Wellness programs under fire despite ACA encouragement

The Affordable Care Act (ACA) includes incentives intended to encourage employers to establish formal programs to promote employee wellness. Yet recent legal actions taken by the Equal Employment Opportunity Commission (EEOC) appear to fly in the face of this very encouragement.

Employers caught in the crossfire should familiarize themselves with the legal issues in play and be prepared to modify some facets of their programs until the diverging policy objectives are reconciled.

ACA background

The ACA supports sponsorship of wellness programs by establishing percentage-based reward incentives. That is, employers that offer a qualifying, “health-contingent” wellness program may receive a maximum reward of 30% of the cost of its health coverage. And the maximum reward for the prevention and reduction of tobacco usage is 50%.

Health-contingent wellness programs must come in one of two forms:

  1. “Activity-only” programs include those requiring participants to walk or otherwise exercise regularly, or
  2. “Outcome-based” programs reward employees who achieve specified biometric targets, such as a particular weight or body mass index number.

Participant incentives can include discounts or rebates on health plan premiums, a waiver for all or part of a cost-sharing provision, or simply avoidance of a surcharge or other financial disincentive.

5 original requirements

Detailed final regulations on the ACA’s treatment of wellness programs were issued jointly by the Departments of Labor, Treasury, and Health and Human Services on June 3, 2013. They took effect for plan years beginning on Jan. 1, 2014.

Along with establishing the aforementioned incentives, the rules set forth new standards for health-contingent wellness programs by modifying requirements originally imposed by the Health Insurance Portability and Accountability Act in five categories:

  1. Frequency and opportunity to qualify for program rewards,
  2. Size of any rewards offered,
  3. Reasonableness of the plan design,
  4. Uniformity of availability and reasonable alternative plan standards, and
  5. Notice of availability of reasonable alternative plan standards.

When the regulations were issued, legal experts warned that the rules didn’t supersede other laws — such as the Americans with Disabilities Act (ADA), the Civil Rights Act, the Genetic Information Nondiscrimination Act (GINA) and the Family and Medical Leave Act.

Meanwhile, the EEOC had stated on several occasions that it would issue guidance on how it plans to enforce the other laws’ standards for health-contingent wellness plans. But it never did and, instead, has taken to the courts to stake out its position.

Most prominent case

The most prominent pending case, EEOC v. Honeywell, was filed in October 2014 in a Minnesota district court. The EEOC petitioned for a preliminary injunction (which was denied), asserting that Honeywell’s wellness program’s incentive system violated both the ADA and GINA.

In two earlier filed cases — EEOC v. Flambeau, Inc. and EEOC v. Orion Energy Systems, Inc. — the incentives involved could be considered stringent. One imposed the entire cost of health benefits plus a $50 monthly penalty on employees who declined to participate in a program featuring an initial biometric screening test, while waiving all costs for those who participated and made the grade. The other required employees to submit both biometric data and their health histories or forfeit health benefits and face a requirement to pay for coverage via COBRA.

The Honeywell program, as originally scheduled to begin in 2015, wasn’t quite as inflexible as these. But the EEOC still took issue with its requirement that, to avoid penalties, employees had to undergo biometric screening.

Declining screening would result in a $500 surcharge to the employee’s contribution to his or her health benefits and a $1,000 charge tied to a tobacco cessation program. Screening decliners would also forfeit a $1,500 annual employer Health Savings Account contribution. If a covered spouse declined the basic health screening, there was no added $500 surcharge, but there was a $1,000 charge for a spouse declining the tobacco use test.

Meaning of “require”

Honeywell’s program, EEOC argued, violates the ADA’s prohibition against requiring employees to submit to involuntary medical examinations that aren’t job-related or consistent with business necessity. In addition, the EEOC asserted the plan violated GINA because employee spouses were incorporated into the surcharge system.

The EEOC has long maintained that wellness programs that “require” medical exams violate the ADA. Yet the agency has never spelled out the meaning of the word. That is, at what point do incentives or the prospect of penalties equate to a “requirement”? The EEOC maintains that Honeywell’s wellness program’s incentives rise to this level.

The EEOC — or at least the Chicago district office that filed the case against Honeywell — also seems to be saying that wellness incentives or disincentives can’t bring spouses into the picture.

Extra precautions

Without clear guidance from the EEOC, it’s unclear whether the agency’s enforcement staff would litigate against an employer whose wellness program featured, say, a $250 surcharge instead of $500 — or even a $1 surcharge, for that matter. Until the EEOC clarifies its position, or the current controversy is addressed definitively by the courts, your organization might want to take some extra precautions with its wellness program based on the existing information.

For starters, offer modest incentives that you think will spur most participants in your health-contingent program into action. Try to put a positive spin on your incentive descriptions — avoid making them seem punitive.

Furthermore, stress that you’ve designed the program in compliance with all relevant federal laws, and that you’ll scrupulously maintain the confidentiality of participants’ medical information. Clearly explain how employees who cannot satisfy the basic requirements to benefit from incentives can receive reasonable accommodations with alternative goals appropriate to their limitations.

Last, consider not incorporating incentives pertaining to the actions of employees’ spouses. There’s still so much uncertainty regarding this particular issue that you may be best off avoiding it entirely.

Risk and complexity

The current legal controversy regarding wellness programs shouldn’t necessarily deter you from establishing such an arrangement or maintaining the one you might have in place. But it does add some risk and complexity to creating and administering a wellness program. Work with your legal and benefits advisors to manage that risk and stay up to date on forthcoming changes.