AARP Lawsuit Casts Shadow over Wellness Programs

By Allen Smith, J.D. Oct 31, 2016
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Future use of incentives and penalties tied to wellness programs is uncertain pending the outcome of litigation by AARP, according to Ilyse Schuman, an attorney with Littler in Washington, D.C., and co-chair of the Workplace Policy Institute, the firm's government affairs branch.

The crux of AARP's Oct. 24 complaint is that penalties and incentives for wellness programs shouldn't be allowed under the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA), she said. Schuman characterized the lawsuit as "concerning for employers," saying that it "runs counter to provisions in the Affordable Care Act, which expanded the use of allowable incentives" for wellness programs.

EEOC Regulations Challenged

The Equal Employment Opportunity Commission (EEOC) issued regulations earlier this year, which take effect January 2017, allowing employers to impose penalties on employees who do not participate in employee wellness programs and to offer incentives for employees who do, within certain limits.

[SHRM members-only toolkit: Designing and Managing Wellness Programs]

The EEOC's ADA and GINA regulations are an about-face from the agency's previous stance in a 2014 case. In that case, the EEOC argued that because an employer imposed heavy penalties on employees through a coercive wellness program, employees stood to "lose the fundamental privilege under the ADA and GINA to keep private information private," AARP said in its complaint.

The ADA and GINA generally prohibit employer requests for employees' medical data, including virtually all questions likely to reveal disability-related or genetic information, the complaint noted. While the laws include narrow exceptions for medical inquiries in the context of wellness programs, each law requires that participation in such programs' collection of medical or genetic data be strictly voluntary.

"In redefining 'voluntary,' the EEOC failed to explain and justify its reversal of its longstanding position that medical inquiries and examinations are only 'voluntary' if employees are not penalized for refusing them," the complaint stated.

The rules permit an employer to offer an inducement or penalty to an employee who provides or whose spouse supplies information about the employee's or spouse's manifestation of disease or disorder as part of a health risk assessment.

Under the ADA regulations, an employer may assess a penalty worth up to 30 percent of the employee's self-only coverage for a worker refusing to provide his or her medical information. Under the GINA regulations, there may be a penalty worth up to 30 percent of the employee-only coverage if the employee's spouse refuses to provide his or her medical history. The penalty might be an increase in premiums.

These penalties may be stacked up to 60 percent of employee-only health coverage, the complaint said. In addition, "the rule does not foreclose the possibility that both spouses' employee wellness programs could impose this 60 percent penalty concurrently, for a cumulative 120 percent penalty on the couple."

Approximately 85 percent of employees contribute between 20 and 30 percent of the total premium for their insurance coverage, so a 30 percent increase in premiums would at least double the majority of these employees' health care costs, AARP said. It also noted that a 30 percent employee-only premium increase would amount to months' worth of child care and food expenses, and nearly two months' rent, for the average person.

Moreover, "penalties incurred from declining to divulge private health information would fall more harshly on individuals with disabilities, who, on average, have disproportionately lower incomes and higher medical costs than the general population."

Agency Pressured on Both Ends

While AARP is alleging that the EEOC's regulations went too far and gave employers too much flexibility in granting incentives and imposing penalties, some think the EEOC did not go far enough in light of the Affordable Care Act (ACA), said Garrett Fenton, an attorney with Miller & Chevalier in Washington, D.C.

Under the Health Insurance Portability and Accountability Act, as amended by the ACA, wellness programs may offer incentives or impose penalties of up to 30 percent of the cost of a person's annual health premiums. The amount rises to 50 percent for tobacco-cessation programs. But under the EEOC's ADA regulations, if a nicotine test is administered, the penalties may not exceed 30 percent because the test is a medical examination under the ADA, Fenton noted. (If no nicotine test is administered, penalties may be 50 percent for tobacco use, since tobacco addiction is not a covered disability under the ADA.)

Fenton disputed AARP's argument that the regulations were a reversal of the EEOC's position, saying that the agency's guidance prior to this was "unclear." While he said employers should "keep an eye on this case," he called AARP's challenge of the regulations a "tough uphill climb," noting that courts typically uphold agencies' regulations as long as the rules are a reasonable interpretation of the law.

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