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Employer-Sponsored Wellness Programs in Limbo After 2018

Labor & Employment Alert John L. Barlament

On December 20, 2017 a federal judge issued a ruling which could impact employer-sponsored wellness plans around the country. The difficulty, however, is that the impact is not completely clear from the judge's ruling. The impact could range from essentially no change to a change which may halt a wellness program entirely. We discuss this ruling, AARP v. United States Equal Opportunity Commission ("EEOC"), below.          

Wellness Program Regulation. Wellness programs have been subject to certain federal laws and regulations for several years. These have long included the HIPAA wellness program regulations, issued by the Internal Revenue Service ("IRS"), Department of Labor ("DOL") and Department of Health and Human Services ("HHS"). Those regulations generally allow wellness programs to provide financial incentives of 30 percent, or even 50 percent in some situations, of the cost of family health plan coverage. Thus, their rewards can easily total thousands of dollars per year.

The EEOC also has jurisdiction over wellness plans because of the Americans with Disabilities Act ("ADA"). The ADA allows a "voluntary" wellness program but it does not define what "voluntary" means. For a number of years the EEOC refused to specifically allow any type of monetary reward—even $1 —as an incentive for an employee to participate in a wellness program. Instead, EEOC officials suggested that an employer could only offer a prize such as a t-shirt or coffee mug for participating.

Under pressure, the EEOC finally allowed monetary rewards for wellness programs in a 2016 regulation. But, somewhat frustratingly, those monetary rewards were generally capped at 30 percent of the cost of self-only coverage. That was far less than the IRS / DOL / HHS monetary reward maximums. 

AARP Lawsuit. While the EEOC thought it was being reasonable, it quickly faced a lawsuit from AARP. AARP argued that the 30 percent limit was too high and that it caused a program to not be "voluntary". EEOC defended the lawsuit and argued that it had carefully designed the 30 percent maximum. However, a federal judge disagreed and found that the EEOC "failed to adequately explain" how it reached the 30 percent maximum level. The EEOC stated that it would re-examine the matter and is expected to issue proposed regulations in 2018, with final regulations in 2019, applying around 2021.

In the December 2017 ruling, the judge expressed annoyance with this delayed implementation of his ruling. So, the judge ordered that the EEOC 30 percent limit be vacated as of January 1, 2019. The judge required the proposed regulation to be issued by August 2018. In a footnote, the judge also suggested that the EEOC could issue an "interim" rule that, presumably, employers could rely upon.

Practical Impact Unclear. The unexpected ruling creates uncertainty for employers. Let's take what could be a "worst-case" scenario. An employer conducts biometric screenings in 2018 (triggering the EEOC's wellness rules under the ADA) and tells employees who participate that they will receive a 30 percent health plan discount in 2019. The discount meets the current EEOC, IRS, DOL and HHS rules. Employees rely upon this promise of the 30 percent discount and voluntarily submit to the biometric screenings. But the EEOC either fails to issue new regulations, or the new regulations establish a lower maximum (e.g., 15 percent instead of 30 percent). And, worse, suppose the new regulations apply immediately. The employer states that, due to the change in law, it can longer provide the 30 percent discount. Employees become angry and bring a lawsuit seeking their lost discount. Or, if the workforce is unionized, perhaps it triggers some type of additional labor-law-related complaint. Employers likely should anticipate this outcome and put into their 2018 wellness materials an explanation of this risk.

Also note that another "worst-case" scenario would be the EEOC finding that any monetary reward renders a wellness program "not voluntary." In that case, an employer's biometric screens in 2018 could have unwittingly violated the ADA. Perhaps the EEOC would say that no reward can be provided in 2019 based on the "tainted" 2018 screenings. We consider that outcome to be unlikely. The EEOC likely would recognize that employers have been relying upon prior guidance when conducting their 2018 wellness programs. However, an employer may want to prepare for such an outcome.

In a "best-case" scenario, perhaps the EEOC issues interim final regulations by August 2018. The regulations apply immediately and do not make any changes to the prior regulations. An employer proceeds without having to make any changes.

For questions, please contact John L. Barlament at [email protected]/(414) 277-5727 or your Quarles & Brady attorney.