Wellness programs face muddy regulatory waters

The U.S. Equal Employment Opportunity Commission recently filed complaints against three employers alleging the employers’ wellness programs violate the Americans with Disabilities Act due to the penalties imposed on employees who chose not to complete the wellness programs’ requirements.

The ADA prohibits employers from asking employees disability-related questions or requiring employees to undergo medical examinations unless those questions and examinations are job-related and consistent with business necessity.  However, the ADA allows disability-related questions and medical examinations as part of a wellness program as long as the wellness program is voluntary and the information obtained is kept confidential and not used to discriminate on the basis of a disability.

A wellness program is considered voluntary if the employer neither requires participation nor penalizes employees for not participating in the program. Many employers offer incentives to employees to encourage participation in wellness programs. The EEOC has never formally explained whether and to what extent offering an incentive effectively amounts to a requirement to participate or a penalty. 

Also see: Industry lauds EEOC court decision, wellness battle continues

In the recent complaints, the EEOC alleges that the employers’ wellness programs are not voluntary. The alleged incentives involved in these cases are significant (e.g., loss of eligibility for health insurance coverage, loss of 100% employer-paid premiums, premium surcharges up to $4,000 per year). Although it is clear from the complaints that the EEOC believes the incentives at issue render the wellness programs involuntary, the complaints do not shed much light on the threshold at which an incentive is deemed a requirement to participate or a penalty that renders a wellness program involuntary.    

The EEOC’s recent action has been heavily criticized, not only by the business community, but also by members of Congress. During November 13 confirmation hearings held by the Senate Health, Education, Labor and Pensions Committee for EEOC officials, several senators expressed concern about the EEOC’s decision to take action in these cases before issuing any guidance to inform employers of the EEOC’s interpretation of the ADA’s voluntariness requirement. The EEOC has indicated in its last two semiannual regulatory agendas that it plans to issue proposed regulations on this issue, but no regulations have been issued to date.

Also see: Newest EEOC wellness program lawsuit draws further industry ire

So, what should employers with wellness programs that ask disability-related questions or require medical examinations do in the meantime to minimize the risk of an ADA violation?     

1. Consider the ADA’s “health plan safe harbor.” A wellness program is not subject to the ADA’s voluntariness requirement if it is covered by the ADA’s “health plan safe harbor.” The safe harbor provides that the ADA may not be construed to prohibit or restrict an employer from establishing or administering the terms of a bona fide benefit plan that are based on underwriting or classifying risks.

The EEOC has not issued formal guidance regarding its interpretation of the safe harbor, but the EEOC’s actions suggest that it interprets the safe harbor narrowly.  Reliance on the safe harbor will be strengthened if:

• the wellness program is structured as part of an employer’s group health plan (e.g., available only to health plan participants, set forth in the same plan document, governed by the same insurance policy or service agreement, communicated as part of the health plan); and
• the wellness program is used in connection with underwriting or classifying health plan risks.  

Keep in mind, however, that structuring a wellness program as part of a health plan may have other consequences (e.g., requiring COBRA continuation coverage to include the wellness program).
2. Confirm your wellness program’s compliance with HIPAA’s limits. Regulations under the Health Insurance Portability and Accountability Act of 1996 limit incentives offered under certain wellness programs. The Patient Protection and Affordable Care Act, as amended, increased the limit under HIPAA to 30% of the cost of health plan coverage and, for programs aimed at preventing tobacco use, 50% of the cost of coverage. The limits under HIPAA apply to “activity-only” and “outcome-based” wellness programs. For years, many practitioners expected the EEOC to issue regulations for the ADA’s voluntariness requirement that correspond to the HIPAA limits. The EEOC’s delay in issuing guidance may indicate the EEOC will not match the HIPAA limits after all. But it is unlikely the EEOC will interpret the ADA to prohibit an incentive that is clearly allowed under HIPAA solely on the basis of the amount of the incentive.

3. To the extent possible, structure and communicate wellness program incentives as carrots instead of sticks. In many cases, whether a wellness program’s incentive is a carrot or a stick is simply a matter of attention to language (e.g., referring to a premium discount (carrot) rather than a premium surcharge (stick)). But it may be possible to take additional steps to structure wellness program incentives so that the incentives are more likely to be perceived as benefits rather than penalties. For example, in the case of a premium-based incentive, it could be helpful if an employer has records that show (i) the employer typically contributes a set percentage towards premiums, (ii) total health plan premiums were determined by an insurer or actuary, (iii) an employee’s share of the premiums was reduced for completion of the wellness program criteria (such that the employer paid more than the above set percentage).

4. Strategize reasonable accommodation options. The ADA prohibits discrimination against qualified individuals with disabilities in any terms, conditions, or privileges of employment (including benefits). If an employee is unable to obtain the benefits of a wellness program because of a disability, an employer must provide a reasonable accommodation to the employee, such as a waiver, a less stringent health factor target, or an alternative program that promotes healthy behavior while accommodating the employee’s condition. This requirement is similar to, and often overlaps with, the “reasonable alternative” standard under HIPAA. 

Given the Affordable Care Act’s support for wellness programs and the lack of guidance from the EEOC regarding how the ADA applies to these programs, the EEOC’s recent actions came as a complete surprise to most employers and practitioners. The EEOC’s actions create a lot of uncertainty and make it even more difficult to predict what the EEOC’s promised proposed regulations will entail.  Employers should stay tuned for further developments.  

Sarah Krause and Stephanie Roth are labor & employment attorneys with Bass, Berry & Sims PLC in Nashville, Tenn.