On April 16, 2015, the Equal Employment Opportunity Commission (EEOC) released proposed regulations covering wellness programs that involve disability-related inquiries or medical examinations. The release of the proposed regulations follows months of EEOC enforcement actions against employers alleging that wellness programs sponsored by the employers violated the Americans with Disabilities Act (ADA) despite compliance with 2013 regulations jointly issued by the Department of Labor (DOL), the Department of the Treasury (Treasury) and the Department of Health and Human Services (HHS) that permitted such programs under ERISA and the Affordable Care Act (ACA). With a few notable exceptions (described below), the proposed regulations are somewhat consistent with the existing DOL guidance on employer-sponsored wellness programs. However, the EEOC has requested comments on multiple topics that could significantly alter the regulatory requirements.
ERISA prohibits group health plans and group health insurance issuers from discriminating against covered individuals based on a health factor. An exception to the nondiscrimination rule allows premium discounts or other rewards (including avoidance of a penalty) in return for participation in wellness programs. The DOL, Treasury and HHS jointly issued regulations related to the wellness program exception to the nondiscrimination rule in 2006, and these regulations were updated in 2013 following the passage of the ACA (the 2013 regulations are referred to as the “DOL regulations” in this blog post).
The DOL regulations describe two types of wellness programs – participatory programs and health-contingent wellness programs (which are further divided into activity-only and outcome-based programs). Participatory programs are those programs that either do not provide a reward or do not require that a participant complete an activity or satisfy a condition related to a health factor in order to receive an award. Because participatory programs are not based on a health factor, they do not implicate HIPAA’s nondiscrimination rule as long as they are available to all similarly situated individuals regardless of health status. Examples of participatory programs include: reimbursement of gym membership; reimbursement of cost of smoking cessation programs without regard to whether employees quit; reward for attending a monthly health education seminar; and completion of a health risk assessment (HRA) without any further action (educational or otherwise) required by employees as a result of issues identified by the questionnaire.
Health-contingent wellness programs require individuals to complete an activity or satisfy a standard related to a health factor in order to receive an award. These programs must satisfy four requirements to be nondiscriminatory under ERISA: (i) eligible individuals must be able to qualify once per year; (ii) the maximum incentive amount is 30% of the self-only cost of coverage (taking into account both the employee and employer share of the cost), or if covered dependents can also participate, 30% of the cost of the coverage the employee is enrolled in; (iii) the program is reasonably designed to promote health or prevent disease and (iv) the program is available to all similarly situated individuals. DOL regulations provide more detail on each of these requirements.
Since their release, the DOL regulations have served as a guide for employers establishing wellness programs. However, during a meeting in May 2013, the EEOC stated that wellness programs could violate regulations under the ADA and recognized that guidance regarding the interplay between the ADA and wellness programs was needed. However, before issuing regulations or other guidance under the ADA, the EEOC initiated a number of enforcement actions against employers. Some of these actions were brought against employers that established programs that were in compliance with existing DOL regulations. Due to the apparent conflict between the EEOC’s position on wellness programs and the DOL regulations, employers and other stakeholders advocated for specific EEOC guidance.
EEOC’s Proposed Regulation
The ADA requires employers to provide reasonable accommodations to enable disabled individuals to have equal access to fringe benefits and prohibits employers from requiring medical examinations or requesting medical information for the purpose of making disability-related inquiries. However, the ADA provides an exception to this rule allowing voluntary medical exams (or requesting voluntary medical histories) which are part of an employee health program, including wellness programs. The EEOC’s proposed regulations focus on the ADA exception for voluntary programs that involve disability-related inquiries or medical exams.
The EEOC’s apparent concern is that incentives or rewards under wellness programs may be so valuable that eligible individuals are economically coerced into participating, thereby violating the ADA requirement that the program be voluntary. Therefore, the proposed regulations provide that a wellness program will be considered to be voluntary if it meets the following requirements:
- It does not require employees to participate;
- It does not condition coverage under a group health plan on participation in the program;
- It does not penalize non-participation (other than the failure to receive the reward); and
- When it is part of a group health plan, employees receive a notice that describes the medical information that will be obtained and the purposes for which it will be used and explains the restrictions on disclosure of the information.
In addition to the EEOC’s voluntary requirement, the EEOC proposed regulations diverge from the DOL regulations in important respects. First, in contrast to the DOL regulations, which do not restrict the size of reward under a participatory wellness program, the proposed EEOC guidance seeks to extend the 30% maximum award to participatory wellness programs that require employees to answer a health questionnaire with disability-related inquiries or take medical examinations. This would mean, for example, that the reward for participating in a biometric screening program (that does not base the reward on the result of the screening) would be capped at 30% even though there is no maximum under the DOL regulations. The EEOC’s rationale for this proposal is that, in the EEOC’s estimation, participatory programs rarely offer incentives in excess of 30%. However, this rule prohibits employers from requiring employees to complete an HRA in order to be eligible to participate in the plan, a practice that is permitted under DOL rules as long as the results of the HRA are not used to determine eligibility.
A second difference relates to how the proposed regulations apply the 30% limit in general. The EEOC proposed regulations set the maximum reward at 30% of the self-only cost of coverage (taking into account both the employee and employer share of the cost). The DOL regulations allow a reward to be a maximum of 30% of the cost of family coverage if the wellness program is extended to covered dependents. Additionally, the ACA allows the DOL to increase the 30% limit to 50%, and the DOL has done so by expanding the 30% limit by an additional 20% to the extent that the additional percentage is in connection with a program designed to prevent or reduce tobacco use. The EEOC regulations do not contain similar flexibility. Nevertheless, the DOL-approved limit of 50% for tobacco-based programs remains acceptable as long as the program does not involve a medical exam or disability-based inquiry.
Finally, when the wellness program is part of a group health plan, the EEOC regulations require that employers provide a detailed notice to participants separate from other notices already required under the HIPAA. The notice must explain what medical information will be obtained, who will receive the information, how the information will be used, the restrictions on disclosure of the information and the methods the covered entity will employ to prevent improper disclosure of the medical information. The DOL regulations do not contain similar notification requirements. The EEOC’s proposed notice requirement will likely be a burden on employers, as the notice requires more detail than standard HIPAA notices and must be tailored for each wellness program.
Although the proposed regulations are a step in the right direction toward existing DOL regulations, the EEOC has requested comments on a number of topics that could significantly alter the regulations. For example, the EEOC has requested comments on whether additional protections are needed for low-income individuals. This would include placing restrictions on programs that could result in unaffordable coverage if a reward is not obtained. For this purpose, affordability would be based on the standard established under the ACA. Additionally, the EEOC has requested comments regarding the definition of “voluntary”, including whether changes are necessary to reconcile the proposed regulations with DOL regulations.
Overall, the EEOC’s release of proposed regulations is a welcome development for employers sponsoring wellness programs, particularly given the EEOC’s recent practice of bringing enforcement actions in the absence of guidance. Given the wide-range of comments requested, the final regulations could be significantly different than the proposed regulations. Employers should review their current programs in light of the EEOC guidance and consider summiting comment letters if the proposed EEOC requirement could require significant changes.