Home > In The News > Articles > Incentivizing good health: The legal issues presented by health-contingent wellness plans
The rising cost of health care has prompted many employers to implement wellness programs to decrease costs. In theory, these programs motivate employees to improve their health by providing financial incentives
for healthy choices. When implementing wellness programs, however, employers must take care to comply with complex federal regulations and the nondiscrimination provisions of several laws.
This article by
TELG principal Tom Harrington and TELG managing principal R. Scott Oswald was published by Westlaw Journal Employment on February 18, 2015.
Originally published in:
Incentivizing good health: The legal issues presented by health-contingent wellness plans
Recent Equal Employment Opportunity Commission lawsuits challenging employer wellness programs illustrate how the agency interprets the Americans with Disabilities Act, 42 U.S.C. § 12101, and the Genetic Information Nondisclosure Act, 42 U.S.C. § 2000ff, as they relate to wellness programs. They also show how Affordable Care Act regulations may conflict with the EEOC’s interpretation of wellness programs pursuant to the ADA and GINA.
The rising cost of health care has prompted many employers to implement wellness programs to decrease costs. In theory, these programs motivate employees to improve their health by providing financial incentives for healthy choices, thus decreasing health care costs for both the employee and employer. When implementing wellness programs, employers must comply with complex federal regulations and laws, includ- ing ACA regulations and nondiscrimination provisions of the ADA and GINA.
ACA Rules Governing Wellness Programs
In May 2014 the U.S. Department of Health and Human Services, Labor Department and Treasury issued final workplace wellness program rules. These rules build on and codify pre-existing standards in the Health Insurance Portability and Accountability Act in a manner that is consistent with the ACA.1
The rules define two types of wellness programs: participatory wellness programs and health-contingent wellness programs.
Participatory wellness programs are defined as programs that either do not provide employee rewards or do not require participants to satisfy a standard relating to a health factor. Examples of participatory wellness programs include programs that reimburse employees for all or part of the cost of a gym membership, reward participation in diagnostic testing (regardless of the outcome) or reward employees for attending a monthly, no-cost health education seminar.
Health-contingent wellness programs require employees to satisfy a health standard in order to obtain a reward (such as lower health care costs). The standard may require performing or completing an activity relating to a health factor. It may also call for attainment or maintenance of a specific health outcome. Health-contingent wellness programs are subdivided into activity-only wellness programs and outcome-based wellness programs.
Activity-only wellness programs require employees to perform or complete an activity related to a health factor in order to obtain a reward. These programs do not obligate employees to attain or maintain a specific health outcome. Examples of activity-only wellness programs include walking, diet and exercise programs.
Outcome-based wellness programs require employees to attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) to obtain a reward. The rules explain that these programs generally have two tiers: a measurement, test or screening as part of an initial standard, and a larger program that includes wellness activities for individuals who do not meet the initial standard.
Examples of outcome-based wellness programs include programs that test individuals for specified medical conditions or risk factors (such as high cholesterol or high blood pressure) and reward employees identified as falling within a normal or healthy range (or at low risk for certain medical conditions). Employees identified as at risk are required to take additional steps (such as meeting with a health coach or taking a health or fitness course) to obtain the same reward.
Wellness programs must also comply with numerous ACA-mandated benefits, premium rates and participation guidelines. In addition, employers must ensure that their health programs comply with applicable laws, including those detailed below.
Plans Must Comply with the ADA, GINA
The ADA prohibits discrimination based on an employee’s disability and explicitly bans covered employers from requiring medical exams or making medical inquiries. The ADA states that an employer “shall not require a medical examination and shall not make inquiries of an employee as to whether such employee is an individual with a disability or as to the nature or severity of the disability.”2
The ADA allows medical exams or inquiries of current employees if they are “job-related and consistent with business necessity.”3 It further permits “voluntary medical examinations, including voluntary medical histories, which are part of an employee health program available to employees at that work site.”4
The EEOC has provided guidance on how it interprets “voluntary.” The agency’s July 27, 2000, enforcement guidance states, “A wellness program is ‘voluntary’ as long as an employer neither requires participation nor penalizes employees who do not participate.”5 In an August 2014 press release, the regional attorney for the EEOC’s Chicago district provided more insight on what it means for a plan to be “voluntary”:
Employers certainly may have voluntary wellness programs there’s no dispute about that and many see such programs as a positive development, but they have to actually be voluntary. They can’t compel participation by imposing enormous penalties such as shifting 100 percent of the premium cost for health benefits onto the back of the employee or by just firing the employee who chooses not to participate. Having to choose between responding to medical exams and inquiries which are not job related in a wellness program, on the one hand, or being fired, on the other hand, is no choice at all.6
Title I of GINA prohibits group health plans from using genetic information to determine premiums or contributions, requiring or requesting an employee or applicant to undergo genetic testing or requiring genetic information for underwriting purposes.7
Title II of GINA prohibits discrimination against employees or applicants because of genetic information.8
Pending EEOC Cases
In three ongoing cases, the EEOC has challenged health-contingent wellness programs as discriminatory. These cases show how the agency believes discrimination laws should govern health-contingent wellness plans. All of these suits are in the early stages of litigation, and it is unclear how the courts will resolve the issues they present.
EEOC v. Orion Energy Systems
On Aug. 20, 2014, the EEOC filed an ADA complaint on behalf of Wendy Schobert.9 The complaint alleges that Orion Energy Systems Inc. violated the ADA because its wellness program required Schobert to submit to medical examinations and inquiries that were not job-related or consistent with business necessity.
The complaint further alleges that Orion violated the ADA by retaliating against Schobert by terminating her employment because she objected to the program.
According to the complaint, Orion offered a “voluntary” wellness program that required employees to complete a health risk assessment. In turn, the assessment required employees to self-disclose their medical history and have blood work performed on them.
Orion paid for the entire portion of an employee’s health care cost if he participated in the program. Employees who declined to participate had to pay the entire health care premium.
Schobert expressed concerns about the program: She questioned whether the health risk assessment was voluntary and whether Orion would keep medical information confidential. After Schobert raised her concerns, Orion’s personnel director and Schobert’s supervisor called her to a meeting. They told her that the purpose of the meeting was to quash any potential “attitude” issue she had relating to the program and to tell her that she could not express opinions about the program to her co-workers.
In April 2009, Schobert declined to participate in the program. As a result, she had to pay $413.43 per month for health care coverage. Orion also assessed Schobert a penalty of $50 per month because she declined to participate in the fitness component of the program. In May 2009, Orion fired Schobert.
The most recent substantive filing in the case is Orion’s Oct. 16, 2014, answer to the EEOC’s complaint, in which it predictably denied each count.
EEOC v. Honeywell
On Oct. 27, 2014, the EEOC filed a complaint against Honeywell International Inc. under the ADA and GINA, seeking a temporary restraining order and preliminary injunction enjoining Honeywell from penalizing employees or employee spouses who do not participate in biometric testing.10
The complaint alleges that the health care program testing violates the ADA because it is not voluntary. It further claims that the program violates GINA because it imposes penalties on employees whose spouses do n not provide medical information.
The lawsuit says that in 2014, Honeywell announced that employees (and spouses if covered under the employee’s health plan) would be required to undergo biometric testing for things like blood pressure, cholesterol, and nicotine. Honeywell said it would penalize employees if they or their spouses did not take the biometric tests.
The penalties include losing Honeywell health savings plan contributions (which can be as high as $1,500), requiring the employee to pay a $500 surcharge for their 2015 medical plan, and requiring the employee and employee’s spouse to pay a $1,000 tobacco surcharge each, regardless of why they did not submit to the testing.
According to the suit, Honeywell also initially told its employees that it would use the results of the testing to impose goals that required them to reduce risk factors such as high cholesterol. Honeywell told employees that they would lose their health savings account contributions if they did not reduce their risk factors, the complaint said. The company delayed this part of its program for 2015 but left open the possibility of implementing it next year.
Honeywell’s opposition to the EEOC’s motion for a temporary restraining order and preliminary injunction provides insight as to how employers likely will defend against similar suits.
Honeywell first argued that its wellness program is allowed under the ADA’s safe harbor provision.11 The safe harbor provision waives the application of many ADA provisions, including the medical exam provisions for entities “establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.”12
Honeywell argued in the alternative that even if its wellness program does not fall within the ADA’s safe harbor provision, it is permissible because it complies with the ADA’s voluntary wellness program provision.13
Finally, Honeywell argued that the EEOC’s enforcement guidance deserves no deference in light of the ACA’s express approval of surcharges used in conjunction with wellness programs.14 The ACA provides that a reward may be in the form of a discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism (such as deductibles, copayments, or coinsurance), the absence of a surcharge or the value of a benefit that would otherwise not be provided under the plan.15 Thus, the Honeywell case shows that ACA rules may conflict with the EEOC’s interpretation of the legality of wellness programs under the ADA and GINA.
On Nov. 6, 2014, the court denied the EEOC’s motion for a temporary restraining order and preliminary injunction.16 Applying the four- factor test laid out in Dataphase Systems Inc. v. C L Systems Inc., 17 the court explained that the EEOC could not establish the threat of irreparable harm absent a preliminary injunction and that the balance of harms favored Honeywell.
The court also commented that “great uncertainty persists in regard to how the ACA, ADA and other federal statutes such as GINA are intended to interact.”
EEOC v. Flambeau Inc.
On Sept. 30, 2014, the EEOC filed a complaint alleging Flambeau Inc. had violated the ADA by requiring employee Dale Arnold to submit to medical examinations and inquiries that were not job-related or consistent with business necessity.18
The complaint states that Flambeau’s wellness program required employees to complete biometric testing and a health-risk assessment. Arnold was unable to complete the assessment on the assigned day in December 2011 because he was on medical leave and was being treated in a hospital for cardiomyopathy and congestive heart failure. When Arnold returned from leave, he tried to complete the biometric testing but Flambeau denied his request for the necessary material and additional time.
In January 2012, Flambeau terminated Arnold’s health insurance. Had Arnold been able to complete the testing, Flambeau would have covered about three-fourths of his insurance premiums. Instead, Arnold was forced to pay the entire premium cost for single coverage under COBRA.
As in Orion, the most recent substantive court filing in Flambeau is the company’s answer to the EEOC’s complaint. Flambeau denied all allegations but did not give any insight as to its strategy for defending against the EEOC’s attack on its wellness program.
The ongoing EEOC lawsuits clearly demonstrate that the legality of many wellness programs is in dispute. As the Honeywell case shows, determining the legality of these programs may require an interpretation and reconciliation of competing rules and laws. It may be years before courts provide answers.