On January 7, 2021, the Equal Employment Opportunity Commission (EEOC) proposed new rules regarding how employers can provide incentives to employees to participate in wellness programs without violating the law. The key is to ensure the incentive to participate in a wellness program is not so strong that it renders the program involuntary because the incentive becomes coercive.
With one exception relating to certain health-contingent wellness programs, the proposed rules allow employers to offer only "de minimis" rewards, like a water bottle or a gift card of modest value, for participating in a wellness program. Given the significant change in the incentive amount permissible under most wellness programs, employers should consider how their wellness program may need to be revised, especially if employers are incentivizing employees to obtain COVID-19 vaccinations.
The Checkered Past
The EEOC's latest proposal flows from a history of regulation and litigation, as well as uncertainty regarding the intersection of wellness programs and anti-discrimination laws, including the Americans with Disabilities Act of 1990 (ADA) and the Genetic Information Nondiscrimination Act of 2008 (GINA).
- The ADA prohibits discrimination against an employee based on disability concerning employment, including benefits such as a wellness program. An employer may conduct medical examinations and collect employee medical history as part of a wellness program if participation in the program is voluntary.
- Under GINA, employers are prohibited from discriminating against employees based on genetic information including required disclosure of a family member's medical information. However, employers can collect certain genetic information if provided voluntarily by an employee as part of the wellness program.
Previously, EEOC regulations under both the ADA and GINA permitted incentives of up to 30 percent of the total cost of self-only health coverage (or 30 percent of the total cost of the lowest self-only health coverage if an employer offers multiple health coverage options).* This 30 percent reward aligned with the wellness program rules under the Health Insurance Portability and Accountability Act (HIPAA).
However, in AARP v. EEOC, the plaintiff claimed that forcing an employee to choose between disclosing medical information and paying 30 percent more for health insurance coverage was coercive. The U.S. District Court for the District of Columbia agreed and struck down the incentive provisions in those regulations, effective January 1, 2019, stating that the EEOC had not adequately explained its basis for the 30 percent limit, and ordered the EEOC to reconsider its regulations.†
Since that time and until the recent issuance of the proposed rules, there has been no guidance from the EEOC on the level of incentive that can be offered under a wellness program for such program to still remain voluntary.
When Is a Wellness Program Voluntary?
Under the proposed rules, a wellness program is a program of health promotion or disease prevention that includes disability-related inquiries or medical examinations and will be considered "voluntary" if the employer:
- Does not require employees to participate;
- Does not deny coverage under any of its group health plans (or particular benefits packages within its group health plan);
- Does not generally limit the extent of group health plan coverage; and
- Does not take any other adverse action against employees who decline to participate in an employee health program or fail to achieve certain health outcomes
In addition, any incentive for participating in a voluntary wellness program must not be too attractive—or the penalty for not participating too harsh—such that employees may feel coerced into joining the program and disclosing their medical information.
Types of Wellness Programs
The newly proposed ADA rules describe two types of wellness programs—participatory and health-contingent. These concepts will be familiar to employers who have designed HIPAA-compliant wellness programs.
- A participatory wellness program is one where none of the conditions for obtaining a reward are based on an individual satisfying a standard that is related to a health factor, such as attending a nutrition class or completing a health risk assessment.
- A health-contingent wellness program is a program that requires an individual to satisfy a standard related to a health factor to obtain a reward (or requires an individual to undertake more than a similarly-situated individual based on a health factor in order to obtain the same reward).
This type of goal-based wellness program may be either activity-only (e.g., rewarding an employee for exercising regularly or participating in a diet program) or outcome-based (e.g., lowering blood pressure by a specific percentage or being tobacco-free for a year).
Permissible Incentives Under Proposed ADA Rule
The level of permissible incentive depends on the type of wellness program under which it is offered. Specifically, if the program is participatory, any incentive must not be more than de minimis (such as a water bottle or gift card of modest value) in order to be considered voluntary. By way of example, the guidance says that an incentive equivalent to $50 per month (for a total of $600 per year), paying the cost of an employee's annual gym membership, or rewarding an employee with airline tickets are all not de minimis.
If the program is health-contingent, any incentive must also not be more than de minimis unless such program is part of, or qualifies as, a group health plan. In that case, the health-contingent wellness program is permitted to offer incentives up to the maximum amount permitted under HIPAA, which is 30 percent of the total cost of the health plan coverage (or 50 percent if the wellness program is designed to prevent or reduce tobacco use).
Under the proposed rules, factors suggesting that a health-contingent wellness program is part of, or qualifies as, a group health plan include whether the program:
- Is offered only to employees who are enrolled in an employer-sponsored group health plan;
- Ties any incentive offered to cost-sharing or premium reductions (or increases) under the group health plan;
- Is offered by a vendor that has contracted with the group health plan or insurer; and
- Is a term of coverage under the terms of the group health plan.
If a health-contingent wellness program is found to be a part of, or qualifies as, a group health plan, the incentives thereunder may be greater than de minimis provided that the program also:
- Allows eligible individuals an opportunity to qualify for a reward at least once per year;
- Provides a reasonable alternative standard (or waiver) to qualify for a reward for any individual for whom, for that period, it is unreasonably difficult due to a medical condition to satisfy the otherwise applicable standard or for whom, for that period, it is medically inadvisable to attempt to satisfy the otherwise applicable standard;
- Is reasonably designed to promote health or prevent disease and not be overly burdensome, a subterfuge for discriminating based on a health factor, or highly suspect in the method chosen to promote health or prevent disease; and
- Discloses the availability of a reasonable alternative standard to qualify for the reward in plan materials that provide details regarding the wellness program.
- For an outcome-based program, disclose such availability in any notification that an individual did not satisfy an initial outcome-based standard.
Permissible Incentives Under the GINA Proposed Rule
Previously, employers could offer to an employee an incentive under a wellness program that required disclosure of information about a spouse's manifestation of a disease or disorder. The disclosure of the spouse's genetic information was considered to be a disclosure of the employee's genetic information, and was only considered to be voluntary if the program's incentives are limited to 30 percent of the cost of self-only coverage.
Under the recently proposed GINA rules, an employer can offer wellness program incentives to all family members (not just the employee's spouse) who furnish information about the manifestation of a disease or disorder, but only if the incentives are de minimis (e.g., a water bottle or a gift card of modest value). There is no similar opportunity to offer larger incentives in this context as permitted under the ADA proposed rules for certain health contingent wellness programs.
Several questions remain unanswered:
- Assuming the Biden Administration asks that all regulations not yet effective as of the inauguration be halted or delayed (as most incoming administrations do), will it increase the amount of permissible incentives to the level in place during the Obama Administration?
- Under the proposed rules, what is the permissible level of incentives for an outcome-based health-contingent wellness program that includes a participatory reasonable alternative standard?
- How much of an incentive can be offered with respect to a wellness program under which COVID-19 vaccinations are provided and still have that program remain voluntary?
Under the currently proposed rules, a wellness program will be considered voluntary only if de minimis incentives are offered, unless the program is:
- (1) A health-contingent wellness program that is part of, or qualifies as, a group health plan; or
- (2) Not governed by the ADA (i.e., does not include any disability-related inquiries or medical examinations) or GINA (i.e., does not ask for a family member to disclose any signs or symptoms of a disease or disorder).
Accordingly, employers should analyze their wellness programs and either review whether its incentives must be reduced to a de minimis level, or whether it can be changed to be part of, or qualify as, a group health plan.
In addition, employers should consider whether they want to submit comments on the proposed rules to the EEOC during the 60 calendar day public comment period that begins once the rules are published in the Federal Register. The EEOC has specifically asked for comments on whether it would be helpful for them to provide additional examples of what incentives are not de minimis.
* Note: the term "incentive" (as a reward for participation in a wellness program) as used throughout this post also includes a penalty (as a sanction for failing to participate in a wellness program).
† 267 F. Supp. 3d (D.D.C. 2017).