With health insurance costs on the mind of all employers, a way to cut expenses and get healthier employees sounds like a good option.
But an employer-sponsored wellness program — reimbursement for gym membership, for example, or rewards for workers who lower their cholesterol level or quit smoking — raises a veritable alphabet soup of concerns under both state and federal law.
The Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, the Age Discrimination in Employment Act, Title VII, the Health Information Portability and Accountability Act and the National Labor Relations Act for unionized employees.
In addition, the Affordable Health Care Act made important changes to the implementation of incentive-based wellness plans, allowing employers to offer bigger rewards but also mandating that “reasonable alternatives” must be offered for those unable to achieve the program’s goal.
Given the myriad of potential pitfalls, “employers need to be careful and make sure they are following all of the regulations out there,” when implementing a wellness program, said Christopher Trebilcock of Miller, Canfield, Paddock and Stone PLC in Ann Arbor. “There needs to be really careful crafting of language.”
“Employers are typically unaware of the depth and complexity involved in wellness programs,” added Frank Alvarez, a partner in the White Plains, N.Y., office of Jackson Lewis. “Health care is complicated. As we speak, our government is shut down due to the complex nature of health care in this country.”
Goal reward increase, incentive program changes
Wellness programs can serve a dual purpose for employers: keep the workforce healthy and cut costs. Healthier employees reduce the cost of health insurance as well as a decrease in sick days, disability claims and increased productivity.
Programs fall into one of two categories: participation-based programs, available to all employees (gym membership reimbursement, for example, or health education seminars) and incentive-based programs, where workers can achieve a reward based on a specific goal like lowering blood pressure or ceasing smoking.
To further encourage the use of wellness programs, the ACA upped the allowable reward amounts in incentive-based programs, Trebilcock said. Previously set at 20 percent of the total cost of an employee’s health coverage, the value was increased to 30 percent. Up to 50 percent of total coverage costs are now possible for a smoking-cessation program.
In addition to increasing the possible rewards, the ACA imposed heightened requirements for employers on incentive-based programs to offer alternative methods for achievement. “This is where employers can get into trouble,” Trebilcock warned. The regulations jointly issued by the Departments of Treasury, Labor and Health and Human Services make clear that “reward” also includes the avoidance of a penalty, like a premium surcharge.
The intent behind the switch: to ensure that the program was designed to improve the health of participants and not as a subterfuge for discrimination.
For example, if an employee has a goal to lower her cholesterol and can’t take medication, then the plan must offer reasonable alternative standards to achieve that goal, like a diet and exercise regime or a running program.
In a smoking cessation program, smokers may now achieve rewards not necessarily by quitting smoking but reaching alternative targets like switching to nicotine gum or attending a cessation class.
Activity-only incentive programs — such as offering a reward to an employee who exercises a certain number of days per week each year — must also offer a reasonable alternative standard under the regulations. So if a worker has a knee injury that prevents him from taking part in a running program, then the employer must provide another way for him to earn the reward, perhaps with a similar walking program.
Under the regulations, a wellness program that fails to meet the new requirements can be subject to excise taxes of $100 per day that the plan is not in compliance for each employee implicated. The regulations are effective for plan years beginning on or after Jan. 1, 2014.
A broad variety of state and federal statutes may trip up employers who are unaware of the intersection with wellness programs.
The Genetic Information Nondiscrimination Act prohibits employers from asking employees about family medical history, including spouses. But many questionnaires or intake forms for wellness programs include questions about family history and an open question remains whether employers can use financial incentives to motivate spousal participation in a company wellness program.
Under the Americans with Disabilities Act, employers are not allowed to ask disability-related questions that are unrelated to an employee’s job. Such questions posed as part of a wellness program could run afoul of the statute. And a wellness program must also comply with the ADA’s requirement to provide disabled individuals with reasonable accommodations if a health factor on which a wellness program conditions a reward constitutes a disability.
Trebilcock’s clients are increasingly considering anti-smoking policies for employees, he reported. While smokers are not a protected category under anti-discrimination laws, an employee could allege the policy discriminates against the conditions caused by smoking that are covered as a disability under the ADA, like lung cancer or emphysema.
Even ERISA can present issues for wellness programs, Alvarez said. Section 510 of the statute, which prohibits employers from terminating employees for the purpose of preventing them from participating in or accessing benefits under the plan, can form the basis of potential liability.
An employee terminated for smoking could allege that the real motivation behind the action was to prevent him from participating in a health care plan because that individual was likely to increase the cost of that plan, he said. A federal appellate court dismissed a suit based on the theory for alternative reasons, “so a concern exists about the application of Section 510 to policies like smoking cessation,” he noted.
The Equal Employment Opportunity Commission has indicated that it has concerns about wellness programs running afoul of Title VII. The theory, Alvarez explained, is that certain incentives could disparately impact protected groups like women, minorities, disabled employees or older workers.
“This is an emerging theory that really gives cause for concern,” he explained, as it presents the potential for class-based litigation against an employer. “The question is whether these well-intentioned programs have an unintentional adverse impact on protected groups.”