This article was published in the November/December 2017 issue of Employee Benefit Plan Review. Printed with permission.
In a surprising development in the case of AARP v. U.S. Equal Employment Opportunity Commission, No. 16-2113 (D.D.C. Aug. 22, 2017), Judge John D. Bates of the U.S. District Court for the District of Columbia dealt a blow to the EEOC and directed it to reconsider its wellness program rules under the Americans with Disabilities Act (ADA) and the Genetic Information Non-Discrimination Act (GINA).
The court rejected the EEOC’s May 2016 wellness program rules that 30 percent incentives for participation in wellness programs are permitted as “voluntary” under the ADA and GINA. The court concluded that the EEOC’s basis for establishing this incentive level was not well-reasoned and therefore not entitled to deference from the court. Rather than vacating the rules altogether, however, the court remanded them to the EEOC for reconsideration. Employers that welcomed the EEOC guidance for creating clarity about permissible wellness program practices now face new uncertainty as the rules could change yet again.
In May 2016, the EEOC issued rules governing wellness programs under the ADA and GINA. As we reported previously, the long-anticipated rules, which became effective in January 2017, clarified the EEOC’s position regarding whether incentives to participate in wellness programs are permissible under the ADA and GINA and, if so, in what amount. Before the EEOC’s issuance of the rules, employers had faced a confusing legal environment for wellness programs because the Health Insurance Portability and Accountability Act (HIPAA) regulations had explicit provisions allowing incentives of up to 30 percent for employees participating in health-contingent wellness programs, but the EEOC’s position was not clear. With the release of its rules in May 2016, the EEOC stated that it sought to harmonize its rules with the HIPAA rules on wellness programs by using a similar 30 percent level for permissible incentives. Employers were then able to rely on the 30 percent incentive limit and comply with HIPAA, the ADA and GINA.
HIPAA prohibits health plans and insurers from discriminating based on a health factor, but it permits those entities to offer premium discounts or impose penalties for participants who participate in wellness programs that meet certain requirements. Particularly, HIPAA (as amended by the Affordable Care Act) permits health plans and insurers to offer incentives of up to 30 percent of the cost of coverage for employee participation in a “health-contingent wellness program,” a program in which the participant receives the award by satisfying a health-related factor. Notably, HIPAA does not limit the incentives that may be offered for participatory wellness programs, which do not require the satisfaction of a health factor as a condition of receiving an incentive.
The ADA prohibits employers from requiring medical examinations or making disability-related inquiries unless they are job-related and consistent with business necessity. The ADA includes an exception to that prohibition for an employee’s “voluntary” participation in a wellness program. The ADA permits an employer to seek medical information as part of a wellness program if the employee participates voluntarily. The ADA does not define the term “voluntary,” and, before the EEOC issued its final rules, employers were unsure about how the EEOC would view incentives offered for participation in wellness programs. The EEOC had suggested that anything more than a nominal incentive would make participation not voluntary.
GINA prohibits employers from offering inducements to obtain genetic information1 from employees or their family members, which includes spouses. GINA provides an exception to that prohibition if the employer’s collection of genetic information is part of a wellness program and the employee voluntarily provides the genetic information.
In October 2016, AARP filed a lawsuit against the EEOC, arguing that the EEOC’s 30 percent incentive rendered wellness programs involuntary because employees would feel coerced to participate in wellness programs and to disclose medical information to avoid losing the benefit of the incentive. AARP sought a preliminary injunction to block the EEOC’s rules, which was denied. Subsequently, both AARP and the EEOC moved for summary judgment. In his August 22 opinion, Judge Bates granted AARP’s motion for summary judgment and denied the EEOC’s motion.
After concluding that AARP had standing to sue the EEOC, the court examined whether the EEOC had offered a reasonable explanation for its interpretation of the meaning of “voluntary.” Under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), a court defers to an administrative agency’s interpretation of its statute if the agency offers a reasoned explanation. The court concluded that the EEOC did not offer a reasoned explanation for its decision to construe the term “voluntary” to permit employers to offer incentives of up to 30 percent for participation in wellness programs.
With respect to the ADA rule, the court rejected the EEOC’s three reasons for determining that incentives of up to 30 percent complied with the ADA’s requirement that participation in wellness programs be voluntary. The EEOC’s primary explanation was that it adopted the 30 percent incentive to harmonize its regulations with the HIPAA regulations and to induce more individuals to participate in wellness programs, which was a goal expressed by Congress in the Affordable Care Act. The court was not persuaded by this argument because of the differences between HIPAA and the ADA and between their respective regulation of wellness programs. Judge Bates reasoned that HIPAA is focused on insurance discrimination and does not address whether participation in wellness programs must be voluntary. The court criticized the EEOC’s failure to explain its reliance on the HIPAA regulations:
EEOC does not explain why it makes sense to adopt wholesale the 30% level in HIPAA, which was adopted in a different statute based on different considerations and for different reasons, into the ADA context as a permissible interpretation of the term “voluntary” — a term not included in the relevant provisions of HIPAA — beyond stating that this interpretation “harmonizes” the regulations.
The court also noted that, despite the EEOC’s assertion that its ADA rule was intended to harmonize with the HIPAA regulations, there are inconsistencies between the ADA rule and HIPAA. HIPAA places no incentive cap on participatory wellness programs, which constitute the majority of wellness programs. The ADA rule, however, imposes the 30 percent cap on both health-contingent and participatory programs. Further, under HIPAA, the 30 percent incentive is based on the total cost of coverage (which includes the cost of family coverage). Under the ADA, the 30 percent incentive is based on the cost of the self-only coverage. Given all of these differences between the ADA rule and the HIPAA regulations, the court did not accept the EEOC’s explanation for the 30 percent incentive limit.
The court quickly rejected the EEOC’s two other explanations for its decision to use a 30 percent incentive level — that the 30 percent incentive level was a reasonable interpretation of the term “voluntary” based on “current insurance rates” and that it relied on comment letters. The EEOC conceded at oral argument before Judge Bates that it had not undertaken any study or analysis of current insurance rates or how they relate to the issue of whether participation in a wellness program would be rendered involuntary. Likewise, the court noted that the EEOC identified only one specific comment — from the American Heart Association — which did not explain why the 30 percent incentive level was appropriate.
The court also emphasized that there was no indication that the EEOC considered the financial and economic impact that the 30 percent incentive would have on employees and whether it would result in employees with lower incomes feeling coerced to participate in wellness programs. The court concluded that the “EEOC co-opted the 30 percent incentive level from the HIPAA regulations without giving sufficient thought to whether or how it should apply in the context of the ADA, and particularly in the context of the ADA’s requirement that wellness programs be ‘voluntary.’” As a result, the court held that the EEOC’s interpretation of the ADA’s voluntary requirement was not reasonable.
For similar reasons, the court concluded that the EEOC’s interpretation of GINA’s requirement of voluntariness was not reasonable. In addition, the court addressed whether the EEOC’s determination that GINA permits employers to offer incentives for the disclosure of a spouse’s manifestation of disease or disorder was reasonable. GINA prohibits the compelled disclosure of genetic information, which includes the genetic information of family members. Family members include spouses under GINA’s definition, and, prior to the EEOC’s issuance of the GINA rule, employers were concerned that the EEOC would not permit an incentive for spouses to provide genetic information, even though a spouse’s genetic information does not provide any clues about the employee’s genetic information. Employers were relieved when the EEOC agreed with this reasoning and allowed incentives for spousal participation in wellness programs. Judge Bates was not persuaded by the EEOC’s justification for this provision, noting that, although a spouse’s medical history does not reveal actual genetic information about the employee, it does provide information that may increase insurance costs and employers might discriminate on this basis against anyone covered by the health plan.
Based on its conclusion that the EEOC did not provide a reasoned explanation for its decision to interpret the term “voluntary” in the ADA and GINA to permit a 30 percent incentive level, the court had the option of remanding the rules to the EEOC for reconsideration or vacating the rules. The court declined to vacate the rules because employers and employees have been relying on them since the beginning of the year and it would be burdensome to unwind the effects, reasoning that vacating the rules would be inappropriate assuming that the EEOC could reconsider the rules in a “timely manner.”
In light of the AARP decision, the landscape for employers implementing wellness programs has become murkier. At this point, it is unclear what the EEOC will do in response to the decision. The EEOC might reduce the amount of incentives permitted under the rules and then reissue them with a more robust and defensible explanation of its reasoning in adopting a particular incentive. The EEOC could also appeal Judge Bates’ ruling, which will further delay certainty for employers. In the meantime, the EEOC’s rules remain in place. After finally gaining clarity in May 2016 on the EEOC’s position on incentives, employers are now back to wondering what incentive limits they may implement. For now, employers may continue to rely on the EEOC’s rules and should stay tuned for further developments.
1 GINA defines “genetic information” to include the genetic tests of family members of the employee and the manifestation of a disease or disorder in family members. See 42 U.S.C. § 2000ff(3).
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