For nearly a year the U.S. Equal Employment Opportunity Commission (EEOC) has endured harsh criticism from employers, members of the United States Senate, and the benefits community at large for commencing legal actions challenging employer-sponsored wellness programs before issuing guidance regarding the compliance status of such programs under the Americans with Disabilities Act (ADA).  At long last, the EEOC has released a Notice of Proposed Rulemaking (the “Notice”) addressing how Title 1 of the ADA applies to employer wellness programs.  The good news is that the proposed regulations contained in the Notice hew fairly close to existing regulations published by other federal agencies and are generally limited to programs that involve disability-related inquiries and medical examinations.  There are significant differences, however, regarding maximum rewards for programs that target tobacco use, the application of reward limits to certain participatory wellness programs, and the notice requirements that apply to wellness programs.   Perhaps most importantly, the Notice attempts to address what makes participation in a wellness program “voluntary” and, thus, compliant with one of the safe harbor exceptions to the prohibition on employer-sponsored medical examinations under the ADA.  Nevertheless, several questions affecting the legal compliance status of wellness programs remain.  

Background

Wellness programs are highly popular among U.S. employers.  According to a 2013 RAND study, 51% of employers with more than 50 employees had wellness programs in 2012 and 47% of employers without a wellness program in 2011 intended to implement one in the next 3 to 5 years.  In recent years, wellness programs have been modeled on final regulations published jointly by the Department of Labor, the Department of Health and Human Services, and Department of the Treasury regarding the nondiscrimination requirements for wellness programs under the Health Insurance Portability and Accountability Act, as amended (HIPAA). 

The HIPAA wellness regulations divide wellness programs into two categories, participatory programs (programs that offer no reward or do not have any condition for obtaining a reward based on a health factor) and health-contingent programs (programs that require individuals to achieve a health outcome or satisfy a health-related standard to get a reward).  Sponsors of wellness programs that satisfy applicable criteria outlined in the HIPAA wellness regulations have an affirmative defense to claims that the program discriminates on the basis of a health factor (e.g., health status, medical conditions, medical history, or disability).  Unfortunately, a wellness program that is compliant with these regulations may not comply with Title VII of the Civil Rights Act of 1964, the ADA, or any other requirements under state or federal law. 

Many wellness programs include some form of health risk assessment or medical exam intended to identify health risks associated with a particular group of employees and offer rewards for positive health responses (e.g., premiums reductions for having a low BMI or identifying as a non-smoker) or for simply participating.  Such medical exams have implications under the ADA, which prohibits medical exams that are not job related, unless the exam or inquiry is part of a bona fide benefit plan or participation is “voluntary.”  The potential impact of the ADA on HIPAA-compliant wellness programs was largely ignored until the EEOC filed suit against three employers in 2014 alleging the employers’ wellness programs violated the ADA.  Of particular concern was the lawsuit filed against Honeywell International, Inc. seeking to prevent Honeywell from imposing any penalty on workers who refused to undergo the biometric testing required as part of its health-contingent wellness program.  Although the EEOC’s request was ultimately denied, it generated significant concerns among employers because the design of the Honeywell program is quite common and its rewards fit within the limits prescribed by the HIPAA wellness regulations. 

The EEOC lawsuits sparked an immediate backlash among employer-sponsors of HIPAA-compliant wellness programs who were concerned that their existing wellness programs would become the target of an EEOC lawsuit.  Employers complained, understandably, that it was unacceptable for the EEOC to sue employers for violating the ADA before issuing promised guidance on ADA compliance for wellness programs.  The employers’ concerns regarding these “gotcha” lawsuits were echoed by members of the Senate Health, Education, Labor and Pension Committee who grilled the EEOC’s General Counsel about the matter and the Obama administration, which commented that the position taken by the EEOC in at least one of the suits was inconsistent with the administration’s understanding of the law governing wellness programs.  Unhappiness with this EEOC enforcement scheme even led to the introduction of bi-partisan legislation in March 2015 seeking to provide employers with certainty that programs meeting existing guidelines would not violate the ADA.

Central to the EEOC lawsuits were allegations that the wellness programs under attack were not “voluntary” and, thus, were not excepted from the prohibition on disability-related inquiries and medical examinations under the ADA.  Although the EEOC had promised regulations on this subject for several years, it had simply refused to answer the question “at what point does a monetary penalty result in a program that is no longer ‘voluntary’ for purposes of the ADA?”     

The Notice

The Notice, published on April 16, 2015, contains proposed regulations accompanied by commentary and interpretative guidance on the application of Title 1 of the ADA to wellness programs.    

The Notice focuses on employee health programs that include disability-related inquiries or medical examinations and largely ignores other types of wellness programs.  It explains that for a program to be “voluntary” it must be reasonably designed to promote health or prevent disease and cannot be overly burdensome or subterfuge for violating laws concerning employment discrimination.  Moreover, the proposed regulations state that a program will be considered voluntary only if an employer does not require participation, does not deny coverage under any of its group health plans or benefits packages for nonparticipation, and does not take any adverse employment action or retaliate against employees who refuse to participate.  In addition, where a wellness program is a part of a group health plan, the Notice requires that it must provide employees with a notice describing the medical information to be obtained as part of the program, how the medical information will be used, who will receive it, the restrictions on its disclosure, and methods the holding organization must employ to prevent improper disclosure of the medical information. 

The Notice also limits the financial incentives available under “voluntary” wellness programs to 30% of the cost of employee-only health coverage.  This 30% “incentive” is defined in the same way that a “reward” is defined under the existing HIPAA wellness regulations, meaning an incentive can provide an economic benefit (such as a premium reduction) or a penalty (such as a surcharge).  The permissible incentives offered by the proposed EEOC differ from the allowable rewards under the HIPAA wellness regulations in a few ways.

First, the EEOC proposed regulations cap financial rewards for wellness programs that target tobacco use and include disability-related inquiries or medical examinations at 30% of the total cost of employee only coverage (rather than the 50% reward amount available under the HIPAA rules).  Although, the EEOC must be aware that the HIPAA wellness regulations increased the permitted tobacco cessation financial reward to 50% in response ACA amendments to the Public Health Service Act, the EEOC appears to ignore this rate difference specifically endorsed by the ACA.  Moreover, commentary in the Notice explains that a 50% award is still available for a smoking cessation program that does not test for tobacco and, instead, only asks employees whether they use tobacco. Oddly, this model serves only to prohibit employer verification and appears to link the permissible reward amount to the type of program offered rather than to the health-related activity it is intended to promote (i.e., smoking cessation). 

The Notice also extends the 30% limit on rewards to participatory wellness programs that ask an employee to respond to a disability-related inquiry or undergo a medical examination, even if no reward is provided to the employee based on the outcome.  Although not directly, the provision highlights the EEOC’s comment in footnote 24 of the Notice that it believes the statutory safe harbor exempting bona fide benefit plans from the ADA prohibition on medical examinations is without effect.  If the EEOC were to recognize bona fide plan safe harbor as viable, it would not be necessary to ensure that participation in a program that simply allows a covered entity to classify or underwrite aggregate risk is “voluntary.”  By choosing to ignore this alternate ADA safe harbor, the EEOC may have overstepped the bounds of its authority.

The proposed regulations also allow uncertainty about obligations outside of the ADA to persist by stating that compliance with the proposed rules will not mean that an employer has complied with Title 7 or the Age Discrimination Act if the program is found to discriminate on the basis of age, race, sex, national origin, or any other grounds prohibited by the statutes.  Although programs that do not include medical examinations or other disability-related inquiries are not addressed in the proposed rules, the commentary states that employers maintaining such programs must provide reasonable accommodations that will enable disabled employees to participate (for example, the presence of a sign language interpreter at a nutrition class for someone who is hearing impaired).  Because it is not clear to what extent accommodations must be formalized or documented, these comments may give pause to employers who wish to host educational wellness programs but are unsure about the appropriate accommodations or documentation in situations that would otherwise be governed by common sense. 

Like the proposed rules themselves, the EEOC’s requests for comment on the Notice provide a mix of helpful insight and somewhat unsettling language.  For example, the EEOC requests comments regarding whether employers should be required to secure written confirmation from an employee that their participation in the wellness program is voluntary, whether the proposed notice requirement should only apply to wellness programs that offer more than de minimis rewards (or penalties), and whether rewards provided by wellness programs that are offered outside of a “group health plan” or insurance arrangement should be limited.  These requests suggest that the EEOC may be looking either to further limit the scope of wellness programs or create additional administrative burdens on employers who maintain them.     

Other requests for comment indicate that EEOC is not quite in tune with the role that wellness programs have come to play the workplace.  For example, the EEOC requests comment on whether a blanket exception to the requirements of a wellness program should be made for employees who refuse to participate in the wellness program but obtain a certification from a medical professional indicating that the employee is under the care of a physician and any risks identified are under active treatment.  Such an exception would prevent employers from actively promoting the health of their employees and may allow employees to avoid taking any steps to address existing health risks. 

The EEOC also requests feedback about whether to be considered “voluntary” the regulations should require that the failure to participate in a wellness program not render the cost of health insurance “unaffordable” under the ACA (i.e., the employee’s required contribution does not exceed 9.5% of the employee’s household income).  Although the IRS rule creates an exception for wellness programs that target tobacco use to the general rule that affordability and minimum value under the ACA must be calculated assuming that employees do not qualify for wellness program rewards – no such exception under the EEOC rules is indicated based on the comments.  This comment also gives rise to the possibility that a wellness program could be considered voluntary for some employees but coercive for others based on their income level. 

Conclusion

The EEOC has now explained how it views wellness programs that request employee medical information from the ADA standpoint.  In addition, the commentary provided by the EEOC regarding the proposed regulations indicates that it is paying attention to discussions in the current regulatory environment concerning wellness programs.  What remains to be seen is whether employers and other stakeholders are willing to engage in conversation with the EEOC about its proposed rules or if employers will assume a purely defensive posture because of the aggressive enforcement posture assumed by the EEOC in 2014.