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Court: Employers Can Require Health Screenings for Insurance

updated on Jan. 31, 2017

Update: The district court decision reported below was appealed, and on Jan. 25, 2017, the 7th Circuit Court of Appeals issued its decision in EEOC v. Flambeau, Inc., ruling against the EEOC on procedural grounds and affirming the judgment of the district court.

The 7th Circuit determined that the EEOC’s claim was moot since the employee in question was no longer employed by Flambeau, and rejected a claim based on compensation for emotional distress damages, finding insufficient evidence. The appellate court also declined to impose punitive damages, finding that there was no showing that Flambeau acted “with malice or with reckless indifference to the federally protected rights of an aggrieved individual.”

While a loss for the EEOC that left the district court ruling in place, the 7th Circuit failed to address the underlying issues involving conflicts between the treatment of wellness incentives under the Americans with Disabilities Act (ADA) and the Affordable Care Act (ACA).

Alden Bianchi, an attorney with Mintz Levin in Boston, wrote in his analysis: "Can an employer require employees to complete [a health risk assessment] or undergo biometric screening or satisfy a particular health metric as a condition of group health plan participation without violating the ADA? If Congress fails to provide an answer in connection with its replacement of then ACA, then sooner or later we fully expect that the Supreme Court will do so."

A federal district judge has ruled against the Equal Employment Opportunity Commission (EEOC) and held that an employer can require workers to undergo health screenings as a condition for receiving employer-provided health coverage. The decision supports connecting access to an employer’s health plan—what some see as the maximum incentive—to wellness program participation, but it is likely to be appealed by the EEOC.

On Dec. 31, 2015, in EEOC v. Flambeau Inc., Judge Barbara Crabb of the U.S. District Court for the Western District of Wisconsin wrote that the employer’s health assessment and testing requirement at the center of this case fell within the Americans with Disabilities Act (ADA) safe harbor, which provides an exemption for activities related to a health insurance plan when those activities are based on underwriting, classifying or administering risks.

“Defendant’s consultants used the data gathered through the wellness program to classify plan participants’ health risks and calculate defendant’s projected insurance costs for the benefit year,” Crabb ruled. “These types of decisions are a fundamental part of developing and administering an insurance plan and therefore fall squarely within the scope of the safe harbor.”

The plan was not discriminatory against those with disabilities, she added, because “all employees that wanted insurance had to complete the wellness program before enrolling in defendant’s plan. Furthermore, there is no evidence that [the] defendant used the information gathered from the tests and assessments to make disability-related distinctions with respect to employees’ benefits.”

As SHRM Online reported when the case was announced, the EEOC charged that Flambeau Inc., a Baraboo, Wis.-based manufacturer of plastic products, unlawfully required that employees undergo biometric testing and a health risk assessment or pay the full health insurance premium to stay covered. When employee Dale Arnold did not complete the biometric testing and health risk assessment, Flambeau shifted responsibility for payment of the entire premium cost to him, the EEOC said. Those employees who underwent the biometric testing and health risk assessment paid only 25 percent of the premium cost. In the EEOC’s view, the required biometric testing and health risk assessment constituted disability-related inquiries and medical examinations that were not job-related and consistent with business necessity as defined by the ADA.

Since the initial EEOC complaint, Flambeau stopped linking wellness program participation to a premium credit and instead adopted a policy of only offering health insurance to those employees who completed the health assessment, and it was this revised policy on which the court ruled.

Flexibility for Employers

“With the caveat that this is still only one district court, it’s about as good a ruling as employers could hope for in the first forays into this fight,” said Richard Meneghello, a partner in the Portland, Ore. office of law firm Fisher and Phillips.

Despite the favorable ruling for employers, “unless they want to roll the dice, they should be cautious” about conditioning health insurance enrollment on wellness program participation, he said. Employers can “celebrate cautiously, but maintaining the status quo for now might be a good idea, and waiting to see how other courts rule as the dominoes start to fall.”

As for a likely EEOC appeal, “this is not a case they are taking lightly,” Meneghello said. “In its arguments, the EEOC cited its proposed regulations [on wellness program incentives and unlawful discrimination], which haven’t been finalized yet. That demonstrates that they feel strongly about this issue.” The EEOC’s final rule is expected later this year.

Affordable Care Act Concerns

Under the Affordable Care Act (ACA), employers may provide an incentive for employees to participate in wellness programs. For nonsmokers, the value of the incentive can be as high as 30 percent of the health plan premium. The ACA also permits an incentive of up to 50 percent of the plan premium for tobacco-cessation programs even if a disability-related question or medical exam is required.

“The Affordable Care Act clearly states that penalties for nonsmokers are capped at 30 percent [of the plan premium], and this was 100 percent,” since Flambeau conditioned its entire insurance benefit on participation in its wellness program, said Al Lewis, president of Disease Management Purchasing Consortium International Inc., a consulting firm in Waltham, Mass.

In a blog post, Lewis commented that the court ruling meant “It is not OK to penalize an employee more than 30 percent [of the plan premium] for refusing to submit to [wellness screenings] if they already have insurance. ... However, it is OK to say: ‘There is no incentive or penalty for wellness once you have insurance, but you can’t have insurance at all unless you submit.’”

Meneghello said he “found it interesting that the court never really addressed that issue [of the ACA’s incentive caps] in this case,” and that “The EEOC might argue that point on appeal, and might find more sympathetic courts in other jurisdictions.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.

Related Resources:

Three Things You Need to Know About Court Ruling in Wellness Program Lawsuit, Fisher & Phillips LLP, January 2016

Employee Wellness Programs Not So Voluntary Anymore, Bloomberg Business, January 2016

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