Many employers have established wellness programs to promote employee health and, in doing so, help counter the ever increasing costs associated with employer-sponsored health benefit plans. Often employers want to establish programs that provide employees with incentives to achieve certain health outcomes, such as smoking cessation or weight loss. Employers must exercise caution in creating such health-contingent wellness programs, which necessarily require employees to disclose health information, because the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act (“GINA”) prohibit medical inquiries unless there is a demonstrated business necessity or responding to the health inquiry is voluntary.
A significant unsettled question with respect to “voluntariness” in the context of an employee’s participation in a health-contingent wellness plan has been: How much is too much for an employer to offer as an incentive? In other words, when does the proverbial carrot become so big that it becomes a stick, which impermissibly penalizes employees, who opt not to participate and not share their health information?
On January 7, 2021, the U.S. Equal Employment Opportunity Commission (“EEOC”) issued two proposed rules –one under the ADA (the “ADA Proposed Rule”) and one under GINA (the “GINA Proposed Rule”) (collectively, the “Proposed Rules”) to answer these questions. The Proposed Rules are the EEOC’s second attempt at doing so, as its first set of regulations were struck down in 2017 by a federal court, which found the rules permitted incentives that were too significant and thus were coercive. Unsurprisingly, given this background, the EEOC’s Proposed Rules, with limited exception discussed below, permit employers that wish to incentivize participation in health-contingent wellness programs to use only an exceedingly small carrot.
Background Leading to the Proposed Rules
Under the Affordable Care Act (“ACA”), wellness programs fall into two categories: participatory programs and health-contingent programs.
In a participatory program, the employer can choose to reimburse or to reward employees for participating in wellness programs (e.g., by reimbursing gym memberships or fitness classes), but the reimbursement or reward cannot be contingent on any particular health outcome. In participatory wellness programs, employees are not required to share medical information to receive the reward or avoid a penalty and, thus, no ADA or GINA issue is presented.
Health-contingent wellness programs, on the other hand, reward employees not merely for participating, but for achieving a specific health goal. These programs generally require an employee to disclose health information through a health risk assessment or biometric screening to determine and then demonstrate a health-related outcome, such as a target BMI or cholesterol level. Because employees must necessarily share medical information to participate, these health-contingent programs run the risk of violating the ADA’s and GINA’s requirements that medical inquiry responses be voluntary, absent business necessity.
In 2016, the EEOC issued wellness program regulations, which included provisions allowing employers to use financial or in-kind incentives to encourage employees to take part in eligible health-contingent program. The regulations permitted the incentive to be in the form of a reward (for employees who opted to participate) or a penalty (for employees who chose not to) of up to 30% of the total cost of self-only healthcare coverage. In October of 2016, AARP filed a lawsuit in the United States District Court for the District of Columbia, challenging the regulations. AARP argued that the regulations violated ADA and GINA because they allowed employers to impose draconian penalties on employees who refused to provide health information to their employer necessary to participate health-contingent programs, which amounted to coercion and made such programs impermissibly “involuntary.”
In AARP v. United States Equal Employment Opportunity Commission, Judge John D. Bates ruled in favor of AARP, finding that the 30% incentives were inconsistent with statutory requirements that wellness program participation be voluntary because employees who could not afford to pay a 30% increase in premiums would be forced to disclose their protected information when they otherwise would not choose to do so. The court reasoned that the rules would push people to disclose sensitive medical information for the reward alone. In particular, the court took issue with the fact that the EEOC allegedly failed to consider the level of coerciveness its rules allowed and whether the rules complied with the purposes of the ADA and GINA.
Since the decision, the EEOC has been wrestling with how to address health-contingent wellness programs, while employers have been without guidance on what constitutes a permissible incentive. With the Proposed Rules summarized below, the EEOC believes it has found the solution.
Proposed Rules: De Minimis Incentives Only
Echoing the AARP decision, the EEOC has adopted the view that offering too high of an incentive (or too strong a penalty) would make employees feel coerced to participate in a health-contingent wellness program. Thus, the Proposed Rules and interpretive guidance make clear that for employee participation in health-contingent wellness programs (e.g., completion of a health risk assessment or biometric screening) to comply with the ADA’s and GINA’s voluntariness requirements, an employer may offer only de minimis incentives (such as a water bottle or gift card of modest value) to encourage participation; incentives such as a $50 monthly premium penalty, paying for gym membership, or providing airline tickets would not be de minimis.
In addition, the Proposed Rules, like their predecessors, provide that employers may not require an employee to participate in a wellness program, deny coverage under its group health plans or particular group health plan benefits, or take any adverse action against an employee who refuses to participate in a wellness program or who fails to achieve certain outcomes. Deeming it unnecessary in light of the proposed de minimis standard, the Proposed Rules eliminate the prior rules’ requirement that employers provide a unique ADA notice to employees describing the type of medical information that will be obtained and the purpose for which it would be used. However, wellness programs that are exempt from the de minimis limits would still be subject to the separate notice requirements under the HIPAA rules.
Important Tax Note
Of note, the Proposed Rules do not change the rules applicable to the taxation of incentives. Employers will still need to consider whether the de minimis incentives they offer for wellness program participation fall within the tax exclusion for de minimis fringe benefits, or other tax exclusion. In other words, permissible de minimis incentives for wellness program participation should not be confused with the tax exclusion for de minimis fringe benefits, which is narrow. For example, even though a modest value gift card would be deemed a de minimis incentive under the Proposed Rule, gift cards, regardless of their amount, will always be taxable and would not be excludable as a de minimis fringe benefit.
The EEOC’s Proposed Rules and the HIPAA Wellness Program Rule
Another regulatory consideration for health-contingent wellness programs arises under HIPAA, the Health Insurance Portability and Accountability Act. In 2013, after the ACA’s enactment, the Departments of Health and Human Services, Treasury and Labor promulgated HIPAA regulations by (the “Tri-Department wellness regulations”) that allow employers to offer incentives up to thirty percent of the total cost of health insurance (or fifty percent to the extent the wellness program is designed to prevent tobacco use) to encourage participation in health-contingent wellness programs without regard to the voluntariness limitation of the ADA and GINA. The EEOC’s Proposed Rules would thus depart from the Tri-Department wellness regulations’ incentive allowances, and as a practical matter, arguably render the higher allowances nugatory based on its assessment of the voluntary disclosure standard proposed by the ADA and GINA.
EEOC’s Proposed “Safe Harbor” Exception
The ADA Proposed Rule provides an exception to the “de minimis” standard for:
[H]ealth-contingent wellness programs that are a part of, or qualify as, group health plans to which the Tri-Department wellness regulations apply are an exception to the de minimis standard. Accordingly, this proposed rule interprets the [insurance] safe harbor [provision of the ADA] as permitting health-contingent wellness programs that are a part of, or qualify as, group health plans to offer the maximum allowed incentive under the 2013 HIPAA regulations (currently 30 percent of the total cost of coverage or 50 percent to the extent the wellness program is designed to prevent tobacco use), so long as they comply with the given HIPAA requirements for such plans.
Thus, an employer’s health-contingent wellness program (e.g., targeting BMI or cholesterol levels, or completion of walking or other exercising goals) that is appropriately connected to a health insurance plan (e.g., related solely to cost sharing or premiums) may use health-related information obtained from an employee to provide an incentive of up to thirty percent of premiums for plan participants. Historically, the EEOC has limited its interpretation of this safe harbor to actual insurance practices (e.g., risk analysis and underwriting) and has not applied it to wellness programs. The EEOC’s 2016 rules took the position (with which some courts disagreed) that the ADA safe harbor did not apply to wellness programs, even if such plans were part of a group health plan. Thus, the proposed safe harbor provision contained in the ADA Proposed Rule departs from the EEOC’s prior position and may be a target of challenge by employee advocates.
The ADA Proposed Rule does not specifically address incentives in the form of employer contributions to health savings accounts or health reimbursement arrangements. While it is likely that the EEOC intended these types of incentives to be subject to the new de minimis standard, clarification in EEOC’s final rule would be helpful for these popular forms of incentives.
GINA’s Proposed Rule for Spouse (and Other Family Participation)
Under the GINA Proposed Rule, an employer may only offer a de minimis incentive to an employee for his or her family members’ voluntary disclosure of their medical conditions. There is no HIPAA exception to the de minimis rule for a family member’s participation in a health-contingent wellness program.
The de minimis incentives rules appear aimed at permitting some amount of inducement for participation in health-contingent wellness programs, and at the same time prevent incentives that may be deemed coercive and a violation of the ADA’s and GINA’s prohibition against non-voluntary health disclosures, absent business necessity.
The public will have 60 days from publication of the Proposed Rules in the Federal Register to comment on them. If the Proposed Rules go into effect without material change (and they are not delayed or withdrawn by the new Administration), it will be interesting to see if they significantly undercut the effectiveness or use of health-contingent wellness programs. Epstein Becker & Green will continue to monitor this proposed regulation as it continues through the EEOC’s rulemaking process.
Christopher Shur, a Law Clerk – Admission Pending (not admitted to the practice of law) in the firm’s New York office, contributed to the preparation of this post.