Improved Employee Health and Reduced Health Care Costs

The U.S. Department of Labor has proclaimed that “the Affordable Care Act creates new incentives and builds on existing wellness program policies to promote employer wellness programs and encourage opportunities to support healthier workplaces.” Employers have embraced wellness programs as a way to improve employee health, enhance productivity, and control health care costs over time.

The extent of that embrace is shown in a 2014 Kaiser Family Foundation & Health Research and Educational Trust annual survey of employer-sponsored health benefits. The survey found that 94 percent of employers with over 200 employees, and 63 percent of smaller employers now sponsor some form of wellness program.

The positive benefits of wellness programs were also discussed at a January 29, 2015, hearing of the Senate Health, Education, Labor, and Pensions (“HELP”) Committee. The opening statements of both the HELP Committee Chair, Senator Lamar Alexander, and the ranking minority member, Senator Patty Murray, emphasized the importance of employer wellness programs as a key to achieving a healthier, more productive work force that can help control health care costs. Such programs are also one of the prime tools being used by employers to help control future health care costs to avoid being subject to the so-called “Cadillac” 40 percent excise tax in January 2018 for “high cost” plans, that is, those costing above $10,200 for individual coverage and $27,500 for family coverage, annually.

EEOC Litigation Against Employer Wellness Programs

Nonetheless, the use of wellness programs designed to motivate employees to improve their health is under scrutiny by the EEOC. EEOC filed three cases in the last five months of 2014, alleging in all three that the employer wellness programs violated the Americans with Disabilities Act (“ADA”). In one of the cases, EEOC also alleged that the wellness program violated the Genetic Information Nondiscrimination Act (“GINA”).

The three cases are EEOC v. Flambeau, Inc. (W.D. Wis.), EEOC v. Orion Energy Systems, Inc. (E.D. Wis.), and EEOC v. Honeywell (D. Minn). In Flambeau, EEOC alleges that employees are forced to submit to biometric testing and to complete a health risk assessment (“HRA”) in exchange for Flambeau paying approximately 75 percent of an employee’s health insurance premium. If an employee declined, EEOC alleges that health plan coverage was terminated and he or she could obtain health plan coverage only as a COBRA participant paying 100 percent of the premium.

In Orion Energy Systems, EEOC alleges that Orion’s wellness plan required completion of an HRA and limited blood work and disclosure of medical history and that the company paid 100 percent of the health premium for employees who participated in the wellness program but that employees who did not participate had to pay 100 percent of the premium and a $50 monthly surcharge. EEOC further argues that an employee declined to participate in the wellness program and was then terminated about 30 days later as a result.

In Honeywell, EEOC sought a temporary restraining order (“TRO”) and alleged that employees (and covered spouses) had to have biometric testing or face monetary penalties. The Commission claimed that the penalties were a $500 surcharge if an employee did not complete the tests; a $1,000 tobacco surcharge if the employee did not complete the tests; a like amount if the employee’s spouse did not complete the tests; and the unavailability of a HSA contribution of up to $1,500.

Notably, EEOC’s court memorandum did not report some key related facts. These included that the biometric testing was free, that the $500 surcharge was deducted incrementally over the course of the year, and that the potential HSA contribution actually ranged between $250 and $1,500. Also undisclosed was that the one of the two employees filing the underlying charge had previously completed the biometric test and the other was scheduled for the test the day after EEOC filed for the TRO.

EEOC premises its litigation attacks on Title I of the ADA, which bars medical inquiries and exams with two notable exceptions. The first exception is for medical exams that are “job related and consistent with business necessity.” The second exception is for “voluntary medical examinations” if the results are held confidentially consistent with the ADA and are not the basis for discrimination against the employee. The EEOC contends that the testing and assessments are not job-related or consistent with business necessity and that they are not voluntary because of the monetary consequences.

EEOC’s GINA claim in Honeywell is that a contribution to an employee’s HSA and the imposition of a tobacco surcharge unlawfully incentivizes using biometric testing and obtaining family medical information from an employee’s spouse. EEOC’s position seems to be that incentives to employees may, if limited, be permissible, but that incentives cannot be in play for medical history about an employee’s spouse. The EEOC fails to articulate how a spouse’s HRA responses are GINA covered, given that a spouse is not genetically related to an employee.

Whether the courts will accept EEOC’s position on these issues remains to be seen. It is significant that the District Court in Honeywell denied EEOC’s TRO request. The court did not, however, address the substance of the case in its order.

EEOC’s Failure to Provide Guidance on the Interplay of the ADA and Wellness Programs

What is both curious and troubling is that the EEOC has chosen to litigate against these wellness programs after failing for 14 years to issue regulations as to what is a “voluntary” medical examination and what would make an incentive, whether a benefit or a surcharge, impermissible. EEOC’s only “guidance” related to this issue is in its July 2000 Enforcement Guidance. There, EEOC states that a wellness program is voluntary so long as an employer does not require participation or penalize employees who choose not to participate but gave no analysis of what would be improperly requiring participation or penalization.

The ACA’s Promotion and Enhancement of Wellness Programs

EEOC’s silence became all the more problematic after the passage of the ACA. The ACA’s addition to Section 2705(j) of the Public Health Service Act (“PHSA”) permits an employer to provide an incentive of up to 30 percent of the cost of employee-only coverage, where employees participate in a standards-based wellness program, and up to 50 percent for a tobacco cessation program. (This is an increase from the 20 percent incentive authorized under HIPPA regulations.) EEOC issued an informal discussion letter in January 2013 wherein it confirmed that it “has not taken a position on whether and to what extent a wellness program reward amounts to a requirement to participate, or whether withholding of the reward from non-participants constitutes a penalty, thus rendering the program involuntary.” EEOC’s filings in Honeywell, Flambeau,and Orion fail to specify what constitutes “voluntary” participation in a wellness program. Its filings do emphasize a focus on financial penalties for non-participation. The EEOC pleadings argue that the penalties involved are “substantial” or “large” and seek to contrast them with an undefined “mere nominal incentive.” The suggestion from the EEOC’s court filings is that it assesses what is “voluntary” participation based on the size of a financial penalty or reward.

The EEOC’s utter failure to provide guidance on what constitutes a permissible wellness program stands in stark contrast to that of the agencies with a responsibility to enforce and interpret the ACA and other laws that it amended. Detailed guidance on wellness programs has been issued by the U.S. Departments of Health and Human Services, Labor, and the Treasury. Their regulations, consistent with Section 2705(j) of the PHSA, specifically sanction rewards under health contingent wellness programs up to 30 percent of the cost of health insurance and up to 50 percent for programs to prevent or reduce tobacco use. The regulations place no limits on rewards for “participatory” wellness programs, which give rewards without meeting any health status standard, such as rewards for employees for participating in a hypertension or diabetic management program but without qualifying benchmarks.

EEOC’s position in the Honeywell case is that a wellness program that complies with the ACA regulations, as was true of Honeywell’s carefully crafted plan, still can violate the ADA and GINA.

As a result of the EEOC’s wellness program litigations and failure to provide guidance, employers and program providers are confronted with a circumstance where it is essentially impossible to know if a particular health contingent wellness program design might be challenged by the EEOC as violating the ADA. The EEOC-created uncertainty, which has the very real prospect of undercutting the use and success of wellness programs, was decried at the January 29 Senate HELP Committee hearings by both Republican and Democratic senators and essentially all the witnesses.

The Eleventh Circuit’s Ruling on Wellness Programs

The ADA’s impact on wellness programs was addressed by the U.S. Court of Appeals for the Eleventh Circuit in Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012). In Seff, the Court held that a wellness program was set up as a part or term of the employer’s insured group health plan and thus fell within the ADA’s bona fide benefit plan safe harbor. The effect of this holding is that the wellness program is not subject to EEOC’s analysis of whether the incentives do or do not meet the Commission’s undefined ADA “voluntary” disclosure standard versus whether they supposedly “compel” an employee to participate. EEOC’s Honeywell TRO memorandum makes a questionable attempt to argue that the “Seff analysis is inconsistent with the language, the legislative history and purposes of the safe harbor provisions.” The Court’s analysis in Seff seems more consistent with the ADA than EEOC’s doubtful reading.

Will EEOC Guidance Be Forthcoming?

EEOC’s spring 2014 regulatory agenda had advised that it would issue guidance in June 2014 to speak to the extent that the ADA permits employers to offer financial rewards or impose financial penalties in connection with health plans, including wellness programs. EEOC did not do so. EEOC Commissioner Victoria Lipnic, speaking at a client briefing hosted by Epstein Becker Green on October 2, 2014, related that the issue was on the EEOC’s agenda but that Commission membership changes would likely delay action.

EEOC’s fall 2014 regulatory agenda published on November 21, 2014, states an EEOC intention to issue proposed rules to amend its ADA and GINA regulations to address the “voluntariness” issue in February 2015. Given EEOC’s previous delays in issuing regulations, it is certainly possible that this timeline will not be met.

On the other hand, essentially all the senators at the HELP Committee hearing on January 29 strongly counseled EEOC to issue guidance. It was urged at the HELP hearing that the guidance should provide that wellness program compliance with the ACA regulations should also ensure ADA compliance. Until that occurs, however, employers and wellness plan providers are adrift in a largely uncharted ocean. To the extent the uncertainty delays adoption or refinement of wellness programs, improved employee health opportunities are lost and potential Cadillac tax exposure increases.

What Employers and Wellness Program Providers Can Do Now

Employers that have or are adopting wellness programs should consider the following steps.

First, employers should make sure that their wellness programs meet all requirements of the ACA wellness regulations. This may be very helpful in the event of any EEOC challenge to an employer’s program in that it shows compliance with the only available regulations. In addition, EEOC may adopt ACA compliance as an ADA safe harbor, though this is far from certain.

Second, all wellness programs must absolutely assure that individuals with disabilities have alternatives to program requirements or benchmarks for rewards that they cannot meet, or would be medically inadvisable, in light of an individual’s disability.

Third, employers should ensure that any information relating to a disability or genetic history obtained in connection with a wellness program is maintained confidentially and never available to employment decision-makers. It also likely makes sense to provide clear and specific notice to employees that any medical/genetic information they disclose will be absolutely off limits to supervisors and managers and will be held confidentially.

Fourth, employers should consider the possible safe harbor provided for underSeff v. Broward County for wellness programs that are part of an employer’s group health plan. Seff, of course, is only a binding precedent in the states of the Eleventh Circuit (Alabama, Florida, and Georgia). Nonetheless, its analysis could well be adopted by other courts that are called upon to address this issue. Designing a wellness program as a component of an employer’s health benefit plan is thus certainly worthy of consideration. It is also notable that witnesses at the HELP Committee hearing also urged adoption of the Seffanalysis either by the EEOC or Congress.

Wellness programs can have great benefits for employees, employers, and the nation—from improved employee health and productivity to controlling health care costs. The EEOC has unnecessarily sown confusion over what wellness programs are permissible under the ADA, notwithstanding ACA compliance. Employers and providers of wellness programs should monitor the EEOC’s wellness litigation and potential guidance and proceed carefully but without forsaking these useful programs due to present EEOC-induced uncertainties.