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EEOC Challenges Employer Sponsored Wellness Programs Over “Enormous Penalties” –

Recently, the U.S. Equal Employment Opportunity Commission (EEOC) announced litigation against a second employer — Flambeau, Inc., a plastics manufacturer based in Baraboo, Wisconsin — over employer-sponsored wellness program participation incentives granted to employees. The specific issue with Flambeau involves an employee unable to qualify for the program due to medical leave. However, a major concern for other employers is the EEOC’s assertion that size of the payment incurred by an employee refusing to participate in a wellness program could render participation involuntary.

In its press release published October 1, 2014, the EEOC describes “enormous penalties” as unacceptably compelling participation, mirroring language used in its August 20, 2014 announcement of a lawsuit against Orion Energy Systems on similar grounds. The example of shifting 100 percent of the premium cost to an employee who refuses to participate in biometric tests or to complete a health risk assessment was cited as unacceptable. This 100-percent employee responsibility is in contrast with employees who participated in the wellness program, but were only required to pay 25 percent of the premium cost. Such a scheme is alleged to make participation involuntary; this is critical because voluntary participation is described as a major factor in avoiding a claim of disability discrimination under Title I of the Americans with Disabilities Act (ADA).

Most employers do not charge 100 percent of premiums to employees who fail to participate in a wellness program. What percentage of cost is acceptable under the ADA?

ADA Voluntary Wellness Participation Not Clearly Defined

The EEOC acknowledges an employer’s right to conduct voluntary medical examinations as part of a health plan under certain circumstances. Among these circumstances would be meeting the requirement for programs to be voluntary and the medical records to be maintained separate from personnel records and used in a confidential manner. Such guidance is published in the EEOC Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the Americans with Disabilities Act (ADA) under “Other Acceptable Disability-Related Inquiries and Medical Examinations of Employees.”

What is not published is clear guidance as to the meaning of voluntary participation, a point acknowledged in testimony before the EEOC on May 8, 2013 by its own Christopher Kuczynski, Acting Associate Legal Counsel. Kuczynski called attention to the need for clarification concerning the ADA in an environment where the Affordable Care Act (ACA) amended the Health Insurance Portability and Accountability Act (HIPAA) to permit rewards (incentives or penalties); but it was not clear what limits, if any, would be required by the ADA. To date, the EEOC has not published guidance clarifying the requirements to satisfy the ADA requirement that disability-related inquiries or medical examinations be voluntary.

Employers, along with their attorneys, will be busy studying case law developing from EEOC-driven litigation. Additionally, the limitations under the ACA may inform strategy on the implementation of incentives to promote participation in wellness programs. Comments about “reasonableness” and percentage limits to certain types of wellness benefits under the ACA may help inform the development of a wellness incentive strategy.

Affordable Care Act Demands Reasonableness

While the ADA speaks of penalties, in the vernacular of the PPACA incentive payment or penalty surcharges are lumped together in the term “rewards.” For plan years beginning on or after January 1, 2014, maximum rewards are 30 percent of the annual total cost of coverage for a health-contingent wellness program offered in connection with an employer-sponsored group health plan. The total cost of coverage would likely be the COBRA rate, less the 2 percent administrative charge. Thus, the maximum amount that an employer can transfer to an employee for participation in a health-contingent wellness program under the ACA is 30 percent (effective 2014); however, there is technically no limitation under the ACA for the amount of reward an employer can give an employee for a participatory wellness program.

Under the PPACA, wellness programs are categorized as either “participatory” or “health-contingent.”

Participatory programs do not depend on health status; thus, no specific health outcome is required. (For example, requiring a member to fill out a health risk assessment would be an example of a participatory activity.) ACA regulations do not limit the reward an employer can give for a participatory activity. However, as mentioned above, the EEOC presently believes ADA compliance will prevent offering rewards amounting to steep or enormous penalties, citing the difference between employees paying 25 percent versus 100 percent of the cost for health insurance based on participating in a wellness program as an “enormous penalty.”

Health-contingent programs are divided into one of two subgroups: activity-based programs and outcome-based programs. Activity-based programs require activities such as exercise, but with no required outcome. Further, a reasonable alternative path to the reward must be provided when it is medically inadvisable to perform the primary activity. An example of a reasonable alternative would include exempting a member from an activity based on a physician’s advice. Outcome-based programs include, for example, biometric screening of triglycerides < 151 mg/dL. The program must offer a reasonable alternative path to the reward for anyone failing to meet the goal. No doctor’s note is required to access the alternative.

Considering the EEOC’s public comments endorsing voluntary wellness programs, and their enforcement activity being focused on what they describe and enormous or steep penalties, it appears likely that the way forward for wellness programs will permit the use of incentives. However, compliance with the reward limits and reasonable alternatives required under ACA needs to be complimented with awareness of the EEOC’s concern over excessive penalties. Formal guidance from the EEOC is still pending.

For more information, read the Final Rule.



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