“The idea [behind issuing proposed rules for employer wellness programs] was to provide clarity and consistency, and while the EEOC was conceptually in the neighborhood, it provided a little more clarity, but a lot more inconsistency,” says Michael Dermer, chief incentive officer at Welltok, a Denver-based company that created the CaféWell Health Optimization Platform.

Dermer, based in New York City, notes that the proposed rules recently issued by the Equal Employment Opportunity Commission (EEOC) did not address issues with the Genetic Information Nondiscrimination Act (GINA)—tying incentives to family history information—and that was the basis for one of its claims in a lawsuit against Honeywell International. He also tells PLANSPONSOR that if the proposal is passed in its current form, it will establish two sets of rules, one for outcomes-based incentives and one for participation-based incentives, particularly when it comes to smoking cessation.

For background, Ryan Gorman, an associate in the Employee Benefits and Executive Compensation practice of King & Spalding LLP, in Atlanta, Georgia, explains that in 2013, the Internal Revenue Service (IRS) and the Departments of Labor (DOL) and Health and Human Services (HHS) issued final regulations based on changes made by the Patient Protection and Affordable Care Act (ACA) to set up an affirmative defense for employers that wellness incentives complied with Health Insurance Portability and Accountability Act (HIPAA). However, the EEOC said wellness programs could satisfy HIPPA under those regulations, but may not be in compliance with Americans with Disabilities Act (ADA).

Following the filing of several lawsuits by the EEOC challenging employers’ wellness program practices, many called for the EEOC to issue rules for wellness programs. The EEOC had previously said employers cannot make disability-related inquiries, and medical examinations are restricted to only those that are part of a voluntary program. Employers wanted clarification of what qualified as voluntary, Gorman notes.

He says the proposed rules define what requirements must be met if you make a disability-related inquiry or medical testing in order for it to be voluntary—employers cannot mandate all employees participate, cannot deny access to health coverage or limit coverage if someone chooses not to participate, cannot take any adverse action towards an employee such as threatening to discipline the employee if he or she doesn’t participate or achieve certain outcomes. But, Gorman notes there are still questions about the underlying principle of incentives not discriminating, especially if the incentive is tied to health insurance premiums. 

For example, some employers tie smoking to premium rates, adding a surcharge to the rates paid by smokers. “It is difficult to reconcile whether a reduced rate is an incentive to participate in smoking cessation programs or a penalty for not participating,” Gorman notes. “It gets murky as to whether the program is really voluntary and whether it’s nondiscriminatory.” He says he is seeing a trend of employers not tying incentives to premiums because of this fine line. The proposed rules ask for comments about what the requirements should be for a program to be considered voluntary.

Smoking cessation is one of the areas in which the proposed rules create inconsistency, says Dermer. Prior rules allowed for an incentive of up to 50% of the cost of employee-only coverage for employees that successfully complete smoking cessation programs, but the proposed rules only allow for an incentive up to that amount if the employer simply asks the employee if he stops smoking, not if a blood test for nicotine is required, he explains. Dermer adds that there is a trend of employers using testing as opposed to someone just checking a box to self-report they are not smoking.

In general, the proposed rules say that employers are allowed to offer both financial and in-kind incentives in the form of a reward or penalty totaling no more than 30% of the cost of employee-only coverage. Dermer notes that this is a reduction in the incentive amount allowed by current rules, which calculate the incentive based on total cost of family coverage.

As for wellness program design, the proposed rules say gathering information to alert employees of health risks is appropriate, but gathering information without providing feedback or using the information to design programs is not appropriate, Gorman says. The proposal also requires more disclosure to participants. If the wellness program is part of a group health plan, employers have to provide participants with written notice that explains what medical information will be obtained, how it will be used, who will receive it, privacy rules and procedures the employer will use to make sure the information is not improperly disclosed or to handle breaches.

Neither Dermer nor Gorman have a clear opinion about how the proposed rule would affect current EEOC lawsuits, but Gorman says his colleagues do not think the EEOC will pull back on future enforcement activities concerning wellness programs given its commitment to pursue enforcement of discrimination laws.