November 25, 2014

EEOC Takes Notice of Wellness Programs – Update

As previously reported, the Chicago District Office of the Equal Employment Opportunity Commission (EEOC) filed two lawsuits against employers over wellness programs where the arrangements, among other things, shifted the entire premium cost to the employee for non- participation in certain medical exams.

Recently, in a third lawsuit, the EEOC is challenging an aggressive incentive-based program sponsored by Honeywell. In this case, the EEOC alleges violations under the Title I of the Americans with Disabilities Act (ADA) and Title II of the Genetic Information Nondiscrimination Act (GINA).

LEGAL BACKGROUND

ADA

The ADA limits an employer’s ability to obtain medical information from applicants and employees. Generally, an employer may only require medical examinations and make disability-related inquiries when it is job related and consistent with business necessity.

However, there is an exception when such medical exams and disability-related inquiries are part of a voluntary wellness program.2 Unfortunately, the EEOC has not issued a definition of “voluntary.”

1 The following summarizes some, but not all, of the laws that affect wellness programs. 2 The ADA includes several “safe harbors” that exempt insurers and bona fide benefit plans from the ADA's restrictions on

medical exams and disability related inquiries, so long as the safe harbors are not used “as a subterfuge to evade the purposes of the ADA.” How this safe harbor may actually apply to employer-based wellness programs is unclear. There is only one known case where an employer successfully relied on this safe harbor with respect to its wellness program. The ruling was very narrow as it was determined the insurance carrier, and not the employer, sponsored the wellness program. The decision is not binding on any other Court and it is unclear whether the EEOC agrees with this decision.

Informally, however, the EEOC is concerned about financial incentives or other “penalties” imposed on individuals who do not participate in a wellness program. See the Appendix below for the EEOC’s informal comments.

GINA

Under GINA, employers may not use financial inducements to obtain genetic information of an employee. Genetic information includes, among other things, the manifestation of a disease or disorder in a family member (i.e., family medical history). For this purpose, a family member is defined broadly and includes an employee’s spouse (even though the spouse is not likely to share the same genetic make-up as the employee). There is an outstanding question as to whether the use of incentives to encourage a spouse to participate in a health risk assessment, biometrics or have an annual physical violates GINA. As described below, this issue is raised in Honeywell.

HIPAA

Unlike the EEOC, the Department of Labor (DOL) has long standing regulations governing wellness programs. These rules provide an exception from the general prohibition against group health plan discrimination with respect to premiums, contributions or benefits based on a health factor. These regulations were enhanced and codified by the Affordable Care Act (ACA). Briefly, these rules offer employers two types of wellness programs that will not violate HIPAA subject to certain rules:

§ Participatory wellness programs do not violate HIPAA. This is an arrangement where either there is no reward, or, if there is a reward, it is not based on satisfaction of a health-related standard and the program is available to all similarly situated individuals, regardless of health status.

§ Health contingent programs (activity-based or outcomes-based) must satisfy the 5-factor test. This is a program that rewards certain behaviors or achievement of certain health related standards. Such a program must comply with the following 5 requirements:

1. Opportunity to qualify for the reward at least once per year.

2. The reward cannot exceed 30% of the total cost of coverage (or 50% for a program designed to prevent or reduce tobacco use).

3. Program must be designed to promote health and prevent disease.

4. The reward must be available to all similarly situated individuals and provide a reasonable alternative.

5. Notification in plan materials.

Unfortunately, compliance with HIPAA does not mean compliance with any other law. THE CASES

As framed by the EEOC, the relevant facts and issues are as follows. It is expected that the employers dispute some, or all, of the allegations.

Honeywell. Honeywell announced for the 2015 plan year, covered employees, and their covered spouses if applicable, would need to undergo biometric testing (a blood draw). Failure to do so

Seff v. Broward County, 11-12217 (11th Cir. 8-20-2012) (Employer’s $20 per paycheck charge for employee declining to complete a health risk assessment and obtain blood work fell under the insurer exemption and was not a subterfuge for ADA discrimination.)

would result in potential lost contributions and surcharges totaling as much as $4,000 for the year. Specifically, non-participants could lose up to $1,500 in HSA contributions and face a $500 surcharge on medical premiums. Declining the blood draw also resulted in a $1,000 tobacco related surcharge per employee and/or covered spouse regardless of whether the employee/spouse declined the blood draw for non-tobacco reasons.3 Prior to implementation, two employees filed complaints with the EEOC’s Chicago District Office alleging ADA and GINA violations. The EEOC unsuccessfully tried to obtain a temporary restraining order (TRO) to keep Honeywell from imposing penalties on non-participants for the 2015 plan year while litigation is ongoing. While the Court denied the TRO request, the lawsuit continues. Briefly, the EEOC alleges:

§ A blood draw is a medical exam and is not job related and consistent with business necessity. Therefore, to be permitted under the ADA, the program must be voluntary. Employees failing to participate in the blood draw are penalized though lost HSA contributions and surcharges. The EEOC believes this program is involuntary under the ADA.

§ In addition, to avoid lost contributions and surcharges, a covered spouse must also participate in the blood draw. The EEOC alleges this violates GINA because it is an impermissible collection of an employee’s genetic information (defined to include the manifestation of a disease or disorder in a spouse as reported in the blood work).

In a press release, Honeywell strongly disputes the EEOC’s allegations and specifically states their program complies with the requirements under HIPAA and the ACA.

Orion Energy. The EEOC maintains that the employer instituted a wellness program that required medical examinations and the completion of disability-related questions through a health risk assessment. When an employee declined to participate in the program she was required to pay 100% of her health insurance premium. Had she participated in the program, the employer would have paid the full premium associated with her health coverage.4 Another component of the program required use of a Range of Motion (RM) machine to avoid a $50/month surcharge.5 When the employee expressed her objection to the program she was terminated from employment. The EEOC alleges the medical examination and subsequent action to terminate the employee violated the ADA.

Flambeau. The EEOC alleges employees were required to complete biometric testing and a health risk assessment consisting of blood work, measurements, and a self-disclosure of medical history. In this case, the employee was unable to complete the biometric testing and risk assessment on the day indicated by the employer because the employee was on a medical leave. Once he returned from medical leave, the employee requested additional time to complete the requirements of the wellness program, but the request was rejected by the employer. Subsequently, the employer cancelled his health insurance coverage, but allowed for reinstatement at the full premium cost.6

The employee could not afford that cost and his insurance remained cancelled. The employer also informed employees that failure to attend the testing at the appointed time could result in

3 This design may also violate HIPAA nondiscrimination rules as described above. The EEOC is not responsible for HIPAA enforcement; that is under the purview of the DOL. It will be interesting to see if the DOL has further comments or looks at this program. Per Honeywell’s response, a reasonable alternative is available if an employee/spouse fails nicotine test in the blood draw.

4 Orion disputes this allegation and states that the company would not have paid the entire premium. 5 This design may also violate HIPAA nondiscrimination rules as described above. The EEOC is not responsible for HIPAA

enforcement; that is under the purview of the DOL. It will be interesting to see if the DOL has further comments or looks at this program. While Orion acknowledges the surcharge, it denies employees were required to use the RM machine.

6 It appears the employer offered continuation under COBRA, even though this would not be an event that triggers a COBRA continuation right.

“disciplinary action.” Employees who participated in the program did not have their coverage cancelled and paid 25% of the premium cost.

CONCLUSION & CONSIDERATION

While the plan designs described above may not be the “norm,” the alleged facts provide a helpful reminder that employers need to carefully evaluate and identify potential risks in their wellness programs with employment counsel. This is particularly true in light of the EEOC action against Honeywell.

Based on the ongoing litigation, the EEOC’s statements and other informal guidance, some practices that should be avoided with respect to wellness programs include:

§ Terminating employees for non-participation in a wellness program.

§ Requiring the employee to pay a significant amount of the cost for health insurance coverage if the employee does not participate in the wellness program, when participating employees are required to pay little, or nothing, for coverage.

§ Denying access to a benefit (including an HRA) for failing to participate in a wellness program.

In addition, in light of Honeywell, employers should carefully review the use of financial incentives to encourage participation in biometric tests, medical exams or health risk assessments. Absent clarification, any incentive (even if it satisfies HIPAA requirements) has the potential to trigger a problem under the ADA and GINA.

We will continue to monitor and provide updates on the latest developments.

For more information, see the following press releases:

The EEOC press release regarding Flambeau: http://www.eeoc.gov/eeoc/newsroom/release/10-1-14b.cfm

The EEOC press release regarding Orion Energy: http://www.eeoc.gov/eeoc/newsroom/release/8-20-14.cfm

Honeywell’s press release at: http://honeywell.com/News/Pages/Honeywell-Responds-to-EEOCs- Frivolous-Lawsuit-To-Stop-Companys-Biometric-Screening-for-Employees.aspx

APPENDIX

The following are reflective of the EEOC’s informal comments with respect to penalties:

§ As long as an employer neither requires participation nor penalizes employees who do not participate, a wellness program is voluntary. Enforcement Guidance: Disability-Related Inquiries and Medical Examinations of Employees under the ADA, Q/A-22, pg. 16, http://www.eeoc.gov/policy/docs/guidance-inquiries.html.

§ With respect to a wellness program design where punitive triggers were used to make uncooperative employees pay higher health care premiums, the EEOC commented that if the program requires employees to answer disability-related inquiries or submit to medical examinations, participation in the program must be voluntary. Punitive triggers would seem to amount to penalties for non-participation in the program, thus rendering the program involuntary. Further, the rules on disability-related inquiries and medical examination apply to all applicants and employees, not just individuals with disabilities. Questions for the EEOC Staff for the 2006 Joint Committee of Employee Benefits Technical Session, May 4, 2006, Q/A-1 & 2, http://www.americanbar.org/content/dam/aba/migrated/jceb/2006/EEOC2006final.authcheckda m.pdf.

§ A wellness program that requires employees to complete a health risk assessment in order to receive coverage under the group health plan renders the program involuntary and would violate ADA because employees choosing not to participate are denied a benefit (i.e., penalized for non-participation) as compared to those employees who participate. Informal Letter dated March 6, 2009. Informal comments do not reflect the official opinion or formal guidance of the EEOC. A portion of this letter was rescinded. The deleted section appeared to adopt a similar standard to the HIPAA requirements for purposes of a voluntary wellness program. However, as this language was removed from the published informal letter, it remains unclear what the EEOC’s approach will be on these issues. http://www.eeoc.gov/eeoc/foia/letters/2009/ada_disability_medexam_healthrisk.html.

§ To the extent disability-related inquiries are made of employees though a health risk assessment, a wellness program will not be voluntary if the employer provides those individuals who complete the assessment an HRA and does not provide such a benefit to those who don’t participate. Informal letter dated August 10, 2009. http://www.eeoc.gov/eeoc/foia/letters/2009/ada_health_risk_assessment.html.

Recently, John Hendrickson, regional attorney for the EEOC’s Chicago District, expressed serious concern with programs that cancel or deny coverage or significantly shift cost back to the employee for failure to participate in a program that requires compliance with medical exams or disability- related inquiries. Hendrickson issued the following statement in an EEOC press release:7

They can't compel participation in medical tests or questions that are not job-related and consistent with business necessity by cancelling coverage or imposing enormous penalties such as shifting 100% of the premium cost onto the back of the employee who chooses not to participate. Having to choose between complying with such medical exams and inquiries, on the one hand, or getting hit with cancellation or a penalty, on the other hand, is not voluntary and not a choice at all.

7 In an earlier press release, Hendrickson is quoted as follows: "But they have to actually be voluntary. They can't compel participation by imposing enormous penalties such as shifting 100 percent of the premium cost for health benefits onto the back of the employee or by just firing the employee who chooses not to participate. Having to choose between responding to medical exams and inquiries – which are not job-related – in a wellness program, on the one hand, or being fired, on the other hand, is no choice at all." http://www.eeoc.gov/eeoc/newsroom/release/8-20-14.cfm.

*Note: All of this is subject to change based on government regulations.