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EEOC Will Square Financial Inducements to Wellness Programs with ADA
 

By Allen Smith  6/10/2014

The Equal Employment Opportunity Commission (EEOC) anticipates issuing a rule this June that will address whether, and to what extent, the Americans with Disabilities Act (ADA) lets employers offer financial inducements and/or impose financial penalties as part of wellness programs through their health plans, the agency announced in its spring regulatory agenda on May 23, 2014.

“There has been frustration that the EEOC has not provided clearer guidance on this issue,” Teresa Jakubowski, an attorney at Barnes & Thornburg in Washington, D.C., told SHRM Online. “If the proposed rule brings clarity and consistency to this area of the law, then it could be a benefit to employers and HR professionals alike.”

Carrots

Employers offer various inducements as part of wellness programs.

She noted that “these include cash payments or gift cards, contributions (or increased contributions) to an employee’s health savings account or flexible spending account, reduced deductible or co-insurance and reduced premiums. An employer also may offer reimbursement or provide discounts for certain services, such as gym memberships. Employers also sometimes offer free services, such as flu shots; basic health screenings, such as blood pressure screening; and employee assistance programs.”

Most commonly, financial inducements are “discounts on group health premiums,” noted Francis Alvarez, chair of Jackson Lewis’ Disability, Leave & Health Management Practice Group in White Plains, N.Y. “For example, if employees generally contribute $100 per month for group health coverage, they might receive a discount of $50 a month if they achieve certain wellness goals. The most common wellness goals we see relate to smoking, cholesterol, blood pressure, blood sugar and preventive screenings.”

Alvarez observed that “while the absence of guidance under the ADA has created considerable uncertainty surrounding wellness incentives, to date, most employers appear to be comfortable using incentives that fall within the framework permitted” by the Health Insurance Portability and Accountability Act (HIPAA) and, more recently, the Patient Protection and Affordable Care Act (PPACA).

He explained that the PPACA “provides a cap of 30 percent of the total premium for use as financial incentives to motivate participation in ‘health-contingent’ wellness programs that are part of a group health plan. Incentives can rise to as much as 50 percent under the PPACA for programs related to smoking cessation,” he added.

Another incentive is discounts for employees who voluntarily participate in health risk assessments, Alden Bianchi, an attorney with Mintz Levin in Boston, observed.

Sticks

The most common form of a stick to encourage participation in a wellness program “would be a premium surcharge, such as a higher premium charged to participants who use tobacco or who fail to complete a tobacco cessation program as a reasonable alternative,” noted Russell Chapman, an attorney with Littler in Dallas. “The regulations classify all wellness incentives as ‘rewards’ whether they are of the ‘carrot’ or ‘stick’ type. However, employers do view such incentives as either carrots or sticks, and sometimes tend to favor the ‘stick’ type of incentive, particularly when it comes to smoking cessation wellness programs.

“In a few cases involving participation-only wellness programs, for example, [where there is] a requirement to complete a health-risk assessment questionnaire, the plan may make an employee who does not comply with the program ineligible for participation in the plan,” he added. “These types of incentives will likely draw the attention of the EEOC under the ADA, but are apparently acceptable under the PPACA final wellness regulations. However, making a noncompliant employee eligible for another, lower plan may mitigate the EEOC risk.”

Chapman said, “I only rarely see a wellness ‘stick’ or disincentive that involves plan benefits, for example a higher deductible or co-pay for noncompliance.”

More extreme examples of sticks come from the EEOC, according to Jakubowski. The agency has received “charges alleging that an employer has cancelled its premium contribution for employees who do not participate in an offered wellness program and even canceled the employee’s health coverage.” She thinks “the safer course is to offer inducements, rather than impose surcharges or other penalties. I also think that employees generally are more receptive to the programs if they involve inducements rather than surcharges.”

Open Questions

“While the EEOC has said that disability-related inquiries and/or medical exams do not run afoul of the ADA if they are part of ‘voluntary’ wellness programs, they have only provided very limited guidance on what ‘voluntary’ means,” Jakubowski said, noting the agency has no official position on financial inducements.

She said that the 11th U.S. Circuit Court of Appeals upheld, in Seff v. Broward County, a wellness initiative that imposed biweekly surcharges on employees who did not participate. The court concluded that the initiative was a term of the employer’s health plan and analyzed it under the ADA’s safe harbor for insurance, she said. It did not look at whether the program was voluntary.

“Given this vacuum, I think the safest course is to make sure the program complies with the HIPAA requirements, and if financial inducements are offered, do so in the form of incentives rather than penalties. Tying the initiative to the employer’s health plan also can be helpful, as seen in Seff. Also, if the initiative conditions incentives on the achievement of health outcomes, an employer must provide reasonable accommodation in the form of alternate goals for those who can’t achieve the health outcomes due to their disabilities, she stated.

Coordinated Rule

Alvarez expressed hope that the proposed rule will clarify the Genetic Information Nondiscrimination Act (GINA)’s application to wellness programs, “particularly those that apply to spouses or other family members who may be covered under group health plans. Currently, some are reading GINA as prohibiting the use of financial incentives to encourage participation by spouses or other family members in wellness programs to the extent the programs seek or obtain health information from the family members.”

Bianchi added that the EEOC should try to line its guidance up with the PPACA’s enforcement agencies—the Internal Revenue Service, Department of Labor and Department of Health and Human Services. Even though the ADA has separate congressional purpose, he said, “I would hope the administration would step in and would say ‘We want a coordinated rule.’”

And, Alvarez noted, coordination is needed as well to understand when wellness programs also might violate Title VII, the Pregnancy Discrimination Act, the Equal Pay Act and the Age Discrimination in Employment Act. “If the proposed regulations do not address those issues, it may not be the end of the discussion,” he remarked.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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