The U.S. District Court for the District of Columbia has ordered the EEOC to reconsider its final regulations on the extent to which an employer may offer incentives to participate in a wellness program without violating the Americans with Disabilities Act (ADA) or the Genetic Information Nondiscrimination Act (GINA).  The court, however, declined to vacate the regulations; the status quo therefore remains in effect pending the EEOC’s review.

The decision is an unexpected twist to a regulatory tale that started before passage of the Affordable Care Act and seemed to have finally been resolved in May 2016. At issue is whether offering incentives to provide employee medical information or family medical history (such as a health risk assessment) makes participation in a wellness program involuntary—and therefore in violation of the ADA and GINA.  After years of uncertainty, the EEOC published final regulations that provide a clear standard for how valuable an incentive can be before crossing the voluntariness line.  Under the regulations, an incentive is permissible if the value does not exceed 30% of the cost of self-only health insurance.  This standard is similar, but not identical, to what is permitted under HIPAA non-discrimination rules that were adjusted by the Affordable Care Act.

A few months after the EEOC finalized its rules, AARP sued to block implementation.  AARP argued that, although the EEOC borrowed from HIPAA regulations and the Affordable Care Act, it impermissibly “depart[ed] starkly from the EEOC’s longstanding position” that “employee wellness programs implicating confidential medical information are voluntary only if employers neither require participation nor penalize employees who choose to keep their medical and genetic information private.”  In other words, AARP seemed to take the position that no meaningful incentive is permissible, because an employee’s forgoing of an incentive amounts to a penalty that effectively makes participation involuntary.

In December 2016, the district court denied AARP’s request for a preliminary injunction blocking the implementation of the final rules.  At that time, the court found that AARP had failed to demonstrate that its members would suffer irreparable harm if the rules went into effect, and that the evidence in the record did not support a finding that AARP was likely to succeed on the merits of its arguments.

Following review of the full administrative record, however, the court found that the EEOC failed to explain the reasoning behind its decision that an incentive of up to 30% of the cost of self-only coverage would not make participation involuntary. Although the court recognized that it must defer to the agency’s decision “if the agency has offered a reasoned explanation,” the court concluded that it “could find nothing in the administrative record that explains the agency’s conclusion that the 30% incentive level is the appropriate measure for voluntariness.”

The court rejected the EEOC’s argument that it was appropriate to harmonize the incentive level with the 30% rule under HIPAA and the Affordable Care Act. The court found that the HIPAA/ACA 30% incentive figure was selected to prevent insurance discrimination and was “not intended to serve as a proxy for or interpretation of the term ‘voluntary’” under the ADA and GINA.  The court also noted that the EEOC’s standard does not match perfectly with the HIPAA/ACA standard.  The court cited differences in both: (i) the basis for calculating the 30% incentive cap (the EEOC regulations base the 30% on the cost of self-only coverage while the HIPAA regulations use the cost of either family or self-only coverage, depending on the circumstances), and (ii) the types of wellness programs to which the cap is applied (HIPAA’s 30% incentive cap applies only to health-contingent wellness programs that require participants to satisfy particular health standards, while the EEOC’s regulations extend the cap also to participatory wellness programs—that is, programs that do not condition receipt of an incentive on satisfaction of a health factor).

Additionally, the court found that the EEOC failed to address adequately comments submitted during the rulemaking process regarding the potentially significant financial burden imposed on employees. The court faulted the EEOC for defining voluntariness in financial terms (i.e., saying that a penalty of up to 30% of the health premium would not make participation involuntary), without “appear[ing] to have considered any factors relevant to the financial and economic impact the rule is likely to have on individuals who will be affected by the rule.”

As noted above, the court has allowed the EEOC’s final rules to remain in effect pending the EEOC’s review. We will continue to monitor this case and report on further developments.