The Increasingly Complex Law of Wellness Program Incentives
March 15, 2016
A manufacturer wants to promote better health among its workforce by implementing a wellness program. Trying to keep it simple, the employer tells employees that they will receive a $50 per month credit toward their health insurance premium contribution if they complete a confidential “health risk assessment”; i.e. a questionnaire that is designed to identify an individual’s potential health risks. The employer hopes to benefit from the wellness program by enabling employees to address emerging health issues before they become major problems. This may reduce major health claims, improve attendance and possibly improve productivity for the company. As part of the bargain, the employee saves $50 per month and could possibly avert a serious health emergency. Everyone’s a winner – right? Well, it depends.
Layers of Regulation
Employers are often shocked to learn the extent to which wellness programs have become regulated. Right out of the gate, the simple wellness program described above will need to comply with at least four federal laws: the Americans with Disabilities Act (“ADA”), the Genetic Information Nondiscrimination Act (“GINA”), the Health Insurance Portability and Accountability Act (“HIPAA”) and the Affordable Care Act (“ACA”). To complicate things further, several key compliance questions regarding the operation of wellness programs remain unanswered. Two of these laws arguably contradict each other when it comes to wellness programs. Key regulations issued by the Equal Employment Opportunity Commission (“EEOC”) governing the application of the ADA to employer wellness programs remain in only “proposed” form. Finally, several important issues involving wellness plan designs are currently being battled out in federal courts. Put another way, the law of wellness programs is still developing. Employers considering wellness programs need to understand the areas in which some uncertainty remains.
Regulation of Wellness Rewards
Regulations issued under HIPAA in 2006 were the first to limit the size of wellness rewards. These rules, commonly referred to as the “HIPAA nondiscrimination rules” were amended in 2014 to state that a monetary incentive offered in a general “health contingent” wellness program could not exceed 30% of the applicable health coverage premium – but the permissible amount of the incentive will depend on the extent of participation in the wellness program within the employee’s family. In other words, if an employee elects family coverage with a monthly premium of $1000 (irrespective of how much the employee contributes toward that premium), she may be offered a wellness incentive of up to $300 per month, but only if she and her family participate in the wellness program. If only the employee participates in the wellness program, then the incentive is limited to 30% of the employee-only premium.
Effective 2014, the ACA authorized wellness programs to offer incentives of up to 50% of the applicable premium for programs targeting tobacco use. Despite Congress’s clear intention to give employers latitude to offer greater monetary incentives, the EEOC has attempted to reign in these higher limits. In proposed regulations issued under the ADA in April 2015, the EEOC took the position that wellness programs which ask participants disability-related questions or which require medical examinations may not offer an incentive of more than 30% of the total cost of employee-only coverage – regardless of whether a program participant has elected more expensive dependent coverage. Put another way, if a participant is merely asked to verify that he has stopped smoking, then a 50% limit is permissible; however, if the employer seeks to confirm this with nicotine testing, then the 30% cap applies. The apparent tension between the ACA and the EEOC’s proposed rules will hopefully be resolved when final regulations are issued.
The Limitations on Consequences for Non-Participants
In our case study above, an employee who elects not to participate in the wellness program loses out on the $50 monthly discount. However, could the employer go so far as to condition coverage under its health plan on the employee’s participation in its wellness program? This is the issue that is currently being litigated by the EEOC in a number of lawsuits filed in early 2014. In each of the pending suits, the EEOC alleges that such a significant consequence for non-participation renders a wellness program “involuntary” and, therefore, violates the ADA.
On December 30, 2015, the U.S. District Court for the Western District of Wisconsin rejected this argument. In EEOC v. Flambeau, the court recognized that the ADA contains a safe harbor for wellness programs that are offered as a “term” of a “bona-fide benefit plan.” Under the safe harbor, such terms are lawful if they are based on underwriting risks and the program is not mandatory or a subterfuge for discrimination. Accordingly, the court dismissed the EEOC’s complaint. Although the court’s decision in Flambeau would seem to give employers latitude to condition coverage on participation in a wellness program, it’s likely that not all courts will agree. For the time being, employers are well-advised to closely watch for similar litigation within their respective federal judicial circuit(s).
To be sure, the law of wellness programs has become quite complicated and is still developing. Each of the laws affecting these programs raises a number of considerations in addition to those outlined above. As innocuous as workplace wellness initiatives may seem, employers that are considering a wellness program for the first time should not proceed without consulting counsel.
Eric N. Athey, Co-Chair of the Labor and Employment Group, he provides representation and counseling on a wide range of labor and employment matters. Eric represents private and public sector employers before state and federal courts, arbitrators and administrative agencies. He can be reached at 717.581.3708 or firstname.lastname@example.org.