Court Orders Reconsideration of Wellness Incentives
A federal district court has raised questions about the ability of employers to provide financial incentives to employees who participate in wellness programs.
Many of those wellness programs offer an incentive to employees who either meet certain wellness objectives or who perform certain wellness-related activities. These incentives could impact the amount an employee contributes to health care premiums.
The American Association for Retired People (AARP) challenged these incentives in court claiming that these programs often require the disclosure of personal information protected by the Health Insurance Portability and Accountability Act (HIPAA), the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). They further argued that the amount of the incentive exceeds the level at which one could consider participation voluntary.
The court found that the federal government failed to evaluate how incentives affected voluntariness and directed them to determine where exactly an incentive could exist without being coercive.
The ACA allows employers to provide incentives to employees who participate in wellness programs that are part of the employer's sponsored group health plan. The incentives may be in return for an employee performing fitness-related activities or achieving a specified health outcome such as stopping smoking. The incentives may also impose a penalty if the employee fails to perform specified activities or to achieve specified outcomes.
In May 2017, the U.S. Equal Employment Opportunity Commission (EEOC) issued its final rules on providing certain incentives related to wellness programs. These rules allowed incentives up to 30 percent of the premium cost for the employer's employee-only health plan. AARP argued that the financial impact of an incentive equal to 30 percent of the employee-only premium is so large that it violates the requirement that participation in the wellness program be voluntary.
The US District Court for Washington, D.C. agreed with AARP. The Court stated: "EEOC has failed to adequately explain its decision to construe the term ‘voluntary’ in the ADA and GINA to permit the 30 percent incentive level adopted in both the ADA rule and the GINA rule. Neither the final rules nor the administrative record contains any concrete data, studies, or analysis that would support any particular incentive level as the threshold past which an incentive becomes involuntary in violation of the ADA and GINA. "
The court did not vacate the rules but ordered the EEOC to reconsider them. As a result, employers no longer have a solid foundation on which to base their wellness incentive strategy. Employers who wish to continue providing wellness plan incentives should discuss the matter with their brokers and advisors. As a guiding principle, employers should balance how much the incentive motivates participation against how much to limits the employee's ability to voluntarily decide not to participate. Unfortunately, we won't have guidance on where that balance is struck until the EEOC updates its rules.