Employee Benefits Compliance

Wellness Program Incentives OK for Now, but Uncertain Future: AARP v EEOC Case

wellness programs

Update:  See later article on this website, on subsequent court action vacating the EEOC wellness regulations as of 2019.

Employers who offer financial incentives to employees and spouses for participating in wellness programs such as Health Risk Assessments (HRAs) or biometric screening should be aware that the current limit on incentive amounts might in the future be lowered or eliminated, but no change is required at this time.  The current EEOC limit is 30% of the cost of employee-only coverage under the employer’s group health plan, for wellness programs that are subject to the Americans with Disabilities Act (ADA) or to the Genetic Information Nondiscrimination Act (GINA).

The reason the limit might change is due to a recent court decision in the AARP v EEOC case.  In late August the U.S. District Court for the District of Columbia ordered the EEOC to reconsider its 2016 final regulations that allow the maximum 30% penalty/incentive.  The central issue in this case is whether allowing an incentive of this amount (which is allowed under HIPAA and the ACA) violates the ADA and GINA requirements that an employer can only collect employee health data as part of a wellness program if the employees’ provision of the health information is “voluntary.”  The court said the EEOC failed to explain why it decided that a 30% penalty amount would not render participation involuntary.  It also rejected the EEOC’s argument that limiting the penalty to 30% was appropriate because that was the limit under HIPAA and the ACA, noting the different goals of HIPAA/ACA and that they were not setting the 30% limit for the purpose of defining “voluntary.”

This August order is not a final decision, so it remains to be seen what will eventually be permitted. The EEOC regulations remain in effect at this time, pending review by the EEOC.  Leavitt is monitoring this case, so check this website for future developments.

Various Laws Govern Wellness Programs

Wellness programs are regulated in part by all of the following laws, which have different goals and statutory requirements, and which are administered by different federal government agencies:

  1. Health Insurance Portability and Accountability Act (HIPAA), as amended by the Affordable Care Act (ACA), as well as by HIPAA’s implementing regulations
  2. Americans with Disabilities Act (ADA) and
  3. Genetic Information Nondiscrimination Act (GINA).

HIPAA and the ACA explicitly govern employer-sponsored wellness programs. The ADA and GINA also govern them, because wellness programs often involve the collection of sensitive medical information from employees, including information about disabilities or genetic information.

The DOL, IRS and HHS issue regulations under HIPAA and the ACA (“tri-agency” regulations), and the EEOC issues regulations implementing the ADA and GINA. The EEOC issued its final regulations (May 2016) after the tri-agency final regulations (May 2013) and attempted to reconcile the competing concerns by issuing regulations that were not too different from the tri-agency regulations in some respects. In response, the AARP filed this suit on behalf of its members in October 2016, alleging that the EEOC rules violate both the ADA and GINA.

What are the Legal Requirements under the Different Laws?

  • HIPAA prevents health plans and insurers from discriminating on the basis of “any health status related factor,” but allows covered entities to offer “premium discounts or rebates” to plan participants who comply with a wellness program’s requirements. A “reward” or incentive may include a discount on insurance costs or a penalty that increases the plan participant’s costs. (See 26 U.S.C. § 9802(b); 26 C.F.R. § 54.9802-1(f)(1)(i); 29 U.S.C. § 1182(b)(2)(B); 42 U.S.C. § 300gg-4(b).)
  • The ACA’s amendments to HIPAA, and the implementing regulations, allow plans and insurers to offer incentives of up to 30% of the cost of coverage to employees who participate in a “health-contingent” wellness program, a kind of wellness program in which the reward is based on the individual’s satisfaction of a particular health-related factor. In contrast, for “participatory” wellness programs, HIPAA and the ACA do NOT impose a cap on the amount of incentives or penalties that may be offered.
  • The ADA prohibits employers from requiring medical examinations or inquiring whether an individual has a disability unless the inquiry is both job-related and “consistent with business necessity.” However, the ADA allows an employer to conduct medical examinations and collect employee medical history as part of an “employee health program” or wellness program, as long as the employee’s participation in the program is “voluntary”. The ADA does not define the term “voluntary.”  (See 42 U.S.C. § 12112(d)(4)(A) & (B).)
  • GINA prohibits employers from requesting, requiring, or purchasing “genetic information” from employees or their family members, including an individual’s or family member’s tests, and the manifestation of a disease or disorder of a family member. Like the ADA, GINA contains an exception that permits employers to collect this information as part of a wellness program, as long as the employee’s provision of the information is voluntary, and GINA does not define the term “voluntary.” (See § 2000ff-1(b) and § 2000ff(4)(A).)

Thus, while HIPAA and its implementing regulations expressly permit the use of incentives in wellness programs, it is unclear whether the “voluntary” provisions of the ADA and GINA permit the use of incentives in those wellness programs that implicate ADA- or GINA-protected information. EEOC initially took the position that a wellness program was not “voluntary” if the employer conditioned incentives on whether or not an employee disclosed ADA- or GINA-protected information, but later reversed this position and issued rules in 2016 allowing an incentive of up to 30%.  The GINA and ADA incentive limits apply both to participatory and health-contingent wellness programs, unlike the 2013 HIPAA regulations, which place caps on incentives only in health-contingent wellness programs.

This Lawsuit: AARP v EEOC

AARP filed this suit on behalf of its members in October 2016, several months after the EEOC’s final rule in May. AARP sought a preliminary injunction, which the court denied in December 2016.   The AARP’s argument was that the 30% incentives permitted by the EEOC final rule are inconsistent with the “voluntary” requirements of the ADA and GINA, and that employees who cannot afford to pay a 30% increase in premiums will be forced to disclose their protected information when they otherwise would choose not to do so.   AARP’s position seems to be that no significant penalty/incentive is allowed, because any amount would effectively make participation involuntary.

After reviewing the full administrative record, the court said the EEOC had not adequately explained the reasoning behind its final rule allowing a maximum incentive/penalty of up to 30% of the cost of employee-only coverage under the employer’s group health plan. The court noted that generally courts must defer to agency determination “if the agency has offered a reasoned explanation” for its decision, but the court found “nothing in the administrative record” that explained why the EEOC had decided the 30% incentive level was “the appropriate measure for voluntariness.”  As noted above, the court also disagreed with the EEOC that it was reasonable to implement the 30% level merely because the ACA and HIPAA rules had set a 30% maximum.  Additionally, the court noted that there were some differences in the EEOC 30% rules and the tri-agencies’ 30% rule.


Prior Leavitt articles on the regs:

June 2015, Wellness Programs: Update on Recent Guidance from EEOC, DOL, HHS, and Treasury.

Wellness Programs, ADA & GINA: EEOC Final Rule.  May 2016