Wellness Plan Dilemma

March 26, 2015

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:

  • 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.


Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

Get Business Legal Updates

Please provide your full name.
Please provide a valid email address.
We respect your privacy, and we will never share your information. Unsubscribe at any time.

Related Publications

The California Court of Appeal has acknowledged that it is likely the first to recognize “Wi-Fi Sickness,” or “electromagnetic hypersensitivity” as a disability. The case originated when a school district installed a new Wi-Fi system in a teacher’s classroom, after which she reported headaches. The headaches persisted even after the WiFi in her room and…

March 9, 2021

As employees return to work and attempt to manage the minefield that is COVID-19, employers and employees are being asked to work together now more than ever. A single employee testing positive for COVID at an office, restaurant, bar, gym, or any other business can have an outsized effect on the company. That one employee…

August 11, 2020

It’s National Wellness Month, and employee wellness programs have become very popular in recent years. If your company offers a wellness program as part of your benefits package, make sure it meets all of the legal requirements outlined by the EEOC, ADA, ACA, and HIPAA. https://pasha.bz/3fnRgi4

August 6, 2020

Athletes usually sign their health privacy rights away to have disclosed all such health care information to their employer, but even the team’s trainer and physician may not be obligated to HIPAA even without such waiver under exceptions of HIPAA. https://pasha.bz/hippa-law-athletes

July 2, 2020

Do mask-banning policies violate any ADA laws for those that are concerned about contracting COVID-19? Probably.

May 29, 2020

After over a year of comments, the Equal Employment Opportunity Commission (EEOC) has recently created and implemented final rules on Wellness Programs. Employers who offer such programs will need to take the time to review and update their policies and procedures for the program in order to make sure that they are – or will…

May 31, 2016

If Mad Men taught us anything, it’s that corporate America has come a long way since the 1960’s with regard to its treatment of alcohol in the workplace. Some viewers of the show may envy that previous generation’s celebration of the drinking life, where, if the show is to be believed, the martinis flowed throughout the…

April 14, 2016

Nasir and Matt are back and discussing the popularity of office wellness programs and the problems they have caused for employers.

June 3, 2015

Nasir and Matt discuss a new law mandating paid sick leave for employees in New York City, the Union-Tribune in San Diego losing a lawsuit for misclassifying independent contractors, small businesses finding another loophole in the Affordable Care Act, and one person’s opinion to never do online banking for your business. They also answer questions…

January 27, 2014
Legally Sound Smart Business cover art

Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
Apple Podcast badge
Google Podcast badge
Spotify Podcast badge

Latest Episodes

November 21, 2023

In this episode, Nasir Pasha and Matt Staub explore the legal implications of Artificial Intelligence in the business world. They delve into the most talked-about issue of 2023: AI and its impact on the legal landscape. Although AI isn’t necessarily a new topic, it has many unanswered questions in the legal world. Nasir and Matt…

July 12, 2023

In this episode, Attorney Nasir Pasha and Attorney Matt Staub delve deep into the complexities of mass layoffs and offer valuable insights, real-life examples, and practical advice to employers grappling with the aftermath of such challenging situations. Nasir and Matt emphasize the critical importance of effective communication when executing mass layoffs. They stress the need…

January 9, 2023

As the COVID-19 pandemic swept across the globe, businesses scrambled to adapt to the new reality it presented. In this blog post, we dive into the case of Goldman Sachs, a financial services giant, to examine their response to the crisis and the lessons other businesses can learn from their return-to-office strategy. From prioritizing employee…

October 28, 2022

Full Podcast Transcript NASIR: Finally, my two favorite worlds have collided – both the law and the chess – right here at Memorial Park in Houston, Texas. Windy day. We have some background noise – ambient noise. What are the two worlds that collided? Well, Hans Neimann has sued Magnus Carlsen for defamation in one…

September 26, 2022

Through a five-round championship bout, Matt travels to Texas from California to determine which state is better for business. Will it be a knockout with a clear winner or will it go to the scorecards?

July 7, 2022

Whether you are buying or selling a business, the transaction goes through the same steps. However, they are viewed from different perspectives. Sellers may not want to fully disclose all the blind spots while Buyers will want otherwise. Nasir and Matt battle it out in this Buyer vs. Seller to determine who has the advantage!…

May 12, 2022

When it comes to Restrictive Covenants, employers are fighting to keep their company safe while employees may use them to their advantage. Keep listening to find out if the Employer or the Employee wins this battle. Round 1: Trade Secrets A company’s trade secrets encompass a whole range of information and are one of the…

February 14, 2022

The Supreme Court rejected the nation’s vaccine mandate. Businesses with 100 or more employees are NOT required to have their employees vaccinated or go through weekly testings. However, this policy remains in effect for health care facilities. In this episode of Legally Sound | Smart Business, the team sat down to discuss their thoughts on this ruling.

December 1, 2021

In this episode of Legally Sound | Smart Business by Pasha Law PC, Nasir and Matt cover the Business of Healthcare. There is more to the healthcare industry than just doctors and nurses. Many Americans have health insurance to cover their yearly needs, but most Americans are not aware of what really goes on behind…

October 12, 2021

In our latest episode, Nasir and Matt are covering the legal issues on Social Media. The average person spends most of their day on social media, whether they are scrolling for hours or publishing their own content. However, just because you publish your own content on Instagram does not equate to you owning that image….

September 28, 2021

What is a Non-Disclosure Agreement, and when do I need one? In this episode, Nasir and Matt shares why you need to use Non-Disclosure Agreements, basic facts about NDA’s, and discuss about the infamous Jenner-Woods story. Having the right Non-Disclosure Agreement in place not only protects you and your business, but it also makes the…

June 16, 2021

Covered in this episode of Legally Sound Smart Business are some typical business mistakes blunders small businesses often make and how to avoid them. Blunder #1: Copying and pasting agreements It may sound like a good idea at the time, but this blunder comes with hidden pitfalls. Having an attorney draft terms that are specific…

February 4, 2021

How you terminate an employee can make the difference between a graceful transition to avoidable negative outcomes like a dramatic exit or even a lawsuit. We gathered a panel of experts and asked them – is there a “right way” to fire an employee? We would like to thank our guests for this episode: Amr…

December 2, 2020

The COVID-19 pandemic has turned nearly every aspect of life on its head, and that certainly holds true for the business world. In this episode, Matt and Nasir explain how the early days of the pandemic felt like the Wild West and how the shifting legal playing field left a lot open to interpretation and…

November 16, 2020

After plenty of ups and downs, our buyer has finally closed on the purchase of their business. While we’re marking this down in the ‘wins’ column, it never hurts to review the game tape. In this final episode, our hosts, Matt Staub and Nasir Pasha, return to the deal almost a year later to reflect…

September 15, 2020

The ink is drying on the signature line and things are looking great for our buyer. After so much hard work, the finish line is in sight and the cheering within ear shot.   Though the landlord is still serving friction, things seem safe to move forward and for now, our buyer will be keeping…

July 31, 2020

Though things are coming along well, the journey would not be interesting if it was purely smooth sailing. After our buyer opens escrow, they are forced to push the closing date back when suddenly a letter from an attorney was received claiming the business, we are buying has a trade mark on the name!  Now…

June 12, 2020

With frustration at an all-time high and professionalism at an all-time low, our friend the Buyer has “had it” with the Seller and quite frankly their lack of knowledge. At present our Buyer is rightfully concerned that the latest misstep from our loose-lipped Seller will threaten not only the entire operation of the businesses but…

May 11, 2020

As we go deeper into the buying process, we start to uncover more challenges from our seller and encounter some of the wrenches they are tossing our way. When we last left off in episode three our team was knee deep in due diligence for our buyer, had already penned and signed the Letter of…

April 4, 2020

One word–interloper! When a new mysterious broker enters the transaction and starts to kick up dust, Nasir and Matt take the reins. The seller signed off on the letter of intent (see episode 2), yet this “business broker” serves only friction and challenges by refusing to send financials, whilst demanding more of a firm commitment…

April 4, 2020

Just as most stories and deals start out, everyone is optimistic, idealistic and full of hope for clear skies. It’s a perfect outlook with a perfect setup for the ups and downs yet to come. Peek further behind the curtain and into the first steps of buying a business: the letter of intent. After the…

April 4, 2020

When a savvy buyer hears opportunity knocking to purchase a prime positioned business, she decides not to go it alone and taps in the professionals to help navigate what could potentially be a fruitful acquisition. “Behind the Buy” is a truly rare and exclusive peak into the actual process, dangers, pitfalls and achievements, that can…

August 7, 2019

GrubHub is subject to two “matters of controversy” that have likely become common knowledge to business owners: “fake” orders and unfriendly microsites.

May 28, 2019

In this podcast episode, Matt and Nasir breakdown the legal issues of the subscription industry’s business on the internet. Resources A good 50-state survey for data breach notifications as of July 2018. California Auto-Renewal Law (July 2018) Privacy Policies Law by State Why Users of Ashley Madison May Not Sue for Data Breach [e210] Ultimate…

March 12, 2019

In recording this episode’s topic on the business buying process, Matt’s metaphor, in comparing the process to getting married probably went too far, but they do resemble one another. Listen to the episode for legal advice on buying a business.

December 3, 2018

Nasir and Matt return to discuss the different options available to companies looking to raise funds through general solicitation and crowdfunding. They discuss the rules associated with the various offerings under SEC regulations and state laws, as well as more informal arrangements. The two also discuss the intriguing story about a couple who raised over…

July 24, 2018

Flight Sim Labs, a software add-on creator for flight simulators, stepped into a PR disaster and possibly some substantial legal issues when it allegedly included a Trojan horse of sorts as malware to combat pirating of its $100 Airbus A320 software. The hidden test.exe file triggered anti-virus software for good reason as it was actually…

April 17, 2018

Attorneys Matt Staub and Nasir Pasha examine Mark Zuckerberg’s congressional hearings about the state of Facebook. The two also discuss Cambridge Analytica and the series of events that led to the congressional hearings, the former and current versions of Facebook’s Terms of Service, and how businesses should be handling data privacy. Full Podcast Transcript NASIR:…

March 10, 2018

The Trump presidency has led to a major increase in ICE immigration enforcement. It’s critical for business owners to both comply with and know their rights when it comes to an ICE audit or raid. Nasir, Matt, and Pasha Law attorney Karen McConville discuss how businesses can prepare for potential ICE action and how to…

February 5, 2018

New years always bring new laws. Effective January 1, 2018, California has made general contractors jointly liable for the unpaid wages, fringe benefits, and other benefit payments of a subcontractor. Nasir and Matt discuss who the new law applies to and how this affects all tiers in the general contractor-subcontractor relationship. Click here to learn…

January 2, 2018

With a seemingly endless amount of new mattress options becoming available, it is unsurprising that the market has become increasingly aggressive. As companies invest in more innovative solutions to get in front of customers, review sites, blogs and YouTube videos have moved to the forefront of how customers are deciding on their mattresses and how…

December 7, 2017

In recent months explosive amounts of high profile allegations of sexual harassment, assault, and varying acts of inappropriate behavior have transcended every sector of our professional world. With a deluge from Hollywood and politics, and the private workforce, accusations have inundated our feeds and mass media. This harassment watershed has not only been felt within…

November 16, 2017

If you are not familiar with the EB-5 program started in 1990 to give green cards to certain qualified investors in the United States, then you may not have been alone a few years ago. Currently, the EB-5 program has since exploded since its inception and now hits its quotas consistently each year. The program…

October 10, 2017

Government requests come in multiple forms. They can come in as requests for client information or even in the form of investigating your company or your employees. Requests for Client Information General Rule to Follow Without understanding the nuances of criminal and constitutional law and having to cite Supreme Court cases, any government requests for…

August 24, 2017

Nasir and Matt suit up to talk about everything pertaining to employee dress codes. They discuss the Federal laws that govern many rules for employers, as well as state specific nuances in California and other states. The two also emphasize the difficulty in identifyingreligious expression in dress and appearance, how gender-related dress codes have evolved…

June 28, 2017

Nasir and Matt discuss the life cycle of a negative online review. They talk about how businesses should properly respond, how to determine if the review is defamatory, the options available to seek removal of the review, how to identify anonymous reviewers, whether businesses can require clients to agree not to write negative reviews, and…

June 7, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Mattbreak down social media marketing withguests Tyler Sickmeyer and Kyle Weberof Fidelitas Development. They first discuss contests and promotionsand talk about where social media promotions can go wrong,when businesses are actually running an illegal lottery, and the importance of a soundterms and conditions. Next, they…

April 3, 2017

On this episode of the Ultimate Legal Breakdown, Nasir and Matt go in depth with the subscription box business. They discuss where subscription box companies have gone wrong(4:30), the importance of a specifically tailored terms and conditions(6:30), how to structure return policies (11:45), product liability concerns (14:45),the offensive and defensive side of intellectual property (19:00),…

February 1, 2017

Nasir and Matt discuss the suit against Apple that resultedfrom a car crashed caused by the use of FaceTime while driving. They also discuss howforeseeable use of apps can increase liability for companies. Full Podcast Transcript NASIR: Hi and welcome to Legally Sound Smart Business! I’m Nasir Pasha. MATT: And I’m Matt Staub. Two attorneys…

January 5, 2017

The guys kick in the new year by first discussing Cinnabon’s portrayal of Carrie Fisher as Princess Leia soon after her death, as well as other gaffes involving Prince and David Bowie. They alsotalk about right of publicity claims companies could be held liable for based on using someone’s name or likeness for commercial gain.

December 22, 2016

Nasir and Matt discuss the recent incidentat a Victoria’s Secret store where the store manager kicked out all black women after one black woman was caught shoplifting. They then each present dueling steps businesses should take when employees are accused of harassment.

December 8, 2016

Nasir and Matt return to talk about the different types of clients that may have outstanding invoices and how businesses can convert unpaid bills to getting paid.

November 10, 2016

After a long break, Nasir and Matt are back to discuss a Milwaukee frozen custard stand that is now revising it’s English only policy for employees. The guys also discuss how similar policies could be grounds for discrimination and what employers can do to revise their policies.

October 6, 2016

The guys discuss the new California law that allows actors to request the removal of their date of birth and birthdays on their IMDB page and why they think the law won’t last. They also discuss how age discrimination claims arise for business owner.

September 29, 2016

Nasir and Matt discuss the racial discrimination claims surroundingAirbnb and how it’s handled the situation. They also discuss some practical tips for businesses experiencing similar issues.

September 8, 2016

Nasir and Matt discuss whyAmazon seller accounts are getting suspended and banned without notice and how business owners can rectify this situation through a Corrective Action Plan.

August 25, 2016

Nasir and Matt talk about the accusations surroundingfashion giant Zararipping off the designs of independent artists like Tuesday Bassen and howsmaller companies can battle the industry giants.

August 18, 2016

Nasir and Matt discuss Brave Software’s ad replacing technology that has caught the eye of almost every national newspaper and has a potential copyright infringement claim looming. They also welcome digital marketing expert Matt Michaelree to speak on the specifics of what Brave is attempting to do and whether it has the answers moving forward.

July 28, 2016

Nasir and Matt discuss the sexual harassment lawsuit filed by Gretchen Carlson against Fox CEO Roger Ailes. They also talk aboutthe importance of sexual harassment training and properly handling such allegations in the office.

July 15, 2016

Nasir and Matt talk about the changes at Starbucks that have led to many disgruntled employees and customers.

We represent businesses.
That’s all we do.

Oh, and we love it.

We love our work. We love reviewing that lease for your new location. We thrive on closing that acquisition that nearly fell through. We’re fulfilled when we structure a business to grow, raise capital, and be legally protected.

We focus on developing close relationships with our clients by being like business partners. A partner who provides essential, personalized, proactive legal support.

We do all of this without utilizing the traditional billable hour model. You pay for the value we bring, not the time spent on calls, emails, and meetings.

Our team is made up of attorneys and staff that share these values and we are retained by clients who want the same.

Pasha Law PC operates in the states of California, Illinois, New York, and Texas.

Meet Our Team

Fractional General Counsel Services

Pasha Law Select offers the expertise of a high-end general counsel legal team for every aspect of your business at a fixed monthly rate. Pasha Law Select is deliberately designed to allow our legal team to be proactive, to anticipate, and to be comprehensive in serving our clients. To be great lawyers, we need to know our clients. We can’t know our clients unless we represent a select number of clients in the long-term. This is Pasha Law Select.

Learn More