This Workplace Wellness issue provides an overview of potential legal issues related to employer-sponsored wellness plans. The list of issues presented in this article is not exclusive. Wellness programs must be carefully structured to comply with both state and federal laws. To avoid noncompliance, employers should have their legal counsel review their wellness programs before they are rolled out to employees.
The Americans with Disabilities Act (ADA)
Nothing in the ADA prohibits employers from implementing programs that promote good health and prevent disease. However, the ADA does prohibit covered employers from denying disabled individuals an equal opportunity to receive the benefits or participate in programs available to other employees, solely because of their disability. ADA provisions regulate how employers can use health risk assessments and medical examinations when implementing a wellness program.
Employers cannot use assessments to discriminate against disabled individuals. For example, compliance issues may arise if an employee’s score is affected by his or her disability and the employer does not provide reasonable accommodations to allow that employee to participate in the program. On the other hand, assessing a premium surcharge on smokers would most likely not trigger an ADA violation because nicotine addiction generally does not limit a major life activity, though it may raise HIPAA nondiscrimination or state law issues.
The ADA also prohibits employers from making medical inquires or requiring medical examinations, unless they are job-related and consistent with business necessity. This is done to prevent employers from taking any adverse employment action against an employee based on the employee’s actual or perceived disability.
However, the Equal Employment Opportunity Commission offers employers an exception and allows them to conduct voluntary medical examinations and activities (such as high blood pressure screenings). The exception applies if employees are not penalized for participating and the results remain confidential and are not used to discriminate against employees.
In addition, the ADA safe harbor exception allows employers to establish, sponsor, observe or administer the terms of a bona fide health plan that are based on “underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.” This exception may not be used as a way to evade ADA requirements.
The Health Insurance Portability and Accountability Act (HIPAA)
Wellness programs are subject to HIPAA rules only if they are related to covered health plans. If the program’s reward is related to a plan exempt from HIPAA, the reward is also exempt from HIPAA.
HIPAA prohibits using health factors to discriminate against an individual’s eligibility to enroll in or pay premiums for a group health plan. In other words, an employer cannot require an employee to pay a higher premium based on health status, physical and mental medical conditions, claims experience, receipt of health care, medical history, genetic information, and evidence of insurability or disability.
However, an exception allows employers to offer their employees incentives to participate in health-promotion and disease-prevention programs. Qualifications for this exception vary depending on whether the employer uses a participation or health-contingent program.
Under a participation program the incentive must be available to all similarly situated individuals. Sample acceptable programs include:
- A program that reimburses all or part of the cost for membership to a fitness center;
- A diagnostic testing program that provides a reward for participation rather than outcome;
- A program that encourages preventive care by waiving the copayment or deductible requirement for the costs of, for example, prenatal care or well-baby visits;
- A program that reimburses employees for the costs of smoking cessation plans without regard to whether the employee quits smoking; and
- A program that provides a reward to employees for attending a monthly health education seminar.
Under a health-contingent program employers provide the reward only to employees who meet a standard or goal related to a health factor. In these types of programs, employers must satisfy five requirements to comply with HIPAA nondiscrimination rules:
- The value of the incentive must not exceed 20 percent of the cost of coverage under the plan, though the Affordable Care Act (ACA) increases this limit to 30 percent for plan years beginning on or after Jan. 1, 2014 with the possibility of a future 50 percent limit if the Departments of Labor, Health and Human Services and of the Treasury issue a joint decision;
- The program must be reasonably designed to promote health and prevent disease;
- Participants must be able to qualify for the incentive at least once per year;
- The incentive must be available to all similarly-situated individuals and there must be an alternative standard for those with adverse health factors that affect their ability to meet the standard requirements; and
- The plan must disclose the alternative standard in all plan materials.
Smoking Cessation Programs
HIPAA’s nondiscrimination rules may affect an employer’s ability to provide a premium differential between smokers and nonsmokers. Medical evidence suggests that smoking may be related to a health factor. Therefore, an employer-sponsored nonsmoking program does not discriminate and can provide premium differentials only if it meets the five requirements mentioned above.
The Genetic Information Nondiscrimination Act (GINA)
Employer obligations regarding GINA vary depending on whether the program is part of a group health plan.
If the program is part of a group health plan, employers are subject to Title I, which prohibits offering incentives for completing a health risk assessment that asks for genetic information. Genetic information includes genetic tests and asking for a family medical history. This restriction applies even if the employer wants to collect the information merely to implement cost-sharing measures or to provide rebates, discounts or other premium differentials for employees who complete the assessment or participate in the program.
To avoid this issue, employers can refrain from offering an incentive for completing health risk assessments or provide an assessment that does not request genetic information.
If the program is not part of a group health plan, it is subject to Title II of GINA, which prohibits employment discrimination on the basis of genetic information. Under Title II, employers are prohibited from requesting, requiring or purchasing an employee’s genetic information, unless:
- The employee provides the genetic information voluntarily (employee is not required and there is no penalty for declining to provide the information);
- The employee provides an informed, voluntary and written authorization;
- The genetic information is only provided to the individual receiving genetic services and the health care professionals or counselors providing the services; and
- The genetic information is only available for the purposes of the services and is not disclosed to the employer except in aggregate terms.
An employer does not violate Title II when it offers financial incentives to employees for completing assessments with questions about family medical history, if the incentives are available regardless of whether the employees answer the questions.
The Employee Retirement Income Security Act (ERISA)
A wellness program is subject to ERISA if it is funded or maintained by the employer for the purpose of providing, among other things, medical, surgical or hospital care and benefits to participants and their beneficiaries. The definition of medical services includes diagnosis and prevention. For this reason, wellness programs that offer significant screening benefits as part of their incentives may be subject to ERISA.
Programs subject to ERISA must comply with claim procedures, summary plan descriptions (SPDs) and summary of material modifications (SMMs) requirements. To avoid compliance issues, employers can combine these programs with their major medical plans and other employee welfare benefits. If combined, the program can be funded with assets from the combined ERISA plans.
If not combined, a stand-alone program must independently meet ERISA requirements. To comply with ERISA, employers must:
- Ensure independent funding (program must not be funded with ERISA);
- Document the terms, provisions and structure of the program;
- Follow the program’s terms, including a strict adherence to fiduciary standards;
- Provide SPDs and SMMs to program participants (note that under the PPACA employers must provide a summary of benefits and coverage in addition to SPDs and SMMs);
- File a form 5500 annually, unless an exception applies; and
- Establish and follow claim procedures (PPACA requires enhanced internal claims and appeal requirements as well as external review procedures).
Furthermore, ERISA prohibits employers from interfering with the ability of any employee to obtain any right or benefit he or she is entitled to receive.
Health Savings Accounts (HSA)
Employers may offer group health plan benefit incentives such as additional employer contributions to an individual’s HSA if that individual participates in the employer’s wellness program. To retain their tax-exempt status HSA contributions must not exceed the employee’s maximum HSA contribution for the year ($3,250 for single or $6,450 for family coverage for 2013) or violate its nondiscrimination rules. Exceeding HSA contribution limits may subject employees to a 35 percent excise tax.
HSA discrimination rules change slightly depending on whether the HSA is part of an employer-sponsored cafeteria plan. Under a cafeteria plan, HSA contributions lose their tax-exempt status if they favor highly-compensated individuals or extend additional benefits only to key employees.
HSAs outside of a cafeteria plan must follow the comparability rule, meaning that benefits must be the same for employees within the same high deductible health plan category, for example: self-coverage, coverage for self plus one, coverage for self plus two and coverage for self plus three or more.
Health Reimbursement Accounts (HRA)
Nondiscrimination rules for HRAs prohibit favoring highly-compensated individuals by establishing lower eligibility requirements or by offering increased benefits. This rule applies even if the HRA is part of a self-insured medical expense reimbursement plan.
A wellness program can violate HRA nondiscrimination rules if it provides incentives that favor highly-compensated individuals. To avoid this issue, the program should not base its maximum incentive amount on an individual’s employment compensation, age or years of service.
The Age Discrimination in Employment Act (ADEA)
ADEA provisions are limited to individuals over the age of 40. For this reason, employers should construct their wellness programs so that they do not reduce incentives, impose a surcharge or otherwise discriminate against individuals in this protected group.
Title VII of the Civil Rights Act
Under Title VII of the Civil Rights Act of 1964, a wellness program cannot discriminate against its participants on the basis of race, color, religion, sex or national origin. This includes preventing discrimination regarding employee eligibility, the terms and conditions for coverage and any surcharges employees must pay to participate.
Employers should also note that under Title VII, it is unlawful to discriminate between men and women with regard to fringe benefits (including medical, hospital, accident and life insurance and retirement plans) even when third parties are involved. To avoid these problems employers should avoid practices such as making distinctions on gender-specific criteria like gender-based BMI indices.
The Fair Labor Standards Act (FLSA)
Wellness programs should have a voluntary participation policy. If participation in the program is mandatory or required, the time employees spend in lectures, meetings, trainings and any other activity associated with the program may be considered compensable time and may be subject to employee overtime wage pay requirements.
Employee participation in the program is voluntary if:
- Attendance to program activities is outside of the employees’ regular working hours;
- Attendance to program activities is not required by the employer;
- Program activities are not related to the employee job descriptions or responsibilities; and
- Employees do not perform any productive work while they participate in program activities.