EEOC Challenges Employer Wellness Programs

November 13, 2014

By: Alan M. Levy and Samantha J. Wood

The Affordable Care Act (ACA) has recently popularized employer wellness programs. The Department of Labor and Health and Human Services are presenting the ACA as promoting such programs by encouraging employers to offer “rewards” for participation. According to the final regulations, such “rewards” can include obtaining a benefit (such as a discount or rebate of a premium or contribution, or any financial or other incentive) and/or avoiding a penalty (such as the absence of a surcharge or other financial or nonfinancial disincentive). But the Equal Employment Opportunity Commission (EEOC) is now acting to remind employers that their programs’ “rewards” must comply with other laws.

In the past few months, the EEOC has challenged three employer wellness programs alleging that the programs, which offer financial incentives to those who participate, violate the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). The EEOC reasons that the programs’ financial incentives constitute unlawful penalties and inducements.

The ADA prohibits employers from requiring their employees to submit to medical examinations or answer medical inquiries, unless such exam or inquiry is shown to be job-related and consistent with business necessity. However, the ADA permits employers to conduct medical exams and activities without having to satisfy the job-related/business necessity components as long as participation is voluntary, the information is kept confidential, and the information is not used to discriminate against employees. The EEOC has taken the position that a wellness program is “voluntary” as long as an employer neither requires participation nor penalizes employees who do not participate. In the recent litigation, the EEOC has maintained that large financial incentives affect the voluntariness of the programs.

GINA prohibits plans and issuers from collecting genetic information (including family medical history) prior to or in connection with enrollment, or at any time for underwriting purposes. A plan cannot offer rewards or inducement in return for genetic information. Accordingly, in the recent litigation, the EEOC has maintained that programs which offer financial incentives in exchange for spousal health information are unlawful inducements for one’s family medical history.

The EEOC brought its first lawsuit in the Eastern District of Wisconsin, challenging Orion Energy Systems, Inc.’s wellness program. Orion’s program required employees to complete a health risk assessment, to self-disclose their medical histories, and to have blood work performed. If the employees participated in the program, Orion would cover the entire amount of the employee’s health care costs. However, if an employee declined participation, s/he would be required to pay the entire premium cost for coverage ($413.43/month for single coverage or $744.16/month for family coverage), as well as a $50 non-participation fee. The EEOC has alleged that such financial incentive/disincentive is so great that it constitutes a penalty in violation of the ADA.

On September 30, 2014, the EEOC challenged Flambeau Inc.’s wellness program in the Western District of Wisconsin. Flambeau’s wellness program required employees to complete biometric testing and a health risk assessment, which required the employees to self-disclose their medical histories and have blood work and measurements performed. Employees who completed the testing were only obligated to pay 25 percent of the premium cost of their health insurance. However, employees who did not complete the testing were subjected to termination of health insurance and were required to pay the entire premium cost for COBRA health insurance coverage. As in the Orion Energy Systems case, the EEOC has alleged that Flambeau’s program is not job-related or consistent with business necessity and is not voluntary due to the financial penalty.

The EEOC’s most recent attack was brought October 27, 2014, against Honeywell International Inc., in the District Court of Minnesota. Honeywell’s wellness program required its employees and their spouses to undergo biometric testing. If the employees and their spouses did not take the biometric test, the employees risked losing the employer’s contributions to their health savings accounts (which could be up to $1500); would be charged a $500 surcharge that would be applied to their 2015 medical plan costs; would be charged a $1000 tobacco surcharge even if the employee chose not to undergo the testing for reasons other than smoking; and would be charged another $1000 tobacco surcharge if his/her spouse did not participate. In total, an employee could suffer a penalty of up to $4000. Again the EEOC has alleged that the wellness program is not job-related or consistent with business necessity and is not voluntary due to the large financial penalties. In addition, the EEOC has alleged that the program violates GINA’s proscription against providing inducements to an employee to obtain that employee’s family medical history.

Honeywell disputes that its financial incentives are in violation of the law, as such incentives/disincentives are allowed under the ACA. Indeed, prior to the ACA, the maximum financial incentive that could be offered for health-contingent wellness programs could not exceed 20 percent of the health plan’s premiums. However, the ACA increased the financial incentive allowance, permitting financial incentives of up to 50 percent of the premium for health-contingent wellness programs designed to prevent or reduce tobacco use, and 30 percent of the premiums for all other health-contingent wellness programs. Accordingly, if the EEOC’s position is adopted, which states that such financial incentives are penalties under the ADA and unlawful inducements under GINA, it would diminish the DOL and HHS’s final regulations affecting the financial incentive allowance.

Accordingly, employers offering health-contingent wellness program incentives should watch for the resolution of this litigation while keeping in mind their obligations to comply with other laws. Employers should be aware that offering large wellness program incentives could not only violate the ADA and GINA, but could also make their health plans unaffordable or inadequate under the ACA, which requires large employers to offer coverage that provides minimum value and affordability. Coverage is affordable if the employee’s required contribution to the plan does not exceed 9.5 percent of the employee’s household income; and a plan provides minimum value if the plan’s actuarial value is at least 60 percent. If an employer offers a premium discount for participation in a wellness program (that is not connected to tobacco use), employers must remember that the determination as to whether the plan is affordable and offers the minimum value, will be based on the higher deductible that applies to non-participating individuals.

If you have questions about this material, please contact Alan M. Levy or Samantha J. Wood by email at alevy@lindner-marsack.com or swood@lindner-marsack.com, or any other attorney you have been working with here at Lindner & Marsack, S.C.


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