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Shocking New Wellness Plan Lawsuit Calls Into Question Typical Plan Design

Employee Benefits Law Alert John L. Barlament, Amy A. Ciepluch, Mike Fischer

A new lawsuit filed this week by the U.S. Equal Employment Opportunity Commission ("EEOC") calls into question a very common wellness plan design used by many employers nationwide. Unfortunately, the lawsuit is somewhat bare on details, so employers will likely struggle to determine whether to modify their wellness plans (and, if a modification is needed, what exactly it should entail).

Overview of Wellness Plan Rules. When an employer creates and administers its wellness plan, the plan can be subject to numerous legal requirements. Some of these have relatively clear rules. For example, last year the Internal Revenue Service ("IRS"), Department of Labor ("DOL") and Department of Health and Human Services ("HHS") issued final regulations on how wellness plans can comply with nondiscrimination rules under the Health Insurance Portability and Accountability Act ("HIPAA"). These HIPAA regulations generally allow employers to gather medical information regarding employees. Employers usually provide employees with monetary incentives to encourage them to participate. Employers can also, under those HIPAA rules, provide a disincentive for refusing to participate.

Somewhat ominously, the IRS, DOL and HHS stated specifically in those regulations that compliance with their wellness plan regulations "is not determinative" of compliance with other laws, "including the ADA." With the new lawsuit, it is possible that the EEOC has now spoken on the issue -- and found that a typical wellness plan design involving the collection of employee medical information will violate the ADA (and, for good measure, the Genetic Information Nondiscrimination Act ("GINA")).

Under the ADA, such medical information can only be gathered in limited circumstances; one of those entails employees’ “voluntary” participation in health risk assessments undertaken in conjunction with a wellness plan. The EEOC had historically hinted that any provision to employees of financial incentives (or imposition of financial penalties) for participating in such an assessment rendered employee participation in such an assessment “involuntary.” While the EEOC has recently suggested that some such incentives or penalties might pass muster, it has warned employers against imposing “enormous penalties,” without providing guidance allowing employers to determine what counts as “enormous” and, by extension, how significant employer incentives (or penalties) for participation might be.

New EEOC Lawsuit. The new EEOC lawsuit was filed against a large corporation, Honeywell International. In the lawsuit, the EEOC seeks a temporary restraining order and preliminary injunction against Honeywell -- in essence, the EEOC is trying to "shut down" the Honeywell wellness plan. The lawsuit provides some details about the wellness plan, including that it:

* Is administered by a third party, not Honeywell directly. Note that having a third party administer a wellness plan is very common, often because an employer does not want to receive health information about its employees. Unfortunately, erecting such a "firewall" between the employer and vendor may not be sufficient to defeat an ADA / GINA violation

* Has biometric testing with a blood draw. An employee's and a spouse's biometric testing results include blood pressure, HDL and total cholesterol, glucose, height, weight and waist circumference (BMI)

* Imposes a penalty of $1,000 against an employee who is a tobacco user (with the same penalty also applying to a spouse who is a tobacco user) who refuses to take the biometric test for reasons other than smoking, along with an additional $500 surcharge if the employee refuses to take the biometric test.

* Offers a $1,500 health savings account ("HSA") contribution for employees who take the biometric test. Employees who refuse to take the biometric test do not receive the contribution.

The EEOC's lawsuit states that the biometric testing is a "medical examination" for ADA purposes. It also alleges that the medical examination does not meet the rigorous ADA rules for medical examinations of current employees (i.e., that the examination be "job-related" and "consistent with business necessity"). Thus, the EEOC alleges that the testing violates the ADA.

In addition, the EEOC notes that spouses of employees must, under the Honeywell plan, similarly submit to biometric testing for an employee to avoid the financial penalties noted above. The EEOC asserts that the information gathered on spouses is "genetic information" under GINA and that Honeywell violated GINA by gathering this information.

Next Steps. It remains to be seen what will happen next, both for Honeywell, other employers and the Chicago office of the EEOC. (The Chicago office has filed three separate lawsuits in the past few months on wellness plans, but no other EEOC office has joined the effort.) An employer which faces such a lawsuit would likely have some defenses. For example, an employer does not violate the ADA's "no medical examination" rule if the medical examination is done to "underwrite", "classify" or "administer" medical risks. An employer may also argue that its program does not violate the ADA under the "voluntary" wellness program exception. The EEOC has acknowledged these exceptions exist, but has generally taken a narrow reading of the exceptions (see, e.g., this 2013 testimony of an EEOC attorney: http://www.eeoc.gov/eeoc/meetings/5-8-13/kuczynski.cfm).

The timing of the lawsuit poses problems for employers, many of whom are in the middle of open enrollment and, often, conducting their own health risk assessments. Employers should quickly review the lawsuit and strategize on how best to minimize their risks.

For more information, please contact John L. Barlament at (414) 277-5727 / john.barlament@quarles.com, Amy A. Ciepluch at (414) 277-5585 / amy.ciepluch@quarles.com, Mike Fisher at (414) 277-5639 / mike.fischer@quarles.com or your local Quarles & Brady attorney.