Employer-sponsored wellness programs attempt to control medical costs and improve employee health by incentivizing certain behaviors through medical monitoring, disease prevention strategies and other activities. Over the past several years, employers have struggled with balancing steps intended to encourage better employee participation in such programs with legal restrictions on their use. Regulations issued under the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA) for wellness programs have provided employers with wellness program guidelines that employers have been using for years. However, the Equal Employment Opportunity Commission (EEOC) has long indicated its concern that certain practices permitted under HIPAA may still violate the Americans with Disabilities Act (ADA). However, the EEOC has not issued any guidance regarding when a wellness program penalty or incentive may run afoul of the ADA. In fact, the EEOC recently has taken a well-publicized aggressive stance against certain common wellness program designs.  The agency claims that wellness programs that excessively penalize employees who decline to participate violate the medical examination provisions of the ADA.

Under the EEOC’s current rules, almost any employer-imposed incentive or penalty associated with a wellness program could be asserted to violate the ADA. The EEOC recognizes the merits of wellness programs, and created exemptions from standard ADA prohibitions. However, last year the agency began suing employers for allegedly imposing excessive wellness program penalties without articulating in its rules the limits of such penalties. Employers understandably objected to such unknown standards, and urged the EEOC to quickly adopt rules providing clear guidance on the limits of employer-sponsored wellness programs.

Last week, the EEOC issued proposed regulations intended to address these concerns. While maintaining that the ADA imposes limits on wellness programs, the agency conceded that HIPAA and the ACA encourage employer adoption of these programs. The EEOC stated that compliance with wellness provisions of those two laws does not automatically mean compliance under the ADA. However, the agency acknowledged that its rules should conform to HIPAA and ACA to the greatest extent possible. Of significance is the EEOC’s rejection, with little explanation, of the ADA’s safe harbor for wellness programs established as part of a bona fide benefit plan and its conclusion that wellness incentives must be assessed under the ADA’s “voluntary” standard.

The EEOC’s proposal contains various elements and several important requirements. While the EEOC’s proposed regulations are consistent with HIPAA and ACA guidance in several areas, the new rules also differ in many respects from the existing rules that likely will cause headaches for employers. 

For example, the EEOC’s proposed regulations cap maximum wellness program incentives or penalties at 30% of the total cost of the employer’s employee-only group medical coverage. This limit is set at the total cost to the employer, not just the employee’s portion. For example, if the employer pays $5,000 per year for employee-only coverage, and employees have annual contributions of $2,500, the maximum incentives or penalties in the wellness program cannot exceed $1,500, regardless of whether the employee has individual or family coverage. Under the HIPAA/ACA rules, however, if family members also can participate in the wellness program, the 30% limit can be based on the cost of the employee’s coverage tier (including tiers that cover family members). In addition, the EEOC’s proposed regulations apply the 30% cap to both health-contingent and participation-based programs, while the HIPAA/ACA rules do not require participation-based programs to be included. Finally, recent ACA rules allow the incentive for tobacco-cessation programs to be as high as 50% of the cost of employee coverage. However, the EEOC’s proposed regulations would impose the 30% cap for such programs if they involve any kind of biometric screening or medical exam. 

Under the EEOC’s proposed regulations, the wellness program must be voluntary, meaning that employees cannot be refused coverage, terminated or subjected to adverse action if they decline participation. The proposed rules would require employers to provide employees with notices regarding medical information collected through the wellness program. The notices would detail how the information will be used, and explain safeguards in place to protect its use or disclosure for unauthorized purposes. The EEOC’s proposed notice rules apply more broadly than the HIPAA/ACA requirements, requiring extension to participatory programs and more information. Employers are limited to receiving aggregate medical data from the wellness program, and cannot access individual employees’ medical information.

The EEOC will accept comments on the proposed rules until June 19, 2015, with final regulations anticipated later this year. It remains to be seen the extent to which the EEOC will reconcile the discrepancies and differences of its proposed regulations with existing wellness program guidance. Employers may conclude that the 30% cap on wellness program incentives is inadequate to truly change employee behavior.  However, at a minimum, the EEOC has provided a bright line for purposes of enforcement. The agency stated that employers that comply with the proposed rules now are unlikely to face enforcement action from the EEOC.