Alert / Employee Benefits
Court ruling resurrects old questions about compliance of employer wellness programs


In a prior post we described how the AARP successfully challenged the Equal Employment Opportunity Commission’s (EEOC) 2016 wellness regulations, which permitted certain employee and spousal wellness incentives, generally up to 30 percent of the total cost of the employer’s lowest cost major medical plan (2016 regulations). The court allowed the incentive limits to remain in place through Dec. 31, 2018, and other parts of the 2016 regulations (e.g., the notice and separate spousal authorization) to remain in place indefinitely.

In previous court filings the EEOC suggested it would publish new proposed regulations this summer, which many have been cautiously looking forward to. However, in a recent court filing the EEOC explained that it has not decided how to proceed and, therefore, does not have plans to issue new regulations by any given date.

This has sparked a lot of questions, some of which we have good answers for, others of which we are still pondering. The good news is that wellness programs are not dead. In fact, we suspect most employers will continue their wellness programs with few or no changes.

Everything old is new again

The court’s ruling and lack of EEOC guidance resurrects two questions that, despite their limitations, we thought the 2016 regulations solved:

  • How does a wellness program comply with the Americans with Disabilities Act (ADA)?
  • How does a wellness program comply with the Genetic Information Nondiscrimination Act (GINA)?

The key question for ADA compliance is whether the program is voluntary. This is the language the court got hung up on. The 2016 regulations generally said that a 30 percent incentive is voluntary, but the court said the EEOC did not present enough evidence, like behavioral analysis, to say why it was voluntary. The court did not say incentives are impermissible – it didn’t even say the 30 percent incentive was necessarily impermissible. The problem for the court was the lack of justification for the 30 percent standard, not the standard itself.

The key question for GINA compliance is whether GINA allows an employer to offer any incentive for obtaining information about the current medical conditions of an employee’s spouse. This is because GINA treats the spouse’s current health information as the genetic information of the employee, which the employer generally cannot offer an incentive to obtain. The court conceded the EEOC’s conclusion that some incentive was permissible, but again found the EEOC didn’t sufficiently justify why the 30 percent standard in the 2016 regulations was the right standard.

Next steps for the EEOC and Congress

Ideally, the EEOC will release guidance on which employers can rely prior to Jan. 1, 2019, but that might be a tall task. As we discussed in our Government Relations update, there are two commissioner seats open and one current commissioner is up for renomination. The commission’s general counsel position is also vacant. While President Donald Trump has put forth nominations, the nominations are being held up for a variety of reasons.

Lockton comment: We expect formal guidance from the EEOC only after the new commissioners are appointed. The new appointees will provide the first Republican majority on the commission in nine years, which could have a significant impact on what action the EEOC takes.

In the meantime, we find it highly unlikely the EEOC will take any enforcement action against employers that continue to comply with the 2016 regulations even after they are vacated beginning Jan. 1, 2019.

New guidance will be difficult even when the commission is at full-strength. The EEOC is going to have a difficult time justifying “voluntariness” whether it issues new regulations or tries to reissue the 2016 regulations. The EEOC has reportedly received little usable feedback from interested parties about evidence to support a voluntariness determination.

A wildcard here is that the EEOC may be able to sidestep the voluntariness determination, at least with respect to the ADA rules. There is a separate ADA provision that protects bona fide benefits plans from having to comply with the ADA, provided the plan design is not meant to subvert the purposes of the ADA. The EEOC has previously argued in court and in the 2016 regulations that this bona fide benefits plan safe harbor does not apply to wellness programs. The EEOC could reconsider its reasoning and adopt wellness regulations under the bona fide benefits plan safe harbor, which could prove easier to justify than regulations under the exception for voluntary programs.

Additionally, inaction by the EEOC is likely to reignite calls for Congress to take action. A bill was introduced in the House last year that would have effectively said wellness programs in compliance with the long-established requirements under the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA) would be deemed to comply with the ADA and GINA requirements. The bill elicited considerable backlash from consumer groups and others, and it remains dormant.

Lockton comment: This proposed legislation was considered in committee during the height of the ACA repeal-and-replace debate. Lockton is hopeful Congress will reconsider the wellness legislation with the repeal-and-replace debate being put to rest.

Private litigation

Employees can sue under the ADA and GINA if they first complain to the EEOC and the EEOC refuses to act. Because it is unlikely the EEOC will act in the event an employer’s program complies with the 2016 regulations, the more likely source of litigation may be a disgruntled employee or spouse.

This right to sue existed prior to the 2016 regulations, but it was rarely invoked even though over 80 percent of employers offer some type of wellness program. Nevertheless, employers may wish to work with legal counsel to assess their particular litigation risk. Programs with the following characteristics may be more likely to face scrutiny:

  • Programs with large premium differentials for engaged and nonengaged participants. The court was receptive to arguments pointing out that a 30 percent incentive based on the total employee and employer cost of coverage could lead to a much higher premium when looking just at the amount paid by the employee.
  • Programs requiring employees obtain specific health outcomes.
  • Programs offered to employees not participating in the employer’s health plan.
  • Programs providing incentives for information about a spouse’s current medical condition (e.g., health risk assessment).
  • Programs not in compliance with the 2016 regulations.
  • Programs sponsored by larger employers, which will make it easier for plaintiffs’ attorneys to establish a class action that will help cover their fees.

The few lawsuits that arose prior to the 2016 regulations were generally resolved in favor of employers. Some of the programs at issue were fairly standard, but one program required completion of a health risk assessment to participate in the health plan, and another program required nonparticipating employees to pay the entire cost of coverage. We wouldn’t recommend these approaches, but they illustrate the point that employees challenging an employer’s wellness program may have an uphill battle even in the wake of the incentive limits in the 2016 regulations being vacated.

Upcoming webinar

Please join us for a webinar on July 12, 2018, during which we’ll discuss wellness plan compliance in greater detail. You can register for the webinar here.

Not Legal Advice: Nothing in this Update should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton's Government Relations group are not privileged under the attorney-client privilege.

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