The Equal Employment Opportunity Commission (“EEOC”) recently proposed regulations pertaining to employer wellness programs that, as will be explained below, may concern employers that have “Participatory” wellness plans. The proposal can be found at https://www.eeoc.gov/regulations/rulemaking.^[1]

Current Wellness Plan Rules under Other Laws

To understand the EEOC’s proposal, one must first take note of the other pre-existing wellness plan rules. In general, those rules are found in ERISA^[2] and the Public Health Service Act,^[3] and apply to employee group health plans.

Beginning in 1996 with the passage of HIPAA,^[4] federal law has prohibited employer group health plans from discriminating against employees (and covered dependents) based on “health status-related factors.”  Nevertheless, certain types of wellness plans are permitted.

Subsequent DOL regulations^[5], with modifications made by the Affordable Care Act,^[6] established rules that regulate wellness plans, categorizing them as:

• Participatory Plans,

• Activity Based Plans, and

• Outcome Based Plans

Participatory Plans do not use health status-related factors as a basis for a financial reward to be made to an employee (or do not have any financial rewards). Thus, Participatory Plans are generally permitted under the DOL regulations, without any restrictions.

For example, a Participatory Plan can provide a reward to an employee who simply completes a health risk assessment regarding current health status, or who simply has a physical exam, with no follow up requirements. Usually, the employee’s health information is sent directly to the employee and not retained by the Plan.

Activity Based Plans use physical requirements like walking, other forms of exercise, or dieting as basis for offering financial rewards to employees.

Outcome Based Plans have financial rewards based on an employee meeting certain health related goals. Examples are cholesterol level and body mass index measurement.

Activity Based Plans and Outcome Based Plans have to meet certain requirements under the DOL regulations to be permissible. The most important requirements are:

• Limiting an employee’s annual financial incentive to 30% of the group health plan’s annual cost of employee only coverage (up to 50% if there is an incentive for not using nicotine or tobacco); and

• Providing a reasonable alternative standard for any individual for whom it is either (i) “unreasonably difficult” to meet the health standard “due to a medical condition”, or (ii) “medically inadvisable” to try to meet the health standard.

The EEOC Proposed Regulations

The EEOC’s approach to wellness programs comes from a different perspective – the Americans with Disabilities Act (the “ADA”).^[7]

The ADA generally prohibits an employer from requiring an employee to submit to a “medical examination” unless there is a job-related reason and business necessity.  However, the law allows voluntary medical examinations that are “part of an employee health program.”^[8]

The new EEOC proposed regulations have a long and tortured legal history that, in the interest of brevity, is not covered here. The point to note is that the EEOC’s proposal is based upon the law as it is presently written, the EEOC’s prior attempts at drafting regulations in this area, and some resulting litigation. Nevertheless, the end result of the current proposed regulations may be problematic for some employers.

The new EEOC regulations will apply to any wellness plan that has a feature that requires an employee to undergo a “medical examination”. In the context of the ADA, the term “medical examination” is a very broad concept.

The term “medical examination” will include any type of procedure or test that seeks information about an individual’s physical or mental impairments or health. This appears to include a typical health risk assessment form.  Other examples common to wellness plans that are treated as “medical examinations” include the following:

• blood, urine, saliva, and hair analyses to detect disease or genetic markers;

• blood pressure screening and cholesterol testing; and

• vision tests conducted and analyzed by an ophthalmologist or optometrist.

Thus, many typical employer wellness plans will come within the purview of the new proposed EEOC regulations.

If the wellness plan is designed to require some type of “medical examination,” the following rules contained in the EEOC proposed regulations will apply:

• The general rule is that the wellness plan cannot have any financial incentive that is conditioned on the employee undergoing the medical exam, other than something very small (like a water bottle or gift card).

• Nevertheless, there is a huge exception for Activity Based Plans and Outcome Based Plans that:

• meet the requirements of the DOL regulations for those types of plans (including the 30%/50% maximum incentive rule), and

• otherwise are completely voluntary.

Note that no exception is provided for Participatory Plans that have financial incentives conditioned on the employee undergoing any type of medical examination. Thus, it appears that most Participatory Plans will end up in violation of the new EEOC proposed regulations.

Analysis

As is noted above, there is a long history of conflicting laws, regulations and litigation surrounding wellness plans that has led the EEOC to its latest regulatory approach. That legal background may support the EEOC’s position that its regulations are permissible under the law. However, the practical effect of the new EEOC proposed regulations will be to hamper, and perhaps effectively eliminate, most Participatory Plans.

Thus, the practical effect of the new EEOC proposed regulations will be to essentially punish employers who, for various reasons, have decided to take a more hands off approach to employees and their health.  Those employers will now face something akin to a Hobson’s Choice:  either (i) eliminate the Participatory Plan’s financial incentive, or (ii) ramp up the wellness plan to make it an Activity Based Plan or Outcome Based Plan.

There may be a number of human resources, cost and logistical reasons that an employer may prefer not to ramp up the wellness plan into an Activity Based or Outcome Based Plan. Thus, it is fair to assume that many employers may simply decide to eliminate their Participatory Wellness Plans. Query whether, as a matter of policy and common sense, that is a desirable end result.

The EEOC requested comments on the proposed regulations and did not propose an effective date for the proposed regulations. The Biden administration also will be reviewing these proposed regulations. Thus, the proposed regulations do have an uncertain future. Interested employers may send comments to the EEOC and should stay tuned for further developments.

^[1] The proposal would modify regulations at 42 C.F.R. §1630.14 and §1630.16.

^[2] The Employee Retirement Income Security act of 1974, as amended.  See 29 U.S.C. 1182

^[3] See 42 U.S.C. §300gg-4.

^[4] The Health Insurance Portability and Accountability Act.  P.L. 104-191. §101(a).

^[5] 29 C.F.R. §2590.702(f).

^[6] P.L. 104-148, §1201(4).

^[7] 42 U.S.C. §12101 et seq.

^[8] 42 U.S.C. §12112.