Potential Legal Issues Associated with Workplace Wellness Plans (Part 2)Posted on: March 26, 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. To read part 1 visit our blog from Tuesday, March 24, 2015.
The Employee Retirement Income Security Act (ERISA)
A wellness program is subject to ERISA if it is funded or maintained by the employer for the purpose of providing, among other things, medical, surgical or hospital care and benefits to participants and their beneficiaries. The definition of medical services includes diagnosis and prevention. For this reason, wellness programs that offer significant screening benefits as part of their incentives may be subject to ERISA.
Programs subject to ERISA must comply with claim procedures, summary plan descriptions (SPDs) and summary of material modifications (SMMs) requirements. To avoid compliance issues, employers can combine these programs with their major medical plans and other employee welfare benefits. If combined, the program can be funded with assets from the combined ERISA plans.
If not combined, a stand-alone program must independently meet ERISA requirements. To comply with ERISA, employers must:
- Ensure independent funding (program must not be funded with ERISA);
- Document the terms, provisions and structure of the program;
- Follow the program’s terms, including a strict adherence to fiduciary standards;
- Provide SPDs and SMMs to program participants (note that under the ACA employers must provide a summary of benefits and coverage in addition to SPDs and SMMs);
- File a form 5500 annually, unless an exception applies; and
- Establish and follow claim procedures (the ACA requires enhanced internal claims and appeal requirements as well as external review procedures).
Furthermore, ERISA prohibits employers from interfering with the ability of any employee to obtain any right or benefit he or she is entitled to receive.
Health Savings Accounts (HSA)
Employers may offer group health plan benefit incentives such as additional employer contributions to an individual’s HSA if that individual participates in the employer’s wellness program. To retain their tax-exempt status HSA contributions must not exceed the employee’s maximum HSA contribution for the year ($3,350 for single or $6,650 for family coverage for 2015) or violate its nondiscrimination rules. Exceeding HSA contribution limits may subject employees to a 35 percent excise tax.
HSA discrimination rules change slightly depending on whether the HSA is part of an employer-sponsored cafeteria plan. Under a cafeteria plan, HSA contributions lose their tax-exempt status if they favor highly-compensated individuals or extend additional benefits only to key employees.
HSAs outside of a cafeteria plan must follow the comparability rule, meaning that benefits must be the same for employees within the same high deductible health plan category, for example: self-coverage, coverage for self plus one, coverage for self plus two and coverage for self plus three or more.
Health Reimbursement Accounts (HRA)
Nondiscrimination rules for HRAs prohibit favoring highly-compensated individuals by establishing lower eligibility requirements or by offering increased benefits. This rule applies even if the HRA is part of a self-insured medical expense reimbursement plan.
A wellness program can violate HRA nondiscrimination rules if it provides incentives that favor highly-compensated individuals. To avoid this issue, the program should not base its maximum incentive amount on an individual’s employment compensation, age or years of service.
The Age Discrimination in Employment Act (ADEA)
ADEA provisions are limited to individuals over the age of 40. For this reason, employers should construct their wellness programs so that they do not reduce incentives, impose a surcharge or otherwise discriminate against individuals in this protected group.
Title VII of the Civil Rights Act
Under Title VII of the Civil Rights Act of 1964, a wellness program cannot discriminate against its participants on the basis of race, color, religion, sex or national origin. This includes preventing discrimination regarding employee eligibility, the terms and conditions for coverage and any surcharges employees must pay to participate.
Employers should also note that under Title VII, it is unlawful to discriminate between men and women with regard to fringe benefits (including medical, hospital, accident and life insurance and retirement plans) even when third parties are involved. To avoid these problems employers should avoid practices such as making distinctions on gender-specific criteria like gender-based BMI indices.
The Fair Labor Standards Act (FLSA)
Wellness programs should have a voluntary participation policy. If participation in the program is mandatory or required, the time employees spend in lectures, meetings, trainings and any other activity associated with the program may be considered compensable time and may be subject to employee overtime wage pay requirements.
Employee participation in the program is voluntary if:
- Attendance to program activities is outside of the employees’ regular working hours;
- Attendance to program activities is not required by the employer;
- Program activities are not related to the employee job descriptions or responsibilities; and
- Employees do not perform any productive work while they participate in program activities