United States: EEOC V. Flambeau, Voluntary Plans, The Insurance Safe Harbor, And The Future Of Wellness Programs

The benefits world was set abuzz late last year with Equal Employment Opportunity Commission v. Flambeau, Inc., in which the Federal District Court for the Western District of Wisconsin upheld the validity of Wisconsin-based plastics manufacturer Flambeau, Inc.'s wellness program in the face of a challenge by the Equal Employment Opportunity Commission (EEOC). We provided the details of the case in an earlier post. The EEOC has since appealed the lower court's decision to the Seventh Circuit. An earlier appellate case, Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012) reached a conclusion similar to Flambeau.

If the Seventh Circuit affirms the Flambeau decision on appeal, then the Americans with Disabilities Act, as amended by the ADA Amendments Act of 2008 (ADA) will have virtually no impact on wellness programs tied to employer-sponsored group plans in six states: Alabama, Florida, Georgia, Illinois, Indiana and Wisconsin—i.e., the states comprising the Seventh and Eleventh federal appellate circuits. An appeal to the Supreme Court would almost certainly follow, though it's not clear whether the Court would accept the case in the absence of a split in the Circuits. But if the Seventh Circuit sides with the EEOC, then a confrontation before the Supreme Court is almost assured.

This post explains what is at stake in the EEOC's appeal of the Flambeau decision and offers some predictions about the likely outcome.


Flambeau, Inc. maintained a group health plan for its employees which included a wellness program requiring employees to complete a Health Risk Assessment (HRA) and a biometric screening as preconditions to group health plan enrollment. The EEOC sued Flambeau alleging that the company violated the provision of the ADA that prohibits employers from requiring their employees to submit to medical examinations.

The ADA generally restricts employers from obtaining medical information from employees, but allows medical examinations of employees and inquiries about their health in two instances:

Voluntary" employee health programs

Title I of the ADA allows employers to conduct medical examinations of employees and to inquire about employee health as part of a "voluntary" employee health program. Under a 2015 proposed regulation by the EEOC, a wellness program is considered to be an employee health program when it is reasonably designed to promote health or prevent disease. To qualify, the program must not be overly burdensome, a subterfuge for violating the ADA or other laws prohibiting employment discrimination, or highly suspect in the method chosen to promote health or prevent disease. In addition, an employer may not require employees to participate; may not deny access to health coverage or generally limit coverage under its health plans for non-participation; and may not take any other adverse action or retaliate against, interfere with, coerce, intimidate, or threaten employees (such as by threatening to discipline an employee who does not participate or who fails to achieve certain health outcomes). If a wellness program is part of an employer's group health plan (as most are), an employer must also provide a notice explaining what medical information will be obtained, how it will be used, who will receive it, and the restrictions on disclosure.

In the EEOC's view, the voluntary employee health program exception is the only exception available to employer-sponsored wellness programs. Its reasoning is explained in a footnote to the EEOC's April 2015 notice of proposed rulemaking:

The Commission does not believe that the ADA's "safe harbor" provision applicable to insurance . . . is the proper basis for finding wellness program incentives permissible. The ADA contains a clear "safe harbor" for wellness programs—the "voluntary" provision at 42 U.S.C. 12112(d)(4)(B). . . . Reading the insurance safe harbor as exempting these programs from coverage would render the "voluntary" provision superfluous.

Michael Eastman, Vice President, Public Policy, on behalf the Equal Employment Advisory Council, offered a contrary view to the EEOC's April 2015 notice of proposed rulemaking in his June 19, 2015 comment letter to the EEOC. Citing legislative history and other relevant sources, he posits that Congress affirmatively intended a large measure of redundancy between the voluntary benefit exception and the insurance safe harbor. And although the EEOC has not signaled any intent to do so, Mr. Eastman further questions whether the EEOC has any interpretive authority over the insurance safe harbor.

Bona fide wellness programs

Entitled simply "insurance," § 501(c) of the ADA is alternatively referred to as the "insurance exception," the "bona fide benefit plan" exception, or the "insurance safe harbor." The statutory provision reads as follows:

(c) Insurance

Subchapters I through III of this chapter and title IV of this Act shall not be construed to prohibit or restrict

  1. an insurer, hospital or medical service company, health maintenance organization, or any agent, or entity that administers benefit plans, or similar organizations from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law; or
  2. a person or organization covered by this chapter 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; or
  3. a person or organization covered by this chapter from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that is not subject to State laws that regulate insurance.

Paragraphs (1), (2), and (3) shall not be used as a subterfuge to evade the purposes of subchapter I and III of this chapter.

(Emphasis added).

The statute does not seem all that complicated: an employer wellness program will qualify for the insurance safe harbor if the employer sponsors, observes or administers a "bona fide benefit plan," which is based on "underwriting risks, classifying risks, or administering such risks," and satisfies certain other requirements not relevant here. But what does "underwriting risks, classifying risks, or administering such risks" mean, exactly? There is some legislative history on the subject. Congress included the safe harbor provision:

"to make it clear that this legislation [ADA] will not disrupt the current nature of [health status] insurance underwriting or the current regulatory structure for self-insured employers or of the insurance industry in sales, underwriting, [and] pricing" (S. Rep. No. 101-116, at 84-85).

Congress further opined that:

"benefit plans (whether insured or not) need to be able to continue business practices in the way they underwrite, classify, and administer risks, so long as they carry out those functions in accordance with accepted principles of insurance risk classification" (H.R. Rep. 101-485, at 138).

While some observers have read these passages to mean that the safe harbor was meant only for carriers and not group health plans, it's hard to find support for that contention here. This is perhaps why the EEOC did not advance the argument in the noted 2015 notice of proposed rulemaking footnote.

EEOC's Acting Associate Legal Counsel, Christopher Kuczynski, explained the EEOC's view of the insurance safe harbor in testimony offered in May 2013:

EEOC's Interim Enforcement Guidance on Application of the Americans with Disabilities Act of 1990 to Disability-Based Distinctions in Employer-Provided Health Insurance defines "risk classification" as "the identification of risk factors and the grouping of those factors that pose similar risks, and defines "underwriting" as "the application of the various risk factors or risk classes to a particular individual or group (usually only if the group is small) for the purpose of determining whether to provide insurance.

What Mr. Kuczynski seems to be saying is that "underwriting" is what you do to decide whether you want to have a plan in the first instance. What you do after that is something else. This strikes us as a cramped understanding of the term, but even if he is correct, then perhaps what one does after one "underwrites" is "classify risks, or administer such risks." As a consequence, even if one accepts his argument, there is still plenty of room for the insurance safe harbor to apply after the initial decision to provide insurance.

Handicapping the Arguments

Both the Flambeau and Seff trial courts disagreed with the EEOC's views that the "ADA's 'safe harbor' provision applicable to insurance . . . is [not] the proper basis for finding wellness program incentives permissible" and that "[r]eading the insurance safe harbor as exempting these programs from coverage would render the 'voluntary' provision superfluous."

So which is it? Who has it right? To find out, it helps to take a closer look at the boundaries of each exception:

  • Wellness programs that are covered by the voluntary plan exception allow employers to make disability-related inquiries or require medical examinations so long as employee participation in such inquiries and examinations is voluntary. The EEOC's 2015 notice of proposed rulemaking endeavors to establish rules for determining what "voluntary" means in this context. The wellness programs under this exception may, but are not required to, be part of an employer's group health plan. Thus, while an employer without a group health plan would be unable to apply the insurance safe harbor, it could still establish and maintain a voluntary wellness program.
  • Wellness programs that are covered by the insurance safe harbor are those that are (i) based on "underwriting, classifying, or administering risks," and (ii) a term or part of a "bona fide benefit plan."

As the Flambeau court readily acknowledged, these sets overlap. They are not the same, however. (In the parlance of set theory, the set consisting of the differences is not a null set.) For example, an employer that adopts a wellness program that is risk-based and is part of its group health plan would appear to be able to avail itself of either exception. But if that same employer wants to establish a wellness plan separate and apart from its group health plan, it would be required to adhere to the standards that the EEOC establishes under the voluntary plan exception. The same would be true if the employer sought to establish a wellness program as part of its group health plan but did not want to take risk into account.

The EEOC's position in the matter is suspect. Some wellness programs are based on "underwriting, classifying, or administering risks," others are not. The latter are unable to meet the requirements of the bona fide insurance plan safe harbor exception. Congress, it would seem, provided these plans with an alternative: they can instead choose to qualify as voluntary wellness programs. In addition, the ADA's voluntariness requirement would still apply to employer wellness programs that are not a part of a group health plan.

What the future holds

The EEOC's dispute with Flambeau and a handful of other employers on the subject of wellness programs is part of a larger, politically charged debate. On one side are employers who are seeking to reduce rapidly escalating health costs by grasping at ways that they think will help achieve that objective. To these employers, wellness programs are one of the few options in an otherwise bleak landscape. On the other side are employees who object to what they see as rank coercion that does nothing more than shift health care costs onto employees who don't meet wellness program targets or who don't want or care to participate.

On balance, it seems to us that the Flambeau and Seff courts have the better of the argument. A fundamental rule of statutory construction says that effect must be given, to the extent possible, to every word, clause and sentence of a statute. The thrust of the EEOC's position on voluntary wellness programs violates this basic standard of construction. It would have the effect of reading the bona fide wellness program exception out of the statute. The words "bona fide wellness program" must mean something. That they are used in the same statute as "voluntary wellness program" signals that Congress intended to establish two different standards.

Our clients tend to be employers, plans, and wellness vendors. Despite our best efforts, our analysis could be skewed as a result. The same can be said of the regulators and interest groups on the other side of the divide: Despite their best efforts, any analysis or rebuttal is similarly likely to be influenced, but in the other direction towards employees. The only neutral arbiter is the Supreme Court, which is neutral not necessarily for lack of bias, but only because it has the final say.

Whatever happens, the matter will not end with this case. Sooner or later we expect that the Supreme Court will be called on to settle the matter. When it does, the Court's recent decision in Gobeille v. Liberty Mutual Insurance Company does not bode well for the EEOC. Though that case did not involve the ADA, the Court sided with the employer based on a straightforward reading of the statute, while showing little or no willingness to defer to the regulator's views. (Click here for a recent post explaining Gobeille.)

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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Alden J. Bianchi
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