United States: EEOC v. Flambeau, Judicial Restraint, And The (Uncertain) Future Of Employer-Sponsored Wellness Programs

Last Updated: February 6 2017
Article by Alden J. Bianchi

On January 25, the Seventh Circuit Court of Appeals issued it much-anticipated decision in EEOC v. Flambeau, Inc. This case involved the regulation of employer-sponsored wellness plans and programs. Since 2006, the rules surrounding wellness programs had been modestly well settled—for tax and benefits purposes. But little was known about the impact of the Americans with Disabilities Act (ADA). At issue in Flambeau is which of two ADA provisions—the voluntary employee health program exception or the safe harbor for "bona fide benefit plans"—also apply to wellness plans. The lower court, the U.S. District Court for the Western District of Wisconsin, ruled against the EEOC, applying the more flexible bona fide benefit plan exception. The EEOC appealed.

The Seventh Circuit's decision on appeal is a model of judicial restraint. (This is the doctrine that holds that cases ought to be decided on the narrowest grounds possible.) Flambeau "won" on appeal only in the narrow sense that it avoided liability. The Court did not reach the statutory or regulatory issues before it. Rather, it disposed of the case on procedural grounds.

Background

The facts are not in dispute. Flambeau offered a wellness program to its employees that included a health risk assessment (HRA), which required employees to answer questions about their medical histories. They also were measured for health indicators such as weight, cholesterol levels, and blood pressure. In 2012 and 2013, Flambeau required employees to participate in the wellness program as a condition of the employer's contributions to an employee's health insurance premiums.

A Flambeau employee failed to complete the HRA and Flambeau terminated his insurance coverage leaving him with COBRA as his only option (which he declined). The employee filed a complaint with the EEOC alleging violations of the ADA. Flambeau agreed to reinstate his health insurance retroactively so long as he completed the testing and paid his own share of the premiums, which the employee did. In advance of the 2014 plan year, Flambeau ended the mandatory HRA requirement, finding that it was not cost-effective. The employee resigned his job at Flambeau in March 2014.

In September 2014, the EEOC filed suit against Flambeau alleging that its mandatory assessment and testing violated the ADA prohibition on involuntary medical examinations. Flambeau countered that its wellness plan was instead covered by the ADA's insurance safe harbor, the requirements of which Flambeau satisfied. The District Court sided with Flambeau, and the EEOC appealed.

The Competing ADA Standards

The ADA generally bars involuntary medical examinations, which would include most wellness programs. To this broad, general rule, the ADA provides two exceptions:

  • The exception for "bona fide benefit plans"

The exception for bona fide benefit plans says that the ADA "shall not be construed to prohibit or restrict . . . [an] organization . . . from . . . administering the terms of a bona fide benefit plan . . .." The EEOC is of the view that this exception is not 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.

  • The voluntary employee health program exception

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 final EEOC rule on the subject that was issued in 2016, a plan that denies coverage or benefit options to employees who fail to complete an HRA or biometric screening or fail to satisfy a particular health metric would not qualify as voluntary. If this rule is applied to Flambeau, the HRA would not pass muster.

We explain the particulars of these both these rules and the underlying statutory support in an earlier post.

The Court's Decision

The Court determined that the EEOC's claim is moot. Since the employee was no longer employed, the only remaining claims were for compensatory and punitive damages. The claim for compensatory damages was for $82.02, which he never paid (the amount was either "written off or paid by third parties"). The Court similarly discounted a claim based on compensation for emotional distress damages, the evidence for which it found wanting. Nor was the Court inclined to impose punitive damages where there was no showing that Flambeau acted "with malice or with reckless indifference to the federally protected rights of an aggrieved individual."

(Our) Analysis

The EEOC has all along viewed the voluntary employee health program exception as the only exception available to employers who wish to maintain wellness programs that do not run afoul of the ADA's ban on involuntary medical examinations. This view is firmly enshrined in the EEOC's 2016 final regulations on the subject. And at least one court (EEOC v. Orion Energy Systems, Inc.) has ruled in the EEOC's favor on this point. But the EEOC lost Orion on other grounds (the court held that Orion's wellness plan was voluntary).

More important, in our view, is the Court's frank acknowledgement that the "statute's plain text does not resolve [the] question." We agree. Despite the EEOC's position on appeal, it is not clear to us that the ADA's safe harbor provision applicable to insurance "is not the proper basis for finding wellness program incentives permissible of the reading the insurance safe harbor as exempting these programs from coverage would render the 'voluntary' provision superfluous" as the EEOC posits.

The carve-out for voluntary health programs and the bona fide benefit plan exception are routinely presented and discussed as being alternatives to one another, but they are not that, exactly. The former, the voluntary health program carve-out, is in Subchapter I of the ADA, over which the EEOC has interpretive authority. The provision is a narrow exception to Subchapter I's broad bar on involuntary medical examinations. The latter is in Subchapter IV of the ADA, and it applies broadly to all of Subchapters I, II, and III.

On its face, the bona fide benefit plan covers the terms of "bona fide benefit plans that are based on underwriting risk, classifying risks, or administering risks." Those urging the application of the bona fide benefit plan to wellness plans point to this provision in support of their position. The lower court agreed with them. (The arguments in favor of this position are articulated in an amicus brief filed in the case by the HR Policy Association and others.)

The EEOC claims that wellness programs don't underwrite, classify, or administer risk. This is what insurance companies do, not self-funded plans. Thus, the rule does not reach employer-based wellness programs. The EEOC's position finds some support in the legislative history, which is silent on the matter of wellness plans but has a lot to say about insurance. (The argument on the part of the EEOC is explained in a brief filed by AARP.) Thus, for the EEOC to prevail, it must first establish that the statute is ambiguous. (As the Seventh Circuit pointed out, the EEOC is not free to re-write the statute.) This is possible, we suppose, but we are not entirely persuaded. We think that the EEOC has the marginally weaker position on the statutory argument.

The EEOC's reply brief and the AARP's amicus brief on appeal spends a good deal of time referring to and relying on its own authority. If the commission is unable to demonstrate that the statue is ambiguous on its face, none of this will likely matter. If the EEOC can convince a court that resorting to the legislative history is necessary, however, then it ought to be able to get the benefit of deferential review. Whether that deference is enough for it to prevail is another matter. But if the case takes this route, the EEOC ought to have the marginally stronger case.

Impact of the ACA

The Affordable Care Act (ACA) codified and expanded an existing 2006 three-agency final regulation establishing rules for wellness programs under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The ACA's repeal will in all likelihood reinstate the pre-ACA rules. But Congress may go even further by establishing this HIPAA wellness program rules as only rules that apply to employer-sponsored wellness programs, which the Ryan Plan suggests. (Click here for our explanation of that plan.) The Ryan Plan "supports employers who want to reward their workers for healthy behaviors through lower health insurance premiums based upon participation in prevention and wellness programs." It then excoriates the EEOC for "stand[ing] in the way of these commonsense programs." The reference is to final regulations referred to above.

Closing Thoughts

One wonders why the EEOC sought to pursue this particular case. One report of the oral argument on appeal explains:

Without a determination that the now-retired employee suffered an economic loss, emotional distress or some other damage, the case likely constituted "much ado about ancient history," one of the judges said.

The lack of damages in this case resulted in the larger, substantive issues becoming a sideshow. So substance of the matter remains unresolved.

Can an employer require employees to complete an HRA or undergo biometric screening or satisfy a particular health metric as a condition of group health plan participation without violating the ADA? If Congress fails to provide an answer in connection with its replacement of the ACA, then sooner or later we fully expect that the Supreme Court will do so.

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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