Wellness programs are trending in the U.S., especially with employers looking for ways to encourage and promote healthy lifestyles for their employees and to reduce the cost of their self-insured group health plan. Regardless of an employer’s motivation for implementing a wellness program, employers must be mindful of the many rules that may impact such programs. Over the last few years, several government agencies, including the Equal Employment Opportunity Commission (“EEOC”), the Department of Labor (“DOL”), the Department of Health and Human Services (“HHS”) and the Department of Treasury (“IRS”), have weighed-in on what it means to have a compliant wellness program.
Recently, the EEOC issued final regulations that go into effect on January 1, 2017. The new EEOC rules impact the notice requirements and incentives under employer-sponsored wellness programs that include disability-related inquiries or medical examinations under both the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act of 2008 (“GINA”). The final regulations provide guidance regarding whether the incentives offered to encourage participation in an employer-sponsored wellness program will cause the program not to be “voluntary” under the ADA and whether (and to what extent) incentives may be offered to an employee’s spouse without violating GINA’s prohibition against requesting, requiring or purchasing genetic information. These rules are intended to work in harmony with the HIPAA nondiscrimination rules issues by the DOL, HHS and IRS, which prohibit discrimination on the basis of a health factor. However, unlike the HIPAA nondiscrimination rules that only apply to health-contingent wellness programs that are part of a group health plan, the new EEOC rules apply more broadly to all wellness programs regardless of whether they are part of a group health plan or a stand-alone wellness program and apply to both participatory and health-contingent wellness programs.
"Reasonably Designed" Standard
The new EEOC rules require that wellness programs that include a disability-related inquiry or medical examination must be “reasonably designed.” A wellness program is “reasonably designed,” if the following are true: (i) it has a reasonable chance of improving the health of, or preventing disease in, participating employees; (ii) it is not overly burdensome; (iii) it is not a subterfuge for violating the ADA, GINA or other laws prohibiting employment discrimination; and (iv) it is not highly suspect in the method chosen to promote health or prevent disease.
Wellness programs that merely shift costs from an employer to employees based on their health or are used by the employer only to predict future health costs or impose unreasonably intrusive procedures will not be considered reasonably designed. In addition, a wellness program is not reasonably designed if it imposes a penalty or disadvantage on an individual because of the manifestation of a disease or disorder in the employee’s spouse that prevents or inhibits the spouse from participating or from achieving a certain health outcome. For example, an employer cannot deny an incentive to an employee because his or her spouse has high blood pressure.
Is the Wellness Program Voluntary?
The EEOC rules also require that wellness programs that include a disability related inquiry and/or medical examination, regardless of whether such program is part of a group health plan, must be “voluntary.” In order to meet the voluntariness standard, the ADA prohibits an employer who sponsors a wellness program from doing any of the following: (i) requiring employees to participate; (ii) denying health coverage to any employee who does not participate in the program or prohibiting any employee from choosing a particular group health plan or benefit package within a group health plan; or (iii) taking any adverse action, retaliating against or coercing employees who choose not to participate in a wellness program.
The new rules under the ADA require employers who offer wellness programs that collect employee health information to provide a notice to employees informing them what information will be collected, how the information will be used, who will receive the information and what will be done to keep the information confidential. The notice must be written in a language that is reasonably likely to be understood by the employee. To the extent that the wellness program is part of a group health plan and plan participants have received a Notice of Privacy Practices (“Privacy Notice”), as required under HIPAA, the EEOC has indicated that a second notice will not be required provided that the Privacy Notice meets all the ADA requirements. The EEOC has published a sample notice for employer-sponsored wellness programs.
Employers are limited in the amount of incentives they may offer to employees under wellness programs. The EEOC attempted to harmonize its incentive rules under the ADA and GINA with the HIPAA nondiscrimination rules. However, there are key differences that employers will need be aware of when structuring their wellness programs.
The HIPAA nondiscrimination rules apply only to health-contingent wellness programs that are part of a group health plan and that require employees to satisfy a standard related to a health factor. Rewards under such programs are limited to 30% (or 50% for programs designed to prevent or reduce tobacco use) of the cost of employee-only coverage under the health plan. However, if dependents (e.g., a spouse and/or dependent children) may participate in the wellness program, the reward must not exceed 30% (or 50%) of the cost of coverage in which an employee and any dependents are enrolled.
The ADA and GINA incentive limitations apply to participatory and health-contingent wellness programs, regardless of whether they are part of a group health plan. The ADA incentive limitations only apply to wellness programs that require employees to answer disability-related questions or to undergo medical examinations in order to earn a reward or avoid a penalty. The GINA incentive limitations on wellness programs apply when a portion of the inducement offered within the wellness program is for an employee’s spouse to answer questions about his or her current or past health status or to take a medical examination. The limitations under both the ADA and GINA do not apply to a wellness program that simply requires employee or the employee’s spouse to engage in certain health-related activity in order to earn an incentive, such as participating in a weight loss class or walk a certain distance every week. However, HIPAA may require that a reasonable alternative is offered in connection with such programs.
The ADA and GINA limit incentives for the employee or the employee’s spouse to 30% of the total cost for self-only coverage under the group health plan in which the employee and his or her family members are enrolled. If an employer has more than one group health plan and the wellness program does not require participation in a particular health plan, the maximum allowable incentive the employer can offer the employee or the employee’s spouse is 30% of the lowest cost major medical self-only plan offered by the employer. If an employer does not offer health insurance coverage but offers an incentive for the completion of a health risk assessment or for annual tests or check-ups, the maximum incentive the employer can offer the employee or the employee’s spouse is 30% of the cost that a 40-year-old smoker would pay for self-only coverage under the second lowest Silver Plan on the state or federal health care Exchange in the location the employer identifies as its principal place of business.
The ADA and GINA do not apply to a "smoking cessation" program that merely asks if an individual smokes or whether an individual ceased smoking at the end of the program. The HIPAA 50% incentive limitation would apply to such a program, if the reward was based on achieving on outcome – the reward is based on the individual’s ability to stop smoking. In contrast, the ADA 30% incentive limitation will apply to programs that require employees to be tested for nicotine use, other biometric screening or medical procedures.
Although an employer may permit its employees’ children to participate in a wellness program, GINA prohibits employers from offering incentives in exchange for information concerning the current health status or genetic information about an employee’s children (regardless of whether the child is an adult or a minor).
Information (including genetic information) obtained in connection with a wellness program may only be provided in aggregate terms to an employer so that the information provided does not disclose, or is not reasonably likely to disclose, an individual’s identity (except as needed to administer the group health plan). In addition, employers are prohibited from requiring employees to agree to the sale, exchange, share, transfer or other disclosure of their medical/genetic information (except as permitted by the ADA to administer the wellness program). Employees cannot be asked to waive confidentiality as a condition for participating in a wellness program or earning an incentive. Similar to the HIPAA requirements, the EEOC provides that best practices for ensuring confidentiality include establishing clear policies, training staff who handle confidential information, encryption of information stored electronically and prompt reporting of data breaches. When a wellness program is part of a group health plan, HIPAA’s privacy, security and breach notification rules will apply to the information collected or created and will set limitations on the uses and disclosures of such information.
Wellness Program Rewards are Taxable
In a chief council tax advice memorandum (which is not binding, but which can tend to be incentive), the IRS recently clarified that a cash incentive payment received in connection with an employer’s wellness program must be included in an employee’s gross income.
The rules applicable to wellness programs are becoming increasingly complex. Until recently, employers who sponsored participatory wellness programs did not need to worry about the amount of the incentive offered to employees or their spouses. The new EEOC rules impact all wellness programs (both participatory and health-contingent) that include disability-related inquiries or medical examinations and place limits on incentives under such programs. If you have questions about whether your wellness program is in compliance with current requirements, do not hesitate to contact us.