For years, employers have been trying to find the right incentives for employees to embrace wellness programs. If incentives are too meager, employees are not likely to participate. If they are weighted too heavily in favor of healthy employees, they can be deemed discriminatory. And if they are too generous, they risk attack as being coercive with regard to the disclosure of private information. Based on a recent ruling from the U.S. District Court in Washington, DC, the challenge of finding the sweet spot is not over just yet.

The Existing Wellness Rule

In 2016, the EEOC issued its Final Wellness Rule, attempting to clarify for employers how to properly structure “voluntary” wellness participation incentives. The Rule, which became applicable on January 1, 2017, enabled employers to offer incentives (or penalties) of up to 30 percent of the cost of their individual health insurance plans to encourage wellness programs that were “reasonably designed” to promote health or prevent disease, and were not overly burdensome. Incentives were already capped at 30 percent under HIPAA/ACA for less commonly used health-contingent wellness programs. In response to a challenge to this Rule, the federal district court has required the EEOC to go back to the drawing board yet again.

Wellness Incentives Under Fire

In a lawsuit filed last fall, AARP brought a challenge to the Rule on the grounds that these “voluntary incentives” permit companies to effectively penalize employees who do not participate because they don’t want to share private medical information or agree to biometric testing. Some comments in the administrative record indicated that, based on the average annual cost of premiums in 2014, a 30 percent penalty for refusing to provide medical information would double the cost of health insurance for most employees. AARP argued that the Rule thus violates the ADA and GINA by allowing incentives that are high enough to coerce employees to disclose private information about themselves and family members.

Last week, Judge John Bates agreed with AARP, at least to the point of ordering the EEOC to revisit, and further justify, its reasoning. The decision recognizes the tension between wellness participation incentives, which aim to promote employee health and reduce health care costs, and the equally important interests of the ADA and GINA, which aim to prevent discrimination in employment by protecting against forced disclosure of medical information. However, the court concluded that the EEOC had not shown any reasoned basis for its decision to adopt a 30 percent incentive level for participatory wellness programs in light of the requirement under the ADA and GINA that the collection of medical information by employers as part of a wellness program be “voluntary” (HIPAA does not contain the same “voluntariness” requirement).

What’s Next for Wellness Programs?

The court’s decision does not immediately invalidate the Rule, because the court had concerns that doing so would cause significant disruption to employers. The court noted that employers had undoubtedly designed health plans for the year 2017 in reliance on these rules, which have now been in place for eight months, and also noted the injustice of requiring employees to pay back wellness program incentives they have already received. Furthermore, information that has already been disclosed cannot be put “back in the bottle.” So the court sent the Rule back to the EEOC for reconsideration while leaving the current Rule in place, for now.

Although we don’t yet know what this decision means for wellness incentives going forward, the EEOC may determine that a reduction of the 30 percent ceiling is necessary to ensure program participation is “voluntary.” Employers and other interested parties will likely have an opportunity to provide additional comment to the agency prior to any revision of the Rule.

Bottom Line:

Wellness program incentives compliant with the existing Rule are still valid for now, but employers should be on the lookout for new regulations that may require lowering incentive ceilings, or even eliminating financial incentives. Stay tuned for further clarification from the EEOC.