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Court Decision Casts Doubt on Use of Incentives to Encourage Participation in Wellness Programs

Posted by Attorney David McClurg in Human Resources, Labor Relations / Comments

The use of biometric testing and health risk assessments in connection with wellness programs arguably violates the ADA's restriction on employment related medical examinations unless the inquiry is “job-related and consistent with business necessity." However, the Act allows such examinations and the collection of medical information as part of an “employee health program" as long as the employee's participation in the program is “voluntary" – a term the Act leaves undefined. The EEOC challenged a number of wellness plans that offered rewards for participation or penalties for refusal to participate in the program (both considered “incentives") on the grounds that participation could not be considered “voluntary" in light of such incentives.

The EEOC lost some early cases at the trial court level based on the employers' arguments that their plans fell within a “safe harbor" in the ADA that provides an exception to the restriction on collection of medical information from employees when that information is related to the administration of a bona fide insurance benefit plan. The merits of these lower court decisions have not been assessed by an appellate court.

In response to these losses, and criticism that it had not provided guidance as to the types of incentives that could be used to induce broader participation in wellness programs, the EEOC issued Regulations in July of 2016 specifically declaring that the ADA “safe harbor" provisions “do not apply to wellness programs even if such plans are part of a covered entity's health plan," and reversing its earlier position by establishing requirements under which an employee's consent to disclose medical and genetic information in connection with a wellness program would be considered “voluntary" as long as any incentives, whether in the form of a reward or penalty, did not exceed 30% of the full premium cost of self-only health coverage under the employer's health plan.

In a decision handed down just after this Regulation took effect, a federal judge here in the Eastern District of Wisconsin accepted the EEOC's position that the ADA's safe harbor provisions are not applicable to wellness programs. Although the employer in this case, Orion Energy Systems, strongly disagreed with this holding, it chose to settle the case for $100,000 instead of pursuing the matter to trial and then seeking to have the issues reviewed on appeal.

Many employers and consultants involved in designing wellness programs have relied on the EEOC Rule, allowing the use of rewards or penalties with a value of 30% or less of the cost of single health coverage, to build incentives into their programs designed to increase employee participation. Unfortunately, validity of that portion of the Rule has now been cast into doubt by Federal District Court for the District of Columbia in a case brought by AARP.

AARP argued that lower income employees, including many disabled individuals that the ADA was designed to protect, cannot afford to absorb a penalty with value of up to 30% of the full premiums for single health coverage, and that their agreement to participate in a wellness program in order to avoid such a penalty cannot be considered “voluntary." The court did not specifically agree with this argument, but did agree the EEOC had not provided a “reasoned explanation" for its choice of the 30% figure, and thus remanded the Regulations to the EEOC for reconsideration of the “relevant factors in determining what incentive level best approximates 'voluntariness.'" The court suggested that after reconsideration the EEOC “may very well" reach a “different determination" regarding the level of incentives that should be allowable.

The court did not vacate the Regulations in question because it recognized that this would cause significant disruption for employers that implemented wellness programs in reliance on those Regulations and the employees that took advantage of the incentives offered. Thus, even though the Regulations remain applicable for the time being, it is possible that the EEOC will modify or even withdraw the challenged portions of the Regulations in the future. Stay tuned.

If you have questions about this or other labor & employment questions, please feel free to contact Dave McClurg at (414) 223-6956 or dmcclurg@petriepettit.com.

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