Limits on Incentives for Participation Wellness Programs

By Lehr Middlebrooks Vreeland & Thompson, P.C.

November 20, 2017

Wellness programs are often used by employers to promote healthy lifestyles among their employees and reduce their health care expenditures. There have been several studies over recent years that have found a reduction in health costs for employers who offer wellness programs. Those studies have also found that when employers use incentives like premium reductions, to increase participation, there is a higher percentage of participation. Interestingly, penalties were even more successful at increasing participation rates. Such programs were originally permitted under the Health Insurance Affordability and Accountability Act (HIPAA). Subsequently, the Affordable Care Act (ACA) expressly encouraged the use of employer-based wellness programs and created new incentives for such programs. Essentially, the ACA allows employers to adjust employee premiums upwards or downwards by as much as 30% based on participation in wellness programs.

Over the years, such programs have grown in conflict with some federal laws related to employee health information, like the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA), which generally prohibit employers from requesting certain health information from employees. More specifically, the ADA prohibits employers from requiring medical exams to inquire whether an individual has a disability unless it is job related and consistent with business necessity. However, employers are permitted to conduct medical examinations or inquire about employee medical history if participation is voluntary and part of an employee health programs. In light of these regulations, the EEOC promulgated regulations as to what “incentives” employers could offer to employees to participate in an employee health program, that were consistent with the “voluntary” requirement under the ADA.

In light of these issues, in 2016, the Equal Employment Opportunity Commission attempted to blend the ACA’s regulations with those of the ADA and GINA. The EEOC promulgated regulations to allow employers offering wellness programs to provide incentives for participation while still protecting employees’ rights under the ADA and GINA. The final ADA rule that would have gone into effect in 2017 allowed wellness programs that are part of group health plans that request information and medical examinations regarding an employee’s health to offer incentives (upwards or downwards) to employees of up to  30% of the total cost of coverage for an employee. Essentially, EEOC adopted the ACA’s same 30% incentive limitation and applied it to both health-contingent and participatory wellness programs, allowing employers to raise premiums up to 30% for workers who do not participate in wellness programs.

Consequently, the AARP filed a lawsuit to challenge the proposed rules in federal court. The AARP argued that the EEOC simply plucked the numbers out of thin air and provided no sufficient reason for allowing potential premium increases of 30% on employees. The AARP also argued that the regulations are essentially forcing employees to disclose personal information or face financial penalties.

The Court found that the EEOC did not consider any factors that spoke to whether a given incentive level was voluntary or coercive. The Court concluded that although the EEOC had administrative discretion to decide on an appropriate incentive level that would be voluntary and not coercive, the EEOC failed to do this on a well-developed, supported basis. Essentially, the EEOC did not sufficiently justify how employers could raise premiums up to 30% for employees that did not participate in wellness programs. However, the Court did not vacate the proposed wellness regulations, but remanded them back to the EEOC to revise. The Court reasoned that employers had already adapted their health plans and policies for 2017 based on these rules and to vacate those rules would potentially make many health plans illegal.

In September of this year, the EEOC submitted its status report to the Court and proposed submitting revisions to the regulations regarding wellness plans to the Court in mid-2018. This date means that any final rules would not take effect until 2021. AARP has requested that the Court block the rules starting in 2018 to prevent any harm to employees and assist employees looking to finalize their health care offerings in 2018. The Judge has not yet entering a ruling on the request to block the rules.

As such, employers are in a murky spot right now. It does not seem that any revised or new regulations will be in place when 2018 health plan and wellness program decisions are made. Many employers are choosing to design their wellness programs to comply with federal regulations currently in place and the EEOC’s proposed regulations. It seems unlikely that any federal agencies will challenge such programs as they are aware of the unclear situation. However, private litigation challenging whether a program is “voluntary” is always a concern. During this confusing period, an employer’s good faith compliance with all relevant regulations is the best defense. Moreover, it will be crucial (though not necessary exciting) to follow the case and its developments through early 2018.