June 03, 2013
Employee wellness programs are popular with employers seeking to improve employee well-being and boost productivity, as well as stem rising health care costs. According to the Kaiser Family Foundation, 94 percent of employers with more than 200 workers and 63 percent of smaller employers offer some sort of wellness program. The prevalence of such programs likely will increase over the next few years following the full implementation of the Affordable Care Act (ACA), which permits employers to expand upon existing wellness programs.
While the ACA codified the long-standing regulations implementing the Health Insurance Portability and Accountability Act of 1998 (HIPAA), which expressly permit such programs, there are unanswered questions as to whether wellness programs, and particularly incentive-based programs that may reward employees for meeting various health benchmarks, nonetheless may be discriminatory under other federal laws. On May 8, 2013, the Equal Employment Opportunity Commission (EEOC) heard from representatives of business and advocacy groups about the need for guidance as to how employers can avoid violating federal anti-discrimination laws in the design and implementation of wellness programs.
The recent hearing highlights that employers considering the adoption or expansion of wellness programs must consider whether their programs comply with federal anti-discrimination laws, including the Genetic Information Non-Discrimination Act of 2008 (GINA), the Americans with Disabilities Act (ADA), Title VII of the Civil Rights Act of 1964, and the Age Discrimination in Employment Act (ADEA). This article will analyze the requirements of these statutes as applied to the design of wellness programs and the open issues remaining in the wake of minimal regulatory guidance.
Many employers adopt wellness programs in an effort to control illnesses and unhealthy behaviors before they become more serious and costly. These programs seek to encourage employees to take preventative measures and make healthier choices. Wellness programs derive cost-savings not only from reducing health care costs, but also through reduced absenteeism, increased productivity, decreased rates of injuries and disability claims, increased retention and recruitment of employees, and improved employee relations and morale.
There are two types of wellness programs. Participatory programs are available to all employees and do not condition a reward on an individual satisfying a specific standard or benchmark. For example, rewarding all employees who attend a free health education seminar is a participatory program. Incentive-based programs provide an award to participants based on satisfaction of a health standard. For example, a program that provides for reduced premiums for employees who do not use tobacco products or participate in a smoking cessation program is an incentive-based program.
Both participatory and incentive-based programs are clearly permissible, subject to certain limitations, under HIPAA and the ACA. Participatory wellness programs do not implicate HIPAA's anti-discrimination provisions because such programs do not condition a reward on an individual satisfying a standard that is related to a health factor. See 29 CFR §2950.702(f)(1).
As to incentive-based programs, while HIPAA's non-discrimination provisions generally prohibit group health plans governed by the Employee Retirement Income Security Act (ERISA) from using a "health factor" as a basis for discrimination with regard to either eligibility to enroll or premium contributions (see 29 USC §1182(a) and (b)), there is a long-standing exception that allows employers to create incentive-based wellness programs that give employees premium discounts or provide other financial incentives to employees who satisfy certain standards based on health factors. See 29 CFR §2950.702(f)(1).
Under the 2006 HIPAA regulations, such outcome-based programs are permissible so long as (1) the reward does not exceed 20 percent of the cost of coverage for the employee; (2) the program is reasonably designed to promote health and prevent disease; (3) the program gives individuals eligible for the program the opportunity to qualify for the reward under the program at least once per year; (4) the rewards under the program are available to all similarly situated individuals, and the program allows a reasonable alternative standard or waiver for any individual for whom it is unreasonably difficult due to a medical condition, or medically inadvisable to satisfy the condition; and (5) all plan materials describing the program disclose the availability of a reasonable alternative standard or the possibility of waiver of the otherwise applicable standard. See 29 CFR §2950.702(f)(2).
The ACA codified the 2006 HIPAA regulations, except that effective for plan years beginning on or after Jan. 1, 2014, the maximum reward available to participants in incentive-based programs is increased to 30 percent of the total cost of coverage. Further, the Departments of Treasury, Labor, and Health and Human Services (the Departments) can increase the reward to up to 50 percent of the cost of coverage if they deem it appropriate. See 42 USC §300gg-4(j).
Employers, therefore, can take comfort in knowing that incentive-based programs are explicitly permitted, subject to certain limitations, under HIPAA and that these programs can be expanded under the ACA. However, other federal laws may limit the design of such incentive-based programs.
At the recent EEOC hearing, panelists addressed both the need for clarification of existing guidance as well as additional guidance as to how employers can avoid violating federal anti-discrimination laws in the design and implementation of wellness programs. Following the hearing, EEOC Chair Jacqueline A. Berrin noted, "[t]oday's meeting underscored the importance of insuring that [wellness] programs are designed and implemented in a manner that is consistent with federal equal employment opportunity laws." We discuss below the limited guidance provided to date, and additional considerations for employers in designing and implementing wellness programs.
GINA. GINA prohibits discrimination on the basis of genetic information with respect to health insurance and employment. See 42 USC §2000ff-1. GINA also amended §702 of ERISA to restrict the collection and use of genetic information by group health plans and insurers by prohibiting them from (1) adjusting the premium or contribution amounts for a group on the basis of genetic information; (2) requesting or requiring an individual or family member to undergo a genetic test; and (3) requesting, requiring, or purchasing genetic information (including family medical history) prior to or in connection with enrollment, or at any time for underwriting purposes.
In 2009, the Departments issued regulations implementing GINA, which make clear that health plans are prohibited from requiring individuals to complete a Health Risk Assessment (HRA) that requests family medical history in order to receive a reward under a wellness program on grounds that such request is deemed a request for underwriting purposes. The EEOC followed with its own regulations interpreting Title II of GINA in 2010, stating that in order to comply with GINA, a wellness program may not condition receipt of an incentive on an employee providing genetic information. See 29 CFR §1635.8(b)(2). For example, the regulations provide that if an employer offers a $150 incentive for employees who complete an HRA that asks about the employee's family medical history, the HRA must state that any incentive will be given for completing the HRA regardless of whether the employee answers the questions seeking genetic information. See 29 CFR §1635.8(b)(2)(ii).
Therefore, while HIPAA and the ACA permit the use of incentive-based wellness programs, the discrimination provisions of GINA limit the ability of employers to implement wellness programs that require employees to provide information related to family medical history, as any such disclosure must be voluntary and employers cannot condition receipt of an award on providing such protected information. Speaking on behalf of ERISA plans, one panelist at the hearings urged the EEOC to reconsider its interpretation of GINA because "employees are effectively discouraged from procuring and providing family medical history, information that often provides a very significant window into an individual's health risk factors, both present and future."
ADA.The ADA prohibits discrimination against qualified individuals on the basis of disability in regard to job application procedures, hiring, advancement, discharge, compensation, job training, and other terms, conditions, and privileges of employment. See 42 USC §12112. Two provisions of the ADA impact the implementation of wellness programs: (1) the reasonable accommodation requirement and (2) the prohibition on disability-related inquiries.
If a health factor on which a wellness program conditions a reward constitutes a disability as defined by the ADA, the program must comply with the ADA's reasonable accommodation requirement, and the employer must engage in an interactive process with the employee to develop a reasonable alternative that satisfies the goals of the wellness program and the individual's need for a reasonable accommodation. See 42 USC §12102(1); 29 CFR 1630.2.
Additionally, the ADA prohibits all disability-related inquiries and medical examinations prior to an offer of employment and, after a conditional offer is made, allows disability-related questions and medical examinations only if they are job-related and consistent with business necessity. See 42 USC §12112(d). A limited exception to the general prohibition on disability-related questions and medical examinations allows for "[a] covered entity [to] conduct voluntary medical examinations, including voluntary medical histories, which are part of an employee health program available to employees at that work site" so long as the information is kept confidential and not used for discriminatory purposes. See 42 USC §12112(d)(4)(B).
The EEOC Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the ADA states that disability-related inquiries and medical examinations are permitted as part of a voluntary wellness program. See http://www.eeoc.gov/policy/docs/guidance-inquiries.html.
While the EEOC considers a wellness program to be voluntary if employees are neither required to participate nor penalized for non-participation, it has not taken a formal position on what level of financial inducement is permitted, and much of the testimony before the EEOC focused on the need for clarification. Moreover, the EEOC has not provided guidance as to whether withholding an incentive is a "penalty." In its most recent informal guidance, the EEOC noted that "[it] has not taken a position on whether and to what extent a reward [for participation] amounts to a requirement to participate, or whether withholding of the reward from non-participants constitutes a penalty, thus rendering the program involuntary. See EEOC Informal Discussion Letter, dated Jan. 18, 2013.
Therefore, while incentive-based programs are clearly permissible under HIPAA and the ACA, so long as certain other conditions are met, the EEOC has not yet stated whether employers who comply with those requirements would also be in compliance with the ADA. Industry panelists urged the EEOC to make clear that since Congress has determined that incentive-based programs do not violate HIPAA where the incentive does not exceed 30 percent of the annual cost of coverage, any programs that comply with HIPAA and the ACA should be deemed voluntary under the ADA.
Title VII and the ADEA.There was also testimony as to whether incentive-based wellness programs that reward employees who meet certain benchmarks and penalize those who do not may also violate Title VII and the ADEA where the programs target health or risk factors that occur disproportionately among women (such as obesity), minorities (such as diabetes), or older workers (such as high cholesterol or hypertension).
While the EEOC has never addressed wellness programs under Title VII or the ADEA (either through formal regulation or informal advisory letters), it invited testimony on the issue, thus signaling that it is considering whether such programs may give rise to claims under Title VII or the ADEA. Employers should examine their incentive-based wellness programs carefully to assess potential exposure, and continue to monitor closely any advisory opinions or case law involving future challenges under Title VII or the ADEA.
While it is not clear that the EEOC will be issuing guidance in the near term, the recent hearing highlights the complexities of designing and implementing wellness programs to ensure compliance with federal anti-discrimination laws, and employers should continue to monitor their programs to take into account any available guidance.
Jeffrey S. Klein and Nicholas J. Pappas are partners at Weil, Gotshal & Manges. Courtney Fain, an associate at the firm, assisted in the preparation of this article.
Reprinted with permission from the June 3, 2013 edition of the New York Law Journal © 2013 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
This article also appeared in the June 2013 Employer Update.