View From Proskauer: Tips for Designing Employee Wellness Programs to Incentivize Participation Without Violating the ADA

Many companies that provide their employees with health insurance couple those plans with wellness programs that are designed to encourage employees to lead healthier lifestyles. Wellness programs are supposed to be a win-win proposition for both employers and employees—employees become healthier and enjoy a better quality of life, while employers get lower claim costs, lower rates of absenteeism and greater productivity. For that reason, employers have tried to create financial incentives for employees to participate in wellness programs.

A recent change of position by the Equal Employment Opportunity Commission (EEOC), may help to facilitate these efforts. Until recently, the agency had expressed hostility to many wellness plan designs that incorporated financial incentives for participation, claiming that these incentives unlawfully violated the Americans with Disabilities Act (ADA), over which it has jurisdiction. It even went so far as to sue three different employers over their wellness programs in 2014. The EEOC has now reversed course, however, and proposed rules that would provide employers with significant opportunities to use financial incentives to maximize employee participation in their wellness programs—without the risk of running afoul of the ADA.

Background

Among large employers, wellness programs often take the form of health risk assessments or biometric screenings, ¹A health risk assessment is typically a questionnaire that employees complete on their own, while biometric screenings typically take the form of third-party administered tests, such as a blood draw, that elicit the desired health information. For purposes of this article, I will refer to both as “health risk assessments.” which are designed to identify potential non-genetic health risk factors—such as body mass index, high cholesterol, blood pressure or glucose levels—so that employees can take steps to lessen the risks of preventable, and often catastrophic, health outcomes like diabetes, heart attack and stroke. Because of the perceived health and cost benefits associated with wellness programs, a high percentage of large employers provide financial incentives to encourage employee participation.

The EEOC has for some time taken the position that Subchapter I of the ADA prohibits employers from requiring employees to undergo medical examinations unless they are “job-related and consistent with business necessity.” In other words, the EEOC’s position has been that health risk assessments are medical examinations that are generally prohibited under the ADA unless they are voluntary.

The EEOC previously took the position that almost any financial distinction between employees who took the health risk assessment and those who did not transformed the medical examination into an involuntary program in violation of the ADA—even though both the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA) specifically permit such financial incentives. ²HIPAA prohibits discrimination on the basis of health status. Following changes made by the ACA, the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury released final regulations on nondiscriminatory wellness programs under HIPAA. The agency brought three lawsuits (all in 2014) challenging employer wellness programs on the basis that each program either provided financial incentives for, or conditioned eligibility for medical benefits on, participation in the program, thus rendering them involuntary programs that violated the ADA 41 BPR 2277, 11/4/14, 213 PBD, 11/4/14.

The EEOC’s position was opposed by Congress and the business community. The agency was criticized for taking positions in these litigations that were fundamentally inconsistent with the ACA, which encourages employers to utilize wellness programs to promote employee health and lower health care spending. Congress reacted with legislative initiatives. On March 2, 2015, Sen. Lamar Alexander (R–Tenn) and Rep. John Kline (R–Minn), together with a number of Republican co-sponsors, introduced the Preserving Employee Wellness Programs Act (H.R. 1189, S. 620) 42 BPR 500, 3/10/15, 43 PBD, 3/5/15. That bill generally provides that wellness programs that otherwise comply with the wellness program provisions of HIPAA and the ACA will be deemed not to violate the ADA.

In apparent recognition of the criticisms and legislative developments, the EEOC has now changed course. On April 16, 2015, it released a long-awaited proposed rule (RIN 3046-AB01) that provides guidance on “voluntary” employee wellness programs 42 BPR 730, 4/21/15, 74 PBD, 4/17/15.

Overview of the EEOC’s Proposed Rule ³This article assumes that the reader is already familiar with the proposed rule and is not intended to provide a detailed summary of its provisions.

The EEOC’s proposed rule sets forth safe harbor limits on the levels of financial incentives an employer can provide to encourage (but not coerce) participation in health risk assessments and other wellness program offerings. Other provisions of the rule define what constitutes a bona fide “wellness” program, describes specific notice requirements to participants about the medical information requested, and addresses how the confidentiality of medical information will be protected.

Under the proposed rule, a wellness program is considered an employee health program under the ADA when it is “reasonably designed to promote health or prevent disease.” 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.

Under the safe harbor, the proposed rule permits employers to offer incentives of up to 30 percent of the total cost of an employee-only health plan (including both the employer’s and the employee’s contributions) for participation in a wellness program. The additional cost for participant and spouse or family coverage may not be taken into account, even if the wellness incentives are offered to spouses and/or dependents. In addition, the incentive can either be styled as a “reward” or a “penalty.”

Tips for Designing Wellness Programs

As a result of the EEOC’s proposed rule, employers now have significant leeway to design their wellness programs to bolster employee participation without fear of running afoul of the ADA. When reviewing the design of their wellness programs, employers should consider revising their plans to utilize penalties rather than rewards as incentives to boost employee participation rates, especially if reward-based programs have only resulted in lukewarm levels of participation.

The social science around human behavior is very compelling that people, in general, are far more responsive to sticks than they are to carrots. Previously, because of the EEOC’s apparent greater hostility to penalties or surcharges than to rewards (even though there is no economic difference), most employers structured their wellness program incentives as rewards. Given the EEOC’s newly adopted acknowledgment that rewards and penalties are opposite sides of the same economic coin, employers should be able to significantly increase the level of employee participation in their wellness programs—without changing the fundamental economics of such plans—simply by recasting the incentives as penalties.

Employers can also drive up participation rates by increasing the amount of the incentive. Given the EEOC’s previous position that almost any financial penalty rendered a wellness program involuntary, many employers were cautious about setting the incentive level at more than a de minimis amount. Now that the EEOC has provided safe harbor guidance for a 30 percent cap on incentives, employers should consider increasing their incentives to the maximum threshold. Clearly, the greater the reward or penalty for compliance/noncompliance, the more likely it is to grab an employee’s attention and thereby drive greater participation in the wellness program.

Employers should be cognizant that the 30 percent cap applies to the employee-only cost and applies to all of an employer’s wellness programs combined. Additionally, employers should ensure that the aggregate penalty would not cause the coverage under the plan to exceed the 9.5 percent “affordability” threshold under the ACA.

Employers should also be sure that their wellness program is a part of a group health plan. The safe harbor proposed rule applies only to group health plans and by tying it to the health plan, state laws such as “smokers’ rights laws” can be preempted by ERISA.

In designing the program, employers must ensure that reasonable accommodations are provided to allow sufficient participation in the program for individuals with disabilities. For example, there should be an alternative to a biometric screen that requires a blood draw for hemophiliacs.

To ensure that the program is voluntary under the proposed rule, employers may not (i) require participation in the wellness program, (ii) deny or limit health coverage for employees who choose not to participate, or (iii) take any adverse employment action or retaliate against, interfere with, coerce, intimidate or threaten employees who do not participate or fail to achieve desired health outcomes.

Employers should also be sure to comply with the notice and confidentiality requirements. With respect to the notice requirement, employers should review all plan communications, including the summary plan description and open enrollment materials, for compliance with the proposed rule. The rule requires that the notice to employees clearly set forth what medical information will be obtained; how the medical information will be used; who will receive the medical information; the restrictions on its disclosure; and the methods the employer uses to prevent improper disclosure of medical information.

To further protect employee privacy and ensure confidentiality of medical information, the proposed rule requires that any medical information collected through an employee wellness program be provided to an employer only in aggregate terms that do not disclose the identity of specific individuals taking part in the program. Employers should likewise make sure they have their HIPAA firewalls in place to maintain the confidentiality of personal health information.

Employers must be sure to comply with the feedback requirement of the proposed rule. Under the proposed rule, a wellness program must be “reasonably designed to promote health or prevent disease”—that is, designed with an eye toward improving employee health rather than to shift costs of health care from the employer to targeted employees based on their health status. Conducting a health risk assessment or a biometric screening for the purpose of alerting employees of health risks of which they may not be aware would meet the rule’s standard. If, on the other hand, the employer does not provide any follow-up information or advice to employees, the wellness program would not be reasonably designed to promote health or prevent disease, because the employee would never have received the feedback necessary to take corrective action.

Finally, employers should ensure that their wellness program does not impose an overly burdensome time commitment, require unreasonably intrusive procedures or place significant costs for medical examinations on employees. For example, if an employee had to take a biometric screening at one particular location that was a 6 hour drive from an employee’s work location, the EEOC would likely view that requirement as overly burdensome and not within the proposed regulations’ safe harbor.

Proskauer’s Perspective

The EEOC has stated that compliance with the proposed rule would be considered compliance with the ADA pending final regulations. Accordingly, wellness programs that comply with the proposed rule should have safe harbor protection from challenge by the EEOC, at least until the rules are finalized. Therefore, employers currently designing their wellness programs for the 2016 open enrollment period would be well advised to adhere to these guidelines unless and until further guidance is forthcoming. While the proposed rules are not perfect, they are a vast improvement over the EEOC’s prior position and offer employers plenty of opportunity to make effective use of incentives going forward.