EEOC Rules Address Wellness Incentives under the ADA

Practical Law Legal Update 4-609-2925 (Approx. 10 pages)

EEOC Rules Address Wellness Incentives under the ADA

by Practical Law Employee Benefits & Executive Compensation and Practical Law Labor & Employment

EEOC Guidance: Voluntary Participation in Wellness Programs

The EEOC proposed regulations address the ability of employers under the ADA to incentivize employee participation in wellness programs that include disability-related inquiries and/or medical examinations. Incentives include both financial and in-kind incentives (for example, time-off awards and prizes), and may consist of rewards or penalties. As relevant to wellness programs, Title I of the ADA:

Restricts employers from obtaining medical information from employees by generally prohibiting disability-related inquiries or requiring medical examinations, subject to an exception for voluntary medical examinations or histories that are part of an employee health program (which may include wellness programs).
Prohibits discrimination against individuals based on disability regarding employee compensation and other employment terms, conditions and privileges (for example, employment-based fringe benefits).
Requires employers to provide reasonable accommodations so that individuals with disabilities have access to employment-based fringe benefits (see Reasonable Accommodations).

The EEOC's proposed regulations address:

The meaning of an employee health program (for example, like the Departments' 2013 final regulations, a program must be reasonably designed to promote health or prevent disease (29 C.F.R. § 2590.702(f)(3)(iii))).
What it means for a program to be voluntary.
What incentives an employer may offer as part of a voluntary employee health program.
The requirements that apply regarding notice and confidentiality for medical information obtained through a voluntary employee health program.

In general, the proposed regulations involving use of incentives and a notice requirement apply only to wellness programs that are part of an employer-sponsored group health plan (or to health insurance offered under a group health plan). The EEOC's other proposed changes apply to wellness programs regardless of whether they are offered as part of a group health plan or insurance coverage.

Under the proposed regulations, an employer may offer limited incentives (whether rewards or penalties) of up to 30% of the total cost of employee-only coverage to promote employee voluntary participation in a wellness program that includes disability-related inquiries or medical examinations. This rule applies to inquiries and examinations that are part of a health risk assessment. The 30% limit generally is the maximum incentive allowed under HIPAA and the ACA for health-contingent wellness programs (see Legal Update, Final Wellness Program Rules Include Updated Notice Language).

For participation to be voluntary, an employer must not:

Require employees to participate.
Deny group health plan coverage (including in specific benefits packages) for non-participation, or limit the extent of this coverage, unless consistent with the incentive limits.
Take adverse employment action or retaliate against, interfere with, coerce, intimidate or threaten employees (under 42 U.S.C. § 12203), for example, by disciplining an employee who does not participate.

For wellness programs that are part of a group health plan, a notice requirement also applies (see Notice Requirement).

Notice Requirement

In a rule intended to ensure voluntary employee participation, the proposed regulations would require employers to provide a notice that clearly explains:

What medical information will be obtained.
Who will receive the medical information.
How the medical information will be used, including restrictions on its disclosure.
How the employer will prevent improper disclosure of the medical information.

The notice must be written so that the employee from whom medical information is obtained is likely to understand it.

Confidentiality and Use of Medical Information

The proposed regulations would permit disclosure of medical information obtained by a wellness program to employers only in aggregate form, unless necessary to administer the health plan. The aggregate-form information could not disclose (or be reasonably likely to disclose) the identity of specific individuals, subject to the plan administration exception (see HHS Guidance on HIPAA and Plan Administration). This requirement would apply both to employers that sponsor wellness programs and administrators acting as agents of employers.

In the interpretive guidance, EEOC notes that a wellness program that is part of a group health plan (that is, a HIPAA covered entity) likely could satisfy the disclosure rule under the EEOC's proposed regulations by complying with the HIPAA Privacy Rule (see HIPAA Privacy, Security, and Breach Notification Toolkit and Practice Note, HIPAA Privacy Rule). For example, according to the EEOC, an employer that receives individually identifiable health information from (or on behalf of) a group health plan it sponsors, as allowed under HIPAA for plan administration purposes, could satisfy the EEOC's proposed disclosure rules by certifying to the group health plan (under 45 C.F.R. § 164.504(f)(2)(ii)) that it will not use or disclose the information for purposes not permitted by the governing plan documents and under the HIPAA Privacy Rule. The interpretive guidance also includes several "best practices" for use by employers in protecting the confidentiality of employee medical information. For example, individuals who handle medical information under the employer's wellness program should not also be involved in employee hiring, termination and discipline decisions.

Reasonable Accommodations

In its interpretive guidance, the EEOC takes the position that providing a reasonable alternative standard and notice of the standard's availability, as required under the HIPAA and ACA rules for a health-contingent wellness program, likely would satisfy an employer's obligation to offer a reasonable accommodation under the ADA (see Practice Note, Wellness Programs: HIPAA Nondiscrimination Regulations and Health-Contingent Wellness Programs).

The EEOC cautions, however, that employers also would need to provide a reasonable accommodation for participatory wellness programs, even though the HIPAA rules do not require these programs to offer a reasonable alternative standard. The guidance includes examples of how reasonable accommodations in the context of participatory wellness programs might be structured.

EEOC Rejects Broward County Analysis

In a footnote, the EEOC asserted that the ADA's safe harbor provision for insurance, as interpreted in the Broward County decisions, is not an appropriate basis for assessing the permissibility of wellness program incentives (see Legal Update, Broward County Wellness Program Falls within ADA Safe Harbor: Eleventh Circuit). Under the ADA safe harbor:

Certain insurance plans are exempt from the ADA's general prohibitions.
The ADA is not construed to prohibit covered entities "from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan" based on "underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with [s]tate law."

In the Broward County cases, a district court found that the wellness program at issue fell within the ADA's safe harbor for insurance plans, which exempted the wellness program from any potentially relevant ADA prohibitions. The Eleventh Circuit later affirmed the district court's ruling. In the EEOC's view, however, interpreting the ADA's insurance safe harbor consistent with the Broward County decisions would render the ADA's voluntary provision superfluous.

Compliance with Other Laws

The EEOC notes that compliance with its proposed wellness program rules, including the proposed limit on incentives under the ADA, is but one piece of the overall regulatory framework for wellness programs. Employers also must comply with other laws, including other employment nondiscrimination laws (for example, Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act (ADEA)). Wellness programs that are part of a group health plan also must comply with a host of employee benefits laws (for example, HIPAA, the ACA and the Genetic Information Nondiscrimination Act (GINA) (see respectively HIPAA Privacy, Security, and Breach Notification Toolkit, Affordable Care Act (ACA) Toolkit and Practice Note, GINA Compliance for Health & Welfare Plans)).

The DOL reiterates this notion in FAQ guidance addressing wellness (see DOL, HHS, and Treasury FAQs Addressing Wellness and the ACA). For example, the DOL notes that complying with its wellness program rules does not determine the tax treatment of rewards, which is governed by the Internal Revenue Code (Code).

DOL, HHS and Treasury FAQs Addressing Wellness and the ACA

In another wellness development, the Departments issued additional FAQs (the latest in a series on ACA implementation issues) addressing design parameters for health-contingent wellness programs. Specifically, the FAQs address what it means for a health-contingent wellness program to be "reasonably designed" (see Practice Note, Wellness Programs and Legal Update, Final Wellness Program Rules Include Updated Notice Language). In general, a health-contingent wellness program requires an individual to either:

Satisfy a standard related to a health factor (for example, claims experience or genetic information) to obtain a reward.
Undertake more than a similarly situated individual based on a health factor to obtain the same reward.

A health-contingent wellness program is reasonably designed to promote health or prevent disease if it:

Has a reasonable chance of improving the health of, or preventing disease in, participating individuals.
Is not overly burdensome.
Is not a subterfuge for discrimination based on a health factor.
Is not highly suspect in the method chosen to promote health or prevent disease.

In an FAQ, the Departments articulate the following standards for determining whether a health-contingent wellness program is reasonably designed:

The determination generally must be based on all relevant facts and circumstances.
Experimentation in diverse and innovative ways for promoting wellness is permitted.
Wellness programs need not be accredited or based on particular evidence-based clinical standards.
The Departments encouraged practices such as those found in:
- the Guide to Community Preventive Services; or
- the United States Preventive Services Task Force's Guide to Clinical Preventive Services (which also provided recommendations under the ACA's preventive health services rules, see Practice Notes, Preventive Health Services Under the ACA, Other Than Contraceptives and Contraceptives Coverage Under the ACA).

The Departments also provided certain restrictions regarding "reasonably designed" wellness programs:

A design that discourages enrollment by individuals who are sick or have high claims experience would not be viewed as reasonably designed.
A program that collects a substantial level of sensitive personal health information without assisting individuals to make behavioral changes (for example, quitting smoking) might fail to satisfy the wellness regulations.
Programs requiring unreasonable time commitments or travel may be considered overly burdensome.

Moreover, these kinds of programs may be subject to enforcement action by the Departments.

HHS Guidance on HIPAA and Plan Administration

In FAQ guidance, HHS addressed how HIPAA applies to employer wellness programs. According to HHS, if an employer's wellness program is offered as part of the employer's group health plan, then individually identifiable health information collected from (or created about) wellness program participants is protected health information (PHI) subject to HIPAA. In contrast, if an employer's wellness program is offered directly (that is, not part of its group health plan), health information collected from employees by the employer is not HIPAA-protected.

Under HIPAA, a group health plan may allow an employer (as plan sponsor) access to a wellness program participant's PHI in only limited circumstances without the individual's written authorization (see Practice Note, HIPAA Privacy Rule). If an employer is involved in administering its group health plan (including for its wellness program), the plan may allow the employer access to PHI necessary to perform plan administration functions, even without an individual's authorization. To do so, however, the employer must amend its plan documents and certify to the plan that it will:

Establish adequate separation between employees who do and do not perform plan administration functions.
Not use or disclose PHI for:
- employment-related actions; or
- other purposes not allowed under HIPAA's privacy rule.
If electronic PHI is involved, implement reasonable and appropriate administrative, technical, and physical safeguards to protect the information, including firewalls or other security measures to create separation between plan administration and employment functions (see Practice Note, HIPAA Security Rule).
Report to the group health plan any unauthorized use or disclosure, or other security incident, of which it becomes aware.

According to HHS, HIPAA's breach notification rules also require a group health plan with knowledge of a breach of unsecured PHI at the plan sponsor to make required notifications (see Practice Note, HIPAA Breach Notification Rules).

CMS Guidance

The CMS guidance addresses the ACA's insurance reforms in the context of wellness programs. For example, in one question an insurer offers a wellness program:

In connection with a particular product that is approved for sale in a market in a state.
That includes rewards that affect the health insurance coverage for that product (including premiums, benefits, cost sharing, provider network or service area).

According to CMS, the insurer's offering of the wellness program is considered part of the plan design. As a result, this design generally must be available to every employer in the state that applies for coverage, consistent with an ACA rule requiring insurers to offer coverage to, and accept, every employer in a state that applies for coverage. An insurer cannot make a wellness program available only to certain employers. However, this rule does not affect an employer's ability to determine the terms of its group health plan (including its decision to offer wellness programs as part of a plan that is independent of those offered by the insurer).

Practical Impact

As evidenced by the sheer number of agencies responsible for this latest round of guidance (and as repeatedly noted by the agencies themselves), wellness programs are subject to a variety of regulatory requirements (see Practice Note, Wellness Programs). For several years, however, employers have attempted to develop wellness programs without the benefit of significant EEOC guidance. In its Q&As, the EEOC indicates that:

While employers are not required to comply with the proposed rule, they may do so.
It is unlikely that the EEOC (or, according to the EEOC, a court) would find an employer to have violated the ADA if it complied with the proposed regulations before they are finalized.

In its preamble, the EEOC emphasizes its efforts to reconcile the proposed rules with existing wellness guidance under HIPAA and the ACA to the extent possible (noting, for example, that it could have taken a much more restrictive reading of the term "voluntary"). That said, the EEOC standards are different in some respects from those under HIPAA and ACA (for example, the EEOC's proposed limit on participatory wellness program) and will require an independent compliance analysis by employers with wellness programs. Comments on the proposed regulations are due June 19, 2015.

EEOC Rules Address Wellness Incentives under the ADA | Practical Law