United States: EEOC Proposes Regulatory Clarification On The Application Of The ADA To Employer Wellness Program Incentives

Last Updated: May 26 2015
Article by Nancy Oliphant Ryan

Action Item: Employers who already have, or are considering implementing, wellness programs that involve cost-sharing reductions or other financial incentives for participants should carefully review their programs given the new, additional requirements under the EEOC's Proposed Regulation, which would amend existing EEOC regulations governing the application of the ADA to employer wellness programs.

Last month, the Equal Opportunity Employment Commission ("EEOC") issued a proposed regulation ("Proposed Regulation") that would amend existing EEOC regulations governing how the Americans with Disabilities Act ( "ADA") applies to employer wellness programs that are part of a group health plan. The Proposed Regulation was much-anticipated in light of the alarm the EEOC created, starting in August 2014, by suing three employers and claiming their wellness programs violated the ADA's prohibition of medical inquiries and exams that are not voluntary, even though those employers' programs were specifically tailored to comply with the parameters established for such programs under the Health Insurance Portability Act ("HIPAA") and the Affordable Care Act ("ACA") and regulations (the "Joint Regulations") issued under HIPPA jointly by the Department of Labor ("DOL"), the IRS, and the Department of Health and Human Services ("HHS").

The Proposed Regulation clarifies that significant incentives may be offered to group health plan participants to encourage and reward participation in wellness programs without violating the ADA. However, as discussed further below, the Proposed Regulation imposes limits that would prohibit many employer wellness programs that the Joint Regulations currently permit and imposes a new notice requirement on employers. Below, we briefly (i) describe the Proposed Regulation's requirements applicable to employer wellness programs that include incentives, and (ii) describe how those requirements differ from those under the Joint Regulations.

Background

In an effort to control healthcare costs and to improve the health of employees, employers frequently offer programs and activities that promote healthier living and disease prevention. Examples of these wellness programs range from relatively passive programs such as discounts for gym memberships, smoking cessation programs, and biometric screenings, to more elaborate programs that reward employees for achieving health-related results such as lowering cholesterol. Employers often offer these programs as part of their employer-sponsored group health plans and offer discounted premiums for health plan coverage or other cost-sharing savings to employees who participate in the wellness programs as an incentive to participate. In 2013, the DOL, IRS, and HHS issued the Joint Regulations that, among other things, established a framework for how such incentives may be structured in compliance with HIPAA and the ACA.

The Joint Regulations do not cover the ADA. The ADA generally prohibits employers from requiring employees to disclose medical-related information and from requiring employees to submit to medical examinations unless such inquiries or exams are either (i) job-related, or (ii) voluntary and part of an employee health program. While nothing in the ADA or in the EEOC's regulations provides what is "voluntary," the EEOC has indicated in previous enforcement guidance that a wellness program is "voluntary" only if the employer neither requires participation nor penalizes employees for non-participation in the program. The issue that the EEOC addresses in the Proposed Regulation is: At what point does an employer-provided incentive that allows employees who participate in a wellness program to pay less for health plan coverage than those who don't become a penalty that effectively makes a wellness program that requires medical information or a medical exam involuntary and therefore illegal?

Wellness Programs under HIPAA and the Joint Regulations

While HIPAA prohibits discrimination in group health plans based on individual health factors (e.g., health status, medical condition, medical history, and claims experience), the Joint Regulations provide an exception for premium discounts and other incentives in connection with "health contingent" wellness programs that meet the following five requirements or limitations:

  1. The incentive must be limited to 30 percent of total cost of employee-only coverage, including both employer- and employee-paid portion of the cost, or if the employee's dependents may also participate in the wellness program, 30 percent of the total cost of employee-plus-dependent coverage (50 percent for tobacco-use-cessation programs in each case).
  2. The wellness program must be reasonably designed to promote health or prevent disease.
  3. Individuals eligible to participate must have the opportunity to qualify for the incentive at least once a year.
  4. The incentive must be available to all similarly-situated individuals, and the wellness program must allow a reasonable alternative standard (or waiver of initial standard) for obtaining the reward to any individual for whom it is unreasonably difficult due to a medical condition, or medically inadvisable, to satisfy the initial standard.
  5. The plan must disclose in all materials describing the terms of the program the availability of a reasonable alternative standard (or the possibility of a waiver of the initial standard).

It is important to note that these limits and requirements only apply to wellness programs that are "health contingent," meaning that they either require an individual to perform or complete an activity related to a health factor (such as participating in a diet or exercise program) in order to obtain a reward or require an individual to attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) in order to obtain a reward. The limits and requirements listed above do not apply to a "participatory" only program that provides a reward to someone just for participating (such as reimbursement for a gym membership or a gift card for attending a nutrition seminar). The incentives that may be offered under a participatory only program are not limited under the Joint Regulation.

The Proposed Regulation

The EEOC has proposed that an employer may offer incentives to participate in wellness programs that require participants to disclose medical-related information or and to submit to medical examinations as follows:

  1. The incentive must be limited to 30 percent of total cost of employee-only coverage (unlike under HIPAA, the limit is employee-only even if dependents are eligible to participate in the wellness program).
  2. The wellness program must be reasonably designed to promote health or prevent disease.
  3. The employer must provide a notice to eligible program participants that clearly explains what medical information will be obtained, who will receive the medical information, how the information will be used, the restrictions on its disclosure, and the methods the employer and/or health plan will use to prevent improper disclosure of the medical information.
  4. The employer must satisfy the ADA's reasonable accommodation requirement with respect to the wellness program (similar to the reasonable alternative discussed above with respect to the Joint Regulations).

Unlike the limits under HIPAA and the Joint Regulations, these limits of the Proposed Regulation would apply to all employer wellness programs, both participatory and health contingent. So, incentives for participation-only programs that ask an employee to complete a medical history or undergo a medical examination of any kind, even if no action will be taken in light of the history or examination, will be subject to the 30 percent limit discussed above if the Proposed Regulation is finalized. Similarly, under the Proposed Regulation, the reasonable accommodation requirement applies to all wellness programs, while the Joint Regulations' reasonable alternative standard applies only to health contingent programs.

The EEOC did not address how the Genetic Information Nondiscrimination Act ("GINA") applies to wellness programs in the Proposed Regulation, but indicated that it will address that issue in future guidance. Our advice has been that information about family medical history may not be required under GINA. The Proposed Regulation also states explicitly that a wellness program's compliance with the Proposed Regulation does not mean that it complies with other federal employment non-discrimination laws such as the ADEA.

Finally, the Proposed Regulation also imposes confidentiality requirements, similar to those under the HIPAA Privacy Regulation, on information collected pursuant to any employer-sponsored wellness programs.

Next Steps

The Proposed Regulation is only a proposal only that will not be finalized until sometime after the public comment period has expired on June 19. The EEOC has indicated that employers may, but are not required to, follow the Proposed Regulation before it is finalized. However, the case brought by the EEOC last summer clearly indicates the EEOC's intention to enforce this position. Given the new, additional requirements for wellness programs under the Proposed Regulation, we recommend that employers that have implemented or are considering wellness programs that involve higher premiums or other increased cost-sharing for employees who do not participate contact us to discuss the Proposed Regulation and its implications for their programs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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