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Employers Must Navigate Legal Hurdles to Run Wellness Plans

Kansas City Business Journal – by Ellen Jensen Contributing Writer

Wellness programs, implemented by many companies to encourage good health and offset the increasing cost of health care, also present some potential legal pitfalls.

The idea behind the programs is that by encouraging employees to make healthy choices, companies can save money through decreased absenteeism, increased productivity and reduced premiums through fewer insurance claims. Employers have found, however, that the most successful programs are based on incentives, usually monetary ones in the form of gift certificates or discounts on insurance premiums.

That’s where they can get into trouble. Some of these plans violate anti-discrimination laws, such as the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which says you cannot discriminate against someone because of a health condition.

Employers need to ask themselves what they are trying to accomplish through the wellness program, said Brian Johnston, a partner and member of Lathrop & Gage LC’s employee benefits department specializing in health and wellness issues.

“There is a major distinction under the law between encouraging employees to become healthier or to stop doing something unhealthy, like smoking,” he said.

Many wellness programs get right to the bottom line by tying the incentive directly to a targeted behavior, said Greg Ash, a partner and member of Spencer Fane Britt & Browne LLP’s employee benefits group.

For example, if employees attain a particular body mass index, they receive a reduction in their health premiums.

That’s OK as long as the value of the reward does not exceed more than 20 percent of the total cost of employee coverage,” Ash said.

The 20 percent rule is one of the Department of Labor’s five requirements that wellness programs must meet if companies are going to reward employees for reaching a goal related to a health condition. Other key requirements are that the program has to be available to everybody in a similar situation, and it must allow a reasonable alternative for obtaining the reward if the employee cannot complete the objective due to a medical condition.

Employers need to be careful because they want to offer incentives for employees to make smart choices, but they have to be sure they are treating everybody equally, said Trina Le Riche, a partner with Sonnenschein Nath & Rosenthal LLP.

Along with HIPAA, employers need to be sure their wellness plans are in compliance with the Americans with Disabilities Act, the Age Discrimination in Employment Act and Title VII of the Civil Rights Act, which prohibits employment discrimination based on race, color, religion, gender or national origin.

“It’s tough for employers because there isn’t one uniform guideline on how to comply with all of these laws,” Le Riche said.

Still, there are ways to play it safe when designing wellness programs by using incentives such as healthy eating competitions among employees, Johnston said.

For example, employees could challenge one another to drink eight glasses of water a day. Those who meet the challenge receive a nominal reward.

“That type of program isn’t subject to the Department of Labor requirements because the incentive isn’t tied to an individual’s health condition,” Johnston said.

Studies and anecdotal evidence suggest that wellness programs reduce costs through time but are not a quick fix.

“Most productivity statistics would suggest that every dollar of investment toward wellness initiatives yields $3 in return through lower health insurance premiums and better productivity,” Johnston said.

As health care costs continue to rise along with baby boomers’ increased health care needs, employers are going to be forced to implement some sort of program that is designed to make the work force healthier, Ash said.

“Wellness programs are going to become an integral part of an employee benefit package, so it’s important that employers be mindful of the rules under which they have to operate,” he said.

Quick Tips

To ensure that company wellness programs comply with anti-discrimination laws, area lawyers offer this advice:

Start with short-term objectives that are likely to yield a high response rate. For example, encourage participation in a health risk assessment, said Brian Johnston, a member of Lathrop & Gage LC’s employee benefits department.

Programs that focus on general participation instead of requiring certain benchmark changes in health are less likely to violate HIPAA and other nondiscrimination laws, said Trina Le Riche, a partner with Sonnenschein Nath & Rosenthal LLP. 

Don’t assume you can offer discounts on premiums because someone told you that you can. Make sure you are following the guidelines, Johnston said.

Voluntary programs that don’t tie incentives to health conditions are the safest way to go, said Greg Ash, a partner and member of Spencer Fane Britt & Browne LLP’s employee benefits group.

Wellness programs that impose a limitation or penalty on behavior that occurs outside the work force require special scrutiny, Ash said.

Each plan has to be analyzed on its merit. If employers are unsure whether their plans are in compliance, they should seek legal counsel, Le Riche said.

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