Quirky Question #247, An Update on Wellness Programs

Question:

Our company has been considering implementing financial incentives for employees to participate in biometric screening as part of an employee wellness program.  Are there legal issues we should be considering?

Answer: By Steve Lucke, Gabrielle Wirth, Melinda Maher, and Jessica Shiffman

Steve Lucke

Steve Lucke

Gabrielle Wirth

Gabrielle Wirth

Melinda Maher

Melinda Maher

Jessica Shiffman

Jessica Shiffman

This is a hot topic right now, and Dorsey attorneys Steve Lucke, Gabrielle Wirth, Melinda Maher, and Jessica Shiffman recently published an update that addresses this question.  The update follows.

According to reports, more than half of all businesses with over 200 employees ask employees to participate in biometric screening, and nearly 10% of them provide a financial incentive for employees to participate. As a part of employer-sponsored “wellness programs,” these screenings usually involve blood tests, body mass index (BMI) determinations, and assessments of other types of personal health information. Gym memberships, smoking cessation programs, and other initiatives to improve health may also constitute “wellness programs,” especially when made part of employer-sponsored health plans. Employers hope that such programs will lead to a healthier workforce and lower health care premiums.

The number of wellness programs has grown since Congress passed the Affordable Care Act (ACA). Expanding on provisions of HIPAA, the ACA carves out an exception for wellness programs to rules generally prohibiting discrimination in health benefits.  Generally, a wellness program’s compliance with HIPAA regulations will depend on whether the program is participatory (based solely on participation, such as reimbursement for a gym membership), contingent and based on activities (i.e. rewards for exercising), or contingent and based on outcome (i.e. achieving a certain cholesterol level).  Appearing to encourage wellness programs, Congress increased the extent to which employers can incentivize smoking cessation programs and other wellness initiatives. Specifically, for “health-contingent” programs in which employees attempt to achieve a specific outcome, e.g. a certain cholesterol level, employers may offer a “reward” (or impose a “penalty”) of 30-50% of the amount of the plan’s premium. Regulations promulgated by the Departments of the Treasury, Labor, and Health and Human Services further support employer-sponsored wellness plans.

Against these recent legislative and regulatory developments favoring wellness initiatives, the EEOC has reminded employers that wellness programs remain subject to the Americans with Disabilities Act (ADA). The ACA and HIPAA do not say otherwise, and indeed, their associated regulations explicitly state that compliance with these statutes does not constitute compliance with the ADA. Under the ADA, disability-related questions and “medical examinations” (which include biometric screenings) can be asked of employees only when 1) their purpose is job-related and consistent with business necessity, see 42 U.S.C. § 12112(d)(4)(A), or 2) they are part of an employee health program that is “voluntary.” See 42 U.S.C. § 12112(d)(4)(B) (emphasis added).

The EEOC’s recent challenge to Honeywell’s wellness plan highlights the tension between the provisions of the ADA and the ACA. Employees who do not participate in Honeywell’s plan are allegedly subject to an annual “surcharge” of $500, the loss (depending on their incomes) of up to $1500 in contributions to their HSA accounts, and a “nicotine surcharge” of up to $2000. As the judge hearing the EEOC’s challenge observed, Honeywell’s program “appears to comply with the ACA’s surcharge limits while also supporting one of the goals of healthcare reform: reducing overall healthcare costs.” EEOC v. Honeywell International, Inc., 2014 WL 5795481 (D. Minn. November 6, 2014). The EEOC argued, however, that because employees were subject to “penalties” of up to $4000 if they chose not to participate, the program could not be considered “voluntary.” In addition to citing the provisions of the ADA, the EEOC also relied on its own Enforcement Guidance, which states that wellness programs can be considered “voluntary” only so long as they neither require participation nor penalize employees who do not participate.

In response, Honeywell argued that such an interpretation simply could not be squared with the provisions of the ACA, which presuppose that employees who do not meet the provisions of wellness programs can be required to pay more than for health care coverage. See Lindquist v. Bowen, 813 F.3d 884, 888 (8th Cir. 1987) (rejecting agency interpretation that failed to consider together statutes in pari material). Honeywell also pointed out that in addition to falling within the ACA’s “surcharge limits” of 30-50% of premium, the cost of coverage for employees who did not participate in the wellness program was still “affordable” under the ACA’s provisions for determining “affordable” coverage. By either measure, Honeywell argued, the costs for non-participation were not so high as to make the program “involuntary.”

In addition, Honeywell contended that regardless of whether its wellness program was “voluntary,” it fell within the ADA’s “safe harbor” allowing it to administer the terms of “a bona fide benefit plan” that is based on “underwriting risk.” See 42 U.S.C. § 12201(c)(2). Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012) (holding that similar program meets ADA’s “safe harbor” provisions). But citing Barnes v. Benham Group, 22 F. Supp.2d 1013 (D. Minn. 1998), the EEOC argued that “underwriting risk” refers to premium setting, not “penalties” that are associated with rising health care costs.

The Honeywell> Court did not rule on the merits of the dispute. The case was before the court on a motion for a temporary injunction, and because the three charging parties had already submitted to Honeywell’s biometric screening program and would not be assessed any surcharge in 2015, the EEOC failed to establish “irreparable harm” needed for such relief. Nevertheless, the court observed that “great uncertainty persists in regard to how the ACA, ADA and other federal statutes . . . interact,” and reserved for another day the “intriguing legal questions” that it viewed the case as presenting.  In addition to reserving judgment on the merits of the EEOC’s claim under the ADA, the court also deferred ruling on the merits of the EEOC’s claim under the Genetic Information Non-Discrimination Act (GINA). Under GINA, in order for an employer to request or require genetic information from an employee or employee’s family member in relation to a wellness program, certain conditions must be satisfied. See 42 U.S.C. § 2000ff-1(b). The EEOC argued that Honeywell violated GINA because it sought “medical information” from “covered spouses.”

In the meantime, the political branches may attempt to reconcile the tension between the ACA and the ADA. In an “Open Meeting” before the agency in May 2013, public comments reflected, among other things, a desire that the EEOC provide guidance about when an incentive allowed under the ACA becomes a “penalty” that violates the ADA. Since then, of course, the EEOC argued in Honeywell that a “$4000 penalty “crossed the line,” and has also issued opinion letters stating that employers cannot terminate coverage for employees who do not participate in wellness plans.   (The EEOC has brought two lawsuits in Wisconsin federal court where it alleges that employees were required to bear the entire cost of coverage and faced other disciplinary action because they declined to participate in such screenings.  See EEOC v. Orion Energy Systems, Inc., and EEOC v. Flambeau, Inc.)  But aside from acknowledging that “nominal incentives” are allowed, the EEOC has not provided guidance about where along the continuum employers might safely incent their employees to participate in a wellness plans. The soon-to-be Republican majority members of the Senate Health, Education, Labor and Pensions Committee recently exhorted the Chair of the EEOC to provide more guidance so employers could better judge the legality of their plans, and the EEOC has indicated such guidance may be forthcoming.

Most employers that wish to promote a healthier workforce continue to implement and administer wellness plans as contemplated by the ACA, but until the regulatory environment is clarified or courts rule, some caution is advised. Thoughtful communication and roll-out strategies always help. “Reasonable accommodations” or “alternatives” may be appropriate or required. Although ACA regulations say that “rewards” and “penalties” are two sides of the same coin, see 42 U.S.C. § 2705(j)(3)(A), positive incentives may be more effective in securing employee buy-in. Indeed, in defending against the EEOC’s challenge, Honeywell was able to characterize its contributions to its employees’ HSA accounts as an “incentive,” as well as to point to flexible alternatives available for employees to demonstrate that they were not smokers so as to avoid the $2000 “nicotine surcharge.” Wellness plan provisions that are perceived as reasonable, measured and fair will generally be helpful to employers in defending against court challenges, especially given, as the Honeywell Court said, that “one of the goals of healthcare reform [is] reducing overall healthcare costs.”

Stephen Lucke

About Stephen Lucke

Steve is Co-Chair, Minneapolis Trial Group; Co-Chair, ERISA Litigation Practice Group. Partner 1991-present; associate 1984-1990.......

Gabrielle Wirth

About Gabrielle Wirth

Employers turn to Gabrielle for guidance on how they can comply with the technical employment laws in California, Montana and nationwide while meeting their business needs. Her successful trial experience......

Melinda Maher

About Melinda Maher

Melinda is a Partner in the Benefits & Compensation practice group. Her experience includes working with entities involved with health care on compliance with ERISA, COBRA, HIPAA, Medicare Secondary Payer......

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