Wellness Plan Dilemma
Anne Wallace, Esq.

Wellness Plan Dilemma

Employers who want to encourage employees to participate in wellness plans face a legal dilemma about whether the incentives and/or penalties permitted under the Affordable Care Act may render participation “involuntary,” and in violation of the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act and possibly the Health Insurance Portability and Accountability Act . Two identical measures, entitled the “Preserving Employee Wellness Programs Act” have been introduced in the House and Senate, and would resolve this quandary by conforming the language of the ADA, GINA and ACA.

Critics, however, see incentives or penalties as a method of shifting health care costs to employees and are mobilizing in opposition. Legislative prospects are uncertain; the Equal Employment Opportunity Commission’s regulatory efforts seem to be at a standstill; and a spate of lawsuits brought by the Chicago office of the EEOC has further clouded the issue. In the meantime, employers should probably err on the side of caution, carefully evaluating the financial benefit to the business of wellness plans and avoiding financially extreme penalties for employee nonparticipation.

Popularity of Wellness Programs

About ninety-five percent of large employers offer workplace wellness programs. Ninety-three percent of employers interviewed by the National Business Group on Health and Fidelity Investments remain committed to them, and forty-four percent said that they plan to expand or maintain funding for their for wellness incentive programs, even if their company were to move away from direct involvement in employer-sponsored health coverage.

Incentives and penalties are important motivators for employee participation. Incentives often take the form of cash payments or reductions in employee deductibles. Penalties include higher premiums and lower company contributions for out-of-pocket health costs.

The ACA appears to support wellness initiatives and the use of financial carrots and sticks. In 2014, the law raised the financial incentives that employers are permitted to offer employees who participate in the programs and achieve defined results. The incentives can be either rewards or penalties, up to 30 percent of health insurance premiums, deductibles, and other costs, and up to 50 percent if the program targets smoking.

But Do They Work?

Objective measurement suggests mixed results. A study published in the January 2010 issue of Health Affairs found that medical costs fell more than $3.27 for every dollar spent on wellness programs and that absenteeism costs fell by $2.37 for every dollar spent.  A 2013 analysis by the RAND Corporation, however, found that employer costs may be offset by savings in disease management programs for employees who already suffer from a chronic disease, but not necessarily in lifestyle management programs like those that target health risks such as tobacco use and obesity.

What, then, is the rationale for incentives or penalties for participation in lifestyle management programs?  Some suggest that, for programs with little return to show for on investment, the financial penalties, themselves, have become the point. Employees who choose not to participate in lifestyle management programs and pay the penalty provide the financial margin that makes these programs popular among employers. For an employer who self-insures, medical penalties accrue to the bottom line.

Legal Standards

It’s ultimately all about the meaning of “voluntary,” as that term is used in piecemeal world of healthcare legislation enacted over the last forty years.

ADA — The ADA is designed to prevent discrimination in employment on the basis of disability by limiting an employer’s ability to solicit health information from employees and applicants or using that information to make employment decisions. There is an exception, however, for certain inquiries, including biometric screening that is part of an employer wellness program, as long as the employee’s participation is voluntary.

GINA — GINA offers similar protections for an employee’s genetic information. It, too, provides a narrow exception where:

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  • health or genetic services are offered by the employer, including services offered as part of a wellness program;
  • the employee provides prior, knowing, voluntary, and written authorization;
  • only the employee and the licensed health care professional involved in providing the services receives individually identifiable information; and
  • individually identifiable genetic information is not disclosed to the employer except in aggregate terms.

HIPAA — HIPAA prohibits discrimination in eligibility, premium costs and benefits on the basis of  health factors, including genetic information or disability.  Certain exceptions permit incentives to encourage employees to meet certain health standards, such as achieving healthy cholesterol or blood pressure levels. These are generally part of a wellness program.

If the incentive is provided merely for participating, then the program is within the law as long as it is made available to all similarly situated employees. When the program conditions incentives on a particular outcome, such as achieving a certain blood pressure or cholesterol level, then it must ensure that it does not discriminate. For example, the incentive must be capped at 20% of the total cost of an employee’s coverage and employees must be permitted to achieve the reward in alternative ways.

ACA — The ACA regulates wellness plans and provides that a reward for either participation or the achievement of a certain goal may be in the form of a discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism (such as deductibles, copayments, or coinsurance), the absence of a surcharge, or the value of a benefit that would otherwise not be provided under the plan.

The reward may not exceed 30 percent of the cost of the coverage in which an employee and any dependents are enrolled, except under regulations that now permit a reward of up to 50 percent of the cost of coverage with respect to smoking cessation programs.

EEOC Regulations and Litigation — There seems to be no inherent conflict, at least in the purposes of the four very complex statutes. But making coherent employer guidance out of that much legislation would seem to require some regulatory guidance. The Equal Employment Opportunity Commission has promised regulations for some time, but none have been forthcoming.

In the final months of 2014, however, the EEOC filed a spate of lawsuits against employers based on the incentives or penalties incorporated in their wellness plans. The most troubling of these cases for employers is EEOC v. Honeywell International, Inc., filed in the United States District Court for the District of Minnesota in October, 2014.

Honeywell offers its employees and their families a high-deductible health plan, a self-insured group plan sponsored by Honeywell. Employees who participate in the plan also have the option of participating in Honeywell’s wellness program.

As part of the wellness plan, employees agree to undergo tests relating to blood pressure, BMI, cholesterol and glucose levels. Employees who earn less than $100,000 and choose to participate in the wellness program become eligible for a health savings account to which Honeywell makes annual contributions. This is the carrot.

Employees who choose not to participate are not eligible for the health savings account and must pay a $500 surcharge that goes toward their annual health insurance contribution. Additionally, employees who refuse to undergo biometric testing are presumed to be tobacco users unless they participate in a tobacco cessation program, submit a report from their doctor that shows they don’t use tobacco, or work with a health advocate to establish they are nicotine-free. Honeywell imposes another $1,000 surcharge on nicotine users and presumed nicotine users. This is the stick.

The EEOC alleges that participation in Honeywell’s wellness program is not voluntary under the ADA or GINA because the financial incentives are so great and the surcharges so steep. Honeywell argues that the financial incentives and penalties are within the permitted limits of the ACA.

Preserving Employee Wellness Programs Act

Enter Congress.  Bills were introduced in both houses of Congress in early March in direct response to the EEOC litigation. The Preserving Employee Wellness Programs Act (will this become PEWPA?) is intended to clarify the law relating to nondiscrimination in employer wellness programs. A hearing was held on March 24 before the United States House of Representatives’ Education and the Workforce Committee.

It is in its early stages, yet, so the language may still change, but the general direction of the bill seems to be to ensure that the standards of the ACA with respect to the voluntariness of employee participation in wellness plan will be the standards applied in the interpretation of earlier law. The law would have retroactive effect back to March 23, 2010, the enactment date of the ACA.

It is worth noting though, that the very lawyerly fix of making sure that the provisions of ADA, GINA, HIPAA and the ACA are interpreted in a consistent fashion does not really address the policy concerns of opponents who are focused on the issue of cost shifting. Even if the legislation is enacted, it is not entirely clear that the problem will completely go away.

What Should Employers Do in the Meantime?

Two things jump out immediately. First of all, in building a benefit structure, employers may want to look separately at disease management programs, where the return on investment in terms of lower healthcare costs, reduced absenteeism and better health outcomes for employees seems solid. For lifestyle management initiatives, the evidence is more ambiguous and penalties may be harder to justify.

Secondly, while incentives for participation seem relatively uncontroversial, penalties are a touchier issue, especially when they get into four figures. It is tempting to speculate that Honeywell’s plan might have flown under the radar had the penalties been smaller. Even apart from the important legal issue of whether they effectively made participation involuntary, there is the risk that such a ham handed approach can endanger employee morale.

Many employers are strong proponents of wellness plans. Employees may be less wholeheartedly enthusiastic, depending on the mix of incentives and penalties. While the question remains open about whether and when these motivators may cross a legal line and make participation involuntary, employers should proceed with caution.

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