When is a financial incentive in an employee-sponsored wellness program so high that employees can’t afford not to participate—rendering the program no longer voluntary? Well (pun intended), the District Court for the District of Columbia believes that the EEOC doesn’t know (yet). In the last 15 years or so, many employers started wellness programs to promote worker health and reduce healthcare costs. As an incentive to getting people into the gym and having their health monitored, employers would usually offer financial or other incentives to employees who participate. Just how much of an incentive is okay was the question before the court.

What’s Wrong with Promoting Healthy Employees?

What makes wellness programs potentially controversial is that they almost always require employees to undergo medical examinations and to allow their employers access to sensitive medical and genetic information. Under both the ADA and GINA, an employer can only conduct medical exams and collect certain medical information as part of a “voluntary” employee health program. Of course, neither statute defines the term “voluntary.” Here’s the question:

When does a financial incentive for participating in a wellness program get so high that it actually acts as a penalty against those that don’t participate—and makes the program essentially involuntary?

There has been some litigation trying to figure out where that point is.

As we reported in 2015, the EEOC proposed regulations trying to answer the voluntariness question. The regulations provided that an employer can use a penalty or an incentive of up to 30 percent of the cost of self-only coverage without rendering a wellness program “involuntary” under the ADA and GINA. Those regulations went into effect in the spring of 2016.

In October 2016, the AARP filed suit against the EEOC arguing that the 30 percent incentive was inconsistent with the “voluntary” requirements of the ADA and GINA. Employees who could not afford to pay a 30 percent increase in premiums would be forced to disclose protected medical information that they otherwise would not choose to disclose. The AARP did not dispute that some level of incentives might be permissible under the statutes, it just argued that the EEOC’s 30 percent standard was not supportable.

Is the Rule Supported?

As an agency action, the EEOC’s regulations are challenged under an “arbitrary and capricious” standard. The court looks to see if an agency acted within its legal authority; whether the agency explained its decision; whether the facts on which the agency relied have some basis in the record; and whether the agency considered the relevant factors. Since neither the ADA nor GINA defined “voluntary,” the court looked to see if the EEOC’s interpretation of the term had a reasoned explanation. The court evaluated numerous reasons that the EEOC gave for the picking the 30 percent level, but ultimately decided that the EEOC failed to provide any study, analysis or evidentiary basis for selecting that number. The court went on to note that the EEOC “does not appear to have considered any factors relevant to the financial and economic impact the rule is likely to have on individuals who will be affected by the rule.” The court concluded that the EEOC failed to adequately explain the decision to construe the term “voluntary” to permit the 30 percent incentive level in the rules.

So What Happens Now?

This is where it gets interesting. After blasting the EEOC for failing to provide any support for the 30 percent rule, the court could have simply vacated the rule completely. Instead, the court notes that since the rules took effect in 2016, many 2017 employer wellness plans were designed with the 30 percent voluntariness regulation in mind. If the court vacated the rule, those employers, and their employees, could be punished for relying on the EEOC standard. Medical information already disclosed under those programs cannot be made confidential again by the wave of the vacatur wand. In the end, while very disturbed by the EEOC’s lack of support for the rule, the court found that the concerns were outweighed by the “disruptive consequences” that were likely to result from vacating the rule at this time. Instead, the court gave the EEOC another chance to reconsider (and possibly support) the rule.

In the end, therefore, it appears that the EEOC put forth an unsupported rule that is ultimately left standing due to circumstances. If you are an employer that has a wellness program using the 30 percent cost standard, go forward and keep an eye out for further guidance (and maybe the AARP’s appeal of this decision). If you are an employer thinking about putting a wellness program in place, you may want to wait to see how the courts handle this.