Why it matters

Siding with the American Association of Retired Persons (AARP), a D.C. federal court judge found the Equal Employment Opportunity Commission’s (EEOC) wellness rules with regard to the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) were arbitrary and capricious under the Administrative Procedures Act. The agency issued the final rules in March 2016 with the intent of providing greater clarity to employers regarding how the statutes apply to workplace wellness programs. But the AARP challenged the new rules, arguing that they violated antidiscrimination provisions found in both the ADA and GINA by forcing nonparticipating employees to effectively pay a penalty in the form of higher insurance premiums than those who elect to share their disability and genetic information with employers. Granting summary judgment in favor of the AARP, the court expressed concern that vacating the rules would “cause potentially widespread disruption and confusion,” instead remanding the rules to the EEOC for reconsideration without vacating them entirely.

Detailed discussion

With the goal of providing greater clarity to employers about the application of the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) to workplace wellness programs consistent with the Health Insurance Portability and Accountability Act (HIPAA), the Equal Employment Opportunity Commission (EEOC) published a pair of final rules last year.

HIPAA prevents health plans and insurers from discriminating on the basis of “any health status related factor,” but allows covered entities to offer “premium discounts or rebates” on a plan participant’s copayments or deductibles in return for that individual’s compliance with a wellness program. Employers have struggled with the collection of employee health information, however, as the data often implicates the ADA and/or GINA. Both statutes permit such collection for wellness programs as long as participation by the employee is “voluntary,” an undefined term.

The new rules established that employer wellness programs are “voluntary,” even if ADA- or GINA-protected information is required to be disclosed, provided the program does not impose a penalty for nonparticipation, or an incentive for participating, that is more than 30 percent of an employee’s health insurance premium.

In response, the American Association of Retired Persons (AARP) filed suit, noting that the new rules were a stark departure from the prior EEOC position, which had maintained that employee wellness programs implicating confidential medical information were voluntary only if employers did not condition the receipt of incentives on an employee’s disclosure of ADA- or GINA-protected information.

Further, the rules violated the antidiscrimination provisions in both the ADA and GINA by forcing nonparticipating employees to effectively pay a “penalty” in the form of higher insurance premiums than those who elect to share their disability and genetic information with employers, the AARP argued. The 30 percent threshold permits a penalty so substantial as to make an employee’s participation involuntary, the AARP told the court, at an average cost of $1,800 to $5,200 per year.

Applying the two-step analysis found in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., U.S. District Court Judge John D. Bates agreed with the AARP that the EEOC failed to offer a reasoned explanation for the creation of the 30 percent threshold.

The parties agreed that the meaning of “voluntary” as used in the ADA and GINA is ambiguous, but the court declined to defer to the EEOC’s chosen interpretation of the term. Some level of incentives may be permissible under the statutes, but “the agency has not provided a reasoned explanation for its interpretation,” the court said, with “nothing in the administrative record that explains the agency’s conclusion that the 30 percent incentive level is the appropriate measure for voluntariness.”

Using 30 percent to harmonize its rules with HIPAA’s 30 percent incentive cap was not a sufficient reason, Judge Bates found. HIPAA’s cap was adopted “in a different statute based on different considerations and for different reasons,” and the agency “does not appear to have considered the purpose of the ADA vis-à-vis HIPAA here, or the way in which the 30 percent incentive level operates in the context of the ADA.”

Other reasons for the threshold were similarly “deeply flawed,” the court said, with an unclear reference to “current insurance rates” and support on a single comment letter backing the 30 percent level that contained “largely conclusory statements.”

In addition, the EEOC failed to consider factors relevant to its choice of the 30 percent level, Judge Bates said. “Having chosen to define ‘voluntary’ in financial terms—30 percent of the cost of self-only coverage—the agency 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,” he wrote, such as potentially doubling the cost of health insurance for those who refuse to provide protected information.

“At around $1,800 a year, this is the equivalent of several months’ worth of food for the average family, two months of child care in most states, and roughly two months’ rent,” the court said, referencing the many comments filed expressing concern that the 30 percent level “was likely to be far more coercive for employees with lower incomes, and was likely to disproportionately affect people with disabilities specifically, who on average have lower incomes than those without disabilities.”

Neglecting to consider such a significant problem “again demonstrates the EEOC’s failure to engage meaningfully with the text and purpose of the ADA,” the court wrote.

While recognizing the need for the EEOC’s rules, the court said the agency was unable to justify its decision on how it interpreted the term “voluntary.” “While the court acknowledges that some arbitrary line drawing may be necessary in determining where to set the incentive level, the agency must still point to some evidence in the record that reasonably supports where it chose to draw the line, and it must also respond to ‘substantial criticisms’ of that choice,” the court said. “That has not been the case here.”

Although the court granted the AARP’s motion for summary judgment, the remedy proved tricky given the consequences of vacatur. The rules have already been in force for eight months, and employees who received incentives from their employers would presumably be obligated to pay them back; those who chose to disclose their protected medical information cannot make it confidential again, the court recognized.

Given that vacating the rules in their entirety “appears likely to cause potentially widespread disruption and confusion,” Judge Bates remanded the rules to the EEOC for reconsideration “for the present,” assuming the agency can address the rules’ failings in a timely manner.

To view the opinion in AARP v. EEOC, click here.