Potential Legal Issues Associated with Workplace Wellness Plans (Part 1)

by Clarke & Company Benefits Posted on: March 24, 2015Categories: HR & Compliance

This provides an overview of potential legal issues related to employer-sponsored wellness plans. The list of issues presented in this article is not exclusive. Wellness programs must be carefully structured to comply with both state and federal laws. To avoid noncompliance, employers should have their legal counsel review their wellness programs before they are rolled out to employees. Look for the second part of this list on Thursday’s Blog!

The Americans with Disabilities Act (ADA)

Nothing in the ADA prohibits employers from implementing programs that promote good health and prevent disease. However, the ADA does prohibit covered employers from denying disabled individuals an equal opportunity to receive the benefits or participate in programs available to other employees, solely because of their disability. ADA provisions regulate how employers can use health risk assessments and medical examinations when implementing a wellness program.

Employers cannot use assessments to discriminate against disabled individuals. For example, compliance issues may arise if an employee’s score is affected by his or her disability and the employer does not provide reasonable accommodations to allow that employee to participate in the program. On the other hand, assessing a premium surcharge on smokers would most likely not trigger an ADA violation because nicotine addiction generally does not limit a major life activity, though it may raise HIPAA nondiscrimination or state law issues.

The ADA also prohibits employers from making medical inquires or requiring medical examinations, unless they are job-related and consistent with business necessity. This is done to prevent employers from taking any adverse employment action against an employee based on the employee’s actual or perceived disability.

However, the Equal Employment Opportunity Commission offers employers an exception and allows them to conduct voluntary medical examinations and activities (such as high blood pressure screenings). The exception applies if employees are not penalized for participating and the results remain confidential and are not used to discriminate against employees.

In addition, the ADA safe harbor exception allows employers to establish, sponsor, observe or administer the terms of a bona fide health plan that are based on “underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.” This exception may not be used as a way to evade ADA requirements.

The Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA)

Wellness programs are subject to HIPAA rules only if they are related to covered health plans. If the program’s reward is related to a plan exempt from HIPAA, the reward is also exempt from HIPAA. Effective for plan years beginning on or after Jan. 1, 2014, the ACA codifies the HIPAA rules for wellness plans and also increases the maximum reward that can be offered under a health-contingent wellness program.

HIPAA and the ACA prohibit using health factors to discriminate against an individual’s eligibility to enroll in or pay premiums for a group health plan. In other words, an employer cannot require an employee to pay a higher premium based on health status, physical and mental medical conditions, claims experience, receipt of health care, medical history, genetic information, and evidence of insurability or disability.

However, an exception allows employers to offer their employees incentives to participate in health-promotion and disease-prevention programs. Qualifications for this exception vary depending on whether the employer uses a participatory or health-contingent program.

Participatory Programs

Participatory wellness programs either do not require an individual to meet a health-related standard to obtain a reward or do not offer a reward at all. Examples of these programs include:

A program that reimburses all or part of the cost for membership to a fitness center;
A diagnostic testing program that provides a reward for participation rather than outcome;
A program that reimburses employees for the costs of smoking cessation plans without regard to whether the employee quits smoking; and
A program that provides a reward to employees for attending a monthly health education seminar.

Health-Contingent Programs

Under a health-contingent program, employers provide the reward only to employees who meet a standard or goal related to a health factor. There are two types of health-contingent wellness programs:

Activity-only wellness programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward (for example, walking, diet or exercise programs).
Outcome-based wellness programs require an individual to attain or maintain a certain health outcome in order to obtain a reward (for example, not smoking, attaining certain results on biometric screenings or meeting exercise targets).

In all health-contingent wellness programs, employers must satisfy five requirements to comply with nondiscrimination rules:

The value of the incentive must not exceed 20 percent of the cost of coverage under the plan (effective for plan years beginning on or after Jan. 1, 2014, final regulations under the ACA increase the maximum reward to 30 percent of the cost of coverage, or 50 percent for wellness programs designed to prevent or reduce tobacco use);
The program must be reasonably designed to promote health and prevent disease;
Participants must be able to qualify for the incentive at least once per year;
The incentive must be available to all similarly-situated individuals and there must be an alternative standard for those with adverse health factors that affect their ability to meet the standard requirements; and
The plan must disclose the alternative standard in all plan materials.

Smoking Cessation Programs

The nondiscrimination rules affect an employer’s ability to provide a premium differential between smokers and nonsmokers. An employer-sponsored nonsmoking program does not discriminate and can provide premium differentials only if it meets the five requirements mentioned above. In addition, the ACA increases the maximum permissible reward to 50 percent of the cost of coverage under the plan for wellness programs designed to prevent or reduce tobacco use.

The Genetic Information Nondiscrimination Act (GINA)

Employer obligations regarding GINA vary depending on whether the program is part of a group health plan. If the program is part of a group health plan, employers are subject to Title I, which prohibits offering incentives for completing a health risk assessment that asks for genetic information. Genetic information includes genetic tests and asking for a family medical history. This restriction applies even if the employer wants to collect the information merely to implement cost-sharing measures or to provide rebates, discounts or other premium differentials for employees who complete the assessment or participate in the program.

To avoid this issue, employers can refrain from offering an incentive for completing health risk assessments or provide an assessment that does not request genetic information.

If the program is not part of a group health plan, it is subject to Title II of GINA, which prohibits employment discrimination on the basis of genetic information. Under Title II, employers are prohibited from requesting, requiring or purchasing an employee’s genetic information, unless:

The employee provides the genetic information voluntarily (employee is not required and there is no penalty for declining to provide the information);
The employee provides an informed, voluntary and written authorization;
The genetic information is only provided to the individual receiving genetic services and the health care professionals or counselors providing the services; and
The genetic information is only available for the purposes of the services and is not disclosed to the employer except in aggregate terms.

An employer does not violate Title II when it offers financial incentives to employees for completing assessments with questions about family medical history, if the incentives are available regardless of whether the employees answer the questions.

Read part 2 on Thursday, March 26th!

Potential Legal Issues Associated with Workplace Wellness Plans (Part 1)