Earlier today, the EEOC published its much anticipated Notice of Proposed Rulemaking (“NPRM”) regarding the interaction between wellness plans and the Americans With Disabilities Act (“ADA”). As we have discussed here and here, the issue of whether an incentive or surcharge permitted (indeed, encouraged) under the Patient Protection and Affordable Care Act (“ACA”) is nonetheless impermissible under the ADA and GINA has caused consternation for the regulated community. The EEOC’s proposed rule provides some clarity on that issue, but raises or ignores additional concerns for employers offering wellness plan incentives to employees. The comment period on this proposed rule will close on June 19, 2015. This is important for all employers.

The 30% Rule

Under the Affordable Care Act (“ACA”) and its implementing regulations issued by the Departments of Labor, Treasury and Health and Human Services, employers may offer financial incentives to employees up to 30% of their health care premiums for participating in and reaching certain health outcomes in a wellness plan and up to 50% for smoking cessation programs. The EEOC however, has added a nuance to the nicotine prevention component of the ACA and HIPAA. Under the NPRM, if an employer conducts a biometric exam to test for nicotine, any incentive would be capped at 30% instead of 50%. If no disability-related inquiry is made, a 50% incentive is permissible.

In addition, the NPRM does not specifically adopt the “HIPAA / ACA standard” but instead imposes hard percentage caps. If the percentages rise or fall in the future at the behest of those Secretaries, the EEOC’s adoption of hard numbers would then again leave the EEOC inconsistent with the Cabinet-level agencies.

The ADA Safe Harbor

Section 501(c) of the ADA provides that it cannot be construed to prohibit or restrict “a person or organization covered by this chapter from 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.” In its discussion of Seff v. Broward Cty., 691 F.3d 1221 (11th Cir. 2012), the NPRM seems to definitively reject the notion that any wellness plan can be part of a bona fide benefit plan. In other words, the EEOC rejects the premise that a wellness plan can be structured to fall within the safe harbor established by the ADA. The fact is, some wellness plans fall within the safe harbor, and some do not. While the EEOC may disagree with the 11th Circuit’s decision in Seff, it seems to have gone beyond its disagreement with the Seff decision and has unilaterally written the safe harbor out of the statute. The EEOC lacks that authority.

A Question About Affordability

Under the ACA, employers are not required to provide health insurance.  Instead, an employer can choose to pay a fine. Even where an employer offers health insurance, it only must offer a single plan that is affordable, and even then, employees can choose whether to enroll in that plan or a more robust plan that may not meet affordability standards.

However, in the NPRM, the EEOC specifically requested comments on the following:

Whether to be considered “voluntary” under the ADA, the incentives provided in a wellness program that asks employees to respond to disability-related inquiries and/or undergo medical examinations may not be so large as to render health insurance coverage unaffordable under the Affordable Care Act and therefore in effect coercive for an employee…

Where such incentives would render a plan unaffordable for an individual, it would be deemed coercive and involuntary to require that individual to answer disability-related inquiries[.]

If an employer would have to test affordability under some  as yet to be determined test for each of its plans for each employee, then the same wellness plan incentives could conceivably be voluntary for some employees, and non-voluntary for other employees. Such an outcome was not contemplated by the ACA or the implementing regulations, and would likely chill employers from offering any wellness plan incentives — exactly the opposite of Congressional intent and contrary to White House statements. Nor does the EEOC provide statutory support for its question regarding affordability so that the basis of this discussion in the rulemaking process would seem to be unanchored to any statutory provision.

Spousal Incentives

The regulated community has, for years, raised concerns about EEOC investigations into incentives offered to employee spouses for completing health risk assessments where information related to manifested conditions is inquired about. Indeed, this was part of the Honeywell litigation late last year. Unfortunately, the EEOC failed to address the issue and continues to leave the regulated community and its career staff without guidance.

Implications For Employers

While the rule, if promulgated, would provide some clarity for employers, it would also raise some important questions related to the EEOC’s power to strip employers of a statutory defense, and potentially muddy the waters if an affordability standard is included.  In addition, the NPRM opens the door to uncertainty with reference to wellness program-related claims under Title VII and the ADEA as well. Given these potential issues and more that will inevitably arise in the coming weeks, it is important for the regulated community — employers, wellness program providers, and others — to consider submitting comments for the record regarding the pros and cons of the proposed rule.  As we have throughout this entire process, we will keep you posted on any developments.