordable Care Act(including the amendments to PHS Actsection 2705(j)) do not apply to grand-fathered health plans,28 the Departmentsbelieve that the provisions of these fi-

24 For ERISA plans, wellness program terms (including the availability of any reasonable alternative standard) are generally required to be disclosed in the summary plan description (SPD),as well as in the applicable governing plan documents (which must be provided upon request), if compliance with the wellness program affects premiums, cost sharing, or other benefits underthe terms of the plan.

25 See 45 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 been paid since the beginning of the plan or policy year is provided under PHS Act section 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 remedyof 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.See 78 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 largegroup 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 grandfatheredhealth 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 andnon-grandfathered health plans. The HHS regulations continue to provide, however, that with respect to individual health insurance coverage, the nondiscrimination provisions do not applyto grandfathered health plans.

2013–27 I.R.B. 11 July 1, 2013

nal regulations are authorized under bothHIPAA and the Affordable Care Act. Thisapproach is intended to avoid inconsis-tency across group health coverage andto provide grandfathered plans the sameflexibility to promote health and preventdisease as non-grandfathered plans.

G. Application of NondiscriminationProvisions to the Individual HealthInsurance Market

The HHS proposed regulations in-cluded a new 45 CFR 147.110 to apply thenondiscrimination protections of the 2006regulations to non-grandfathered individ-ual health insurance coverage effectivefor 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 insurancemarket because the wellness exception ofPHS Act section 2705(j) does not apply tothe individual health insurance market.

Commenters requested that the well-ness provisions be extended to the indi-vidual market or that states be allowed toauthorize participatory programs in theindividual market. Although the proposedrule addressing the individual market isbeing finalized without change, it is HHS’sbelief that participatory wellness programsin the individual market do not violatethe nondiscrimination provisions providedthat such programs are consistent withState law and available to all similarlysituated individuals enrolled in the indi-vidual health insurance coverage. This isbecause participatory wellness programsdo not base rewards on achieving a stan-dard related to a health factor, and thus donot discriminate based upon health status.

H. No Effect on Other Laws

Many commenters requested that theDepartments address the interaction of

these wellness program requirements withother laws. Paragraph (h) of the 2006 reg-ulations clarifies that compliance with theHIPAA nondiscrimination rules (whichwere later amended by the AffordableCare Act), including the wellness programrequirements in paragraph (f), is not de-terminative of compliance with any otherprovision of ERISA, or any other State orFederal law, including the ADA.29 Thisparagraph is unchanged by these finalregulations and remains in effect. Asstated in the preamble to the 2006 regu-lations,30 the Departments recognize thatmany other laws may regulate plans andissuers in their provision of benefits toparticipants and beneficiaries. These lawsinclude, 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 infavor of highly compensated individuals),the Genetic Information Nondiscrimina-tion Act of 2008, the Family and MedicalLeave Act, ERISA’s fiduciary provisions,and State law. The Departments did notattempt to summarize the requirementsof those laws in the 2006 regulations anddo not attempt to do so in these final reg-ulations. Employers, plans, issuers, andother service providers should considerthe applicability of these laws to their cov-erage and contact legal counsel or othergovernment agencies such as the EqualEmployment Opportunity Commissionand State Departments of Insurance if theyhave questions about those laws. As statedearlier in this preamble, this rulemakingdoes not modify paragraph (h) or any pro-visions of the 2006 regulations, other thanparagraph (f). The Departments reiteratethat compliance with these final regula-tions is not determinative of compliancewith any other applicable requirements.

I. Applicability Date

These final regulations are applicable togroup health plans and health insurance is-suers in the group and individual marketsfor plan years (in the individual market,policy years) beginning on or after January1, 2014, consistent with the statutory effec-tive date of PHS Act section 2705, as wellas PHS Act section 2701.

III. Economic Impact and PaperworkBurden

A. Executive Orders 12866 and13563—Department of Labor andDepartment of Health and HumanServices

Executive Orders 12866 and 13563direct agencies to assess all costs and ben-efits of available regulatory alternativesand, if regulation is necessary, to selectregulatory approaches that maximize netbenefits (including potential economic,environmental, public health and safetyeffects; distributive impacts; and equity).Executive Order 13563 emphasizes theimportance of quantifying both costs andbenefits, reducing costs, harmonizingrules, and promoting flexibility. The Of-fice of Management and Budget (OMB)has determined that this final rule is a “sig-nificant regulatory action’’ under section3(f)(4) of Executive Order 12866, becauseit raises novel legal or policy issues arisingfrom the President’s priorities. Accord-ingly, the rule has been reviewed by theOMB.

29 Moreover, in paragraph (b) of the 2006 regulations, the general rule governing the application of the nondiscrimination rules to benefits clarifies that whether any plan provision or practicewith respect to benefits complies with paragraph (b)(2)(i) does not affect whether the provision or practice is permitted under any other provision of the Code, ERISA, or the PHS Act, theAmericans with Disabilities Act, or any other law, whether State or Federal.

30 See 71 FR 75014, 75015 (December 13, 2006).

July 1, 2013 12 2013–27 I.R.B.

TABLE 1.—Accounting Table

Benefits Quantified: Minimal due to low expected use of higher reward limits.

Qualitative: Benefits include the ability to increase the reward based on a health factor toincentivize individuals to meet a health standard associated with improved health, which couldimprove the health of the individual and reduce health care costs. Improved standards couldreduce the use of wellness programs as a subterfuge for discrimination based on a health factor.

CostsQuantified: Minimal since employers are expected to create or expand wellness programs only ifthe 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 aspart of an alternative means of complying with the health standard. To the extent an individualfaces an increased cost for not meeting a health standard, the individual would have reducedresources to use for other purposes.

Transfers Quantified: Minimal due to low expected use of higher reward limits.

Qualitative: Transfers resulting from the rule include transfers from those who do not meet ahealth standard to those who do meet the standard or the associated alternative standard.

Based on the Departments’31 reviewof the most recent literature and studiesregarding wellness programs, as summa-rized in Table 1, the Departments havereached the conclusion that the impact ofthe benefits, costs, and transfers associatedwith the final rules will be minimal. Asdiscussed in this analysis, few health-con-tingent wellness programs today comeclose 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 believethat expanding the limit to 30 percent(or 50 percent for programs designed toprevent or reduce tobacco use) will re-sult in significantly higher participationof employers in such programs. The De-partments provide a qualitative discussionbelow and cite the survey data used to sub-stantiate this conclusion. Moreover, mostwellness programs appear to be participa-tory wellness programs that do not requirean individual to meet a standard related toa health factor in order to obtain a reward.As stated earlier in this preamble, theseparticipatory wellness programs are notrequired to meet the five requirements thatapply 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 fewplans will expand the reward percentage,the Departments provide a qualitativediscussion regarding the sources of bene-fits, costs, and transfers that could occurif plans were to expand the reward be-yond the current maximum of 20 percent.Currently, insufficient broad-based ev-idence makes it difficult to definitivelyassess the impact of workplace wellnessprograms on health outcomes and cost,although, overall, employers largely re-port that workplace wellness programs ingeneral (participatory wellness programsand health-contingent wellness programs)are delivering on their intended objectivesof improving health and reducing costs.

The one source of potential additionalcost discussed in the impact analysis is theclarification 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 employersalready pay for these alternatives. The De-partments do not have an estimate of howmany plans are not currently paying for al-ternatives consistent with the clarifications

set forth in the final regulations, but thenumber appears to be small. The Depart-ments also employ economic logic to con-clude that employers will create or expandtheir wellness program and provide rea-sonable alternatives only if the expectedbenefits 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 RegulatoryAction—Department of Labor andDepartment of Health and HumanServices

As discussed earlier in this preamble,on December 13, 2006, the Departmentspublished joint final regulations imple-menting the HIPAA nondiscriminationand wellness provisions, which, amongother things, allowed plans and issuerswith health-contingent wellness programsto vary benefits (including cost-sharingmechanisms), premiums, or contributionsbased on whether an individual has metthe standards of a wellness program thatmet five specific requirements. See sec-tion I.B. of this preamble for a detaileddiscussion of the HIPAA nondiscrimina-tion and wellness provisions and the 2006regulations.

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 theDepartments listed in the heading.

32 The 2012 RAND Employer Survey found that the maximum premium differential offered in a survey respondent was 16 percent.

2013–27 I.R.B. 13 July 1, 2013

C. Regulatory Alternatives—Departmentof Labor and Department of Health andHuman Services

The 2006 regulations outlined five spe-cific criteria that must be met for health-contingent wellness programs to complywith the nondiscrimination requirements,including that the total reward for wellnessprograms offered by a plan sponsor not ex-ceed 20 percent of the total cost of cover-age under the plan.33 As amended by theAffordable Care Act, the nondiscrimina-tion and wellness provisions of PHS Actsection 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 ahealth-contingent wellness program from20 percent to 30 percent and authorized theDepartments to increase the maximum re-ward to as much as 50 percent if the De-partments determine that such an increaseis appropriate.

PHS Act section 2701(a)(1)(A)(iv) pro-vides that issuers in the individual andsmall group markets cannot vary rates fortobacco use by more than a ratio of 1.5 to1 (that is, allowing up to a 50 percent pre-mium surcharge for tobacco use). PHS Actsection 2701 applies to non-grandfatheredhealth insurance coverage in the individualand small group markets, but does not ap-ply in the large group market or to self-in-sured plans. On February 27, 2013, HHSpublished 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 wellnessprogram meeting the standards of PHS Actsection 2705(j) and its implementing reg-ulations.34

An important policy goal of the De-partments is to provide the large groupmarket and self-insured plans and grand-fathered health plans with the same flex-ibility as non-grandfathered plans in thesmall group market to promote tobacco-free workforces. The Departments consid-

ered several regulatory alternatives to meetthis objective, including the following:

1. Stacking premium differentials. Onealternative considered was to permita 50 percent premium differentialfor tobacco use in the small groupmarket under PHS Act section 2701without requiring a reasonable al-ternative standard. Under PHS Actsection 2705, an additional 30 per-cent premium differential would alsobe permitted if the five criteria for ahealth-contingent wellness programwere met (including the offering of areasonable alternative standard). Un-der this option, an 80 percent premiumdifferential would have been allow-able in the small group market basedon factors related to health status.Large and self-insured plans wouldhave been limited to the 30 percentmaximum reward. Allowing such asubstantial difference between whatwas permissible in the small groupmarket and the large group marketwas not in line with the Departments’policy goal of providing consistencyin flexibility for plans.

2. Concurrent premium differentialswith no reasonable alternative re-quired to be offered for tobacco use.Another alternative would be to readsections 2701 and 2705 together suchthat, for non-grandfathered healthplans in the small group market, upto a 50 percent premium differentialwould be permitted based on tobaccouse, as authorized under PHS Actsection 2701(a)(1)(A)(iv), with noreasonable alternative standard re-quired for the tobacco use program.With respect to non-tobacco-relatedwellness programs, a reward could beoffered only to the extent that a to-bacco use wellness program were lessthan 30 percent of the cost of cover-age because the two provisions applyconcurrently, and a reward would notbe permitted under PHS Act section2705 if the maximum reward already

were exceeded by virtue of PHS Actsection 2701. Thus, the 50 percenttobacco surcharge under PHS Actsection 2701 would be available onlyto non-grandfathered, insured, smallgroup plans. The chosen approach isintended to avoid inconsistency andto provide grandfathered plans thesame flexibility to promote health andprevent disease as non-grandfatheredplans.

D. Current Use of Wellness Programs andEconomic Impacts—Department of Laborand Department of Health and HumanServices

The current use of wellness programsand economic impacts of these final reg-ulations are discussed in this analysis.

Wellness programs35 have becomecommon among employers in the UnitedStates. The 2012 Kaiser/HRET surveyindicates that 63 percent of all employerswho offered health benefits also offered atleast one wellness program.36 A RANDEmployer Survey found that 51 percent ofemployers offer wellness programs.37 Theuptake of wellness programs continues tobe more common among large employers.For example, the Kaiser/HRET surveyfound that health risk assessments are of-fered by 38 percent of large employersoffering health benefits, but only 18 per-cent of employers with fewer than 200workers.

The Kaiser/HRET survey indicates that27 percent of all firms and 65 percent oflarge firms offered weight loss programs,while 29 percent and 65 percent, respec-tively, offered gym memberships or on-siteexercise facilities. Meanwhile, 30 per-cent of all employers and 70 percent oflarge employers offered smoking cessationresources. Despite widespread availabil-ity, actual participation of employees inwellness programs remains limited. Whileno nationally representative data exist, a2010 non-representative survey suggeststhat typically less than 20 percent of eli-

33 See 26 CFR 54.9802–1(f)(2)(i), 29 CFR 2590.702(f)(2)(i), and 45 CFR 146.121(f)(2)(i).

34 See 45 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 canbe found at http://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, 2013 14 2013–27 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 onhealth 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 ContinuumAlliance (CCA) database39 found statisti-cally significant and clinically meaning-ful improvements in exercise frequency,smoking behavior, and weight control be-tween wellness program participants andnon-participants.

Overall, employers largely report thatworkplace wellness programs are deliver-ing on their intended benefit of improv-ing health and reducing costs. Accordingto the 2012 Kaiser/HRET survey, 73 per-cent of respondents that offered wellnessprograms stated that these programs im-proved employee health, and 52 percentbelieved that they reduced costs. Largerfirms (defined as those with more than200 workers in the Kaiser/HRET survey)were more positive in believing that well-ness programs reduced costs, as 68 percentsaid that it reduced cost, as opposed to 51percent among smaller firms.40 Forty per-cent of respondents to a survey by BuckConsultants indicated that they had mea-sured the impact of their wellness pro-gram on the growth trend of their healthcare 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 growthtrend of their health care costs was be-tween two and five percentage points peryear.41 There are numerous accounts ofthe positive impact of workplace wellnessprograms in many industries, regions, andtypes of employers. For example, RANDdetermined in their analysis that availabledata 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 the Har-vard Business Review cited 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 foundsignificantly higher quit rates or less to-bacco use.43 Smoking cessation programstypically offered education and counselingto increase social support.44 RAND foundnotable evidence of the effectiveness ofsmoking cessation programs in its analysisof the CCA database and case studies. TheCCA database analysis found that partici-pation in a program targeting smoking ces-sation decreases the smoking rate amongparticipating smokers by 30 percent in thefirst year. Employer D in RAND’s case

studies reported that a smoking cessationprogram helped 33 employees quit smok-ing, which resulted in a one-percentagepoint decrease in the total number of smok-ers. Two other studies reported that in-dividuals in the intervention group quitsmoking 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 asnonparticipants to reduce tobacco use.45

Overall, evidence on the effectivenessof wellness programs is promising, but it isnot yet conclusive. An in-depth evaluationof an extensive wellness program involv-ing a St. Louis hospital system found thatthe wellness program brought down inpa-tient hospitalization costs, but these costsavings were cancelled out by increasedoutpatient costs.46 Additionally, a recentarticle published by Health Affairs foundthat employer savings from wellness pro-grams may result more from cost shift-ing, rather than from healthier outcomesand reduced health care usage.47 Finally,a study investigating the effectiveness of asmoking 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 thesustainability of results.48

While employer plan sponsors gener-ally are satisfied with the results, more thanhalf stated in a recent survey that they donot know their programs’ return on invest-

38 Nyce, S. Boosting Wellness Participation Without Breaking the Bank. 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 andprescription claims, health risk assessment (HRA) responses, biometric screening information, and employee participation in health and wellness programs.

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. andL.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 ofan 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 comprehensiveworksite 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 impactof 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 tobacco use. See Gold, D.B., D.R. Anderson, and S.A. Serxner, Impact of a telephone-based intervention on the reduction of health risks. Am JHealth 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 Wellness Program Linked To HealthPlan 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. 15 July 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 onlytwo percent reported actual cost savings.When RAND conducted their case stud-ies, they found that none of their employershad formally evaluated their programs, al-though three of the five case studies did ex-amine some data metrics to conduct somelevel of assessment.

The Departments are mindful that thepeer-reviewed literature, while predomi-nantly positive, covers only a small pro-portion of the universe of programs, lim-iting the generalizability of the reportedfindings. Evaluating such complex inter-ventions is difficult and poses substantialmethodological 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, andtheir self-selection to participate in well-ness programs, from measures of the effec-tiveness of wellness programs themselves.

In the Departments’ impact analysis forthe proposed rules, available data indicatedthat 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 programsthat are not health-contingent programs.Over two-thirds of RAND Employee Sur-vey respondents reported using incentivesto promote employee participation in well-ness programs. The Kaiser/HRET Surveyalso reported that 41 percent offered anykind of incentive, which was nearly doublethe percent reporting some kind of incen-tive offering in 2010. Mercer Consulting’s2011 National Survey of Employer-Spon-sored Health Plans found similar patterns,estimating 33 percent of those with 500 ormore 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, arealso looking to continue to add incen-tives to their wellness programs. Forexample, the 2012 Mercer Survey foundthat as much as 87 percent of employerswith more than 200 employees plan toadd or strengthen incentive programs.51

TowersWatson found that 17 percent ofall employers intend to add a reward orpenalty based on tobacco-use status.52 Theuse of incentives to promote employeeengagement remains poorly understood,so it is not clear how type (for exam-ple, cash or non-cash), direction (rewardversus penalty), and strength of incen-tive are related to employee engagementand outcomes. The Health EnhancementResearch Organization and associatedorganizations also recognized this defi-ciency and provided seven questions forfuture research.53 There are also no dataon potential unintended effects, such asdiscrimination against employees basedon their health or health behaviors.

Currently, the most commonly incen-tivized program appears to be associatedwith completion of a health risk assess-ment. According to the RAND EmployerSurvey, 30 percent of employers with awellness program offered incentives forcompleting a health risk assessment. The2009 Mercer survey found similar results,reporting that 10 percent of all firms and23 percent of large employers that offereda health risk assessment provided an in-centive for completing the assessment.For other types of health management pro-grams that the survey assessed, only twoto four percent of all employers and 13to 19 percent of large employers offeredincentives.54 The Kaiser/HRET surveyfound that 63 percent of large firms thatoffered a health risk assessment provideda financial incentive to employees whocompleted it.

Cash and cash-equivalent incentives arethe most popular incentive for completionof a health risk assessment. The 2009 Mer-cer survey reports that five percent of allemployers and ten percent of those with500 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, theresults cited reflect the incentives providedby all firms that offer a health risk assess-ment.

Incentives may be triggered by a rangeof 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 aretriggered by program participation–forinstance, attending a class or initiating aprogram, such as a smoking cessation in-tervention. Other incentive programs mayrequire completion of a program, whetheror not any particular health-related goalsare achieved, to earn an incentive. Thehealth-contingent incentive programsrequire successfully meeting a specifichealth outcome (or an alternative standard)to trigger an incentive, such as verifiablyquitting smoking. Health-contingent in-centive programs appear to be among theleast common incentive schemes. Accord-ing to the RAND Employer Survey, only10 percent of employers with more than 50employees that offer a wellness programuse any incentives tied to health standards,only seven percent link the incentivesto health insurance premiums, and onlyseven percent administer results-basedincentives through their health plans.

The most common form of outcome-based incentives is reported to be awardedfor smoking cessation. The 2010 surveyby NBGH and TowersWatson indicatedthat 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 Health Employer 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, 2013 16 2013–27 I.R.B.

ployers offered a financial incentive foremployees to become tobacco-free, onlyfour percent offered financial incentivesfor maintaining a BMI within target lev-els, three percent did so for maintainingblood pressure within targets, and threepercent 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 tofour times as likely to reward participationas outcomes for other health factors. WhenRAND conducted its case studies for theDepartments, they found that four of fiveemployers targeted smoking cessation out-comes with incentives, whereas only twoof five employers had incentives for otheroutcomes.

The value of incentives can varywidely. Estimates from representative sur-veys of the average value of incentives peryear range between $15257 and $557,58 orbetween three and 11 percent of the $5,049average cost of individual coverage in2010,59 among employees who receivethem. According to the RAND EmployerSurvey, the maximum incentives aver-age less than 10 percent. This suggeststhat companies typically are not close toreaching the 20 percent of the total cost ofcoverage threshold set forth in the 2006regulations.

The Departments lack sufficient infor-mation to assess how firms that currentlyare at the 20 percent limit will respondto the increased limits. The Departmentsreceived comments indicating that somefirms may increase their limits, as permit-ted by the final rules; however, the numberof these firms currently at the 20 percentlimit is low. Furthermore, if a large num-ber of firms already viewed the current20 percent reward limit as sufficient, thenthe Departments would not expect that in-creasing the limit would provide an incen-tive for program design changes. Thesefindings indicate that, based on currentlyavailable data, increasing the maximum re-ward for particpating in a health-contin-

gent wellness program to 30 percent (andthe Departments’ decision to allow an ad-ditional 20 percentage points for programsdesigned to prevent or reduce tobacco use)is unlikely to have a significant impact.

It is possible that the increased wellnessprogram reward limits will incentivizefirms without health-contingent well-ness programs to establish them. TheDepartments, however, do not expect asignificant number of new programs to becreated as a result of this change becausefirms without health-contingent wellnessprograms could already have providedrewards up to the 20 percent limit beforethe enactment of the Affordable Care Act,but did not.

Two important elements of these finalregulations are (1) the standard that the re-ward under a health-contingent wellnessprogram be available to all similarly situ-ated individuals and (2) the standard thata program be reasonably designed to pro-mote health or prevent disease.60

As discussed earlier in this preamble,the final regulations do not prescribe aparticular type of alternative standard thatmust be provided. Instead, they permitplan sponsors flexibility to provide anyreasonable alternative. The Departmentsexpect that plan sponsors will select alter-natives that entail the minimum net costs(or, stated differently, the maximum netbenefits) that are possible to achieve off-setting benefits, such as a higher smokingcessation success rate.

It seems reasonable to presume that thenet cost plan sponsors will incur in the pro-vision of alternatives, including transfersas well as new economic costs and ben-efits, will not exceed the transfer cost ofwaiving surcharges for all individuals whoqualify for alternatives. The Departmentsexpect that many plan sponsors will findmore cost effective ways to satisfy this re-quirement, should they exercise the optionto provide incentives through a health-con-tingent wellness program, and that the truenet cost to them will therefore be muchsmaller than the transfer cost of waivingsurcharges for all plan participants whoqualify for alternatives. The Departments

have no basis for estimating the magnitudeof the cost of providing alternative stan-dards or of potential offsetting benefits atthis time.

The Departments note that plan spon-sors will have strong motivation to identifyand provide reasonable alternative stan-dards that have positive net economiceffects. Plan sponsors will be disinclinedto provide alternatives that underminetheir overall wellness program and worsenbehavioral and health outcomes, or thatmake financial rewards available ab-sent meaningful efforts by participants toimprove their health habits and overallhealth. Instead, plan sponsors will be in-clined to provide alternatives that sustainor reinforce plan participants’ incentiveto improve their health habits and overallhealth, and/or that help participants makesuch improvements. It therefore seemslikely that gains in economic welfare fromthis requirement will equal or outweighlosses. The Departments intend that therequirement to provide a reasonable al-ternative standard will eliminate instanceswhere wellness programs serve only toshift costs to higher risk individuals and in-crease instances where programs succeedat helping high risk individuals improvetheir health.

In considering the transfers that mightderive from the availability of (and par-ticipants’ satisfaction with) reasonable al-ternative standards, the transfers arisingfrom this requirement may take the formof transfers to individuals who satisfy areasonable alternative standard, to such in-dividuals from other individuals, or somecombination of these. The existence of ahealth-contigent wellness program createsa transfer from those who do not meet thestandard to those who do meet the stan-dard. Allowing individuals to satisfy areasonable alternative standard in order toqualify for a reward is a transfer to thosewho 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 encourageindividuals 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. 17 July 1, 2013

which in turn is associated with lowerhealth care costs. If the rewards are ef-fective, health care costs will be reducedas an individual’s health improves. Someof these lower health care costs couldtranslate into lower premiums paid by em-ployers and employees, which could offsetsome of the transfers. To the extent largerrewards are more effective at improvinghealth and lowering costs, these final reg-ulations will produce more benefits thanthe current requirements.

Rewards also could create costs to in-dividuals and to the extent the new largerrewards create more costs than smaller re-wards, these final regulations may increasethe costs relative to the 2006 regulations.To the extent an individual does not meeta standard or satisfy a reasonable alterna-tive standard, they could face higher costs.(For example, in the case of an individualparticipating in a wellness program with atobacco cessation program, a plan or issueris permitted to apply premium surcharge ofup to 50 percent for tobacco use if certainconditions are met.)

Based on the foregoing discussion, theDepartments expect the benefits, costs,and transfers associated with these finalregulations to be minimal. However, theDepartments are not able to provide aggre-gate estimates, because they do not havesufficent data to estimate the number ofplans that will take advantage of the newlimits.

E. Regulatory Flexibility Act —Department of Labor and Department ofHealth and Human Services

The Regulatory Flexibility Act (5U.S.C. 601 et seq.) (RFA) applies to mostFederal rules that are subject to the no-tice and comment requirements of section553(b) of the Administrative ProcedureAct (5 U.S.C. 551 et seq.). Unless anagency certifies that such a rule will nothave a significant economic impact on asubstantial number of small entities, sec-tion 603 of the RFA requires the agencyto present an initial regulatory flexibilityanalysis at the time of the publication of

the rulemaking describing the impact ofthe rule on small entities. Small entitiesinclude small businesses, organizationsand governmental jurisdictions.

For purposes of analysis under the RFA,the Departments consider a small entity tobe an employee benefit plan with fewerthan 100 participants. The basis of thisdefinition is found in section 104(a)(3) ofERISA, which permits the Secretary ofLabor to prescribe simplified annual re-ports for welfare benefit plans that coverfewer than 100 participants.61 While somelarge employers may have small plans, ingeneral, small employers maintain mostsmall 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 effecton small entities. The definition of smallentity considered appropriate for this pur-pose differs, however, from a definition ofsmall business that is based on size stan-dards promulgated by the Small BusinessAdministration (SBA) (13 CFR §121.201)pursuant to the Small Business Act (15U.S.C. 631 et seq.). The Departments re-quested comments on the appropriatenessof this size standard at the proposed rulestage and received several supportive re-sponses and no negative responses.

The Departments expect that these finalregulations will affect few small plans.While a large number of small plans offer awellness program, the 2012 Kaiser/HRETsurvey reported that only seven percent ofemployers with fewer than 200 employeeshad a wellness program that offered cashor cash equivalent incentives (includinggift cards, merchandise, or travel incen-tives.)62 In addition, only two percentof these firms offered lower employeehealth plan premiums to wellness par-ticipants, less than one percent offeredlower deductibles, and less than one per-cent offered higher health reimbursementaccount or health savings account con-tributions. Therefore, the Departmentsexpect that few small plans will be af-fected by increasing the rewards thresholdfrom 20 percent to 30 percent (50 per-cent for programs targeting tobacco use

prevention or reduction), because only asmall percentage of plans have health-con-tingent wellness programs. Moreover, asdiscussed in the Economic Impacts sectionearlier in this preamble, few plans thatoffer health-contingent wellness programscome close to reaching the 20 percentlimit, and most participatory wellnessprograms are associated with completingthe health risk assessment irrespective ofthe results, which are not subject to thelimitation.

The Kaiser/HRET survey also reportsthat about 80 percent of small plans hadtheir wellness programs provided by thehealth plan provider. Industry experts in-dicated to the Departments that when well-ness programs are offered by the healthplan provider, they typically supply alter-native education programs and offer themfree of charge. This finding indicates thatthe requirement in the final rule for health-contingent wellness programs to provideand pay for a reasonable alternative stan-dard for individuals for whom it is eitherunreasonably difficult or medically inad-visable to meet the original activity-onlystandard or for all individuals who fail tomeet the initial outcome-based standardwill impose little new costs or transfers tothe affected plans.

The Departments received a commentsuggesting that the rule would have a sig-nificant economic impact on small entitiesno matter how they are defined, because afinal regulation issued by HHS on Febru-ary 27, 2013, provided that that issuers inthe small group market can vary rates fortobacco use by up to a ratio of 1.5 to 1 (thatis, allowing up to a 50 percent premiumsurcharge for tobacco use), pursuant toPHS Act section 2701(a)(1)(A)(iv) onlyin connection with a wellness programmeeting the standards of PHS Act sec-tion 2705(j) and these final regulations.63

Since there are no data available to supportthis prediction, and the Departments onlyreceived one comment suggesting a sub-stantial increase in the number of wellnessprograms, the Departments do not believethat a substantial increase in the numberof wellness programs will occur.

61 Under ERISA section 104(a)(2), the Secretary may also provide exemptions or simplified reporting and disclosure requirements for pension plans. Pursuant to the authority of ERISAsection 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 provisionsand limited exemptions from reporting and disclosure requirements for small plans, including unfunded or insured welfare plans, that cover fewer than 100 participants and satisfy certainother 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, 2013 18 2013–27 I.R.B.

In the event that the number of wellnessprograms associated with small plans doesincrease, the Departments believe that thisfinal rule contains considerable regulatoryflexibility for plans to design wellness pro-grams that suit their needs. With this flex-ibility in mind, the Departments expectthat plans will only choose to offer a well-ness program if the benefits outweigh thecosts. If plans choose to offer a wellnessprogram, they will design one that mini-mizes costs and is not overly burdensome.With this design flexibility, this rule shouldnot disproportionately impact small enti-ties. Thus, the commenter has highlightedthe possibility that this final rule may affecta substantial number of small entities, butthe Departments do not see any evidenceto indicate that this final rule will have asignificant 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 ofsmall entities.

F. Paperwork Reduction Act—Departmentof Labor and Department of the Treasury

The 2006 regulations and the proposedregulations regarding wellness programsdid not include an information collectionrequest (ICR). As described earlier in thispreamble, these final regulations, like the2006 final regulations, require plans andissuers to disclose the availability of a rea-sonable alternative standard to qualify forthe 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). Thesefinal regulations clarify that a disclosureof the availability of a reasonable alterna-tive standard includes contact informationfor 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 includedin any disclosure that an individual did notsatisfy an initial outcome-based standard.If plan materials merely mention that sucha program is available, without describingits 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 providedas a result of state and local requirementsor the usual business practices of grouphealth 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 enablegroup health plans to make any necessarymodifications with minimal effort.

Finally, although the final regulationsdo not include an ICR, the regulationscould be interpreted to require a revisionto an existing collection of information.Administrators of group health plans cov-ered under Title I of ERISA are generallyrequired to make certain disclosures aboutthe terms of a plan and material changesin terms through a Summary Plan De-scription (SPD) or Summary of MaterialModifications (SMM) pursuant to sections101(a) and 102(a) of ERISA and relatedregulations. The ICR related to the SPDand SMM is currently approved by OMBunder OMB control number 1210–0039.While these materials may in some casesrequire revisions to comply with the fi-nal regulations, the associated burden isexpected to be negligible, and is alreadyaccounted for in the SPD, SMM, and theICR by a burden estimation methodol-ogy, which anticipates ongoing revisions.Based on the foregoing, the Departmentsdo not expect that any change to theexisting ICR arising from these final reg-ulations will be substantive or material.Accordingly, the Departments have notfiled an application for approval of a re-vision to the existing ICR with OMB inconnection with these final regulations.

G. Paperwork ReductionAct—Department of Health andHuman Services

As described in earlier in this preamble,the 2006 regulations and the proposed reg-ulations regarding wellness programs didnot include an information collection re-quest (ICR). As described earlier in thispreamble, these final regulations, like the2006 final regulations, require plans andissuers 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). Thesefinal regulations clarify that a disclosureof the availability of a reasonable alterna-tive standard includes contact informationfor 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 includedin any disclosure that an individual did notsatisfy an initial outcome-based standard.If plan materials merely mention that sucha program is available, without describingits 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 underOMB control number 0938–0819. Weare not seeking reinstatement of the in-formation collection request under theaforementioned OMB control number,since we believe that much of the infor-mation required is likely already providedas a result of state and local requirementsor the usual business practices of grouphealth plans and group health insuranceissuers in connection with the offer andpromotion of health care coverage. Inaddition, the sample disclosures wouldenable group health plans to make anynecessary modifications with minimal ef-fort.

H. Special Analyses — Department of theTreasury

For purposes of the Department of theTreasury it has been determined that thisfinal rule is not a significant regulatory ac-tion as defined in Executive Order 12866.Therefore, a regulatory assessment is notrequired. It has also been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these final regulations, and, be-cause these final regulations do not im-pose a collection of information on smallentities, a Regulatory Flexibility Analy-sis under the Regulatory Flexibility Act (5U.S.C. chapter 6) is not required. Pursuantto section 7805(f) of the Code, the notice of

2013–27 I.R.B. 19 July 1, 2013

proposed rulemaking preceding this finalrule was submitted to the Small BusinessAdministration for comment on its impacton small business.

I. Congressional Review Act

These final regulations are subject tothe Congressional Review Act provisionsof the Small Business Regulatory Enforce-ment Fairness Act of 1996 (5 U.S.C. 801et seq.) and will be transmitted to Con-gress and the Comptroller General for re-view. These regulations, do not constitutea “major rule,” as that term is defined in5 U.S.C. 804 because they are unlikely toresult in (1) an annual effect on the econ-omy of $100 million or more; (2) a majorincrease in costs or prices for consumers,individual industries, or federal, State orlocal government agencies, or geographicregions; or (3) significant adverse effectson competition, employment, investment,productivity, innovation, or on the abilityof 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 federalmandate that may result in expenditures bystate, local, or tribal governments, or bythe private sector, of $100 million or more,adjusted for inflation.64

K. Federalism Statement — Departmentof Labor and Department of Health andHuman Services

Executive Order 13132 outlines fun-damental principles of federalism, andrequires the adherence to specific criteriaby federal agencies in the process of theirformulation and implementation of poli-cies that have “substantial direct effects”on the states, the relationship between thenational government and states, or on thedistribution of power and responsibilitiesamong the various levels of government.Federal agencies promulgating regulations

that have these federalism implicationsmust consult with state and local officials,and describe the extent of their consulta-tion and the nature of the concerns of stateand local officials in the preamble to theregulation.

In the Departments’ view, these finalregulations have federalism implications,however, in the Departments’ view, thefederalism implications of these final regu-lations are substantially mitigated because,with respect to health insurance issuers, thevast majority of states have enacted laws,which meet or exceed the federal HIPAAstandards prohibiting discrimination basedon health factors. Therefore, the regula-tions are not likely to require substantialadditional oversight of states by the De-partment of HHS.

In general, through section 514, ERISAsupersedes state laws to the extent thatthey relate to any covered employee ben-efit plan, and preserves state laws thatregulate insurance, banking, or securi-ties. While ERISA prohibits states fromregulating a plan as an insurance or in-vestment company or bank, HIPAA addeda new preemption provision to ERISA(as well as to the PHS Act) narrowlypreempting state requirements for grouphealth insurance coverage. With respectto the HIPAA nondiscrimination provi-sions, states may continue to apply statelaw requirements except to the extent thatthe requirements prevent the applicationof the portability, access, and renewabilityrequirements of HIPAA, which includeHIPAA’s nondiscrimination requirementsprovisions. HIPAA’s Conference Re-port states that the conferees intended thenarrowest preemption of state laws withregard to health insurance issuers (H.R.Conf. Rep. No. 736, 104th Cong. 2dSession 205, 1996). State insurance lawsthat are more stringent than the federalrequirements are unlikely to “prevent theapplication of” the HIPAA nondiscrimi-nation provisions, and therefore are notpreempted. Accordingly, states have sig-nificant latitude to impose requirementson health insurance issuers that are morerestrictive than the federal law.

Guidance conveying this interpretationwas published in the Federal Register on

April 8, 1997 (62 FR 16904) and on De-cember 30, 2004 (69 FR 78720), and thesefinal regulations clarify and implement thestatute’s minimum standards and do notsignificantly reduce the discretion giventhe 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 ofHHS must enforce any provisions that astate chooses not to or fails to substan-tially enforce. When exercising its respon-sibility to enforce provisions of HIPAA,HHS works cooperatively with the Statefor the purpose of addressing the state’sconcerns and avoiding conflicts with theexercise of state authority.65 HHS has de-veloped procedures to implement its en-forcement responsibilities, and to affordthe 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 havefederalism implications or limit the policymaking discretion of the States, DOL andHHS have engaged in numerous efforts toconsult with and work cooperatively withaffected state and local officials.

The Departments received a commentletter suggesting that they failed to takeinto account the reduction in states’ to-bacco tax revenue that would occur ifthe proposed regulations result in fewerpeople smoking. The Departments notethat reduced tobacco tax revenue is oneof many indirect effects of reduced smok-ing. However, the Departments believethat any lost tax revenue will be morethan offset by the benefits to the pub-lic welfare that will result from reducedsmoking. As the commenter stated in itsletter, “[t]hrough employees’ active par-ticipation in nondiscriminatory wellnessprograms, sick leave, absenteeism, healthplan costs, and worker’s compensationwill be reduced. Needless to mention, ahealthier workforce is a more sustainableworkforce. Therefore, from the point ofview of public health, the rule greatlycontributes to the promotion of healthylifestyle of the states’ population. If everysmall 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 federalismapplies 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 thatdo not provide coverage through a health insurance issuer).

July 1, 2013 20 2013–27 I.R.B.

of their employees, the overall health ofthe states will be improved as well.”

In conclusion, throughout the processof developing these regulations, to theextent feasible within the specific pre-emption provisions of HIPAA, the De-partments have attempted to balance thestates’ interests in regulating health plansand health insurance issuers, and the rightsof those individuals that Congress in-tended to protect through the enactment ofHIPAA.

IV. Statutory Authority

The Department of the Treasury regula-tions are adopted pursuant to the authoritycontained in sections 7805 and 9833 of theCode.

The Department of Labor regulationsare 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), PublicLaw104–191, 110 Stat. 1936; sec. 401(b),Public Law 105–200, 112 Stat. 645 (42U.S.C. 651 note); sec. 512(d), PublicLaw 110–343, 122 Stat. 3881; sec. 1001,1201, and 1562(e), Public Law 111–148,124 Stat. 119, as amended by Public Law111–152, 124 Stat. 1029; Secretary of La-bor’s Order 1–2011, 77 FR 1088 (January9, 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 through2723, 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 amendmentsmade by the Affordable Care Act andsections 2701 through 2763, 2791, and2792 of the Public Health Service Act(42 U.S.C. 300gg through 300gg–63,300gg–91, and 300gg–92), as amended bythe Affordable Care Act; with respect to45 CFR Part 147, pursuant to the authoritycontained in sections 2701 through 2763,2791, and 2792 of the PHS Act (42 U.S.C.300gg through 300gg–63, 300gg–91, and300gg–92), as amended by the AffordableCare Act.

*****

Beth Tucker,Deputy Commissioner for

Operations Support,Internal Revenue Service.

Approved May 23, 2013

Mark Mazur,Assistant Secretary

of the Treasury (Tax Policy).

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 Healthand Human Services.

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Chapter I

Accordingly, 26 CFR Part 54 isamended as follows:

PART 54—PENSION EXCISE TAXES

Paragraph 1. The authority citation forpart 54 is amended by adding an entry for§54.9815–2705 in numerical order to readin 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 discriminationagainst participants and beneficiariesbased on a health factor.

* * * * *(f) Nondiscriminatory wellness pro-

grams — in general. A wellness programis a program of health promotion or dis-ease prevention. Paragraphs (b)(2)(ii) and

(c)(3) of this section provide exceptions tothe general prohibitions against discrim-ination based on a health factor for planprovisions that vary benefits (includingcost-sharing mechanisms) or the premiumor contribution for similarly situated in-dividuals in connection with a wellnessprogram that satisfies the requirements ofthis paragraph (f).

(1) Definitions. The definitions in thisparagraph (f)(1) govern in applying theprovisions of this paragraph (f).

(i) Reward. Except where expresslyprovided otherwise, references in this sec-tion to an individual obtaining a reward in-clude both obtaining a reward (such as adiscount 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) andavoiding a penalty (such as the absenceof a premium surcharge or other finan-cial or nonfinancial disincentive). Refer-ences in this section to a plan providinga reward include both providing a reward(such as a discount or rebate of a premiumor contribution, a waiver of all or part ofa cost-sharing mechanism, an additionalbenefit, or any financial or other incen-tive) and imposing a penalty (such as a sur-charge or other financial or nonfinancialdisincentive).

(ii) Participatory wellness programs. Ifnone of the conditions for obtaining a re-ward under a wellness program is based onan individual satisfying a standard that isrelated to a health factor (or if a wellnessprogram does not provide a reward), thewellness program is a participatory well-ness program. Examples of participatorywellness 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 thatprovides a reward for participation in thatprogram and does not base any part of thereward on outcomes.

(C) A program that encourages preven-tive care through the waiver of the co-payment or deductible requirement undera group health plan for the costs of, forexample, prenatal care or well-baby vis-its. (Note that, with respect to non-grand-fathered plans, §54.9815–2713T requiresbenefits for certain preventive health ser-vices without the imposition of cost shar-ing.)

2013–27 I.R.B. 21 July 1, 2013

(D) A program that reimburses employ-ees for the costs of participating, or thatotherwise provides a reward for participat-ing, in a smoking cessation program with-out regard to whether the employee quitssmoking.

(E) A program that provides a rewardto employees for attending a monthly,no-cost health education seminar.

(F) A program that provides a rewardto employees who complete a health riskassessment regarding current health status,without any further action (educational orotherwise) required by the employee withregard to the health issues identified as partof the assessment. (See also §54.9802–3Tfor rules prohibiting collection of geneticinformation.)

(iii) Health-contingent wellness pro-grams. A health-contingent wellnessprogram is a program that requires anindividual to satisfy a standard relatedto a health factor to obtain a reward (orrequires an individual to undertake morethan a similarly situated individual basedon a health factor in order to obtain thesame reward). A health-contingent well-ness program may be an activity-onlywellness program or an outcome-basedwellness program.

(iv) Activity-only wellness programs.An activity-only wellness program is atype of health-contingent wellness pro-gram that requires an individual to performor complete an activity related to a healthfactor in order to obtain a reward butdoes not require the individual to attain ormaintain a specific health outcome. Ex-amples include walking, diet, or exerciseprograms, which some individuals maybe unable to participate in or complete (orhave difficulty participating in or complet-ing) due to a health factor, such as severeasthma, pregnancy, or a recent surgery.See paragraph (f)(3) of this section forrequirements applicable to activity-onlywellness programs.

(v) Outcome-based wellness programs.An outcome-based wellness program isa type of health-contingent wellness pro-gram that requires an individual to attainor maintain a specific health outcome(such as not smoking or attaining certainresults on biometric screenings) in order toobtain a reward. To comply with the rulesof this paragraph (f), an outcome-basedwellness program typically has two tiers.That is, for individuals who do not attain

or maintain the specific health outcome,compliance with an educational programor an activity may be offered as an alter-native to achieve the same reward. Thisalternative pathway, however, does notmean that the overall program, which hasan outcome-based component, is not anoutcome-based wellness program. Thatis, if a measurement, test, or screening isused as part of an initial standard and indi-viduals who meet the standard are grantedthe reward, the program is considered anoutcome-based wellness program. Forexample, if a wellness program tests indi-viduals for specified medical conditions orrisk factors (including biometric screeningsuch as testing for high cholesterol, highblood pressure, abnormal body mass in-dex, or high glucose level) and provides areward to individuals identified as within anormal or healthy range for these medicalconditions or risk factors, while requiringindividuals who are identified as outsidethe normal or healthy range (or at risk) totake additional steps (such as meeting witha health coach, taking a health or fitnesscourse, adhering to a health improvementaction plan, complying with a walkingor exercise program, or complying witha health care provider’s plan of care) toobtain the same reward, the program isan outcome-based wellness program. Seeparagraph (f)(4) of this section for re-quirements applicable to outcome-basedwellness 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 violatethe provisions of this section only if par-ticipation in the program is made availableto 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 violatethe provisions of this section only if all ofthe following requirements are satisfied:

(i) Frequency of opportunity to qual-ify. The program must give individuals el-igible for the program the opportunity toqualify for the reward under the programat least once per year.

(ii) Size of reward. The reward for theactivity-only wellness program, togetherwith 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-onlycoverage under the plan. However, if, inaddition to employees, any class of depen-dents (such as spouses, or spouses and de-pendent children) may participate in thewellness program, the reward must not ex-ceed the applicable percentage of the totalcost of the coverage in which an employeeand any dependents are enrolled. For pur-poses of this paragraph (f)(3)(ii), the costof coverage is determined based on the to-tal amount of employer and employee con-tributions towards the cost of coverage forthe benefit package under which the em-ployee is (or the employee and any depen-dents are) receiving coverage.

(iii) Reasonable design. The programmust be reasonably designed to promotehealth or prevent disease. A program sat-isfies this standard if it has a reasonablechance of improving the health of, or pre-venting disease in, participating individu-als, and it is not overly burdensome, is nota subterfuge for discriminating based ona health factor, and is not highly suspectin the method chosen to promote healthor prevent disease. This determination isbased on all the relevant facts and circum-stances.

(iv) Uniform availability and reason-able alternative standards. The full re-ward under the activity-only wellness pro-gram must be available to all similarly sit-uated individuals.

(A) Under this paragraph (f)(3)(iv), areward under an activity-only wellnessprogram is not available to all similarlysituated individuals for a period unlessthe program meets both of the followingrequirements:

(1) The program allows a reasonable al-ternative standard (or waiver of the other-wise applicable standard) for obtaining thereward for any individual for whom, forthat period, it is unreasonably difficult dueto 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 thereward for any individual for whom, forthat period, it is medically inadvisable toattempt to satisfy the otherwise applicablestandard.

July 1, 2013 22 2013–27 I.R.B.

(B) While plans and issuers are notrequired to determine a particular rea-sonable alternative standard in advanceof an individual’s request for one, if anindividual is described in either paragraph(f)(3)(iv)(A)(1) or (2) of this section, areasonable alternative standard must befurnished by the plan or issuer upon theindividual’s request or the condition forobtaining the reward must be waived.

(C) All the facts and circumstances aretaken into account in determining whethera plan or issuer has furnished a reasonablealternative standard, including but not lim-ited to the following:

(1) If the reasonable alternative stan-dard is completion of an educational pro-gram, the plan or issuer must make the ed-ucational program available or assist theemployee in finding such a program (in-stead of requiring an individual to findsuch a program unassisted), and may notrequire an individual to pay for the cost ofthe program.

(2) The time commitment required mustbe reasonable (for example, requiring at-tendance nightly at a one-hour class wouldbe unreasonable).

(3) If the reasonable alternative stan-dard is a diet program, the plan or issueris not required to pay for the cost of foodbut 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 theplan’s medical professional) is not med-ically appropriate for that individual, theplan or issuer must provide a reasonable al-ternative standard that accommodates therecommendations of the individual’s per-sonal physician with regard to medical ap-propriateness. Plans and issuers may im-pose standard cost sharing under the planor coverage for medical items and servicesfurnished pursuant to the physician’s rec-ommendations.

(D) To the extent that a reasonable al-ternative standard under an activity-onlywellness program is, itself, an activ-ity-only wellness program, it must complywith the requirements of this paragraph(f)(3) in the same manner as if it were aninitial program standard. (Thus, for exam-ple, if a plan or issuer provides a walkingprogram as a reasonable alternative stan-dard to a running program, individualsfor whom it is unreasonably difficult due

to a medical condition to complete thewalking program (or for whom it is med-ically inadvisable to attempt to completethe walking program) must be provideda reasonable alternative standard to thewalking program.) To the extent that areasonable alternative standard under anactivity-only wellness program is, itself,an outcome-based wellness program, itmust comply with the requirements ofparagraph (f)(4) of this section, includingparagraph (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 healthfactor makes it unreasonably difficult forthe individual to satisfy, or medically in-advisable for the individual to attemptto satisfy, the otherwise applicable stan-dard of an activity-only wellness program.Plans and issuers may seek verificationwith respect to requests for a reasonablealternative standard for which it is reason-able to determine that medical judgmentis required to evaluate the validity of therequest.

(v) Notice of availability of reasonablealternative standard. The plan or issuermust disclose in all plan materials describ-ing the terms of an activity-only wellnessprogram the availability of a reasonablealternative standard to qualify for the re-ward (and, if applicable, the possibility ofwaiver of the otherwise applicable stan-dard), including contact information forobtaining a reasonable alternative standardand a statement that recommendations ofan individual’s personal physician will beaccommodated. If plan materials merelymention that such a program is available,without describing its terms, this disclo-sure is not required. Sample language isprovided in paragraph (f)(6) of this section,as well as in certain examples of this sec-tion.

(vi) Example. The provisions of thisparagraph (f)(3) are illustrated by the fol-lowing example:

Example. (i) Facts. A group health plan providesa 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 inadvisablefor an individual to attempt to participate), the planwill waive the walking program requirement and pro-vide the reward. All materials describing the terms ofthe walking program disclose the availability of thewaiver.

(ii) Conclusion. In this Example, the programsatisfies the requirements of paragraph (f)(3)(iii) ofthis 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 underthe program is available to all similarly situated in-dividuals. It accommodates individuals for whom itis unreasonably difficult to participate in the walk-ing program due to a medical condition (or for whomit would be medically inadvisable to attempt to par-ticipate) by providing them with the reward even ifthey do not participate in the walking program (thatis, by waiving the condition). The plan also complieswith 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-basedwellness programs. A health-contingentwellness program that is an outcome-basedwellness program, as described in para-graph (f)(1)(v) of this section, does notviolate the provisions of this section onlyif all of the following requirements aresatisfied:

(i) Frequency of opportunity to qual-ify. The program must give individuals el-igible for the program the opportunity toqualify for the reward under the programat least once per year.

(ii) Size of reward. The reward forthe outcome-based wellness program, to-gether with the reward for other health-contingent wellness programs with respectto the plan, must not exceed the appli-cable percentage (as defined in paragraph(f)(5) of this section) of the total cost ofemployee-only coverage under the plan.However, if, in addition to employees, anyclass of dependents (such as spouses, orspouses 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 coveragein which an employee and any dependentsare enrolled. For purposes of this para-graph (f)(4)(ii), the cost of coverage isdetermined based on the total amount ofemployer and employee contributions to-wards the cost of coverage for the benefitpackage under which the employee is (orthe employee and any dependents are) re-ceiving coverage.

(iii) Reasonable design. The programmust be reasonably designed to promotehealth or prevent disease. A program sat-isfies this standard if it has a reasonablechance 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. 23 July 1, 2013

a subterfuge for discriminating based ona health factor, and is not highly suspectin the method chosen to promote healthor prevent disease. This determination isbased on all the relevant facts and circum-stances. To ensure that an outcome-basedwellness program is reasonably designedto 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 thereward must be provided to any individ-ual who does not meet the initial standardbased 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. The full re-ward under the outcome-based wellnessprogram must be available to all similarlysituated individuals.

(A) Under this paragraph (f)(4)(iv), areward under an outcome-based wellnessprogram is not available to all similarly sit-uated individuals for a period unless theprogram allows a reasonable alternativestandard (or waiver of the otherwise ap-plicable standard) for obtaining the rewardfor any individual who does not meet theinitial 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 reasonablealternative standard in advance of an indi-vidual’s request for one, if an individualis described in paragraph (f)(4)(iv)(A) ofthis section, a reasonable alternative stan-dard must be furnished by the plan or is-suer upon the individual’s request or thecondition for obtaining the reward must bewaived.

(C) All the facts and circumstances aretaken into account in determining whethera plan or issuer has furnished a reasonablealternative standard, including but not lim-ited to the following:

(1) If the reasonable alternative stan-dard is completion of an educational pro-gram, the plan or issuer must make the ed-ucational program available or assist theemployee in finding such a program (in-stead of requiring an individual to findsuch a program unassisted), and may notrequire an individual to pay for the cost ofthe program.

(2) The time commitment required mustbe reasonable (for example, requiring at-tendance nightly at a one-hour class wouldbe unreasonable).

(3) If the reasonable alternative stan-dard is a diet program, the plan or issueris not required to pay for the cost of foodbut 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 theplan’s medical professional) is not med-ically appropriate for that individual, theplan or issuer must provide a reasonable al-ternative standard that accommodates therecommendations of the individual’s per-sonal physician with regard to medical ap-propriateness. Plans and issuers may im-pose standard cost sharing under the planor coverage for medical items and servicesfurnished pursuant to the physician’s rec-ommendations.

(D) To the extent that a reasonable alter-native standard under an outcome-basedwellness program is, itself, an activ-ity-only wellness program, it must complywith the requirements of paragraph (f)(3)of this section in the same manner as if itwere an initial program standard. To theextent that a reasonable alternative stan-dard under an outcome-based wellnessprogram is, itself, another outcome-basedwellness program, it must comply withthe requirements of this paragraph (f)(4),subject to the following special rules:

(1) The reasonable alternative standardcannot 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. Forexample, if the initial standard is to achievea BMI less than 30, the reasonable alterna-tive standard cannot be to achieve a BMIless than 31 on that same date. However,if the initial standard is to achieve a BMIless than 30, a reasonable alternative stan-dard for the individual could be to reducethe individual’s BMI by a small amount orsmall percentage, over a realistic period oftime, 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 physicianas a second reasonable alternative standardto meeting the reasonable alternative stan-dard defined by the plan or issuer, but onlyif the physician joins in the request. The

individual can make a request to involve apersonal physician’s recommendations atany time and the personal physician canadjust the physician’s recommendations atany 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 healthfactor makes it unreasonably difficult forthe individual to satisfy, or medically in-advisable for the individual to attempt tosatisfy, the otherwise applicable standardas a condition of providing a reasonable al-ternative to the initial standard. However,if a plan or issuer provides an alternativestandard to the otherwise applicable mea-surement, test, or screening that involvesan activity that is related to a health fac-tor, then the rules of paragraph (f)(3) ofthis section for activity-only wellness pro-grams apply to that component of the well-ness program and the plan or issuer may, ifreasonable under the circumstances, seekverification 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 toperform or complete the activity). (For ex-ample, if an outcome-based wellness pro-gram requires participants to maintain acertain healthy weight and provides a dietand exercise program for individuals whodo not meet the targeted weight, a plan orissuer may seek verification, as describedin paragraph (f)(3)(iv)(D) of this section,if reasonable under the circumstances, thata second reasonable alternative standard isneeded for certain individuals because, forthose individuals, it would be unreason-ably difficult due to a medical conditionto comply, or medically inadvisable to at-tempt to comply, with the diet and exerciseprogram, due to a medical condition.)

(v) Notice of availability of reasonablealternative standard. The plan or issuermust disclose in all plan materials describ-ing the terms of an outcome-based well-ness program, and in any disclosure thatan individual did not satisfy an initial out-come-based standard, the availability of areasonable alternative standard to qualifyfor the reward (and, if applicable, the pos-sibility of waiver of the otherwise applica-ble standard), including contact informa-tion for obtaining a reasonable alternativestandard and a statement that recommen-

July 1, 2013 24 2013–27 I.R.B.

dations of an individual’s personal physi-cian will be accommodated. If plan mate-rials merely mention that such a programis available, without describing its terms,this disclosure is not required. Sample lan-guage is provided in paragraph (f)(6) ofthis section, as well as in certain examplesof this section.

(vi) Examples. The rules of this para-graph (f)(4) are illustrated by the followingexamples:

Example 1 — Cholesterol screening with rea-sonable alternative standard to work with personalphysician. (i) Facts. A group health plan offersa reward to participants who achieve a count un-der 200 on a total cholesterol test. If a participantdoes not achieve the targeted cholesterol count, theplan allows the participant to develop an alterna-tive cholesterol action plan in conjunction with theparticipant’s personal physician that may includerecommendations for medication and additionalscreening. The plan allows the physician to modifythe standards, as medically necessary, over the year.(For example, if a participant develops asthma ordepression, requires surgery and convalescence, orsome other medical condition or consideration makescompletion of the original action plan inadvisableor unreasonably difficult, the physician may modifythe original action plan.) All plan materials describ-ing the terms of the program include the followingstatement: “Your health plan wants to help you takecharge of your health. Rewards are available to allemployees who participate in our Cholesterol Aware-ness Wellness Program. If your total cholesterolcount is under 200, you will receive the reward. Ifnot, you will still have an opportunity to qualify forthe reward. We will work with you and your doctorto find a Health Smart program that is right for you.”In addition, when any individual participant receivesnotification that his or her cholesterol count is 200or higher, the notification includes the followingstatement: “Your plan offers a Health Smart programunder which we will work with you and your doctorto try to lower your cholesterol. If you completethis program, you will qualify for a reward. Pleasecontact us at [contact information] to get started.”

(ii) Conclusion. In this Example 1, the programis an outcome-based wellness program because theinitial standard requires an individual to attain ormaintain a specific health outcome (a certain choles-terol level) to obtain a reward. The program satisfiesthe requirements of paragraph (f)(4)(iii) of this sec-tion because the cholesterol program is reasonablydesigned to promote health and prevent disease.The program satisfies the requirements of paragraph(f)(4)(iv) of this section because it makes availableto all participants who do not meet the cholesterolstandard a reasonable alternative standard to qualifyfor the reward. Lastly, the plan also discloses in allmaterials describing the terms of the program andin any disclosure that an individual did not satisfythe initial outcome-based standard the availability ofa reasonable alternative standard (including contactinformation and the individual’s ability to involve hisor 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 physicianinvolvement. (i) Facts. Same facts as Example 1,except that the wellness program’s physician or nursepractitioner (rather than the individual’s personalphysician) determines the alternative cholesterol ac-tion plan. The plan does not provide an opportunityfor a participant’s personal physician to modify theaction plan if it is not medically appropriate for thatindividual.

(ii) Conclusion. In this Example 2, the wellnessprogram does not satisfy the requirements of para-graph (f)(4)(iii) of this section because the programdoes not accommodate the recommendations of theparticipant’s personal physician with regard to med-ical appropriateness, as required under paragraph(f)(4)(iv)(C)(3) of this section. Thus, the program isnot reasonably designed under paragraph (f)(4)(iii)of this section and is not available to all similarlysituated individuals under paragraph (f)(4)(iv) ofthis section. The notice also does not provide allthe content required under paragraph (f)(4)(v) of thissection.

Example 3 — Cholesterol screening with plan al-ternative that can be modified by personal physician.(i) Facts. Same facts as Example 2, except that if aparticipant’s personal physician disagrees with anypart of the action plan, the personal physician maymodify the action plan at any time, and the plan dis-closes this to participants.

(ii) Conclusion. In this Example 3, the wellnessprogram satisfies the requirements of paragraph(f)(4)(iii) of this section because the participant’spersonal physician may modify the action plan deter-mined by the wellness program’s physician or nursepractitioner at any time if the physician states that therecommendations are not medically appropriate, asrequired under paragraph (f)(4)(iv)(C)(3) of this sec-tion. Thus, the program is reasonably designed underparagraph (f)(4)(iii) of this section and is availableto all similarly situated individuals under paragraph(f)(4)(iv) of this section. The notice, which includesa statement that recommendations of an individual’spersonal 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 willprovide a reward to participants who have a bodymass index (BMI) that is 26 or lower, determinedshortly before the beginning of the year. Any par-ticipant who does not meet the target BMI is giventhe same discount if the participant complies with anexercise 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 participantfor whom it is medically inadvisable to attempt tocomply with the walking program) during the year isgiven the same discount if the participant satisfies analternative standard that is reasonable taking into con-sideration the participant’s medical situation, is notunreasonably burdensome or impractical to complywith, and is otherwise reasonably designed based onall the relevant facts and circumstances. All plan ma-terials describing the terms of the wellness programinclude the following statement: “Fitness is Easy!Start Walking! Your health plan cares about your

health. If you are considered overweight because youhave a BMI of over 26, our Start Walking programwill help you lose weight and feel better. We willhelp you enroll. (**If your doctor says that walk-ing isn’t right for you, that’s okay too. We will workwith you (and, if you wish, your own doctor) to de-velop a wellness program that is.)” Participant E isunable to achieve a BMI that is 26 or lower within theplan’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 medicalcondition for E to comply with the walking program.E proposes a program based on the recommendationsof E’s physician. The plan agrees to make the samediscount available to E that is available to other par-ticipants in the BMI program or the alternative walk-ing program, but only if E actually follows the physi-cian’s recommendations.

(ii) Conclusion. In this Example 4, the program isan 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 becauseit 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 itmakes available to all individuals who do not satisfythe BMI standard a reasonable alternative standard toqualify for the reward (in this case, a walking programthat is not unreasonably burdensome or impracticalfor individuals to comply with and that is otherwisereasonably designed based on all the relevant factsand circumstances). In addition, the walking pro-gram is, itself, an activity-only standard and the plancomplies with the requirements of paragraph (f)(3) ofthis section (including the requirement of paragraph(f)(3)(iv) that, if there are individuals for whom it isunreasonably difficult due to a medical condition tocomply, or for whom it is medically inadvisable to at-tempt to comply, with the walking program, the planprovide a reasonable alternative to those individuals).Moreover, the plan satisfies the requirements of para-graph (f)(4)(v) of this section because it discloses, inall materials describing the terms of the program andin any disclosure that an individual did not satisfy theinitial outcome-based standard, the availability of areasonable alternative standard (including contact in-formation and the individual’s option to involve hisor her personal physician) to qualify for the rewardor 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 thissection.

Example 5 — BMI screening with alternativesavailable to either lower BMI or meet personal physi-cian’s recommendations. (i) Facts. Same facts asExample 4 except that, with respect to any partici-pant who does not meet the target BMI, instead of awalking program, the participant is expected to re-duce BMI by one point. At any point during theyear upon request, any individual can obtain a secondreasonable alternative standard, which is compliancewith the recommendations of the participant’s per-sonal physician regarding weight, diet, and exerciseas 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 oradjust the treatment plan at any time and the option of

2013–27 I.R.B. 25 July 1, 2013

following the participant’s personal physician’s rec-ommendations is clearly disclosed.

(ii) Conclusion. In this Example 5, the reasonablealternative standard to qualify for the reward (the al-ternative BMI standard requiring a one-point reduc-tion) does not make the program unreasonable underparagraph (f)(4)(iii) or (iv) of this section because theprogram complies with paragraph (f)(4)(iv)(C)(4) ofthis section by allowing a second reasonable alterna-tive standard to qualify for the reward (compliancewith the recommendations of the participant’s per-sonal physician, which can be changed or adjustedat any time). Accordingly, the program continues tosatisfy the applicable requirements of paragraph (f)of this section.

Example 6 — Tobacco use surcharge with smok-ing cessation program alternative. (i) Facts. In con-junction with an annual open enrollment period, agroup health plan provides a premium differentialbased on tobacco use, determined using a health riskassessment. The following statement is included inall plan materials describing the tobacco premiumdifferential: “Stop smoking today! We can help! Ifyou are a smoker, we offer a smoking cessation pro-gram. If you complete the program, you can avoidthis surcharge.” The plan accommodates participantswho smoke by facilitating their enrollment in a smok-ing cessation program that requires participation ata time and place that are not unreasonably burden-some or impractical for participants, and that is oth-erwise reasonably designed based on all the relevantfacts and circumstances, and discloses contact infor-mation and the individual’s option to involve his orher personal physician. The plan pays for the cost ofparticipation in the smoking cessation program. Anyparticipant can avoid the surcharge for the plan yearby participating in the program, regardless of whetherthe participant stops smoking, but the plan can requirea participant who wants to avoid the surcharge in asubsequent year to complete the smoking cessationprogram again.

(ii) Conclusion. In this Example 6, the premiumdifferential satisfies the requirements of paragraphs(f)(4)(iii), (iv), and (v). The program is an outcome-based wellness program because the initial standardfor obtaining a reward is dependent on the resultsof a health risk assessment (a measurement, test, orscreening). The program is reasonably designed un-der paragraph (f)(4)(iii) because the plan providesa reasonable alternative standard (as required underparagraph (f)(4)(iv) of this section) to qualify for thereward to all tobacco users (a smoking cessation pro-gram). The plan discloses, in all materials describingthe terms of the program, the availability of the rea-sonable alternative standard (including contact infor-mation and the individual’s option to involve his orher personal physician). Thus, the program satisfiesthe 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 notprovide participant F with the reward in subsequentyears unless F actually stops smoking after participat-ing in the tobacco cessation program.

(ii) Conclusion. In this Example 7, the program isnot reasonably designed under paragraph (f)(4)(iii) ofthis 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 asmoking cessation program. The plan must continueto offer a reasonable alternative standard whether itis the same or different (such as a new recommen-dation from F’s personal physician or a new nicotinereplacement therapy).

Example 8 — Tobacco use surcharge with smok-ing cessation program alternative that is not reason-able. (i) Facts. Same facts as Example 6, except theplan does not facilitate participant F’s enrollment in asmoking cessation program. Instead the plan advisesF to find a program, pay for it, and provide a certifi-cate of completion to the plan.

(ii) Conclusion. In this Example 8, the require-ment for F to find and pay for F’s own smoking ces-sation program means that the alternative program isnot reasonable. Accordingly, the plan has not offereda reasonable alternative standard that complies withparagraphs (f)(4)(iii) and (iv) of this section and theprogram fails to satisfy the requirements of paragraph(f) of this section.

(5) Applicable percentage—(i) For pur-poses of this paragraph (f), the applicablepercentage is 30 percent, except that theapplicable percentage is increased by anadditional 20 percentage points (to 50 per-cent) to the extent that the additional per-centage is in connection with a programdesigned 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 sponsorsa group health plan. The annual premium foremployee-only coverage is $6,000 (of which theemployer pays $4,500 per year and the employeepays $1,500 per year). The plan offers employeesa health-contingent wellness program with sev-eral components, focused on exercise, blood sugar,weight, cholesterol, and blood pressure. The rewardfor compliance is an annual premium rebate of $600.

(ii) Conclusion. In this Example 1, the rewardfor the wellness program, $600, does not exceed theapplicable percentage of 30 percent of the total annualcost of employee-only coverage, $1,800. ($6,000 x30% = $1,800.)

Example 2. (i) Facts. Same facts as Example 1,except the wellness program is exclusively a tobaccoprevention program. Employees who have used to-bacco in the last 12 months and who are not enrolledin the plan’s tobacco cessation program are chargeda $1,000 premium surcharge (in addition to their em-ployee contribution towards the coverage). (Thosewho participate in the plan’s tobacco cessation pro-gram are not assessed the $1,000 surcharge.)

(ii) Conclusion. In this Example 2, the rewardfor the wellness program (absence of a $1,000 sur-charge), does not exceed the applicable percentage of50 percent of the total annual cost of employee-onlycoverage, $3,000. ($6,000 x 50% = $3,000.)

Example 3. (i) Facts. Same facts as Example 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 enrolledin the plan’s tobacco cessation program. (Those whoparticipate in the plan’s tobacco cessation programare not assessed the $2,000 surcharge.)

(ii) Conclusion. In this Example 3, the total ofall rewards (including absence of a surcharge for par-ticipating in the tobacco program) is $2,600 ($600 +$2,000 = $2,600), which does not exceed the applica-ble percentage of 50 percent of the total annual costof 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 applicablepercentage of 30 percent of the total annual cost ofemployee-only coverage ($1,800).

Example 4. (i) Facts. An employer sponsors agroup health plan. The total annual premium foremployee-only coverage (including both employerand employee contributions towards the coverage) is$5,000. The plan provides a $250 reward to employ-ees who complete a health risk assessment, withoutregard to the health issues identified as part of theassessment. The plan also offers a Healthy Heartprogram, which is a health-contingent wellness pro-gram, with an opportunity to earn a $1,500 reward.

(ii) Conclusion. In this Example 4, even thoughthe total reward for all wellness programs under theplan is $1,750 ($250 + $1,500 = $1,750, which ex-ceeds the applicable percentage of 30 percent of thecost 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) aremet. (The $250 reward is offered in connection witha participatory wellness program and therefore is nottaken into account.) Accordingly, the health-contin-gent wellness program offers a reward that does notexceed the applicable percentage of 30 percent of thetotal annual cost of employee-only coverage.

(6) Sample language. The followinglanguage, or substantially similar lan-guage, can be used to satisfy the noticerequirement of paragraphs (f)(3)(v) or(f)(4)(v) of this section: “Your health planis committed to helping you achieve yourbest health. Rewards for participating in awellness program are available to all em-ployees. If you think you might be unableto meet a standard for a reward under thiswellness program, you might qualify foran opportunity to earn the same reward bydifferent means. Contact us at [insert con-tact information] and we will work withyou (and, if you wish, with your doctor)to find a wellness program with the samereward that is right for you in light of yourhealth status.”

* * * * *3. Section 54.9815–2705 is added to

read as follows:

July 1, 2013 26 2013–27 I.R.B.

§54.9815–2705 Prohibitingdiscrimination against participants andbeneficiaries based on a health factor.

(a) In general. A group health plan anda health insurance issuer offering group

health insurance coverage must complywith the requirements of §54.9802–1.

(b) Applicability date. This section isapplicable to group health plans and healthinsurance issuers offering group health in-

surance coverage for plan years beginningon 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 Registerfor June 3, 2013, 78 FR 33158)

2013–27 I.R.B. 27 July 1, 2013

Part III. Administrative, Procedural, and MiscellaneousRev. Proc. 2013–28

SECTION 1. PURPOSE

This revenue procedure provides is-suers of qualified mortgage bonds, asdefined in section 143(a) of the InternalRevenue Code, and issuers of mortgagecredit certificates, as defined in section25(c), with (1) the nationwide averagepurchase price for residences located inthe United States, and (2) average areapurchase price safe harbors for residenceslocated in statistical areas in each state,the District of Columbia, Puerto Rico,the Northern Mariana Islands, AmericanSamoa, the Virgin Islands, and Guam.

SECTION 2. BACKGROUND

.01 Section 103(a) provides that, exceptas provided in section 103(b), gross in-come does not include interest on any stateor local bond. Section 103(b)(1) providesthat section 103(a) shall not apply to anyprivate activity bond that is not a “qualifiedbond” within the meaning of section 141.Section 141(e) provides, in part, that theterm “qualified bond” means any privateactivity bond if such bond (1) is a quali-fied mortgage bond under section 143, (2)meets the volume cap requirements undersection 146, and (3) meets the applicablerequirements under section 147.

.02 Section 143(a)(1) provides that theterm “qualified mortgage bond” means abond that is issued as part of a qualifiedmortgage issue. Section 143(a)(2)(A) pro-vides that the term “qualified mortgage is-sue” means an issue of one or more bondsby a state or political subdivision thereof,but only if: (i) all proceeds of the issue (ex-clusive of issuance costs and a reasonablyrequired reserve) are to be used to financeowner-occupied residences; (ii) the issuemeets the requirements of subsections (c),(d), (e), (f), (g), (h), (i), and (m)(7) of sec-tion 143; (iii) the issue does not meet theprivate business tests of paragraphs (1) and(2) of section 141(b); and (iv) with respectto amounts received more than 10 yearsafter the date of issuance, repayments of$250,000 or more of principal on mortgagefinancing provided by the issue are used bythe close of the first semiannual period be-

ginning after the date the prepayment (orcomplete repayment) is received to redeembonds that are part of the issue.

Average Area Purchase Price.03 Section 143(e)(1) provides that an

issue of bonds meets the purchase pricerequirements of section 143(e) if the ac-quisition cost of each residence financedby the issue does not exceed 90 percent ofthe average area purchase price applicableto 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 theterm “average area purchase price” means,with respect to any residence, the averagepurchase 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 forwhich sufficient statistical information isavailable. Under sections 143(e)(3) and(4), respectively, separate determinationsare 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 thedetermination of the average area purchaseprice for a statistical area shall be made asof the date on which the commitment toprovide the financing is made or, if earlier,the date of the purchase of the residence.

.06 Section 143(k)(2)(A) provides thatthe term “statistical area” means (i) ametropolitan statistical area (MSA), and(ii) any county (or the portion thereof)that is not within an MSA. Section143(k)(2)(C) further provides that if suf-ficient recent statistical information withrespect to a county (or portion thereof)is unavailable, the Secretary may sub-stitute another area for which there issufficient recent statistical information forsuch county (or portion thereof). In thecase of any portion of a State which isnot within a county, section 143(k)(2)(D)provides that the Secretary may designateas a county any area that is the equivalentof a county. Section 6a.103A–1(b)(4)(i)of the Temporary Income Tax Regulations(issued under section 103A of the InternalRevenue Code of 1954, the predecessor ofsection 143) provides that the term “State”

includes a possession of the United Statesand 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 Treasuryfor the statistical area in which a residenceis located. Section 6a.103A–2(f)(5)(i)further provides that an issuer may usean average area purchase price limitationdifferent from the published safe harbor ifthe issuer has more accurate and compre-hensive data for the statistical area.

Qualified Mortgage Credit CertificateProgram

.08 Section 25(c) permits a state orpolitical subdivision to establish a quali-fied mortgage credit certificate program.In general, a qualified mortgage creditcertificate program is a program underwhich the issuing authority elects not toissue an amount of private activity bondsthat it may otherwise issue during thecalendar year under section 146, and intheir place, issues mortgage credit certifi-cates to taxpayers in connection with theacquisition of their principal residences.Section 25(a)(1) provides, in general, thatthe holder of a mortgage credit certificatemay claim a federal income tax creditequal to the product of the credit ratespecified in the certificate and the interestpaid or accrued during the tax year on theremaining principal of the indebtednessincurred to acquire the residence. Section25(c)(2)(A)(iii)(III) generally providesthat residences acquired in connectionwith the issuance of mortgage credit cer-tificates must meet the purchase pricerequirements of section 143(e).

Income Limitations for QualifiedMortgage Bonds and Mortgage CreditCertificates

.09 Section 143(f) imposes limitationson the income of mortgagors for whomfinancing may be provided by qualifiedmortgage bonds. In addition, section25(c)(2)(A)(iii)(IV) provides that holdersof mortgage credit certificates must meetthe income requirement of section 143(f).Generally, under sections 143(f)(1) and25(c)(2)(A)(iii)(IV), the income require-ment is met only if all owner-financingunder a qualified mortgage bond and allmortgage credit certificates issued under a

July 1, 2013 28 2013–27 I.R.B.

qualified mortgage credit certificate pro-gram are provided to mortgagors whosefamily income is 115 percent or less of theapplicable median family income. Section143(f)(5), however, generally providesfor an upward adjustment to the percent-age limitation in high housing cost areas.High housing cost areas are defined insection 143(f)(5)(C) as any statistical areafor which the housing cost/income ratio isgreater than 1.2.

.10 Under section 143(f)(5)(D), thehousing cost/income ratio with respect toany statistical area is determined by divid-ing (a) the applicable housing price ratiofor such area by (b) the ratio that the areamedian gross income for such area bearsto the median gross income for the UnitedStates. The applicable housing price ratiois the new housing price ratio (new hous-ing average area purchase price divided bythe new housing average purchase pricefor the United States) or the existing hous-ing price ratio (existing housing averagearea purchase price divided by the existinghousing average purchase price for theUnited States), whichever results in thehousing cost/income ratio being closer to1.

Average Area and NationwidePurchase Price Limitations

.11 Average area purchase price safeharbors for each state, the District of Co-lumbia, Puerto Rico, the Northern Mari-ana Islands, American Samoa, the VirginIslands, and Guam were last published inRev. Proc. 2012–25, 2012–20 I.R.B. 915.

.12 The nationwide average purchaseprice limitation was last published insection 4.02 of Rev. Proc. 2012–25.Guidance with respect to the United Statesand area median gross income figures thatare to be used in computing the housingcost/income ratio described in section143(f)(5) was last published in Rev. Proc.2013–27, 2013–24 I.R.B. 1243.

.13 This revenue procedure uses FHAloan limits for a given statistical area tocalculate the average area purchase pricesafe harbor for that area. FHA sets lim-its on the dollar value of loans it will in-sure based on median home prices andconforming loan limits established by theFederal Home Loan Mortgage Corpora-tion. In particular, FHA sets an area’s loanlimit at 95 percent of the median homesales 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 revenueprocedure, the FHA loan limits are ad-justed to take into account the differencesbetween average and median purchaseprices. Because FHA loan limits do notdifferentiate between new and existingresidences, this revenue procedure con-tains a single average area purchase pricesafe harbor for both new and existingresidences in a statistical area. The Trea-sury Department and the Internal RevenueService have determined that FHA loanlimits provide a reasonable basis for de-termining average area purchase pricesafe harbors. If the Treasury Departmentand the Internal Revenue Service becomeaware of other sources of average purchaseprice data, including data that differentiatebetween new and existing residences, con-sideration will be given as to whether suchdata provide a more accurate method forcalculating average area purchase pricesafe harbors.

.15 The average area purchase pricesafe harbors listed in section 4.01 of thisrevenue procedure are based on FHA loanlimits released December 06, 2012. FHAloan 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, andGuam. See section 3.03 of this revenueprocedure with respect to FHA loan lim-its revised after December 06, 2012.

.16 OMB Bulletin No. 03–04, datedand effective June 6, 2003, revised the def-initions of the nation’s metropolitan areasand recognized 49 new metropolitan sta-tistical areas. The OMB bulletin no longerincludes primary metropolitan statisticalareas.

SECTION 3. APPLICATION

Average Area Purchase Price SafeHarbors

.01 Average area purchase price safeharbors for statistical areas in each state,the District of Columbia, Puerto Rico,the Northern Mariana Islands, AmericanSamoa, the Virgin Islands, and Guam areset forth in section 4.01 of this revenueprocedure. Average area purchase pricesafe harbors are provided for single-familyand two to four-family residences. For

each type of residence, section 4.01 of thisrevenue procedure contains a single safeharbor that may be used for both new andexisting residences. Issuers of qualifiedmortgage bonds and issuers of mortgagecredit certificates may rely on these safeharbors to satisfy the requirements of sec-tions 143(e) and (f). Section 4.01 of thisrevenue procedure provides safe harborsfor MSAs and for certain counties andcounty equivalents. If no purchase pricesafe harbor is available for a statisticalarea, the safe harbor for “ALL OTHERAREAS” may be used for that statisticalarea.

.02 If a residence is in an MSA, the safeharbor applicable to it is the limitation ofthat MSA. If an MSA falls in more thanone state, the MSA is listed in section 4.01of this revenue procedure under each state.

.03 If the FHA revises the FHA loanlimit for any statistical area after Decem-ber 06, 2012, an issuer of qualified mort-gage bonds or mortgage credit certificatesmay use the revised FHA loan limit for thatstatistical area to compute (as provided inthe next sentence) a revised average areapurchase price safe harbor for the statisti-cal area provided that the issuer maintainsrecords evidencing the revised FHA loanlimit. The revised average area purchaseprice safe harbor for that statistical areais computed by dividing the revised FHAloan limit by .975.

.04 If, pursuant to section6a.103A–2(f)(5)(i), an issuer uses moreaccurate and comprehensive data todetermine the average area purchase pricefor a statistical area, the issuer must makeseparate average area purchase pricedeterminations for new and existing resi-dences. Moreover, when computing theaverage area purchase price for a statisticalarea that is an MSA, as defined in OMBBulletin No. 03–04, the issuer must makethe computation for the entire applicableMSA. When computing the average areapurchase price for a statistical area thatis not an MSA, the issuer must make thecomputation for the entire statistical areaand may not combine statistical areas.Thus, for example, the issuer may notcombine two or more counties.

.05 If an issuer receives a ruling permit-ting it to rely on an average area purchaseprice limitation that is higher than theapplicable safe harbor in this revenueprocedure, the issuer may rely on that

2013–27 I.R.B. 29 July 1, 2013

higher limitation for the purpose of satis-fying the requirements of section 143(e)and (f) for bonds sold, and mortgagecredit certificates issued, not more than 30months following the termination date ofthe 12-month period used by the issuer tocompute the limitation.

Nationwide Average Purchase Price.06 Section 4.02 of this revenue proce-

dure sets forth a single nationwide averagepurchase price for purposes of computingthe housing cost/income ratio under sec-tion 143(f)(5).

.07 Issuers must use the nationwide av-erage purchase price set forth in section4.02 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 thisrevenue procedure or using more accurateand comprehensive data to determine av-erage area purchase prices for new and ex-isting residences for a statistical area thatare different from the published safe har-bors in this revenue procedure.

.08 If, pursuant to section 6.02 of thisrevenue procedure, an issuer relies on theaverage area purchase price safe harborscontained 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 housingcost/income ratio under section 143(f)(5).Likewise, if, pursuant to section 6.05 ofthis revenue procedure, an issuer relies

on the nationwide average purchase pricepublished in Rev. Proc. 2012–25, the is-suer may not rely on the average area pur-chase price safe harbors published in thisrevenue procedure.

SECTION 4. AVERAGE AREA ANDNATIONWIDE AVERAGE PURCHASEPRICES

.01 Average area purchase prices forsingle-family and two to four-family res-idences in MSAs, and for certain countiesand 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 notlisted below.

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

ALEUTIANS WEST AK $389,231 $498,256 $602,308 $748,513ANCHORAGE AK $364,462 $466,564 $563,949 $700,872BRISTOL BAY AK $300,769 $385,026 $465,385 $578,410DENALI AK $324,359 $415,231 $501,897 $623,744DILLINGHAM AK $341,026 $436,564 $527,692 $655,795FAIRBANKS NORTH AK $324,359 $415,231 $501,897 $623,744HAINES AK $291,333 $372,923 $450,821 $560,256JUNEAU AK $408,974 $523,538 $632,872 $786,513KETCHIKAN GATEW AK $330,256 $422,769 $511,026 $635,128KODIAK ISLAND AK $351,487 $449,949 $543,897 $675,949MATANUSKA-SUSIT AK $364,462 $466,564 $563,949 $700,872NOME AK $281,897 $360,872 $436,205 $542,103NORTH SLOPE AK $334,974 $428,821 $518,359 $644,154PETERSBURG CENS AK $334,974 $428,821 $518,359 $644,154SITKA AK $442,308 $566,205 $684,462 $850,615VALDEZ-CORDOVA AK $296,051 $378,974 $458,103 $569,333YAKUTAT CITY AK $423,436 $542,051 $655,231 $814,308

BALDWIN AL $292,308 $374,205 $452,308 $562,103RUSSELL AL $297,231 $380,513 $459,949 $571,590

APACHE AZ $288,462 $369,282 $446,359 $554,718COCONINO AZ $461,538 $590,821 $714,205 $887,590GILA AZ $333,333 $426,718 $515,795 $641,026MARICOPA AZ $355,128 $454,615 $549,538 $682,923MOHAVE AZ $330,769 $423,436 $511,846 $636,103NAVAJO AZ $316,667 $405,385 $490,000 $608,974PIMA AZ $324,359 $415,231 $501,897 $623,744PINAL AZ $355,128 $454,615 $549,538 $682,923YAVAPAI AZ $400,000 $512,051 $618,974 $769,231

ALAMEDA CA $748,462 $958,154 $1,158,205 $1,439,385CONTRA COSTA CA $748,462 $958,154 $1,158,205 $1,439,385LOS ANGELES CA $748,462 $958,154 $1,158,205 $1,439,385MARIN CA $748,462 $958,154 $1,158,205 $1,439,385MONTEREY CA $748,462 $958,154 $1,158,205 $1,439,385NAPA CA $748,462 $958,154 $1,158,205 $1,439,385ORANGE CA $748,462 $958,154 $1,158,205 $1,439,385

July 1, 2013 30 2013–27 I.R.B.

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

SAN BENITO CA $748,462 $958,154 $1,158,205 $1,439,385SAN FRANCISCO CA $748,462 $958,154 $1,158,205 $1,439,385SAN MATEO CA $748,462 $958,154 $1,158,205 $1,439,385SANTA BARBARA CA $748,462 $958,154 $1,158,205 $1,439,385SANTA CLARA CA $748,462 $958,154 $1,158,205 $1,439,385SANTA CRUZ CA $748,462 $958,154 $1,158,205 $1,439,385VENTURA CA $748,462 $958,154 $1,158,205 $1,439,385ALPINE CA $561,538 $718,872 $868,923 $1,079,897AMADOR CA $455,128 $582,615 $704,256 $875,231BUTTE CA $410,256 $525,179 $634,821 $788,974CALAVERAS CA $474,359 $607,231 $734,051 $912,256COLUSA CA $407,692 $521,897 $630,872 $784,000DEL NORTE CA $319,231 $408,667 $494,000 $613,897EL DORADO CA $594,872 $761,538 $920,513 $1,144,000FRESNO CA $391,026 $500,564 $605,077 $751,949GLENN CA $294,872 $377,487 $456,308 $567,077HUMBOLDT CA $403,846 $516,974 $624,923 $776,615IMPERIAL CA $333,333 $426,718 $515,795 $641,026INYO CA $448,718 $574,410 $694,359 $862,923KERN CA $378,205 $484,154 $585,231 $727,333KINGS CA $333,333 $426,718 $515,795 $641,026LAKE CA $411,538 $526,821 $636,821 $791,436LASSEN CA $292,308 $374,205 $452,308 $562,103MADERA CA $435,897 $558,000 $674,513 $838,256MARIPOSA CA $423,077 $541,590 $654,667 $813,590MENDOCINO CA $525,641 $672,923 $813,385 $1,010,872MERCED CA $484,615 $620,410 $749,897 $931,949MONO CA $542,564 $694,564 $839,590 $1,043,385NEVADA CA $576,923 $738,564 $892,769 $1,109,487PLACER CA $594,872 $761,538 $920,513 $1,144,000PLUMAS CA $420,513 $538,308 $650,718 $808,667RIVERSIDE CA $512,821 $656,513 $793,538 $986,205SACRAMENTO CA $594,872 $761,538 $920,513 $1,144,000SAN BERNARDINO CA $512,821 $656,513 $793,538 $986,205SAN DIEGO CA $715,385 $915,846 $1,107,026 $1,375,744SAN JOAQUIN CA $501,282 $641,744 $775,692 $964,000SAN LUIS OBISPO CA $705,128 $902,667 $1,091,128 $1,356,051SHASTA CA $434,615 $556,359 $672,513 $835,795SIERRA CA $312,564 $400,103 $483,641 $601,077SISKIYOU CA $301,282 $385,692 $466,205 $579,385SOLANO CA $571,795 $732,000 $884,821 $1,099,641SONOMA CA $679,487 $869,846 $1,051,487 $1,306,718STANISLAUS CA $434,615 $556,359 $672,513 $835,795SUTTER CA $435,897 $558,000 $674,513 $838,256TEHAMA CA $320,513 $410,308 $495,949 $616,359TULARE CA $333,333 $426,718 $515,795 $641,026TUOLUMNE CA $448,718 $574,410 $694,359 $862,923YOLO CA $594,872 $761,538 $920,513 $1,144,000YUBA CA $435,897 $558,000 $674,513 $838,256

ADAMS CO $416,667 $533,385 $644,769 $801,282ARAPAHOE CO $416,667 $533,385 $644,769 $801,282ARCHULETA CO $325,641 $416,872 $503,897 $626,205BOULDER CO $471,795 $603,949 $730,051 $907,282BROOMFIELD CO $416,667 $533,385 $644,769 $801,282CHAFFEE CO $287,179 $367,641 $444,359 $552,256CLEAR CREEK CO $416,667 $533,385 $644,769 $801,282DENVER CO $416,667 $533,385 $644,769 $801,282DOUGLAS CO $416,667 $533,385 $644,769 $801,282

2013–27 I.R.B. 31 July 1, 2013

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

EAGLE CO $748,462 $958,154 $1,158,205 $1,439,385EL PASO CO $333,333 $426,718 $515,795 $641,026ELBERT CO $416,667 $533,385 $644,769 $801,282GARFIELD CO $435,897 $558,000 $674,513 $838,256GILPIN CO $416,667 $533,385 $644,769 $801,282GRAND CO $365,385 $467,744 $565,385 $702,667GUNNISON CO $444,872 $569,487 $688,410 $855,538HINSDALE CO $571,795 $732,000 $884,821 $1,099,641JEFFERSON CO $416,667 $533,385 $644,769 $801,282LA PLATA CO $455,128 $582,615 $704,256 $875,231LAKE CO $748,462 $958,154 $1,158,205 $1,439,385LARIMER CO $320,513 $410,308 $495,949 $616,359MESA CO $380,769 $487,436 $589,231 $732,256MINERAL CO $307,692 $393,897 $476,103 $591,692OURAY CO $494,872 $633,538 $765,795 $951,692PARK CO $416,667 $533,385 $644,769 $801,282PITKIN CO $748,462 $958,154 $1,158,205 $1,439,385ROUTT CO $692,308 $886,256 $1,071,333 $1,331,385SAN JUAN CO $435,897 $558,000 $674,513 $838,256SAN MIGUEL CO $748,462 $958,154 $1,158,205 $1,439,385SUMMIT CO $748,462 $958,154 $1,158,205 $1,439,385TELLER CO $333,333 $426,718 $515,795 $641,026WELD CO $428,205 $548,154 $662,615 $823,487

FAIRFIELD CT $726,923 $930,615 $1,124,872 $1,397,949HARTFORD CT $451,282 $577,692 $698,308 $867,846LITCHFIELD CT $384,615 $492,359 $595,179 $739,641MIDDLESEX CT $451,282 $577,692 $698,308 $867,846NEW HAVEN CT $397,436 $508,769 $614,974 $764,308NEW LONDON CT $408,974 $523,538 $632,872 $786,513TOLLAND CT $451,282 $577,692 $698,308 $867,846WINDHAM CT $279,487 $357,795 $432,462 $537,487

DISTRICT OF COLUMBIA DC $748,462 $958,154 $1,158,205 $1,439,385

KENT DE $385,897 $494,000 $597,128 $742,103NEW CASTLE DE $430,769 $551,436 $666,564 $828,410SUSSEX DE $384,615 $492,359 $595,179 $739,641

BAKER FL $397,436 $508,769 $614,974 $764,308BAY FL $406,410 $520,256 $628,872 $781,538BREVARD FL $298,718 $382,410 $462,256 $574,462BROWARD FL $434,615 $556,359 $672,513 $835,795CHARLOTTE FL $303,846 $388,974 $470,154 $584,308CLAY FL $397,436 $508,769 $614,974 $764,308COLLIER FL $544,872 $697,538 $843,128 $1,047,846DUVAL FL $397,436 $508,769 $614,974 $764,308FLAGLER FL $294,872 $377,487 $456,308 $567,077FRANKLIN FL $312,821 $400,462 $484,051 $601,590HERNANDO FL $300,000 $384,051 $464,205 $576,923HILLSBOROUGH FL $300,000 $384,051 $464,205 $576,923INDIAN RIVER FL $291,026 $372,564 $450,308 $559,641LAKE FL $362,821 $464,462 $561,436 $697,744LEE FL $365,385 $467,744 $565,385 $702,667MANATEE FL $453,846 $580,974 $702,308 $872,769MARTIN FL $384,615 $492,359 $595,179 $739,641MIAMI-DADE FL $434,615 $556,359 $672,513 $835,795MONROE FL $748,462 $958,154 $1,158,205 $1,439,385NASSAU FL $397,436 $508,769 $614,974 $764,308

July 1, 2013 32 2013–27 I.R.B.

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

OKALOOSA FL $320,513 $410,308 $495,949 $616,359ORANGE FL $362,821 $464,462 $561,436 $697,744OSCEOLA FL $362,821 $464,462 $561,436 $697,744PALM BEACH FL $434,615 $556,359 $672,513 $835,795PASCO FL $300,000 $384,051 $464,205 $576,923PINELLAS FL $300,000 $384,051 $464,205 $576,923SARASOTA FL $453,846 $580,974 $702,308 $872,769SEMINOLE FL $362,821 $464,462 $561,436 $697,744ST. JOHNS FL $397,436 $508,769 $614,974 $764,308ST. LUCIE FL $384,615 $492,359 $595,179 $739,641SUMTER FL $285,897 $366,000 $442,410 $549,795VOLUSIA FL $311,538 $398,821 $482,051 $599,128WALTON FL $372,092 $476,308 $575,795 $715,538

BARROW GA $355,128 $454,615 $549,538 $682,923BARTOW GA $355,128 $454,615 $549,538 $682,923BRANTLEY GA $283,333 $362,718 $438,410 $544,872BUTTS GA $355,128 $454,615 $549,538 $682,923CARROLL GA $355,128 $454,615 $549,538 $682,923CHATTAHOOCHEE GA $297,231 $380,513 $459,949 $571,590CHEROKEE GA $355,128 $454,615 $549,538 $682,923CLARKE GA $306,410 $392,256 $474,154 $589,231CLAYTON GA $355,128 $454,615 $549,538 $682,923COBB GA $355,128 $454,615 $549,538 $682,923COWETA GA $355,128 $454,615 $549,538 $682,923DAWSON GA $355,128 $454,615 $549,538 $682,923DEKALB GA $355,128 $454,615 $549,538 $682,923DOUGLAS GA $355,128 $454,615 $549,538 $682,923FAYETTE GA $355,128 $454,615 $549,538 $682,923FORSYTH GA $355,128 $454,615 $549,538 $682,923FULTON GA $355,128 $454,615 $549,538 $682,923GLYNN GA $283,333 $362,718 $438,410 $544,872GREENE GA $679,487 $869,846 $1,051,487 $1,306,718GWINNETT GA $355,128 $454,615 $549,538 $682,923HARALSON GA $355,128 $454,615 $549,538 $682,923HARRIS GA $297,231 $380,513 $459,949 $571,590HEARD GA $355,128 $454,615 $549,538 $682,923HENRY GA $355,128 $454,615 $549,538 $682,923JASPER GA $355,128 $454,615 $549,538 $682,923LAMAR GA $355,128 $454,615 $549,538 $682,923MADISON GA $306,410 $392,256 $474,154 $589,231MARION GA $297,231 $380,513 $459,949 $571,590MCINTOSH GA $283,333 $362,718 $438,410 $544,872MERIWETHER GA $355,128 $454,615 $549,538 $682,923MUSCOGEE GA $297,231 $380,513 $459,949 $571,590NEWTON GA $355,128 $454,615 $549,538 $682,923OCONEE GA $306,410 $392,256 $474,154 $589,231OGLETHORPE GA $306,410 $392,256 $474,154 $589,231PAULDING GA $355,128 $454,615 $549,538 $682,923PICKENS GA $355,128 $454,615 $549,538 $682,923PIKE GA $355,128 $454,615 $549,538 $682,923ROCKDALE GA $355,128 $454,615 $549,538 $682,923SPALDING GA $355,128 $454,615 $549,538 $682,923WALTON GA $355,128 $454,615 $549,538 $682,923

HAWAII HI $634,615 $812,410 $982,051 $1,220,410HONOLULU HI $814,103 $1,042,205 $1,259,795 $1,565,590KALAWAO HI $734,615 $940,462 $1,136,769 $1,412,769KAUAI HI $793,590 $1,015,949 $1,228,051 $1,526,154

2013–27 I.R.B. 33 July 1, 2013

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

MAUI HI $810,256 $1,037,282 $1,253,846 $1,558,205

ADA ID $311,538 $398,821 $482,051 $599,128ADAMS ID $280,769 $359,436 $434,462 $539,949BLAINE ID $748,462 $958,154 $1,158,205 $1,439,385BOISE ID $311,538 $398,821 $482,051 $599,128CANYON ID $311,538 $398,821 $482,051 $599,128GEM ID $311,538 $398,821 $482,051 $599,128KOOTENAI ID $293,590 $375,846 $454,308 $564,564OWYHEE ID $311,538 $398,821 $482,051 $599,128TETON ID $711,538 $910,872 $1,101,077 $1,368,359VALLEY ID $474,359 $607,231 $734,051 $912,256

BOND IL $288,462 $369,282 $446,359 $554,718BOONE IL $347,949 $445,436 $538,410 $669,128CALHOUN IL $288,462 $369,282 $446,359 $554,718CLINTON IL $288,462 $369,282 $446,359 $554,718COOK IL $420,513 $538,308 $650,718 $808,667DEKALB IL $420,513 $538,308 $650,718 $808,667DUPAGE IL $420,513 $538,308 $650,718 $808,667GRUNDY IL $420,513 $538,308 $650,718 $808,667JERSEY IL $288,462 $369,282 $446,359 $554,718KANE IL $420,513 $538,308 $650,718 $808,667KENDALL IL $420,513 $538,308 $650,718 $808,667LAKE IL $420,513 $538,308 $650,718 $808,667MACOUPIN IL $288,462 $369,282 $446,359 $554,718MADISON IL $288,462 $369,282 $446,359 $554,718MCHENRY IL $420,513 $538,308 $650,718 $808,667MONROE IL $288,462 $369,282 $446,359 $554,718ST. CLAIR IL $288,462 $369,282 $446,359 $554,718WILL IL $420,513 $538,308 $650,718 $808,667WINNEBAGO IL $347,949 $445,436 $538,410 $669,128

CLARK IN $310,256 $397,179 $480,103 $596,667DEARBORN IN $346,154 $443,128 $535,641 $665,692FLOYD IN $310,256 $397,179 $480,103 $596,667FRANKLIN IN $346,154 $443,128 $535,641 $665,692HARRISON IN $310,256 $397,179 $480,103 $596,667JASPER IN $420,513 $538,308 $650,718 $808,667LAKE IN $420,513 $538,308 $650,718 $808,667NEWTON IN $420,513 $538,308 $650,718 $808,667OHIO IN $346,154 $443,128 $535,641 $665,692PORTER IN $420,513 $538,308 $650,718 $808,667WASHINGTON IN $310,256 $397,179 $480,103 $596,667

BOONE KY $346,154 $443,128 $535,641 $665,692BRACKEN KY $346,154 $443,128 $535,641 $665,692BULLITT KY $310,256 $397,179 $480,103 $596,667CAMPBELL KY $346,154 $443,128 $535,641 $665,692GALLATIN KY $346,154 $443,128 $535,641 $665,692GRANT KY $346,154 $443,128 $535,641 $665,692HENRY KY $310,256 $397,179 $480,103 $596,667JEFFERSON KY $310,256 $397,179 $480,103 $596,667KENTON KY $346,154 $443,128 $535,641 $665,692MEADE KY $310,256 $397,179 $480,103 $596,667NELSON KY $310,256 $397,179 $480,103 $596,667OLDHAM KY $310,256 $397,179 $480,103 $596,667PENDLETON KY $346,154 $443,128 $535,641 $665,692SHELBY KY $310,256 $397,179 $480,103 $596,667

July 1, 2013 34 2013–27 I.R.B.

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

SPENCER KY $310,256 $397,179 $480,103 $596,667TRIMBLE KY $310,256 $397,179 $480,103 $596,667

ASCENSION LA $287,179 $367,641 $444,359 $552,256EAST BATON ROUG LA $287,179 $367,641 $444,359 $552,256EAST FELICIANA LA $287,179 $367,641 $444,359 $552,256IBERVILLE LA $287,179 $367,641 $444,359 $552,256JEFFERSON LA $294,872 $377,487 $456,308 $567,077LIVINGSTON LA $287,179 $367,641 $444,359 $552,256ORLEANS LA $294,872 $377,487 $456,308 $567,077PLAQUEMINES LA $294,872 $377,487 $456,308 $567,077POINTE COUPEE LA $287,179 $367,641 $444,359 $552,256ST. BERNARD LA $294,872 $377,487 $456,308 $567,077ST. CHARLES LA $294,872 $377,487 $456,308 $567,077ST. HELENA LA $287,179 $367,641 $444,359 $552,256ST. JOHN THE BA LA $294,872 $377,487 $456,308 $567,077ST. TAMMANY LA $294,872 $377,487 $456,308 $567,077WEST BATON ROUG LA $287,179 $367,641 $444,359 $552,256WEST FELICIANA LA $287,179 $367,641 $444,359 $552,256

BARNSTABLE MA $474,359 $607,231 $734,051 $912,256BRISTOL MA $487,179 $623,692 $753,897 $936,872DUKES MA $748,462 $958,154 $1,158,205 $1,439,385ESSEX MA $537,179 $687,692 $831,231 $1,033,026FRANKLIN MA $326,923 $418,513 $505,897 $628,718HAMPDEN MA $326,923 $418,513 $505,897 $628,718HAMPSHIRE MA $326,923 $418,513 $505,897 $628,718MIDDLESEX MA $537,179 $687,692 $831,231 $1,033,026NANTUCKET MA $748,462 $958,154 $1,158,205 $1,439,385NORFOLK MA $537,179 $687,692 $831,231 $1,033,026PLYMOUTH MA $537,179 $687,692 $831,231 $1,033,026SUFFOLK MA $537,179 $687,692 $831,231 $1,033,026WORCESTER MA $394,872 $505,487 $611,026 $759,385

ANNE ARUNDEL MD $574,359 $735,282 $888,769 $1,104,564BALTIMORE MD $574,359 $735,282 $888,769 $1,104,564BALTIMORE CITY MD $574,359 $735,282 $888,769 $1,104,564CALVERT MD $748,462 $958,154 $1,158,205 $1,439,385CARROLL MD $574,359 $735,282 $888,769 $1,104,564CECIL MD $430,769 $551,436 $666,564 $828,410CHARLES MD $748,462 $958,154 $1,158,205 $1,439,385FREDERICK MD $748,462 $958,154 $1,158,205 $1,439,385GARRETT MD $448,718 $574,410 $694,359 $862,923HARFORD MD $574,359 $735,282 $888,769 $1,104,564HOWARD MD $574,359 $735,282 $888,769 $1,104,564KENT MD $352,564 $451,333 $545,538 $678,000MONTGOMERY MD $748,462 $958,154 $1,158,205 $1,439,385PRINCE GEORGE’S MD $748,462 $958,154 $1,158,205 $1,439,385QUEEN ANNE’S MD $574,359 $735,282 $888,769 $1,104,564SOMERSET MD $337,179 $431,641 $521,744 $648,410ST. MARY’S MD $410,256 $525,179 $634,821 $788,974TALBOT MD $455,128 $582,615 $704,256 $875,231WASHINGTON MD $387,179 $495,641 $599,128 $744,564WICOMICO MD $337,179 $431,641 $521,744 $648,410WORCESTER MD $448,718 $574,410 $694,359 $862,923

CUMBERLAND ME $346,154 $443,128 $535,641 $665,692HANCOCK ME $279,487 $357,795 $432,462 $537,487KNOX ME $286,615 $366,923 $443,487 $551,179

2013–27 I.R.B. 35 July 1, 2013

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

LINCOLN ME $326,923 $418,513 $505,897 $628,718SAGADAHOC ME $346,154 $443,128 $535,641 $665,692YORK ME $346,154 $443,128 $535,641 $665,692

BERRIEN MI $306,410 $392,256 $474,154 $589,231KALAMAZOO MI $293,590 $375,846 $454,308 $564,564LAPEER MI $305,128 $390,615 $472,154 $586,769LENAWEE MI $305,128 $390,615 $472,154 $586,769LIVINGSTON MI $305,128 $390,615 $472,154 $586,769MACOMB MI $305,128 $390,615 $472,154 $586,769MONROE MI $305,128 $390,615 $472,154 $586,769OAKLAND MI $305,128 $390,615 $472,154 $586,769ST. CLAIR MI $305,128 $390,615 $472,154 $586,769VAN BUREN MI $293,590 $375,846 $454,308 $564,564WASHTENAW MI $353,846 $452,974 $547,538 $680,462WAYNE MI $305,128 $390,615 $472,154 $586,769

ANOKA MN $374,359 $479,231 $579,282 $719,897CARVER MN $374,359 $479,231 $579,282 $719,897CHISAGO MN $374,359 $479,231 $579,282 $719,897COOK MN $303,846 $388,974 $470,154 $584,308DAKOTA MN $374,359 $479,231 $579,282 $719,897HENNEPIN MN $374,359 $479,231 $579,282 $719,897ISANTI MN $374,359 $479,231 $579,282 $719,897RAMSEY MN $374,359 $479,231 $579,282 $719,897SCOTT MN $374,359 $479,231 $579,282 $719,897SHERBURNE MN $374,359 $479,231 $579,282 $719,897WASHINGTON MN $374,359 $479,231 $579,282 $719,897WRIGHT MN $374,359 $479,231 $579,282 $719,897

CRAWFORD MO $288,462 $369,282 $446,359 $554,718FRANKLIN MO $288,462 $369,282 $446,359 $554,718JEFFERSON MO $288,462 $369,282 $446,359 $554,718LINCOLN MO $288,462 $369,282 $446,359 $554,718ST. CHARLES MO $288,462 $369,282 $446,359 $554,718ST. LOUIS MO $288,462 $369,282 $446,359 $554,718ST. LOUIS CITY MO $288,462 $369,282 $446,359 $554,718WARREN MO $288,462 $369,282 $446,359 $554,718WASHINGTON MO $288,462 $369,282 $446,359 $554,718

CARBON MT $298,718 $382,410 $462,256 $574,462FLATHEAD MT $309,026 $395,590 $478,205 $594,256GALLATIN MT $396,154 $507,128 $613,026 $761,846JEFFERSON MT $350,000 $448,051 $541,590 $673,077LAKE MT $308,974 $395,538 $478,103 $594,154LEWIS AND CLARK MT $350,000 $448,051 $541,590 $673,077MADISON MT $288,974 $369,949 $447,179 $555,692MISSOULA MT $298,718 $382,410 $462,256 $574,462RAVALLI MT $311,538 $398,821 $482,051 $599,128SWEET GRASS MT $355,128 $454,615 $549,538 $682,923YELLOWSTONE MT $298,718 $382,410 $462,256 $574,462

ANSON NC $311,538 $398,821 $482,051 $599,128BRUNSWICK NC $311,538 $398,821 $482,051 $599,128BUNCOMBE NC $311,538 $398,821 $482,051 $599,128CABARRUS NC $311,538 $398,821 $482,051 $599,128CAMDEN NC $748,462 $958,154 $1,158,205 $1,439,385CARTERET NC $294,872 $377,487 $456,308 $567,077CHATHAM NC $343,231 $439,385 $531,128 $660,051

July 1, 2013 36 2013–27 I.R.B.

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

CURRITUCK NC $470,615 $602,462 $728,256 $905,026DARE NC $471,795 $603,949 $730,051 $907,282DURHAM NC $343,231 $439,385 $531,128 $660,051FRANKLIN NC $302,564 $387,333 $468,205 $581,846GASTON NC $311,538 $398,821 $482,051 $599,128HAYWOOD NC $311,538 $398,821 $482,051 $599,128HENDERSON NC $311,538 $398,821 $482,051 $599,128HYDE NC $495,385 $634,154 $766,564 $952,667JOHNSTON NC $302,564 $387,333 $468,205 $581,846MADISON NC $311,538 $398,821 $482,051 $599,128MECKLENBURG NC $311,538 $398,821 $482,051 $599,128NEW HANOVER NC $311,538 $398,821 $482,051 $599,128ONSLOW NC $314,103 $402,103 $486,051 $604,051ORANGE NC $343,231 $439,385 $531,128 $660,051PASQUOTANK NC $748,462 $958,154 $1,158,205 $1,439,385PENDER NC $311,538 $398,821 $482,051 $599,128PERQUIMANS NC $748,462 $958,154 $1,158,205 $1,439,385PERSON NC $343,231 $439,385 $531,128 $660,051TRANSYLVANIA NC $301,282 $385,692 $466,205 $579,385UNION NC $311,538 $398,821 $482,051 $599,128WAKE NC $302,564 $387,333 $468,205 $581,846WATAUGA NC $292,308 $374,205 $452,308 $562,103

BILLINGS ND $312,564 $400,103 $483,641 $601,077STARK ND $312,564 $400,103 $483,641 $601,077

BELKNAP NH $288,462 $369,282 $446,359 $554,718GRAFTON NH $288,462 $369,282 $446,359 $554,718HILLSBOROUGH NH $412,821 $528,462 $638,821 $793,897MERRIMACK NH $310,256 $397,179 $480,103 $596,667ROCKINGHAM NH $537,179 $687,692 $831,231 $1,033,026STRAFFORD NH $537,179 $687,692 $831,231 $1,033,026

ATLANTIC NJ $465,385 $595,744 $720,154 $894,974BERGEN NJ $748,462 $958,154 $1,158,205 $1,439,385BURLINGTON NJ $430,769 $551,436 $666,564 $828,410CAMDEN NJ $430,769 $551,436 $666,564 $828,410CAPE MAY NJ $500,000 $640,103 $773,692 $961,538CUMBERLAND NJ $415,385 $531,744 $642,769 $798,821ESSEX NJ $748,462 $958,154 $1,158,205 $1,439,385GLOUCESTER NJ $430,769 $551,436 $666,564 $828,410HUDSON NJ $748,462 $958,154 $1,158,205 $1,439,385HUNTERDON NJ $748,462 $958,154 $1,158,205 $1,439,385MERCER NJ $451,282 $577,692 $698,308 $867,846MIDDLESEX NJ $748,462 $958,154 $1,158,205 $1,439,385MONMOUTH NJ $748,462 $958,154 $1,158,205 $1,439,385MORRIS NJ $748,462 $958,154 $1,158,205 $1,439,385OCEAN NJ $748,462 $958,154 $1,158,205 $1,439,385PASSAIC NJ $748,462 $958,154 $1,158,205 $1,439,385SALEM NJ $430,769 $551,436 $666,564 $828,410SOMERSET NJ $748,462 $958,154 $1,158,205 $1,439,385SUSSEX NJ $748,462 $958,154 $1,158,205 $1,439,385UNION NJ $748,462 $958,154 $1,158,205 $1,439,385WARREN NJ $412,821 $528,462 $638,821 $793,897

LOS ALAMOS NM $390,410 $499,795 $604,103 $750,769SAN JUAN NM $288,462 $369,282 $446,359 $554,718SANTA FE NM $438,462 $561,282 $678,462 $843,179TAOS NM $293,692 $375,949 $454,462 $564,769

2013–27 I.R.B. 37 July 1, 2013

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

CARSON CITY NV $408,974 $523,538 $632,872 $786,513CLARK NV $410,256 $525,179 $634,821 $788,974DOUGLAS NV $480,769 $615,487 $743,949 $924,564ELKO NV $333,333 $426,718 $515,795 $641,026EUREKA NV $333,333 $426,718 $515,795 $641,026LYON NV $339,744 $434,923 $525,744 $653,333NYE NV $333,333 $426,718 $515,795 $641,026STOREY NV $414,103 $530,103 $640,769 $796,359WASHOE NV $414,103 $530,103 $640,769 $796,359

ALBANY NY $320,513 $410,308 $495,949 $616,359BRONX NY $748,462 $958,154 $1,158,205 $1,439,385COLUMBIA NY $283,333 $362,718 $438,410 $544,872DUTCHESS NY $455,128 $582,615 $704,256 $875,231ERIE NY $283,333 $362,718 $438,410 $544,872KINGS NY $748,462 $958,154 $1,158,205 $1,439,385MADISON NY $288,462 $369,282 $446,359 $554,718NASSAU NY $748,462 $958,154 $1,158,205 $1,439,385NEW YORK NY $748,462 $958,154 $1,158,205 $1,439,385NIAGARA NY $283,333 $362,718 $438,410 $544,872ONONDAGA NY $288,462 $369,282 $446,359 $554,718ORANGE NY $455,128 $582,615 $704,256 $875,231OSWEGO NY $288,462 $369,282 $446,359 $554,718PUTNAM NY $748,462 $958,154 $1,158,205 $1,439,385QUEENS NY $748,462 $958,154 $1,158,205 $1,439,385RENSSELAER NY $320,513 $410,308 $495,949 $616,359RICHMOND NY $748,462 $958,154 $1,158,205 $1,439,385ROCKLAND NY $748,462 $958,154 $1,158,205 $1,439,385SARATOGA NY $320,513 $410,308 $495,949 $616,359SCHENECTADY NY $320,513 $410,308 $495,949 $616,359SCHOHARIE NY $320,513 $410,308 $495,949 $616,359SUFFOLK NY $748,462 $958,154 $1,158,205 $1,439,385ULSTER NY $416,667 $533,385 $644,769 $801,282WESTCHESTER NY $748,462 $958,154 $1,158,205 $1,439,385

ASHTABULA OH $298,718 $382,410 $462,256 $574,462ATHENS OH $443,590 $567,846 $686,410 $853,077BROWN OH $346,154 $443,128 $535,641 $665,692BUTLER OH $346,154 $443,128 $535,641 $665,692CARROLL OH $284,615 $364,359 $440,410 $547,333CLERMONT OH $346,154 $443,128 $535,641 $665,692CUYAHOGA OH $306,410 $392,256 $474,154 $589,231DELAWARE OH $350,000 $448,051 $541,590 $673,077FAIRFIELD OH $350,000 $448,051 $541,590 $673,077FRANKLIN OH $350,000 $448,051 $541,590 $673,077GEAUGA OH $306,410 $392,256 $474,154 $589,231GREENE OH $278,205 $356,154 $430,513 $535,026HAMILTON OH $346,154 $443,128 $535,641 $665,692LAKE OH $306,410 $392,256 $474,154 $589,231LICKING OH $350,000 $448,051 $541,590 $673,077LORAIN OH $306,410 $392,256 $474,154 $589,231MADISON OH $350,000 $448,051 $541,590 $673,077MEDINA OH $306,410 $392,256 $474,154 $589,231MERCER OH $300,000 $384,051 $464,205 $576,923MIAMI OH $278,205 $356,154 $430,513 $535,026MONTGOMERY OH $278,205 $356,154 $430,513 $535,026MORROW OH $350,000 $448,051 $541,590 $673,077PICKAWAY OH $350,000 $448,051 $541,590 $673,077PORTAGE OH $338,462 $433,282 $523,744 $650,872

July 1, 2013 38 2013–27 I.R.B.

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

PREBLE OH $278,205 $356,154 $430,513 $535,026STARK OH $284,615 $364,359 $440,410 $547,333SUMMIT OH $338,462 $433,282 $523,744 $650,872UNION OH $350,000 $448,051 $541,590 $673,077VAN WERT OH $308,974 $395,538 $478,103 $594,154WARREN OH $346,154 $443,128 $535,641 $665,692

BENTON OR $346,154 $443,128 $535,641 $665,692CLACKAMAS OR $429,487 $549,795 $664,615 $825,949CLATSOP OR $356,410 $456,256 $551,538 $685,385COLUMBIA OR $429,487 $549,795 $664,615 $825,949CURRY OR $360,256 $461,179 $557,487 $692,821DESCHUTES OR $458,974 $587,538 $710,205 $882,667HOOD RIVER OR $403,846 $516,974 $624,923 $776,615JACKSON OR $433,333 $554,718 $670,564 $833,333JOSEPHINE OR $333,333 $426,718 $515,795 $641,026LANE OR $352,564 $451,333 $545,538 $678,000LINCOLN OR $320,513 $410,308 $495,949 $616,359MARION OR $302,564 $387,333 $468,205 $581,846MULTNOMAH OR $429,487 $549,795 $664,615 $825,949POLK OR $302,564 $387,333 $468,205 $581,846TILLAMOOK OR $352,564 $451,333 $545,538 $678,000WASHINGTON OR $429,487 $549,795 $664,615 $825,949YAMHILL OR $429,487 $549,795 $664,615 $825,949

ALLEGHENY PA $335,897 $430,000 $519,795 $645,949ARMSTRONG PA $335,897 $430,000 $519,795 $645,949BEAVER PA $335,897 $430,000 $519,795 $645,949BERKS PA $307,692 $393,897 $476,103 $591,692BUCKS PA $430,769 $551,436 $666,564 $828,410BUTLER PA $335,897 $430,000 $519,795 $645,949CARBON PA $412,821 $528,462 $638,821 $793,897CENTRE PA $287,179 $367,641 $444,359 $552,256CHESTER PA $430,769 $551,436 $666,564 $828,410DELAWARE PA $430,769 $551,436 $666,564 $828,410FAYETTE PA $335,897 $430,000 $519,795 $645,949LANCASTER PA $393,590 $503,846 $609,026 $756,923LEHIGH PA $412,821 $528,462 $638,821 $793,897MONTGOMERY PA $430,769 $551,436 $666,564 $828,410NORTHAMPTON PA $412,821 $528,462 $638,821 $793,897PHILADELPHIA PA $430,769 $551,436 $666,564 $828,410PIKE PA $748,462 $958,154 $1,158,205 $1,439,385WASHINGTON PA $335,897 $430,000 $519,795 $645,949WESTMORELAND PA $335,897 $430,000 $519,795 $645,949YORK PA $435,897 $558,000 $674,513 $838,256

BRISTOL RI $487,179 $623,692 $753,897 $936,872KENT RI $487,179 $623,692 $753,897 $936,872NEWPORT RI $487,179 $623,692 $753,897 $936,872PROVIDENCE RI $487,179 $623,692 $753,897 $936,872WASHINGTON RI $487,179 $623,692 $753,897 $936,872

BEAUFORT SC $397,436 $508,769 $614,974 $764,308BERKELEY SC $343,590 $439,846 $531,692 $660,769CHARLESTON SC $343,590 $439,846 $531,692 $660,769DORCHESTER SC $343,590 $439,846 $531,692 $660,769GEORGETOWN SC $405,128 $518,615 $626,923 $779,077GREENVILLE SC $302,564 $387,333 $468,205 $581,846HORRY SC $293,590 $375,846 $454,308 $564,564

2013–27 I.R.B. 39 July 1, 2013

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

JASPER SC $397,436 $508,769 $614,974 $764,308LAURENS SC $302,564 $387,333 $468,205 $581,846PICKENS SC $302,564 $387,333 $468,205 $581,846YORK SC $311,538 $398,821 $482,051 $599,128

CANNON TN $443,590 $567,846 $686,410 $853,077CHEATHAM TN $443,590 $567,846 $686,410 $853,077DAVIDSON TN $443,590 $567,846 $686,410 $853,077DICKSON TN $443,590 $567,846 $686,410 $853,077HICKMAN TN $443,590 $567,846 $686,410 $853,077MACON TN $443,590 $567,846 $686,410 $853,077ROBERTSON TN $443,590 $567,846 $686,410 $853,077RUTHERFORD TN $443,590 $567,846 $686,410 $853,077SMITH TN $443,590 $567,846 $686,410 $853,077SUMNER TN $443,590 $567,846 $686,410 $853,077TROUSDALE TN $443,590 $567,846 $686,410 $853,077WILLIAMSON TN $443,590 $567,846 $686,410 $853,077WILSON TN $443,590 $567,846 $686,410 $853,077

ATASCOSA TX $341,026 $436,564 $527,692 $655,795AUSTIN TX $279,538 $357,846 $432,564 $537,590BANDERA TX $341,026 $436,564 $527,692 $655,795BASTROP TX $296,154 $379,128 $458,256 $569,538BEXAR TX $341,026 $436,564 $527,692 $655,795BRAZORIA TX $279,538 $357,846 $432,564 $537,590CALDWELL TX $296,154 $379,128 $458,256 $569,538CHAMBERS TX $279,538 $357,846 $432,564 $537,590COMAL TX $341,026 $436,564 $527,692 $655,795FORT BEND TX $279,538 $357,846 $432,564 $537,590GALVESTON TX $279,538 $357,846 $432,564 $537,590GUADALUPE TX $341,026 $436,564 $527,692 $655,795HARRIS TX $279,538 $357,846 $432,564 $537,590HAYS TX $296,154 $379,128 $458,256 $569,538JEFF DAVIS TX $278,205 $356,154 $430,513 $535,026KENDALL TX $341,026 $436,564 $527,692 $655,795LIBERTY TX $279,538 $357,846 $432,564 $537,590MEDINA TX $341,026 $436,564 $527,692 $655,795MONTGOMERY TX $279,538 $357,846 $432,564 $537,590SAN JACINTO TX $279,538 $357,846 $432,564 $537,590TRAVIS TX $296,154 $379,128 $458,256 $569,538WALLER TX $279,538 $357,846 $432,564 $537,590WILLIAMSON TX $296,154 $379,128 $458,256 $569,538WILSON TX $341,026 $436,564 $527,692 $655,795

DAGGETT UT $310,205 $397,128 $480,000 $596,564DAVIS UT $407,692 $521,897 $630,872 $784,000JUAB UT $332,051 $425,077 $513,795 $638,564KANE UT $393,590 $503,846 $609,026 $756,923MORGAN UT $407,692 $521,897 $630,872 $784,000RICH UT $304,308 $389,538 $470,872 $585,179SALT LAKE UT $748,462 $958,154 $1,158,205 $1,439,385SUMMIT UT $748,462 $958,154 $1,158,205 $1,439,385TOOELE UT $748,462 $958,154 $1,158,205 $1,439,385UTAH UT $332,051 $425,077 $513,795 $638,564WASATCH UT $442,308 $566,205 $684,462 $850,615WASHINGTON UT $382,051 $489,077 $591,179 $734,718WEBER UT $407,692 $521,897 $630,872 $784,000

ALBEMARLE VA $448,205 $573,795 $693,538 $861,949

July 1, 2013 40 2013–27 I.R.B.

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

ALEXANDRIA VA $748,462 $958,154 $1,158,205 $1,439,385AMELIA VA $549,641 $703,641 $850,513 $1,057,026AMHERST VA $299,590 $383,538 $463,590 $576,103APPOMATTOX VA $299,590 $383,538 $463,590 $576,103ARLINGTON VA $748,462 $958,154 $1,158,205 $1,439,385BEDFORD VA $299,590 $383,538 $463,590 $576,103BEDFORD IND VA $299,590 $383,538 $463,590 $576,103BOTETOURT VA $287,179 $367,641 $444,359 $552,256CAMPBELL VA $299,590 $383,538 $463,590 $576,103CAROLINE VA $549,641 $703,641 $850,513 $1,057,026CHARLES CITY VA $549,641 $703,641 $850,513 $1,057,026CHARLOTTESVILLE VA $448,205 $573,795 $693,538 $861,949CHESAPEAKE VA $470,615 $602,462 $728,256 $905,026CHESTERFIELD VA $549,641 $703,641 $850,513 $1,057,026CLARKE VA $748,462 $958,154 $1,158,205 $1,439,385COLONIAL HEIGHT VA $549,641 $703,641 $850,513 $1,057,026CRAIG VA $287,179 $367,641 $444,359 $552,256CULPEPER VA $392,308 $502,205 $607,077 $754,462CUMBERLAND VA $549,641 $703,641 $850,513 $1,057,026DINWIDDIE VA $549,641 $703,641 $850,513 $1,057,026ESSEX VA $384,615 $492,359 $595,179 $739,641FAIRFAX VA $748,462 $958,154 $1,158,205 $1,439,385FAIRFAX IND VA $748,462 $958,154 $1,158,205 $1,439,385FALLS CHURCH VA $748,462 $958,154 $1,158,205 $1,439,385FAUQUIER VA $748,462 $958,154 $1,158,205 $1,439,385FLUVANNA VA $448,205 $573,795 $693,538 $861,949FRANKLIN VA $287,179 $367,641 $444,359 $552,256FREDERICK VA $487,179 $623,692 $753,897 $936,872FREDERICKSBURG VA $748,462 $958,154 $1,158,205 $1,439,385GILES VA $299,590 $383,538 $463,590 $576,103GLOUCESTER VA $470,615 $602,462 $728,256 $905,026GOOCHLAND VA $549,641 $703,641 $850,513 $1,057,026GREENE VA $448,205 $573,795 $693,538 $861,949HAMPTON VA $470,615 $602,462 $728,256 $905,026HANOVER VA $549,641 $703,641 $850,513 $1,057,026HARRISONBURG VA $284,256 $363,897 $439,846 $546,615HENRICO VA $549,641 $703,641 $850,513 $1,057,026HIGHLAND VA $294,872 $377,487 $456,308 $567,077HOPEWELL VA $549,641 $703,641 $850,513 $1,057,026ISLE OF WIGHT VA $470,615 $602,462 $728,256 $905,026JAMES CITY VA $470,615 $602,462 $728,256 $905,026KING AND QUEEN VA $549,641 $703,641 $850,513 $1,057,026KING GEORGE VA $396,154 $507,128 $613,026 $761,846KING WILLIAM VA $549,641 $703,641 $850,513 $1,057,026LANCASTER VA $558,974 $715,590 $864,974 $1,074,974LEXINGTON VA $303,846 $388,974 $470,154 $584,308LOUDOUN VA $748,462 $958,154 $1,158,205 $1,439,385LOUISA VA $549,641 $703,641 $850,513 $1,057,026LYNCHBURG VA $299,590 $383,538 $463,590 $576,103MADISON VA $284,615 $364,359 $440,410 $547,333MANASSAS VA $748,462 $958,154 $1,158,205 $1,439,385MANASSAS PARK VA $748,462 $958,154 $1,158,205 $1,439,385MATHEWS VA $470,615 $602,462 $728,256 $905,026MIDDLESEX VA $338,462 $433,282 $523,744 $650,872MONTGOMERY VA $299,590 $383,538 $463,590 $576,103NELSON VA $448,205 $573,795 $693,538 $861,949NEW KENT VA $549,641 $703,641 $850,513 $1,057,026NEWPORT NEWS VA $470,615 $602,462 $728,256 $905,026NORFOLK VA $470,615 $602,462 $728,256 $905,026

2013–27 I.R.B. 41 July 1, 2013

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

NORTHUMBERLAND VA $402,564 $515,333 $622,923 $774,154ORANGE VA $339,744 $434,923 $525,744 $653,333PETERSBURG VA $549,641 $703,641 $850,513 $1,057,026POQUOSON VA $470,615 $602,462 $728,256 $905,026PORTSMOUTH VA $470,615 $602,462 $728,256 $905,026POWHATAN VA $549,641 $703,641 $850,513 $1,057,026PRINCE GEORGE VA $549,641 $703,641 $850,513 $1,057,026PRINCE WILLIAM VA $748,462 $958,154 $1,158,205 $1,439,385PULASKI VA $299,590 $383,538 $463,590 $576,103RADFORD VA $299,590 $383,538 $463,590 $576,103RAPPAHANNOCK VA $369,179 $472,615 $571,282 $709,949RICHMOND VA $307,692 $393,897 $476,103 $591,692RICHMOND IND VA $549,641 $703,641 $850,513 $1,057,026ROANOKE IND VA $287,179 $367,641 $444,359 $552,256ROANOKE VA $287,179 $367,641 $444,359 $552,256ROCKINGHAM VA $284,256 $363,897 $439,846 $546,615SALEM VA $287,179 $367,641 $444,359 $552,256SPOTSYLVANIA VA $748,462 $958,154 $1,158,205 $1,439,385STAFFORD VA $748,462 $958,154 $1,158,205 $1,439,385SUFFOLK VA $470,615 $602,462 $728,256 $905,026SURRY VA $470,615 $602,462 $728,256 $905,026SUSSEX VA $549,641 $703,641 $850,513 $1,057,026VIRGINIA BEACH VA $470,615 $602,462 $728,256 $905,026WARREN VA $748,462 $958,154 $1,158,205 $1,439,385WILLIAMSBURG VA $470,615 $602,462 $728,256 $905,026WINCHESTER VA $487,179 $623,692 $753,897 $936,872YORK VA $470,615 $602,462 $728,256 $905,026

BENNINGTON VT $284,256 $363,897 $439,846 $546,615CHITTENDEN VT $326,923 $418,513 $505,897 $628,718FRANKLIN VT $326,923 $418,513 $505,897 $628,718GRAND ISLE VT $326,923 $418,513 $505,897 $628,718LAMOILLE VT $283,077 $362,359 $438,051 $544,359ORANGE VT $288,462 $369,282 $446,359 $554,718WINDSOR VT $288,462 $369,282 $446,359 $554,718

BENTON WA $282,051 $361,077 $436,462 $542,410CHELAN WA $351,487 $449,949 $543,897 $675,949CLALLAM WA $393,949 $504,308 $609,590 $757,590CLARK WA $429,487 $549,795 $664,615 $825,949DOUGLAS WA $351,487 $449,949 $543,897 $675,949FRANKLIN WA $282,051 $361,077 $436,462 $542,410ISLAND WA $391,026 $500,564 $605,077 $751,949JEFFERSON WA $448,718 $574,410 $694,359 $862,923KING WA $582,051 $745,128 $900,667 $1,119,333KITSAP WA $487,179 $623,692 $753,897 $936,872KITTITAS WA $337,179 $431,641 $521,744 $648,410MASON WA $317,949 $407,026 $492,000 $611,436PIERCE WA $582,051 $745,128 $900,667 $1,119,333SAN JUAN WA $608,974 $779,590 $942,359 $1,171,128SKAGIT WA $383,333 $490,718 $593,179 $737,179SKAMANIA WA $429,487 $549,795 $664,615 $825,949SNOHOMISH WA $582,051 $745,128 $900,667 $1,119,333THURSTON WA $370,513 $474,308 $573,333 $712,513WHATCOM WA $384,615 $492,359 $595,179 $739,641

COLUMBIA WI $301,282 $385,692 $466,205 $579,385DANE WI $301,282 $385,692 $466,205 $579,385IOWA WI $301,282 $385,692 $466,205 $579,385

July 1, 2013 42 2013–27 I.R.B.

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

KENOSHA WI $420,513 $538,308 $650,718 $808,667MILWAUKEE WI $323,077 $413,590 $499,949 $621,282OZAUKEE WI $323,077 $413,590 $499,949 $621,282PIERCE WI $374,359 $479,231 $579,282 $719,897ST. CROIX WI $374,359 $479,231 $579,282 $719,897WALWORTH WI $285,897 $366,000 $442,410 $549,795WASHINGTON WI $323,077 $413,590 $499,949 $621,282WAUKESHA WI $323,077 $413,590 $499,949 $621,282

BERKELEY WV $387,179 $495,641 $599,128 $744,564HAMPSHIRE WV $487,179 $623,692 $753,897 $936,872JEFFERSON WV $748,462 $958,154 $1,158,205 $1,439,385MORGAN WV $387,179 $495,641 $599,128 $744,564

SHERIDAN WY $279,487 $357,795 $432,462 $537,487SUBLETTE WY $306,410 $392,256 $474,154 $589,231TETON WY $711,538 $910,872 $1,101,077 $1,368,359

MANUA AS $312,821 $400,462 $484,051 $601,590

GUAM GU $667,949 $855,077 $1,033,590 $1,284,513

NORTHERN ISLAND MP $620,513 $794,359 $960,205 $1,193,333ROTA MP $485,897 $622,051 $751,897 $934,410SAIPAN MP $625,641 $800,923 $968,154 $1,203,179TINIAN MP $629,487 $805,846 $974,103 $1,210,564

AGUAS BUENAS PR $621,795 $796,000 $962,205 $1,195,795AIBONITO PR $621,795 $796,000 $962,205 $1,195,795ARECIBO PR $621,795 $796,000 $962,205 $1,195,795BARCELONETA PR $621,795 $796,000 $962,205 $1,195,795BARRANQUITAS PR $621,795 $796,000 $962,205 $1,195,795BAYAMON PR $621,795 $796,000 $962,205 $1,195,795CAGUAS PR $621,795 $796,000 $962,205 $1,195,795CAMUY PR $621,795 $796,000 $962,205 $1,195,795CANOVANAS PR $621,795 $796,000 $962,205 $1,195,795CAROLINA PR $621,795 $796,000 $962,205 $1,195,795CATANO PR $621,795 $796,000 $962,205 $1,195,795CAYEY PR $621,795 $796,000 $962,205 $1,195,795CEIBA PR $333,333 $426,718 $515,795 $641,026CIALES PR $621,795 $796,000 $962,205 $1,195,795CIDRA PR $621,795 $796,000 $962,205 $1,195,795COMERIO PR $621,795 $796,000 $962,205 $1,195,795COROZAL PR $621,795 $796,000 $962,205 $1,195,795DORADO PR $621,795 $796,000 $962,205 $1,195,795FAJARDO PR $333,333 $426,718 $515,795 $641,026FLORIDA PR $621,795 $796,000 $962,205 $1,195,795GUAYNABO PR $621,795 $796,000 $962,205 $1,195,795GURABO PR $621,795 $796,000 $962,205 $1,195,795HATILLO PR $621,795 $796,000 $962,205 $1,195,795HUMACAO PR $621,795 $796,000 $962,205 $1,195,795JUNCOS PR $621,795 $796,000 $962,205 $1,195,795LAS PIEDRAS PR $621,795 $796,000 $962,205 $1,195,795LOIZA PR $621,795 $796,000 $962,205 $1,195,795LUQUILLO PR $333,333 $426,718 $515,795 $641,026MANATI PR $621,795 $796,000 $962,205 $1,195,795MAUNABO PR $621,795 $796,000 $962,205 $1,195,795MOROVIS PR $621,795 $796,000 $962,205 $1,195,795NAGUABO PR $621,795 $796,000 $962,205 $1,195,795

2013–27 I.R.B. 43 July 1, 2013

2013 Average Area Purchase Prices for Mortgage Revenue Bonds

County Name StateOne-Unit

LimitTwo-Unit

LimitThree-Unit

LimitFour-Unit

Limit

NARANJITO PR $621,795 $796,000 $962,205 $1,195,795OROCOVIS PR $621,795 $796,000 $962,205 $1,195,795QUEBRADILLAS PR $621,795 $796,000 $962,205 $1,195,795RIO GRANDE PR $621,795 $796,000 $962,205 $1,195,795SAN JUAN PR $621,795 $796,000 $962,205 $1,195,795SAN LORENZO PR $621,795 $796,000 $962,205 $1,195,795TOA ALTA PR $621,795 $796,000 $962,205 $1,195,795TOA BAJA PR $621,795 $796,000 $962,205 $1,195,795TRUJILLO ALTO PR $621,795 $796,000 $962,205 $1,195,795VEGA ALTA PR $621,795 $796,000 $962,205 $1,195,795VEGA BAJA PR $621,795 $796,000 $962,205 $1,195,795YABUCOA PR $621,795 $796,000 $962,205 $1,195,795

ST. CROIX VI $336,154 $430,308 $520,154 $646,462ST. JOHN,VI VI $639,282 $818,410 $989,231 $1,229,385ST. THOMAS VI $457,641 $585,846 $708,154 $880,103All other areas (floor): $278,000 $355,897 $430,154 $534,615

.02 The nationwide average purchaseprice (for use in the housing cost/incomeratio for new and existing residences) is$225,400.

SECTION 5. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2012–25 is obsolete exceptas provided in section 6 of this revenueprocedure.

SECTION 6. EFFECTIVE DATES

.01 Issuers may rely on this revenueprocedure to determine average area pur-chase price safe harbors for commitmentsto provide financing or issue mortgagecredit certificates that are made, or (if thepurchase precedes the commitment) forresidences that are purchased, in the periodthat begins on June 13, 2013, and endson the date as of which the safe harborscontained in section 4.01 of this revenueprocedure are rendered obsolete by a newrevenue procedure.

.02 Notwithstanding section 5 of thisrevenue procedure, issuers may continueto rely on the average area purchase pricesafe harbors contained in Rev. Proc.2012–25, with respect to bonds sold, orfor mortgage credit certificates issued withrespect to bond authority exchanged, be-fore July 13, 2013, if the commitments toprovide financing or issue mortgage creditcertificates are made on or before August12, 2013.

.03 Except as provided in section 6.04,issuers must use the nationwide averagepurchase price limitation contained inthis revenue procedure for commitmentsto provide financing or issue mortgagecredit certificates that are made, or (ifthe purchase precedes the commitment)for residences that are purchased, in theperiod that begins on June 13, 2013, andends on the date when the nationwide av-erage purchase price limitation is renderedobsolete by a new revenue procedure.

.04 Notwithstanding sections 5 and6.03 of this revenue procedure, issuersmay continue to rely on the nationwideaverage purchase price set forth in Rev.Proc. 2012–25 with respect to bonds sold,or for mortgage credit certificates issuedwith respect to bond authority exchanged,before July 13, 2013, if the commitmentsto provide financing or issue mortgagecredit certificates are made on or beforeAugust 12, 2013.

SECTION 7. PAPERWORKREDUCTION ACT

The collection of information con-tained in this revenue procedure has beenreviewed and approved by the Officeof Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. 3507) under control number1545–1877.

An agency may not conduct or sponsor,and a person is not required to respondto, a collection of information unless the

collection of information displays a validOMB control number.

This revenue procedure contains a col-lection of information requirement in sec-tion 3.03. The purpose of the collectionof 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 theaverage area purchase price for a givenmetropolitan statistical area for purposesof section 143(e) and 25(c). The collec-tion of information is required to obtainthe benefit of using revisions to FHA loanlimits to determine average area purchaseprices. The likely respondents are stateand local governments.

The estimated total annual reportingand/or recordkeeping burden is: 15 hours.

The estimated annual burden per re-spondent and/or recordkeeper: 15 minutes.

The estimated number of respondentsand/or recordkeepers: 60.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

SECTION 8. DRAFTINGINFORMATION

The principal authors of this rev-enue procedure are David White andJames Polfer of the Office of AssociateChief Counsel (Financial Institutions

July 1, 2013 44 2013–27 I.R.B.

& Products). For further informationregarding this revenue procedure contact

David White on (202) 622–3980 (not atoll-free call).

2013–27 I.R.B. 45 July 1, 2013

Part IV. Items of General InterestNoncompensatoryPartnership Options;Correction

Announcement 2013–35

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Correcting amendment.

SUMMARY: This document contains cor-rections to final regulations (TD 9612) thatwere published in the Federal Register onTuesday, February 5, 2013 (78 FR 7997)relating to the tax treatment of noncom-pensatory options and convertible instru-ments issued by a partnership. The finalregulations generally provide that the exer-cise of a noncompensatory option does notcause the recognition of immediate incomeor loss by either the issuing partnership orthe option holder. The final regulationsalso modify the regulations under section704(b) regarding the maintenance of thepartners’ capital accounts and the determi-nation of the partners’ distributive sharesof partnership items. The final regulationsalso contain a characterization rule provid-ing that the holder of a noncompensatory

option is treated as a partner under certaincircumstances.

DATES: This correction is effective onJune 13, 2013 and is applicable on or af-ter February 5, 2013.

FOR FURTHER INFORMATIONCONTACT: Benjamin Weaver, at (202)622–3050 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subjectof this document are under sections 171,704, 721, 761, 1272, 1273, and 1275 of theInternal Revenue Code.

Need for Correction

As published, the final regulations (TD9612) contains an error that may prove tobe misleading and is in need of clarifica-tion.

*****

Correction of Publication

Accordingly, 26 CFR part 1 is cor-rected by making the following correctingamendments:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 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 bookgross 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 BranchLegal Processing Division

Associate Chief Counsel(Procedure and Administration)

(Filed by the Office of the Federal Register on June 12, 2013,8:45 a.m., and published in the issue of the Federal Registerfor June 13, 2013, 78 FR 35559)

July 1, 2013 46 2013–27 I.R.B.

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe 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 the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.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—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

2013–27 I.R.B. i July 1, 2013

Numerical Finding List1

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, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2013–1 through 2013–26 is in Internal Revenue Bulletin2013–26, dated June 24, 2013.

July 1, 2013 ii 2013–27 I.R.B.

Finding List of Current Actions onPreviously Published Items1

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. iii July 1, 2013

Internal Revenue ServiceWashington, DC 20224Official BusinessPenalty for Private Use, $300

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletins are available at www.irs.gov/irb/.

CUMULATIVE BULLETINSThe contents of the weekly Bulletins were consolidated semiannually into permanent, indexed, Cumulative Bulletins through the

2008–2 edition.

INTERNAL REVENUE BULLETINS ON CD-ROMInternal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be

purchased from National Technical Information Service (NTIS) on the Internet at www.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 INTERNALREVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, wewould be pleased to hear from you. You can email us your suggestions or 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.