EEOC Wellness Program Rule Lawsuit Decided in Favor of AARP

A new decision out of the U.S. District Court for the District of Columbia rules in favor of the AARP’s challenge to two regulations promulgated by the U.S. Equal Employment Opportunity Commission (EEOC) related to incentives and employer-sponsored wellness programs.

Crucially, the court has determined that “It is far from clear that it would be possible to restore the status quo ante if the rules were vacated; rather, it may well end up punishing those firms—and employees—who acted in reliance on the rules.” As such the court has not vacated the rules but instead “remanded” them to the EEOC for reform and/or elucidation.

The initial complaint alleged that the EEOC’s final wellness program rules implemented at the beginning of this year under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) are arbitrary, capricious, an abuse of discretion, and not in accordance with law. The AARP asked that the rules be invalidated. The main thrust of these rules is that employers can implement incentives for participating in workplace wellness programs worth up to 30% of the cost of health insurance. 

It seems the move from the district court represents something of a shift in perspective: In December 2016, the same court denied AARP’s motion for a preliminary injunction to stay applicability of the rules, allowing the now-disavowed regulations to become applicable on January 1, 2017. Explaining its decision, the court points out that the “central issue here results from the tension that exists between the laudable goals behind such wellness programs, and the equally important interests promoted by the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act. EEOC is tasked with reconciling these competing concerns, and this case arises out of its most recent attempt to do so.”

As laid out in the text of the decision, the new ADA rules under review here provide that the use of a penalty or incentive of up to 30% of the cost of self-only coverage will not render “involuntary” a wellness program that seeks the disclosure of ADA-protected information. Likewise, the new GINA rule permits employers to offer incentives of up to 30% of the cost of self-only coverage for disclosure of information, pursuant to a wellness program, about a spouse’s manifestation of disease or disorder, which falls within the definition of the employee’s “genetic information” under GINA.

“Unlike the 2013 HIPAA regulations, which place caps on incentives only in health-contingent wellness programs, the incentive limits in the new GINA and ADA rules apply both to participatory and health-contingent wellness programs,” the court explains. “AARP argues principally that the 30% incentives permitted by the new rules are inconsistent with the voluntary requirements of the ADA and GINA, and that employees who cannot afford to pay a 30% increase in premiums will be forced to disclose their protected information when they otherwise would choose not to do so.”

As noted, AARP previously sought a preliminary injunction to halt the rule changes, which the Court denied, finding that AARP had associational standing, but that it had not at that stage shown either irreparable harm or a likelihood of success on the merits. “Because of the short timeline on which the motion for a preliminary injunction was briefed and decided, the administrative record was not then available for the Court’s review,” the new decision states. “The administrative record has now been produced, EEOC has now moved to dismiss for lack of jurisdiction, and both parties have also moved for summary judgment.”

NEXT: More from the text of the decision 

The text of the decision weighs important issues of standing and harm as they pertain to the relationship between a membership organization, such as the AARP, and its members. Among other hurdles, in order to successfully assert associational standing, AARP had to show that: (1) at least one of its members would have standing to sue in his or her own right; (2) the interests it seeks to protect are germane to its purpose; and (3) neither the claim asserted nor the relief requested requires the participation of an individual member of the organization in the suit.

“The court analyzed this issue at length in its previous opinion, and observed that the associational standing case law is unclear as to what, exactly, constitutes a membership organization,” the decision states. “The court acknowledges, as it did in its previous opinion, that whether AARP satisfies the indicia of membership criteria is a close question here … AARP’s members play less of a role in the running of the organization than do members of organizations who, for example, directly elect their leadership and hold regular general membership meetings.”

After some deliberation, the decision declares that AARP members are “not akin to Netflix subscribers, i.e., mere customers, as EEOC suggests, nor does AARP fit the mold of those organizations whom courts have consistently found may not assert associational standing … The associational standing cases are not specific about what it means for members to ‘play a role in’ the leadership of an organization, the financing of an organization, or in guiding the activities of an organization. AARP members play a role in all of these activities, even if they could play a stronger role, and EEOC has once again failed to point to any cases that would suggest that what AARP members do is insufficient to establish associational standing.”

Another line of argument that failed involved EEOC suggesting that one of the individual plaintiffs represented by AARP was only faced with an “imposed incentive” of 2%. Because of this, EEOC argued this plaintiff may not challenge the “full extent” of the ADA/GINA rules, which allow incentives of up to 30%. EEOC additionally points out that AARP has conceded that some level of incentives would be permissible, i.e., consistent with the ADA’s voluntariness requirement.

“But the government’s approach—parsing standing to challenge the rule by the particular incentive level—makes little sense,” the court rules. “Under EEOC’s approach, only someone whose employer has adopted an incentive level of 30% would have standing to challenge the rule … [The individual] has suffered an injury in being required to pay more for his health insurance than he otherwise would pay because he has declined to disclose information about his medical conditions to his employer as part of his employer’s wellness program.”

NEXT: The matter of summary judgement 

With the standing issues settled, the court turns to the main AARP arguments that the level of incentives is inconsistent with the meaning of the term “voluntary” as used in the ruling statutes; and second, that EEOC failed to adequately explain its decision to reverse its stance on incentives and adopt the 30% incentive levels.

Both parties agree that EEOC’s interpretation of the term “voluntary” in both the ADA and GINA should be reviewed under the two-step analysis set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council. Under that type of analysis, a court first determines whether “Congress has directly spoken to the precise question at issue.” If so, Congress’s meaning must control, and the agency receives no deference. But if instead the statute is silent or ambiguous as to the specific issue, the court must determine whether the agency’s interpretation is based on a permissible construction of the statute.

As the court explains, the facts of this particular case evoke the second category.

“EEOC determined that incentives greater than 30% of the cost of coverage would render the disclosure of protected medical information pursuant to a wellness program ‘involuntary’ under the ADA, but an incentive of 30% or less would not,” the decision states. “But the court can find nothing in the administrative record that explains the agency’s conclusion that the 30% incentive level is the appropriate measure for voluntariness … EEOC depends heavily on the argument that it adopted the 30% incentive level in order to harmonize its regulations with HIPAA. In the abstract, this may be a reasonable goal. But there are two problems with the agency’s underlying reasoning on this point. The first is that Congress chose the 30% number in a different context … The regulations are clear, moreover, that compliance with HIPAA does not guarantee compliance with other federal non-discrimination statutes, including the ADA and GINA.”

The decision goes on to declare that the interpretation the agency adopted—the 30% incentive level—is actually not consistent with HIPAA, as both AARP and multiple comment letters in the administrative record point out. The HIPAA regulations, further, base the 30% figure on the total cost of coverage, which includes the cost of family coverage, rather than the cost of self-only coverage that the ADA/GINA rules adopt.

In a nod to the EEOC, the court agrees that “there is plenty of evidence to support the conclusion that regulation was needed in this area to clarify employer obligations with respect to wellness programs, and there is also evidence that the use of incentives increases participation in wellness programs.”

But the final ruling is that EEOC has not justified its decision to interpret “voluntary” in the ADA to permit incentives of up to 30%, because it has not adequately explained how it determined that the 30% incentive level is an adequate measure of voluntariness. Courts may not “simply accept whatever conclusion an agency proffers merely because it is the agency’s judgment.”

To be clear, this would likely be a different case if the administrative record had contained support for and an explanation of the agency’s decision, given the deference courts must give in this context.

Read the full decision here.