The new regulations under the Affordable Care Act allow employers to offer bigger rewards for workplace wellness programs that incentivize employees to improve their health, but the rules fail to give guidance on whether such programs could run afoul of federal anti-discrimination laws.
Wellness programs — which can include anything from filling out a health questionnaire to joining a health club to reducing cholesterol to quitting smoking — have gained popularity as employers try to hold down health care spending.
According to a survey of more than 1,300 companies conducted by Buck Consultants in San Francisco, a growing number of employers believe it is their role to manage their workers’ health.
Employers typically offer incentives by paying a dollar amount or percentage of premiums to employees who participate in a wellness program. According to the study, programs that impose penalties for unhealthy behavior, such as higher premiums, are on the rise.
“The whole benefits community has been waiting to see what these regs look like to have a better idea of what the ground rules are,” said Leslie Silverman, a partner in the labor and employment department at Proskauer Rose in Washington.
The new regulations increase the allowable reward amount for participation in a wellness program from 20 percent of the total cost of an employee’s health coverage to 30 percent, and allow employers to offer a reward of up to 50 percent of total coverage costs for an employee’s participation in a smoking-related wellness program.
“The rules allow employers to offer up to a 30 percent incentive for health-contingent wellness programs, and an additional 20 percent incentive for wellness programs designed to prevent or reduce tobacco use,” said Phyllis C. Borzi, assistant secretary for employee benefits security at the U.S. Department of Labor in Washington.
Health-contingent wellness programs use a screening assessment to identify at-risk employees and require an employee to reach a certain target in order to obtain a reward, such as reaching a certain blood pressure goal or body-mass index, or reducing tobacco use.
Participation-based wellness programs, on the other hand, do not base any part of a reward on outcomes. Examples include reimbursement for a fitness club membership or for attending a wellness fair.
While the rules clarify a number of compliance questions related to these programs, employers remain frustrated by a long-simmering controversy that the final rules do nothing to quell. Specifically, they want to know whether wellness programs violate federal statutes, such as the Americans with Disabilities Act, which generally prohibits employers from asking disability-related questions unrelated to the job, and the Genetic Information Nondiscrimination Act, which forbids employers from asking about a worker’s family medical history.
“The EEOC has been frustratingly reticent to address this issue. They have been aware for years that this is an open issue and that it troubles employers, and they haven’t done anything about it,” said Edward C. Fensholt, an attorney and director of compliance services at Lockton, a Kansas City, Mo.-based insurer and benefits group.
He added that risk-averse employers may hold back on adopting wellness programs, but the “vast majority” of employers are moving forward with wellness programs despite the lack of clarity about potential exposure to discrimination.
The final rules, published on June 3, were jointly issued by the Department of Treasury, Department of Labor and Department of Health and Human Services.
Employers must provide ‘reasonable alternative’
Under one rule change, if an employee cannot meet the health-contingent wellness outcome to get the reward, the employer must offer a “reasonable alternative” program.
Under the old regs, an employee who, for example, did not hit his cholesterol target, could not qualify for the reward unless he got a doctor’s note to say it was medically inadvisable to reach the target number due to a health condition.
The new rules put more responsibility on the employer, said Russell D. Chapman, special counsel to Littler Mendelson in Dallas.
“Now if I have a cholesterol level of 225, the plan automatically has to offer me a reasonable alternative standard, such as getting on medication, or running, or a diet and exercise program. The plan has to be actively involved in helping the participant,” Chapman said.
Some employers are concerned that they will have to take a one-by-one approach for each individual and may have to keep redesigning programs for employees who do not qualify for the relevant reward.
But the rules state that the process of designing a reasonable alternative should not devolve into a never-ending cycle.
“The final rules do not dictate the types of wellness programs employers can offer,” Borzi said. “If an employer chooses to offer a participation-based wellness program, for example, the rules only require an employer to offer the program to all similarly situated individuals. If an employer offers a health-contingent program, it must ensure that program is designed to promote health and prevent disease, and is not a subterfuge for discrimination or underwriting based on a health factor.”
Some employment attorneys also complain that the new rules turn every outcomes-based wellness program into a participation-based program, particularly for wellness programs tackling the big driver of health costs: tobacco.
“If I check the box that I’m a smoker, the employer automatically has to offer some reasonable alternative standard such as attending a smoking cessation program,” Chapman said. “Now, a participant never really has to achieve a health standard; all they have to do is go through a process, never quit smoking, and they still get the reward.”
ADA embodies ‘separate obligations’
The new rules do not guarantee that an employer who follows them will be in compliance with antidiscrimination statutes such as the ADA and GINA.
The EEOC did not join the agencies that issued the wellness program rules. Employers are waiting for guidance from the EEOC on wellness programs they say is long overdue.
The issue under the ADA is that while it prohibits an employer from asking workers disability-related questions, it exempts “voluntary” wellness programs.
The open question is whether a wellness program that offers rewards or penalties is “voluntary.”
In January 2009, the EEOC issued a private letter ruling stating that as long as the reward to an employee under a company’s wellness program fell within 20 percent of the total cost of coverage allowed at that time, the program was deemed to be voluntary.
Employers let out a sigh of relief. But then the EEOC withdrew the letter, ostensibly because that comment went beyond the facts of the case. However, some employers believe the letter was withdrawn so the EEOC could keep its options open on the issue.
“The EEOC has steadfastly refused to take a position on what level makes a wellness program involuntary. Their position is that it is strictly a facts-and-circumstances determination. We don’t know where the line falls,” Chapman said.
He noted that under GINA regulations, no portion of a wellness program reward can hinge on whether an employee answers questions related to family medical history, and employers must segregate those questions and note that responses are optional.
Employers would like to see a safe harbor carved out for companies that comply with the Affordable Care Act and its regulations.
But disability advocates say the new rules, if anything, reinforce that employers must comply with the ADA separately.
“It’s not true that whatever the Affordable Care Act allows the ADA must therefore allow,” said Jennifer Mathis, an attorney at the Consortium of Citizens with Disabilities in Washington. “These regs provide a solid foundation for the EEOC to issue its own guidance concerning the ADA’s application to wellness programs and make very clear that the ADA is a separate law with separate obligations.”
She pointed out that the “reasonable alternative” requirement under the rules loosely mirrors the ADA’s reasonable accommodation standard.
But employment-side attorneys say the uncertainty does not help advance wellness programs or healthier employees.
“The new rules paid lip service to the problem,” Silverman said. “Now it’s the EEOC’s turn to do something.”