Written by Jim Pshock, Founder & CEO of Bravo
On December 30, a favorable ruling was issued in one of the EEOC lawsuits that was filed in October 2014. While it was the Honeywell case that gleaned most of the attention and caused a stir given its clear compliance with the Affordable Care Act (ACA), this particular case, EEOC v. Flambeau Inc., was viewed by many as significant because it highlighted a noteworthy gray area. The Flambeau wellness incentive plan did not include outcomes-based, health-contingent incentives, so the majority of HIPAA and ACA regulatory guidance did not apply. By most wellness program standards, the financial penalty Flambeau used was extreme. The company required individuals who wanted to participate in the company’s insurance plan but refused to participate in the company wellness program – including a biometric screening and the completion of a health risk assessment – to pay 100% of the premium associated with the plan. From an ACA standpoint, as long as 100% of the premium for employee-only coverage was not greater than 9.56% of the employee’s annual household income, the design appeared compliant with ACA. Some believed however that the 100% of premium penalty would violate the Americans with Disabilities Act (ADA) because the financial amount would be viewed as so large that it was forcing employees to undergo a physical exam which is not permitted under the ADA unless it is voluntary.
I reviewed the actual court decision and it is loaded with relevant nuggets of insight.
- The EEOC lost this one based on the same reason they lost the Seff v. Broward County Florida case in 2011. The judge ruled that the safe harbor absolutely applied to this wellness program design, even though the penalty for non-participation was exclusion from the health plan.
- A big reason the safe harbor defense worked is because the wellness program was offered to individuals who wanted to participate in the company’s insurance plan rather than “all employees.” Participation in the health insurance plan is wholly voluntary, therefore employees are not required to participate in the plan as a condition of employment.
- The aggregate data collected from the wellness program was used in part to estimate the costs of providing insurance, set participant premiums, evaluate the need for stop-loss insurance, adjust co-pays, etc. It was also used to sponsor weight loss competitions, modify vending machine options, and promote health in light of the fact that the assessments suggested a high percentage of employees suffered from nutritional deficiencies and weight management problems.
- The judge indicated that the EEOC’s proposed regulations were not relevant. But even if they were, the judge felt the safe harbor would have still applied for individuals participating in the wellness program since it was used to administer and underwrite insurance risks associated with an employer’s health plan. However, the EEOC may be correct that relying on the insurance safe harbor is not appropriate when there is a stand-alone wellness program unrelated to the administration of insurance risks.
- The EEOC argued that the safe harbor was used as a subterfuge to deprive its employees of their right not to be examined or give disability-related information. The judge stated that this argument is based on a flawed understanding of the EEOC’s resolve, stating: “the purpose of the ADA is not to prohibit employers from asking for medical and disability information. Instead, its purpose is to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities.” Adding “Defendant’s wellness program clearly did not involve such a distinction or relate to discrimination in any way. Regardless of their disability status, all employees that wanted insurance had to complete the wellness program before enrolling in defendant’s plan.”
It will be interesting to see what, if any, impact this has on the direction of the proposed regulations. Although Bravo has never suggested a 100% of premium penalty associated with non-participation, the judge’s ruling and explanations align 100% with Bravo’s positioning and guidance to our customers in the past.
While we still think it is best to modify plans to align with what appear to be the unwavering portions of the proposed ADA regulations, we think this victory for Flambeau Inc. further reduces the likelihood that plans will suffer EEOC litigation when offering an ACA compliant wellness incentive plan to individuals in conjunction with its health plan. There is a clear distinction between what is offered to employees who choose to partake in an optional employer-sponsored health insurance plan and what is offered to all employees as a condition of or in conjunction with their “employment.” Personally, I think the EEOC will do more to protect the rights of employees and limit wellness initiatives offered outside of a health plan offering. As always, when we learn more, we’ll keep you posted.