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EEOC Proposes ADA Rules on Wellness Program Incentives

The EEOC has issued proposed regulations providing guidance on the extent to which the ADA permits employers to offer incentives to employees to promote participation in wellness programs that are employee health programs. The new guidance is similar, but not identical, to the rules governing incentives for health-contingent wellness programs under HIPAA. Employers should review their wellness programs to ensure compliance with both laws.

For this reason, any ADA discussion of workplace wellness programs has typically focused on whether the program is “voluntary.” In past guidance, the EEOC has stated, “A wellness program is ‘voluntary’ as long an employer neither requires participation nor penalizes employees who do not participate.” However, the EEOC has previously declined to elaborate on the extent to which wellness incentives might affect the voluntary nature of a wellness program.

Interaction of the ADA and HIPAA

In addition to the ADA, wellness programs that are part of a group health plan must also comply with the requirements of the Health Insurance Portability and Accountability Act (HIPAA), which generally prohibit group health plans and health insurance issuers from discriminating against participants and beneficiaries in premiums, benefits, or eligibility based on a “health factor.” A health factor includes health status, medical condition, claims experience, receipt of medical care, medical history, genetic information, evidence of insurability, and disability. An exception to the general rule allows plans to “discriminate” by offering premium discounts or lower deductibles to healthy individuals in connection with both “participatory” and “health-contingent” programs. Health contingent programs are those that require an individual to satisfy a standard related to a health factor to obtain a reward. Such health-contingent programs, whether activity-only or outcome-based, must restrict the size of any reward (or penalty) to a maximum of 30% of the cost of coverage under the plan (or 50% in the case of tobacco-related programs).

Until now, employers have had to engage in a careful balancing act to make sure that their wellness programs complied with both the ADA and HIPAA. While HIPAA specifically authorizes a range of permissible wellness incentives (30 or 50%), this was no guarantee that the EEOC would not view such incentives as a “penalty” under the ADA. Fortunately, the EEOC has now issued proposed regulations providing guidance on the extent to which the ADA permits employers to offer incentives to employees to promote participation in wellness programs that are employee health programs.

Proposed Reconciliation of Laws (In Part)

Under the new rules, the EEOC proposes to interpret the term “voluntary” consistently, in part, with the HIPAA rules governing rewards for health-contingent wellness programs. Thus, the proposed rule clarifies that an employer may offer limited incentives up to a maximum of 30 percent of the total cost of employee-only coverage (whether in the form of a reward or penalty), so long as participation is otherwise voluntary. In doing so, the EEOC specifically notes that “allowing certain incentives related to wellness programs, while limiting them to prevent economic coercion that could render provision of medical information involuntary, is the best way to effectuate the purposes of the wellness program provisions of both laws.”

Note that the proposed regulations appear to cap the overall incentive at 30% of the cost of employee-only coverage even if dependents also participate in a wellness program. Furthermore, the EEOC does not similarly adopt the 50 percent limit on incentives applicable under HIPAA for tobacco-related wellness programs. Instead, the EEOC specifically requests comments on the impact of the proposed rule’s 30-percent limit on incentives offered with respect to tobacco-related wellness programs where such programs ask employees to respond to disability-related inquiries and/or undergo medical examinations.

The EEOC also notes that a smoking cessation program that merely asks employees whether or not they use tobacco – as opposed to using a biometric screening process to test for nicotine – is not an employee health program that includes disability-related inquiries or medical examinations. Thus, the newly announced ADA limits on wellness incentive would not apply and such a program would still be permitted to offer incentives up to the 50-percent limit under HIPAA.

Also, unlike HIPAA, the proposed ADA regulations (including the 30% cap on incentives) would specifically apply to both participatory and health-contingent programs. The EEOC notes that while the HIPAA rules are focused on regulating discrimination based on a health factor, the ADA rules are designed to regulate an employer’s use of disability-related inquiries or medical examinations. Thus, the EEOC deems it appropriate to place limits on the use of wellness incentives even in participation-based programs if a disability-related inquiry (such as a health risk assessment) or medical examination (such as biometric screening) is part of the program.

Definition of “Voluntary”

The proposed rules also indicate that a wellness program will be considered “voluntary” only if an employer:

  • Does not require employees to participate;
  • Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation or limit the extent of such coverage (except pursuant to allowed incentives); and
  • Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees within the meaning of Section 503 of the ADA.

The employer must also provide a notice that clearly explains what medical information will be obtained, who will receive the medical information, how the medical information will be used, the restrictions on its disclosure, and the methods the employer will employ to prevent improper disclosure of the medical information.

Action Steps

While the proposed rules provide welcome guidance for employers and at least some level of certainty, they may also require employers to re-examine their current wellness programs for compliance with both the ADA and HIPAA. While there is now some overlap in the extent of permissible wellness program incentives under both laws, the rules are by no means identical. Employers, particularly those that include a tobacco-related component as part of their wellness programs, will need to pay close attention to both sets of rules.