Employee Loses Wellness Plan Challenge

By Jeffrey Rhodes February 15, 2017
Employee Loses Wellness Plan Challenge

​An employee who temporarily stopped receiving health insurance coverage due to a refusal to submit to a wellness plan assessment test but who then received retroactive coverage did not have a valid claim to challenge the legality of the plan, the 7th U.S. Circuit Court of Appeals ruled.

Employer wellness programs use a set of benefits, incentives and/or penalties to improve employee health and lower health insurance costs. Flambeau Inc., a plastic manufacturer headquartered in Baraboo, Wis., adopted such a program in 2012 that included a health risk assessment in which employees answered questions about their medical histories and were measured for health indicators such as weight, cholesterol level and blood pressure. In 2012 and 2013, Flambeau required participation in this assessment as a condition of its contributions to employees' health insurance premiums.

Flambeau employee Dale Arnold was unable to complete a health risk assessment in order to qualify for health insurance coverage for the 2012 benefit year. Flambeau terminated his insurance coverage but gave him the option of buying continuing coverage under COBRA. Arnold decided not to take that option, so his health insurance lapsed.

Arnold filed complaints with the U.S. Department of Labor and the Equal Employment Opportunity Commission (EEOC) claiming violations of the Family and Medical Leave Act and the Americans with Disabilities Act (ADA). After discussions with the Department of Labor, Flambeau agreed to reinstate Arnold's health insurance retroactively as long as he completed the assessment and paid his own share of the premiums. Arnold did so, and the company restarted his insurance. Before the 2014 benefit year began, Flambeau's management ended the mandatory testing program, finding that it was not cost-effective.

Arnold resigned in March 2014. Six months later, in September 2014, the EEOC filed suit against the company alleging that its mandatory assessment and testing violated the ADA prohibition on involuntary medical examinations.

Flambeau moved for summary judgment, arguing that its wellness plan was covered by the ADA's insurance safe harbor provision, which excludes from the ban on involuntary medical examinations an organization's administration its bona fide benefit plan. The safe harbor also provides that the exception shall not be used as a subterfuge to evade the purposes of the ADA's provisions. Flambeau argued that the health testing was voluntary because it was not a condition of employment. The EEOC filed a cross-motion for summary judgment as to liability, arguing that the insurance safe harbor did not apply to the company's program.

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

The district court granted Flambeau's motion and denied the EEOC's cross motion for partial summary judgment. It decided that the safe harbor could cover at least some wellness programs and that this was one such program.

On appeal to 7th Circuit, the EEOC argued that the case was not moot because Arnold was entitled to recover $82 in out-of-pocket medical expenses that Flambeau should have paid and that he could receive emotional distress damages and punitive damages as well. Flambeau argued that these damages were not available.

The court found that the ADA was not clear in defining the scope of the safe harbor provision. In addition, at that time, the EEOC had not yet issued its guidance concerning what would constitute a valid wellness program under the ADA. As a result, the court found that Arnold could not obtain punitive damages against Flambeau for willfully violating his rights.

The court also found that the company voluntarily ceased its program at issue and therefore was not likely to resume it in the same way as before. Noting the difficult questions raised by wellness programs under the safe harbor provision, the 7th Circuit declined to decide whether Flambeau's wellness program complied with those provisions.

EEOC v. Flambeau Inc., 7th Cir., No. 16-1402 (Jan. 25, 2017).

Professional Pointer: The EEOC issued guidance in 2016 that upheld wellness programs as long as the benefit received by an employee who complies with the program was not more than 30 percent of the cost of the individual's self-only coverage. Since then, a lawsuit has been filed by the AARP challenging the EEOC's guidance, but the lawsuit has thus far been unsuccessful. Nevertheless, the future of this guidance is unclear based on the lawsuit and the new presidential administration.

Jeffrey Rhodes is an attorney with Doumar Martin in Arlington, Va. 

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