New EEOC Rules Complicate Task of Designing a Compliant Employer Wellness Program

In 2016, after years of twists and turns, backs and forths, the Equal Employment Opportunity Commission (EEOC) issued final rules that went into effect in January 2017 and apply to all employer group health insurance plans that offer wellness programs.

The final rules follow the EEOC’s 2015 publication of two rules under the Americans with Disabilities Act (ADA) and Genetic Information Non-Discrimination Act (GINA) to address whether an employer offering an incentive to employees to provide health information would effectively render the program “involuntary” and consequently discriminating under the ADA.

In October 2016 AARP filed a challenge arguing that the requirements were arbitrary and capricious under the Administrative Procedures Act (APA) as having incentives that render the disclosure of GINA- and ADA-protected information involuntary and disclosure in violation of law. That challenge was rejected in the District Court of the District of Columbia, which ruled the information required by the regulations is not public disclosure and employers are statutorily forbidden from using it to discriminate against employees.

Categories of Employer Wellness Programs

Employer wellness programs generally fall into two categories: participatory programs and health-contingent programs. Participatory programs offer financial incentive for employee participation, but do not require the employee to satisfy any health-related condition to receive the incentive. Examples of this program include reimbursing for gym memberships and offering health education classes.

On the other hand, health-contingent programs generally require the employee to satisfy a health-related standard to obtain a reward. Within the category of health-contingent programs, there are two sub-groups:  activity-only programs and outcome-based programs. Activity-only programs require the employee to participate, but not to attain or maintain a specific health outcome.  Examples of activity-only programs include rewards for high step-counts and dieting. Outcome-based programs require the employee to attain a specific health goal, such as quitting smoking or lowering one’s body mass index (BMI).

Requirements for Health-Contingent Programs Under the ACA, GINA, and ADA Challenged by AARP

Prior to the new EEOC rules, employers sponsoring wellness programs were required to comply with the Affordable Care Act (ACA), ADA and GINA.

A. The Affordable Care Act (ACA)

The ACA imposed five requirements on employers sponsoring health-contingent programs, including:

• frequency of the opportunity to qualify for the reward;
• size of the reward;
• reasonable design;
• availability to all similarly situated individuals; and
• notice of reasonable alternative standards.

1. Frequency of the Opportunity to Qualify for the Reward

An employer wellness program must give eligible individuals the opportunity to qualify for the reward at least once per year. The opportunity to re-qualify each year must be extended, even if the individual repeatedly fails to meet the goal or complete requirements.

2. Size of the Reward

The total reward for all the employer’s wellness programs that require satisfaction of a standard related to a health factor may not exceed 30 percent of the total cost of employee-only coverage. If dependents may participate in the program, the reward cannot exceed the applicable percentage of the total cost of coverage in which the dependent is enrolled.

If tobacco cessation is the only rewards-based program offered, the limitation is raised to 50 percent of the total cost of coverage. If the rewards-based program includes tobacco-cessation and non-tobacco cessation programs, 30 percent is the maximum non-tobacco cessation reward standing alone. The total reward for both tobacco cessation and non-tobacco cessation may not exceed 50 percent of the total cost of coverage.

3. Reasonable Design

The program must be “reasonably designed” to promote health and prevent disease. To meet this requirement, a program cannot require an overly burdensome amount of time for participation, involve unreasonably intrusive procedures, be a subterfuge for violating the ADA or other laws prohibiting employment discrimination, or require employees to incur significant costs for medical examinations.

4. Availability to All Similarly Situated

The full reward of the program must be available to all similarly situated individuals. To ensure this requirement is met for an activity-only program, a reasonable alternative standard to qualify for the reward must be provided to any individual whose medical conditions make meeting the standard unreasonably difficult or medically inadvisable. Physician verification with respect to a request for a reasonable alternative standard may be requested if reasonable under the circumstances.

For outcome-based programs, a reasonable alternative must be offered to any individual who does not meet the initial standard based on the measurement, test or screening. It is not considered reasonable for programs to seek physician verification that a health factor makes it unreasonably difficult for the individual to satisfy, or medically inadvisable for the individual to attempt to satisfy a standard under an outcome-based wellness program.

5. Notice of Reasonable Alternative Standards

Finally, the program must disclose the availability of reasonable alternative standards in all materials describing the terms of a health-contingent wellness program. The disclosure must include contact information for obtaining the alternative standard and a statement that physician recommendations will be accommodated.

For outcome-based programs, the disclosure must also include that an individual did not satisfy an initial outcome-based standard, e.g., if an individual did not meet the BMI range to qualify for the reward.

B. GINA

Generally, Title II of GINA has prohibited incentives in exchange for an employee’s genetic information as part of a wellness program. “Genetic information” includes information about the current and past health status of an employee’s spouse and other family members.  An exception exists, however, that permits employers to request and acquire genetic information in connection with voluntary wellness programs.

C. The ADA

The ADA has long prohibited disability-related inquiries or medical examinations of employees, except where job-related and consistent with business necessity. Such inquiries and examinations, however, may be permitted as part of a voluntary employee wellness program.

A wellness program is “voluntary” as long as the employer neither requires participation nor penalizes employees who do not participate. See EEOC Guidance, Q&A 22.

The ADA also includes a “safe harbor” exception that overrides the voluntary/involuntary issue, providing that the ADA “shall not be construed” as prohibiting a covered entity “from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law.”

The ADA does allow premium discounts, rebates, or modifications to otherwise applicable cost sharing, in return for involvement in certain programs of health promotion and disease prevention.

EEOC’s New Wellness Programs Rules

As currently in place, the ADA rule allows employer wellness programs that inquire about employees’ health or include medical examinations to offer incentives of up to 30 percent of the total cost of self-only coverage. While the limit under the ACA applies only to health-contingent programs, this rule extends the wellness program incentive limit to participatory programs as well. Thus, employers offering participatory programs should review the program to determine whether it is subject to the ADA rule, and comply with the wellness incentive limit as applicable.

Furthermore, the wellness incentive limit in the ADA rule is applied based on the cost of self-only coverage and governs the incentive with respect to the employee only, even if the wellness program is available to the employee’s spouse or other dependents. On the other hand, the ACA applies the incentive limit to the total cost of coverage in which the employee and any dependents are enrolled. Employers sponsoring wellness programs with dependent coverage subject to the ADA rule should confirm that the wellness incentive limit is satisfied with respect to the employee applying the lowest cost of self-only coverage.

Moreover, the ADA rule applies a 30 percent incentive limit for tobacco-related wellness programs, whereas the ACA imposes a 50 percent incentive limit for these programs. However, the ADA rule only applies to smoking cessation programs that include disability-related inquiries or medical examinations. Thus, an employer who maintains a smoking cessation program that includes disability-related inquiries or medical examinations is now subject to a 30 percent incentive limit instead of the 50 percent limit that applies under the ACA.

The GINA rule states that the value of the maximum incentive attributable to a spouse’s participation also may not exceed 30 percent of the total cost of self-only coverage. No incentives are permitted in exchange for the health status information of employees’ children or in exchange for specified genetic information of an employee, an employee’s spouse, and an employee’s children.

Both rules also provide that information from employer wellness programs may only be disclosed to employers in aggregate terms. The ADA rule requires that employers give participating employees a notice informing them of the information to be collected as part of the program, with whom it will be shared and for what purpose, the limits of the disclosure, and the way information will be kept confidential. GINA also includes statutory notice and consent provisions for health and genetic services provided to employees and their family members.

Both rules prohibit employers from requiring employees or their family members to agree to the sale, exchange, transfer, or other disclosure of their health information to participate in a wellness program or to receive an incentive.

Lastly, the final rules explicitly state that the safe harbor provision does not apply to employer wellness programs, since employers are not collecting or using information to determine whether employees with certain health conditions are insurable or to set insurance premiums.

What Do Employers Do Now?

Employers should foremost determine whether their wellness program is subject to the new EEOC rules. The ADA rule only applies to wellness programs that ask an employee to respond to disability-related inquires or undergo a medical examination. The GINA rule only applies to wellness programs that offer an inducement to an employee whose spouse provides information about the spouse’s manifestation of disease or disorder as part of completing a health risk assessment.

If an employer is subject to either of these rules, the employer should review their programs to ensure that the design satisfies the applicable requirements under the new EEOC rules. The notice requirement and incentive limits are effective for the plan year beginning on or after January 1, 2017.

Posted by Attorney Katherine M. Flett. Flett is a member of the litigation team whose primary focus is on assisting clients in insurance defense, business litigation, employment law, and bankruptcy matters.