In 2019, we posed the question, when is an incentive so large, it can no longer be considered voluntary? The Equal Employment Opportunity Commission (EEOC) has struggled to answer this question since the American Association of Retired Persons (AARP) brought a suit against them in 2016. The crux of the complaint was that the Americans with Disabilities Act (ADA) requires wellness programs involving disability, health-related inquiries, or medical examinations to be entirely voluntary and non-discriminatory.
At the time, the EEOC established that to qualify as a voluntary wellness program, an employer could not offer a discount greater than 30% of the employee-only healthcare premium costs. The AARP objected to the 30% threshold, arguing that it was “arbitrary, capricious, and an abuse of discretion.” The Federal Court of D.C. agreed and ordered the EEOC to reconsider its rules and provide new guidance.
Following the court mandate, the EEOC recently released two new proposed rules to address the lingering question of how much incentive employers can provide employees participating in a wellness plan without running afoul of the law.
Types of Wellness Programs
According to HIPAA regulations, two types of Wellness Programs comply with nondiscrimination rules:
Participatory programs are designed with few, if any, barriers to participation and allow for incentives that use an activity or specific result as a condition. As the name implies, these programs award participation only.
The EEOC’s new rule provides several examples of a Participatory Program, including:
- Rewarding employees for completing a health risk assessment regarding current health status, without any further action required by the employee concerning health issues identified as part of the assessment
- Diagnostic testing programs that provide rewards for participation in the program and do not base any part of the rewards on outcomes
- Programs that reward employees for the cost of participating in a smoking cessation program, without regard to whether or not the employee quits smoking
- Programs that provide rewards to employees for attending monthly, no-cost, health education classes
Participatory programs are subject to far fewer HIPAA restrictions, aside from requiring employers to make rewards available to all individuals, regardless of health status.
Health-contingent wellness programs offer incentives contingent upon an employee satisfying a standard related to a health factor, such as cholesterol level. Health-contingent programs can either be activity-based or outcome-based.
Activity-based health-contingent plans include rewarding employees for walking, dieting, or exercising. An example of outcome-based health-contingent plans would include having employees who complete a biometric screening to identify a certain medical condition or risk factor and then rewarding them for reducing such risk factors and meeting certain health outcomes.
Health-contingent programs need to satisfy five HIPAA requirements for them incentivized:
- Employees must be allowed to qualify for a reward at least once per year.
- The total reward offered to an individual under all health-contingent wellness programs concerning the plan cannot exceed 30% of the total cost of the employee-only coverage – up to 50% if related to a tobacco cessation program.
- The program must be reasonably designed to promote health or prevent disease.
- The program must be made available to all individuals.
- The plan must disclose the availability of a reasonable alternative for individuals for whom meeting the required standard is unreasonably difficult due to a medical condition.
Laws Governing Wellness Programs
The EEOC has made clear that simply complying with HIPAA regulations for wellness programs does not guarantee that such a plan is compliant with other employee-protection laws. If a wellness program makes any inquiries into the employee’s or their family’s medical conditions or involves biometric screening or medical exams, it may be subject to the ADA or the Genetic Information Discrimination Act (GINA), summarized as follows:
- ADA: Wellness plans become subject to the newly-proposed ADA restrictions should the wellness plan include any disability, health-related questions, or medical examinations. This would generally include health risk assessments, biometric screenings, or any other program that could lead to the disclosure of an employee’s existing health conditions.
- GINA: Wellness plans where an employee or employee’s family member is asked to disclose genetic information, including the manifestation of diseases or disorders, are subject to GINA restrictions. An example would be asking an employee to complete a health risk assessment about their family medical history to determine if that employee may be at risk of developing certain illnesses.
New EEOC Rule
In addition to abiding by HIPAA regulations, the EEOC has made clear that wellness plans will also need to adhere to the ADA and GINA where applicable. At the root of the issue is the EEOC’s concern that offering incentives for specific wellness programs may violate the ADA’s rule against non-voluntary medical examinations. Health risk assessments about family medical history could potentially violate GINA’s ban on involuntary collection of genetic information.
De Minimis Incentive
Under the newly proposed EEOC rule, wellness programs that include disability-related inquiries, medical exams, biometric screens, or genetic information would be unable to offer an incentive greater than de minimis (too trivial or minor to merit consideration, especially in law). Any program subject to the ADA or GINA that shows an incentive deemed to be of a value greater than de minimis would render the wellness program involuntary in the eyes of the EEOC, and thus be in violation.
While the EEOC has yet to define what constitutes a de minimis incentive, they have provided some examples, like rewarding employees with a water bottle or a gift card of a nominal amount. They also provided examples of incentives that would not be considered de minimis, such as paying for an employee’s gym membership or discounting their health premium by $50 per month.
In addition to the incentive restrictions, employers cannot require participation, deny or limit coverage for particular benefits for non-participation, take any adverse action against employees for non-participation or failure to achieve outcomes, or condition participation on an employee allowing information to be disclosed to a third party.
Wellness programs that do not fall under the ADA or GINA are not subject to the proposed limits. Additionally, there is a HIPAA Safe Harbor from the ADA incentive restrictions for certain health-contingent plans.
HIPAA Safe Harbor
The proposed rules offer an exception to the ADA incentive restriction for health-contingent wellness programs that qualify as a group health plan. This exception is known as the HIPAA Safe Harbor, and it allows employers to offer the same level of incentive as HIPAA provides.
In practical terms, that means wellness programs that qualify for the safe harbor can incentivize up to 30% of the total cost of coverage under the group health plan (up to 50% if the program is designed for tobacco cessation). The total cost depends on who is eligible to participate in the wellness plan to earn an incentive. For instance, if only employees are allowed to participate, then the maximum incentive would be 30% of the employee-only cost, regardless of whether or not dependents are enrolled on the plan.
To qualify for this exception, the health-contingent wellness program must be a part of the group health plan, defined as satisfying the five nondiscrimination requirements under HIPAA (outlined above), as well as meeting four factors proposed by the commission for the new ADA wellness rule:
- The program is only offered to employees who are enrolled in an employer-sponsored health plan.
- Any incentive offered is tied to cost-sharing or premium reductions under the group health plan.
- A vendor offers the program contracted with the group health plan or insurer.
- The program is a term of coverage under the terms of the group health plan.
The wellness program must also utilize the medical information attained and “require employees to satisfy a standard related to a health factor, such as achieving a certain blood pressure or cholesterol level, to receive an award or avoid a penalty.” If a program gathers the aggregate data but does not use it, it may not qualify for the safe harbor under the proposed rules.
It is important to note that no such safe harbor exists for participatory programs or wellness programs subject to the GINA restrictions. However, employers can incentivize health risk assessments and include family medical history questions so long as the full incentive is available, regardless of whether the genetics questions are answered, essentially making the genetic portion voluntary.
Aldrich is Here to Help
These new updates are the first step forward in clarifying guidance regarding employee wellness programs. We are currently in the 60-day window for public comment, during which the EEOC solicits feedback from employers and employees in reaction to these proposed rules. Following the 60-day public comment window, the EEOC will have 30 days to reply to submitted comments. This would traditionally put these rules on track to be finalized in March 2021. However, President Biden has announced he is freezing all pending regulations for further review before allowing them to be implemented, leading to an additional delay.
We recommended that employers use this time to evaluate their existing wellness programs and determine what actions they may need to take should these rules be implemented. If you have questions about the EEOC’s new regulations or how to modify your organization’s offerings, please reach out to your Aldrich Advisor.
If you would like to make a comment to the EEOC about the proposed rules, you can do so at www.regulations.gov in the rulemaking dockets RIN 3046-AB10 and RIN 3046-AB11.
This information was written with the most current information available as of January 25, 2021. Please check back for future updates.
Meet the Author
Employee Benefits Consultant
Aldrich Benefits LP
Evan Cole partners with his clients to advise and assist them with their employee benefit plans, specializing in group and association plans. Prior to joining Aldrich, Evan was a top producing employee benefits representative for one of the nation’s largest life, disability, and dental carriers. He holds licenses for life and health in the states…
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