By Sara Anne Quinn

In recent years, more and more employers have implemented wellness programs—employee participation programs that may include wellness education, health or fitness challenges, and even limited medical testing and preventive care requirements—to promote and encourage employee health and wellbeing. Through these programs, they hope to create a healthier workforce and reduce insurance costs.

Employers currently using wellness programs are likely already aware of the privacy and discrimination laws and regulations restricting their use. However, as they work to design and implement programs for 2018, employers with existing programs and those thinking about starting one for the first time need to be aware that these regulations should be changing in the not-too-distant future.

HIPAA and Wellness Plans

The Health Insurance Portability and Accountability Act (HIPAA), as amended by the Affordable Care Act (ACA), generally prohibits health plans from discrimination on the basis of health status-related factors in setting deductibles, copays, or other costs. However, it does carve out an exception allowing the use of annual wellness programs, which it divides into two categories: participatory programs and health-contingent programs.

Participatory wellness programs aren't dependent on the individual employee's health. Instead, they reward participation in activities such as smoking cessation programs or educational program attendance or provide rewards by reimbursing employees for things such as fitness center memberships.

Health-contingent programs, on the other hand, require participants to satisfy certain health standards, such as hitting certain results on biometric screenings or participation in diet or fitness programs and challenges. Although many employers implement programs including both participation and health-contingent aspects, these two types are regulated differently.

Because health-contingent programs rely directly and can exclude individuals on the basis of health factors, there are stricter requirements relevant to these programs. One of the health-contingent program requirements is that the total reward offered to an employee for a health-contingent program may not exceed 30% of her (or, if dependents are also enrolled, of her and enrolled dependents') cost of coverage. Participation programs, on the other hand, aren't capped at any specific reward amount under HIPAA.

Antidiscrimination Laws and Wellness Plans

Because wellness programs often require the disclosure of some medical information about employees and their covered dependents, their use must also comply with the Americans with Disabilities Act (ADA)—which prohibits employers from requiring medical tests or making inquiries about employees' potential disabilities unless it's for job-related reasons—and the Genetic Information Nondiscrimination Act (GINA)—which prohibits employers from using genetic information in employment decisions and therefore prohibits employers from requesting, requiring, or purchasing the genetic information of employees and their family members.

Under both the ADA and GINA, wellness programs are allowed only under the specific provision allowing employers to gather medical histories and conduct medical testing as part of an "employee health program." In order to qualify for this narrow exception, however, participation in the heath program must be "voluntary."

This is where the Equal Employment Opportunity Commission's (EEOC) interaction with wellness plans comes into play. In its role as interpreter and enforcer of both the ADA and GINA, the EEOC has adopted guidelines to help determine whether participation in a wellness program is "voluntary" and therefore in compliance with the ADA and GINA. Although the agency initially took the position that incentives couldn't be dependent on the disclosure of ADA or GINA-protected information to be "voluntary," it softened that stance when it put out specific regulations for wellness programs in May 2016.

Under the 2016 regulations, the EEOC declared that incentives, both rewards and penalties, may be used in a "voluntary" wellness program. However, it clarified that to remain "voluntary," programs that request or require the disclosure of ADA- or GINA-protected information can't use rewards exceeding 30% of the cost of an individual's coverage.

Essentially, the EEOC took the position that health-contingent programs in compliance with HIPAA also comply with the ADA and GINA. However, unlike HIPAA, the EEOC also applied the 30% cap to participatory wellness programs. And with these regulations in place, employers designed and implemented wellness programs for 2017 with clear instructions on whether a plan would be considered "voluntary."

Challenging the EEOC's Regulations

Although employers accepted and, for the most part, appreciated the regulations for their clarity and workability, the disability rights community disagreed. These groups questioned whether a program that would cover or reimburse a full 30% of an employee's insurance cost was voluntary, especially for low-income employees. They argued that the promised incentive of what often amounted to hundreds of dollars was in fact coercing employees who couldn't otherwise afford their premiums to participate.

With these arguments in mind, in October 2017, the American Association of Retired Persons (AARP) sued the EEOC in the U.S. District Court for the District of Columbia, challenging the EEOC's regulations. Without getting into the nitty-gritty of the legal arguments, the AARP's position was essentially that the EEOC failed to adequately justify either its change of position on the term "voluntary" or its basis for its new interpretation of the term.

In response, the EEOC argued that it adopted the new regulations to line up with HIPAA regulations and that the 30% limit was reasonable. The district court agreed with the AARP—the EEOC failed to explain its reasoning behind the 2016 regulations.

Notably, the judge explained in his ruling that the EEOC's justification of conforming to HIPAA regulations failed for two reasons. First, the court disagreed with any need to harmonize the ADA and GINA regulations with HIPAA because the use of the 30% limitation in the HIPAA regulations was completely unrelated to any concept of the voluntary nature of the program.

Therefore, according to the court, the 30% cap under HIPAA was particularly relevant to the purposes and protections of the ADA. Second, the court pointed out that because the EEOC applied the 30% cap to participatory wellness programs in addition to health-contingent programs, it wasn't consistent with HIPAA at all.

The court also dismissed the other reasons proffered by the EEOC for its use of the 30% cap. In the end, the court decided that because the EEOC's regulations were "arbitrary and capricious," the agency has to go back to the drawing board.

What This Means for Employers

Importantly, although the court sent the regulations back to the EEOC for reconsideration, it didn't abandon the 2016 regulations on the spot. Recognizing that vacating the current regulations before new ones are ready to replace them would cause disruption and confusion for employers, it left the 2016 regulations in effect until the EEOC creates new ones.

So while the long-term future of employer wellness programs is left in limbo (which, with the uncertainty surrounding the future of the ACA, seems to be the general state of the future regulation of health care and insurance), you can be fairly confident that compliance with the 30% cap from the 2016 regulations will be considered compliance with the ADA and GINA for 2018 wellness plans.

The rulemaking process can take some time. The new regulations will most likely provide a grace period either before they go into effect or for employers to reconfigure their programs to get in line with the new regulations. You just need to be on the lookout for the new regulations when they do come.

If you have questions about setting up a wellness program or whether your current program complies with these or the other requirements of HIPAA and/or antidiscrimination laws, it's best to contact an experienced employment attorney for guidance.

Sara Anne Quinn is an attorney in Butler Snow's labor and a contributor of Tennessee Employment Law Letter. She may be reached at saraanne.quinn@butlersnow.com.