June 3, 2016
Authored by: Katharine Finley and Serena Yee
In its preamble to the final regulations under the Americans with Disabilities Act (“ADA”) published May 17, 2016, which will be the topic of an upcoming blog post, the Equal Employment Opportunity Commission (“EEOC”) once again reiterated its disagreement with the district courts’ application of the bona fide plan safe harbor to the wellness programs in Seff v. Broward County and EEOC v. Flambeau, Inc. (discussed in a prior post).
Seff and Flambeau
In both Seff and Flambeau, plaintiffs brought suit arguing that the wellness programs violated the ADA’s prohibition on mandatory medical examinations and inquiries. Both courts disagreed and held that the wellness programs fell under the safe harbor provision, which in pertinent part state that an insurer or any entity that administers benefit plans is not prohibited from “establishing, sponsoring, observing or administering the terms of a bona fide benefit plan based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.”
In Seff, Broward County offered a wellness program that included a biometric screening and health risk assessment questionnaire. This information was used by Broward County’s health insurer to identify employees who had certain diseases to offer them the opportunity to participate in disease management or coaching programs. To encourage participation, Broward Country imposed a $20 per pay-period surcharge on health plan premiums on those who did not participate in the wellness program. The court held that the wellness program was a “term” of Broward County’s group health insurance plan. As such, the court said, the wellness program fell within the safe harbor provision.
In Flambeau, Flambeau, Inc. established a wellness program that included a biometric screening and health risk assessment questionnaire for employees that wanted to enroll in its self-funded group health plan. In 2011, Flambeau gave a $600 credit to employees who completed both the biometric screening and risk assessment. However, in 2012 Flambeau eliminated the credit and adopted a policy of only offering health insurance to those employees who completed both. The court looked to the Seff decision and also found that the biometric screening and risk assessment fell within the ADA safe harbor.
EEOC’s Reaction to Seff and Flambeau
The EEOC asserts that the courts’ application of the safe harbor went far beyond its intended purpose of protecting the ability, now rendered otherwise illegal under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), of group health plans to charge individuals higher rates based on increased risks associated with medical conditions. The safe harbor provision allows this practice to continue, as long as it is based on real risks and costs associated with those conditions. Under the safe harbor, the insurance industry and sponsors of insurance plans may treat individuals differently based on disability only if the differences can be justified by increased risks and costs based on sound actuarial data. This was not the case in either Seff or Flambeau.
Although the EEOC conceded that it is arguable that wellness programs are used by employers to make employees healthier and that this may, ultimately, reduce the employer’s health care costs, it expressed its opinion that this does not constitute underwriting or the risk classification protected by the insurance safe harbor. The EEOC noted the lack of evidence in either case that the surcharge or decision to exclude an employee from coverage was based on the actual risks non-participating employees posed. In the EEOC’s opinion, continuing application of the safe harbor as in Seff and Flambeau would essentially permit any medical inquiry as part of a health plan as long as there is some possibility, whether real or theoretical, that the information might be used to reduce the risks. The EEOC further points out that there is already an explicit exception that allows employers to make disability related inquiries or conduct medical examinations as part of a voluntary employee health program. Applying the safe harbor to the same scenario would, according to the EEOC, permit incentives in excess of what the existing voluntary employee health program exception permits and would essentially render the exception irrelevant.
So once again the EEOC has reinforced its position that the safe harbor provision does not apply to employer decisions to offer rewards or impose penalties in connection with wellness programs that include disability related inquiries or medical examinations. We will have to wait and see whether any of the district courts in which similar challenges to wellness programs remain pending are listening.