The rising cost of health care is a serious concern for
employers who provide health benefits to their employees. In 1960,
health care spending accounted for 5 percent of the United
States' Gross Domestic Product ("GDP"). As of 2008,
it had risen to 17 percent. By 2018, health care spending is
projected to comprise 20 percent of the GDP.
[1]
Companies have and continue to establish wellness programs for
their employees in an effort to reduce company costs and employee
illness-related absences, although views on the actual savings
generated vary.
[2] Eighty percent of small company (3-199 employees) health
plans, and 60 percent of large company (200+ employees) health
plans, offer wellness programs.
[3]
Employers who want to incorporate financial incentives into their
wellness programs need to navigate a variety of federal and state
laws barring discrimination that are implicated by wellness
programs. Regulations recently issued by the Departments of Labor,
Health and Human Services, and the Treasury have clarified how some
of these restrictions operate following enactment of the Affordable
Care Act ("ACA"), but they leave unanswered significant
questions regarding the application of other laws, such as the
Americans With Disabilities Act and the Genetic Information
Nondiscrimination Act.
Types of Employer Wellness Programs
In general, a wellness program educates employees about
health-related issues, promotes the maintenance of healthy
lifestyles, and encourages employees to make healthier choices.
Some programs may be purely educational and have no financial
implications. For example, an employer may ask employees to
complete a health risk assessment without offering any incentive or
may offer free blood-pressure screenings or on-site exercise
classes. Other wellness programs are tied to financial incentives
that may take the form of reductions in the employee's share of
the premium for health care coverage, reductions in co-pays or
other cost-sharing, or straight payments of cash or cash
equivalents, like gift cards. Ten percent of small companies and 41
percent of large companies offer financial incentives for
participation in wellness programs.
[4]
Requirements for Wellness Programs that are Group Health
Plans
The first rules expressly targeting financial incentives and
wellness programs were issued as part of the implementation of the
Heath Insurance Portability and Accountability Act
("HIPAA"), which prohibits group health plans from
discriminating in eligibility or premiums based on health factors.
A wellness program is a "group health plan" if it
provides medical care to participants or beneficiaries directly or
through insurance, reimbursement, or otherwise, and is
part of a group health plan if its rewards are linked to
the group health plan. In addition, the HIPAA regulations require
that benefits be offered uniformly to all similarly situated
individuals but allow for "benign" discrimination in
which individuals with adverse health factors are treated more
favorably. Examples of this benign discrimination include extending
eligibility for coverage to children over age 26 who are disabled
and offering disease management programs.
The HIPAA regulations also made an exception to this
nondiscrimination requirement for wellness programs that meet
certain requirements. This exception for wellness programs became
part of the statute under the ACA with respect to what is called
"nongrandfathered" coverage, effective for plan or policy
years beginning on or after January 1, 2014. In adding the wellness
program exception to the statute, Congress also increased the
maximum reward that could be offered from 20 percent to 30 percent
of the total cost of coverage and granted regulatory authority for
an increase up to 50 percent.
Final regulations under the ACA and HIPAA concerning the wellness
program exception have recently been issued; these regulations
apply to all group coverage (not just nongrandfathered coverage),
effective for plan or policy years beginning on or after January 1,
2014. These final regulations are similar to the existing wellness
program regulations with a few key distinctions. One distinction is
that the final regulations provide that the maximum reward is
increased, including an increase to 50 percent for wellness
programs that are designed to prevent or reduce tobacco use.
Another distinction is that the final regulations divide wellness
programs into categories in a slightly different manner than do the
existing rules. The final regulations also expand the requirement
to offer a reasonable alternative program for wellness programs
that require the participant to meet a standard.
Wellness Program Categories
The final ACA regulations divide wellness programs into three
categories: (1) participatory; (2) activity-only, and
(3) outcome-based.
[5]
Participatory Wellness Programs. In a
"participatory" wellness program, the group health plan
provides individuals with a financial incentive to participate in
the program without requiring that the employee satisfy any
health-related condition to receive the incentive. Examples of
participatory programs include reimbursement for membership in a
fitness center, providing a reward for participating in a smoking
cessation program without regard to whether the individual
ultimately quits, and providing a reward for completing a health
risk assessment regarding current heath status without any further
obligations or conditions. The final regulations provide that a
participatory wellness program does not result in impermissible
discrimination as long as it is available to all similarly situated
individuals.
[6]
Activity-Only Wellness Programs.
"Activity-only" wellness programs are ones that require
employees to perform an activity that some individuals may be
unable to perform or complete based on health status, such as
walking, diet, or exercise programs. These activity-only programs
require an individual to participate but not to attain or maintain
a specific health outcome. Under the final regulations, an
activity-only wellness program does not impermissibly discriminate
as long as it meets certain requirements, summarized as
follows:
- Eligible individuals have the opportunity to qualify for the reward at least annually;
- The aggregate reward for all activity-only and outcome-based wellness programs combined does not exceed 30 percent of the total cost of coverage (employer + employee) under the health plan (50 percent for programs designed to prevent or reduce tobacco use);
- The program is reasonably designed to promote health or prevent disease;
- The reward is available to all similarly situated participants;
- The plan makes available (and pays for) a reasonable alternative standard or program for individuals for whom it is unreasonably difficult due to a medical condition or medically inadvisably to meet the normal standard; and
- The availability of an alternative standard or program is disclosed in any materials describing the terms of the program. [7]
Outcome-Based Wellness Programs.
"Outcome-based" wellness programs are ones that require
that an individual attain and/or maintain a specific health outcome
in order to obtain a reward, such as being a nonsmoker or
maintaining a specific weight or body mass index ("BMI")
score. Under the final regulations, an outcome-based wellness
program does not impermissibly discriminate as long as it meets
requirements that are generally the same as the activity-only
wellness program requirements, with one major difference: the
employer must provide a reasonable alternative for any
individual who does not meet the normal standard, not just to those
who have a medical issue that prevents them from meeting the
standard. Specifically, requirements 3 and 5 above, with respect to
an outcome-based wellness program, are summarized as
follows:
- The program is reasonably designed to promote health or prevent disease, which for outcome-based wellness programs requires that a reasonable alternative standard or program to qualify for the reward be offered to any individual who does not meet the initial standard;
- The plan makes available (and pays for) a reasonable alternative standard or program for any individual who does not meet the normal standard. [8]
The requirement to provide a reasonable alternative for any
individual who does not meet the normal standard is a significant
change from the existing rules and will require adjustments to plan
design for wellness programs that impose a surcharge for not
meeting a standard. For example, plans that currently impose a
tobacco surcharge will need to offer a reasonable alternative,
beginning in 2014, for all participants, not just those
who have a medical issue that prevents them from meeting the
tobacco cessation standard. The final regulations include detailed
rules about providing a reasonable alternative, including
allocation of costs, accommodating recommendations of the
individual's physician, and seeking verification. However, they
also provide that the specifics of the reasonable alternative need
not be communicated along with other information about the
wellness program. The only things that must be communicated
initially are that an alternative standard is available that will
accommodate physician recommendations and the contact information
to be used to inquire about the alternative. Thus, while plans must
stand ready to offer the alternative, they need not advertise the
specifics.
Other Federal Nondiscrimination Laws that May Apply
An employer offering a wellness program, whether as part of or
separate from a group health plan, will also need to take into
account other federal nondiscrimination laws, such as the Americans
With Disabilities Act (the "ADA"),
[9] the Genetic Information Nondiscrimination Act
("GINA"),
[10] and the Employee Retirement Income Security Act
("ERISA").
[11] State laws concerning disability discrimination, smoker
protection, and privacy may also affect what an employer can do in
its wellness program. In contrast to the specific rules developed
under HIPAA and the ACA for wellness programs that are group health
plans, there is little guidance regarding the application of these
other statutes to wellness programs. Moreover, the ACA regulations
specifically state that they do not address the applicability of
other federal or state laws to wellness programs.
ADA. The ADA prohibits an employer from requiring
a current employee to answer disability-related questions or to
undergo a medical exam, absent a showing that the questions or exam
are job-related and consistent with business necessity. Many
wellness programs, however, involve asking employees to answer
questions that arguably relate to disabilities or submit to a
medical exam. The EEOC has confirmed that an employer is permitted
to make disability-related inquiries and/or conduct medical
examinations as part of a voluntary wellness program.
[12] It has also indicated that a wellness program is deemed
"voluntary" if the employer neither requires
participation nor penalizes employees who do not participate.
[13] The EEOC has not yet, however, provided clear guidance
regarding the definition of "voluntary" and what amount
or type of incentive may be offered by employers and still have
participation be deemed "voluntary" under the ADA.
[14]
In several discussion letters, the EEOC has given some hints at
their thinking. A March 2009 letter concluded that requiring
employees to complete a health risk assessment as a condition to
participating in a health insurance plan would violate the ADA
because the nature of the condition meant that the program was not
truly "voluntary" because the employees were
"penalized for non-participation" as they were ineligible
to receive health coverage if they did not complete the health risk
assessment.
[15] Interestingly, this March 2009 letter was initially issued
two months earlier and at that time included an assessment that a
wellness program would be considered "voluntary" as long
as the inducement to participate did not exceed 20 percent of the
cost of the employee's coverage under the plan. This portion of
the letter was deleted from the March version, with explanation
from the EEOC that the initial inquiry "did not raise the
question of what level of inducement to participate in a wellness
program would be permitted under the ADA." Although this 20
percent "cap" initially supported by the EEOC is no
longer technically the EEOC's official position, the rescinded
letter gives an indication of the EEOC's potential
analysis—and the potential conflict between the ADA and
HIPAA/ACA. An August 2009 letter concluded that a wellness program
that required completion of a health risk assessment would not be
considered voluntary because it penalized employees who did not
complete the health risk assessment by making the employee
ineligible to receive reimbursement for health expenses.
[16]
This past May, the EEOC held hearings and heard testimony
regarding the applicability of the ADA and GINA to wellness
programs. Panelists included representatives from employee rights
and disability rights organizations, as well as lawyers
representing large employers and other interested parties. Employer
representatives emphasized the importance that incentives play in
the success of wellness programs, while employee advocates
questioned whether a wellness program is truly voluntary under the
ADA if an employer withholds incentives from employees who do not
participate. While the EEOC did not commit to any future course of
action, several Commissioners indicated their agreement that it
would be beneficial to all parties for the EEOC to provide guidance
regarding wellness
programs.
Federal courts also have yet to resolve the ADA
"voluntariness" issue. Indeed, only one appellate
decision has addressed the application of the ADA to wellness
programs. Seff v. Broward County, 691 F.3d 1221 (11th Cir.
2012), involved a wellness program that required that participating
employees undergo a biometric screening and complete a health risk
assessment. Employees who chose not to participate had $20
automatically deducted from their biweekly paycheck. The court held
that this program did not violate the ADA as it fell under the
ADA's insurance safe harbor provision. This safe harbor
provision was drafted to allow insurance companies to hedge their
risks by identifying risk factors in an employee population and to
design benefits to mitigate those risks. The court, therefore, did
not address whether the County's program was
"voluntary" in light of the automatic $20 biweekly
charge.
The safe harbor provision in the ADA exempts bona fide employee
benefit plans from the ADA's requirements, including the
prohibitions on required medical examinations and
disability-related inquiries. In accordance with this provision,
employers are allowed to establish plans based on underwriting,
classifying risks, or administering risks, as long as the exemption
is not used as a subterfuge to evade the purposes of the ADA. While
the decision in Seff would appear to allow employers to
tie all wellness programs to a bona fide health care plan and
thereby avoid the ADA "voluntariness" issue, there is no
guarantee that the EEOC and/or other circuits will agree with the
11th Circuit. Moreover, even if it is ultimately confirmed that
employers can sidestep the voluntariness issue in this manner,
doing so will also likely require employers to comply with the
HIPAA requirements described above, applicable to health-contingent
wellness plans associated with health plans. Additionally, it is
important to note that the EEOC's Acting Associate Legal
Counsel has stated that Seff is inconsistent with the
EEOC's own standards.
GINA. GINA, as its name suggests, prohibits
health insurers and employers from discriminating based on genetic
information. GINA also strictly limits the acquisition of
"genetic information," and broadly defines "genetic
information" to include genetic tests, genetic tests of family
members, and "the manifestation of a disease or disorder in
family members."
[17] Health risk assessments that ask questions about family
medical history—which is typical—may violate GINA.
[18]
Based on GINA and regulations issued by the EEOC, wellness
programs may request genetic information when:
- The provision of genetic information is "voluntary";
- The individual provides prior, "voluntary," knowing, and written authorization for the provision of the information;
- Any individually identifiable information is provided only to the individual and medical professionals and is not accessible by managers, supervisors, and/or those making employment decisions; and
- The employer does not offer financial inducement for individuals to provide genetic information, unless the employer makes it clear that the incentive is available to the employee regardless of whether the participant answers the questions regarding genetic information (e.g., by express disclosure on the health risk assessment). [19]
Under GINA, "voluntary" means that the employer neither
requires the individual to provide genetic information nor
penalizes the individual for refusing to provide it.
[20] As with the ADA, the EEOC and the courts have not yet
firmly established the point at which an incentive to participate
in a wellness program becomes a penalty under GINA.
[21] Regardless of whether the program meets the
"voluntariness" standard, however, in order to comply
with GINA, employers with wellness programs that include an
incentive for completing a health risk assessment seeking genetic
information must be careful to inform employees that they can
receive the incentive without providing the genetic
information.
ERISA. An employer's wellness program will
fall under ERISA's purview if the employer's benefit plan
is otherwise subject to ERISA and if the wellness plan provides
medical care rather than just educational information or access to
health care facilities.
[22] "Medical care" for this purpose is defined as
care for "the diagnosis, treatment, or prevention of disease,
or amounts paid for the purpose of affecting any structure or
function of the body."
[23]
Wellness programs that are subject to ERISA pose additional
considerations for employers, most significantly:
(i) additional filing and notice requirements; and
(ii) potential for liability under section
510.
Wellness programs that are subject to ERISA will need to satisfy
ERISA's filing and notice requirements, which include filing a
Form 5500 (annual report) with the Department of Labor and
distributing a Summary Plan Description to participants. If the
wellness program is part of a group health plan, these requirements
may be fulfilled in the filings and notices for the group health
plan. However, if the wellness program is separate from the
employer's group health plan, the employer must separately
comply with these requirements.
Wellness programs that are subject to ERISA are also subject to
section 510 of ERISA, which provides that an employer may not
terminate, fine, or discipline an employee in order to prevent the
employee from receiving his or her benefit rights.
[24] This section creates an additional risk of litigation if
an employee views the terms and conditions of a wellness plan as
impeding access to benefits.
State Law Restrictions. State laws may affect the
legality of an employer's wellness program. For example, laws
that prohibit employers from discriminating against employees on
account of the employees' use of lawful products, including
tobacco, would affect the legality of smoking cessation programs
and health-contingent programs that have incentives tied to not
being a smoker. To date, 29 states and the District of Columbia
have enacted such smoker protection laws. In addition, although
currently only Michigan has a law prohibiting discrimination based
on an individual's weight, such prohibitions on discriminating
against obese employees also affect wellness programs.
[25] Similarly, state laws prohibiting discrimination based on
"medical conditions" (such as the California Fair
Employment and Housing Act) may come into play, especially with
health-contingent programs. Thus, employers must be cognizant of
state-specific laws when drafting wellness
programs.
Conclusion
Employers now have guidance on how to ensure that a wellness program is compliant with, and not in violation of, the HIPAA and ACA nondiscrimination requirements for group health plans. The application of nondiscrimination requirements in other federal and state laws remains less clear. Given the legal uncertainties, we recommend adhering to the following when considering implementing a wellness program: (i) refrain from making a health risk assessment or any other aspect of the program mandatory in order to qualify for health coverage; (ii) avoid any questions (written or otherwise) regarding family health history, in order to avoid violating GINA; and (iii) weigh the costs and benefits of various financial incentives considering, among other things, the income and employment tax implications. We also recommend having the wellness program reviewed comprehensively for compliance with the range of applicable laws.
Footnotes
[1] Centers for Medicare and Medicaid Services, National Health
Expenditure Projections 2008-2018, available at
http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and
Reports/National
HealthExpendData/downloads/proj2008.pdf (last accessed June 15,
2013).
[2] RAND Health, Workplace Wellness Programs Study: Final Report, available at http://www.dol.gov/ebsa/pdf/workplacewellnessstudyfinal.pdf.
[3] Kaiser Family Foundation, Employer Health Benefits 2012 Annual Survey, 177–88 (2012)
[4] Id. at 185.
[5] 26 C.F.R.. § 54.9802-1(f)(1); 29 C.F.R. §. 2590.702(f)(1); 45 C.F.R §146.121(f)(1).
[6] 26 C.F.R.. § 54.9802-1(f)(2); 29 C.F.R. §. 2590.702(f)(2); 45 C.F.R §146.121(f)(2).
[7] 26 C.F.R.. § 54.9802-1(f)(3); 29 C.F.R. §. 2590.702(f)(3); 45 C.F.R §146.121(f)(3).
[8] 26 C.F.R.. § 54.9802-1(f)(4); 29 C.F.R. §. 2590.702(f)(4); 45 C.F.R §146.121(f)(4).
vi 42 U.S.C. § 12101, et seq.
[10] 42 U.S.C. § 2000ff, et seq.
[11] Pub. L. No. 93-406.
[12] Equal Employment Opportunity Commission, EEOC Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees under the ADA, available at: http://www.eeoc.gov/policy/docs/guidance-inquiries.html.
[13] Id.
[14] EEOC Informal Discussion Letter dated January 18, 2013, accessible at: http://eeoc.gov/eeoc/foia/letters/2013/ada_wellness_programs.html (last accessed June 15, 2013).
[15] EEOC Informal Discussion Letter dated March 6, 2009, accessible at: http://eeoc.gov/eeoc/foia/letters/2009/ada_disability_medexam_healthrisk.html (last accessed June 15, 2013).
[16] EEOC Informal Discussion Letter dated August 10, 2009, accessible at: http://eeoc.gov/eeoc/foia/letters/2009/ada_health_risk_assessment.html (last accessed June 15, 2013).
[17] GINA Sec. 201(4)(A).
[18] GINA provides that if an employee undergoes a medical exam related to employment, the employer must instruct the medical professional to not ask questions regarding genetic information. 29 C.F.R. 1635.8(d). Accordingly, employers are advised to instruct any medical professionals conducting a medical exam related to employment, or as part of a wellness program, to refrain from asking the patient about genetic information.
[19] 42 U.S.C. § 2000ff-1(b)(2); 29 C.F.R. § 1635.8(b)(2)(i).
[20] 29 C.F.R. § 1635.8(b)(2)(i)(A)
[21] EEOC Informal Discussion Letter dated June 24, 2011, accessible at: http://eeoc.gov/eeoc/foia/letters/2011/ada_gina_incentives.html (last accessed June 15, 2013).
[22] 29 U.S.C. § 1002(1).
[23]29 U.S.C. § 1191b(a)(2)(A).
[24] 29 U.S.C. §1140
[25] Michigan Statutes Annotated § 3.548(102)
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