Navigating the Legal Minefield of Employee Wellness Programs

Employers must tread carefully when offering health insurance incentives to participating workers.

By Patricia F. Weisberg

Rising healthcare expenses have prompted many employers to reassess their insurance premiums and their employees’ overall health in relation to such costs.

According to the annual national Employer Health Benefits survey conducted by the Kaiser Family Foundation and the Health Research & Educational Trust (HRET), the average annual 2008 premiums for employer-sponsored health insurance are $4,704 for single coverage and $12,680 for family plans. That’s an increase of 5 percent over 2007 average premiums and a massive 119 percent climb since 1999. On average, about 80 percent of workers with single coverage and 93 percent with family coverage contribute to the total premium for their coverage, but employers still do bear a growing cost burden.

It’s no wonder that companies increasingly have begun to crack down on health factors that have the highest correlation to increasing healthcare costs – nicotine addiction and tobacco use, obesity and even high cholesterol – by offering incentive-based wellness programs.

A recent survey conducted by the Employee Retirement Income Security Act (ERISA) Industry Committee (ERIC), the National Association of Manufacturers (NAM) and IncentOne notes the number of employers using incentives to promote employee wellness rose from 62 percent in 2007 to 71 percent in 2008.

While some organizations, such as the Cleveland Clinic Foundation, have begun such measures as screening potential hires for tobacco use, many have focused more closely on the wellness of their existing workforce. U.S. employers have begun offering everything from trinkets and T-shirts for participants to instituting higher insurance premiums for those not meeting certain wellness criteria and/or providing discounts, upwards of 20 percent, in some cases, for those who do.

Perhaps the most notable action in recent news was the decision of Alabama’s State Employees' Insurance Board to require its more than 37,000 state employees to receive health screenings for several conditions, including body mass index. Those considered obese or who have high blood pressure, high cholesterol or high glucose will have to pay $25 a month more in health insurance beginning in January 2011, if they don't take steps to address their health problems through a company-sponsored wellness program that includes subsidies for such programs as Weight Watchers and YMCA discounts.

Is this incentive/punitive approach a sensible way for employers to take on rising healthcare costs? And, in the post-Health Insurance Portability and Accountability Act (HIPAA) environment, what legalities surround formal company wellness programs that offer discounts to qualifying participants or higher premiums for employees who do not meet the terms?

Bona Fide Wellness Programs
There is no single definition of what constitutes a “wellness program.”

However, the U.S. Departments of Labor and Health and Human Services and the Internal Revenue Service (IRS) have worked to clarify the term “bona fide wellness program,” keeping in mind HIPAA’s non-discrimination provisions in devising such a definition.

As defined, bona fide wellness programs typically must satisfy the following requirements to comply with HIPAA:

• Rewards offered to an individual must be limited. The Department of Labor suggests a limit of 10 to 20 percent of the total cost of employee-only coverage.


• The program must be reasonably designed to promote good health or prevent disease for the individuals in the program.


• The program also must give eligible individuals the opportunity to qualify for the reward at least once per year.


• The reward must be available to all “similarly situated” individuals. A reasonable alternative standard (or waiver of initial standard) must be made available for any individual for whom, due to a health factor, it would be unreasonably difficult to meet the initial standard (or for whom it is medically inadvisable to attempt to satisfy that standard).


• All plan materials that describe the terms of the wellness program must disclose the availability of a reasonable alternative standard or the possibility of a waiver of the initial standard.

Employers seeking to implement a company-wide wellness initiative that is part of their ERISA health benefit plan need to consider how such a program can be developed to fit within the definition of a bona fide wellness program and the various requirements set by HIPAA privacy regulations.

HIPAA prohibits employers from using eight recognized health-status factors as a basis for discrimination when it comes to enrollment eligibility or premium contributions under a group health plan’s non-discrimination provisions. These factors include health status, medical condition, claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability and disability.

That leaves HR professionals questioning what constitutes an allowable, non-discriminatory company wellness initiative that still promotes wellness under a group health plan through rebates, discounts or other plan features. Is one bona fide if it lowers health insurance premiums for workers who do not smoke or who are of a desirable weight or have what is considered to be a healthy cholesterol level?

Other Considerations
There’s a big difference between rewarding participation vs. rewarding results in the development and implementation of a workplace wellness program. Businesses will see challenges from the workforce in that area. The area remains a bit undefined and is governed by multiple regulations.

ERISA clearly states employers cannot discriminate against people in wellness programs. If an employee is unable to participate in a particular facet of a program because of a disability, for example, employers must provide a reasonable alternative – just as required by HIPPA standards. If a wellness program takes into account what a reasonable alternative medical standard would be, typically it will meet the legal requirements.

This, however, also ties into provisions in the Americans with Disabilities Act (ADA) – which further prohibits discrimination against disabilities. Nothing in the ADA prohibits employers from enforcing wellness programs designed to promote preventive health and wellness. The ADA does prohibit employment-based discrimination against individuals with disabilities. It also limits employers’ abilities to inquire about medical conditions unless the inquiry is job related and a business necessity. As of Jan. 1, 2009, the ADA will be amended to cover an even broader group of individuals through the enactment of the ADA Amendments Act (ADAAA).

Currently, a wellness program may comply under ADA requirements if participation is voluntary; information gathered in relation to the program is done so in compliance with ADA confidentiality provisions; and such information is not used to discriminate against employees. The new ADAAA will expand these protections to a more diverse group of individuals, putting even more responsibility on the employers to prove necessity of their actions in relation to workers with disabilities.

Determining what constitutes a “reasonable accommodation” for employees unable to participate in any aspect of a wellness program as a result of a disability, as outlined by the ADAAA, HIPAA, ERISA and other regulations, requires employers to enter into dialogue with the workers in question to develop favorable and appropriate reasonable alternatives.

Wellness at Your Own Risk
In this era of rising healthcare costs, both for employers and employees, corporate-sponsored wellness programs have advantages. They help employees by promoting healthier lifestyle choices, while for the employers they reduce absenteeism and, often, insurance premiums.

The various legal restrictions on such programs require employers to carefully design programs to avoid discrimination charges and legal challenges.

The planning of any sort of bona fide wellness program at a company-wide level should not be undertaken without an in-depth understanding of the myriad of rules and regulations governing employee privacy and health. Consider consulting knowledgeable experts who understand the laws and implications involved in the development and administration of such programs. Carefully planned, bona fide wellness programs can yield significant benefits and cost savings in a costly healthcare environment.

WP

Patricia F. Weisberg is a partner at Walter & Haverfield LLC. She focuses her practice on representing all types of employers and assists employers in understanding and complying with their obligations under state and federal civil rights laws in an effort to minimize potential litigation. Weisberg has defended discrimination and other employment-related claims in state and federal court. She has also represented clients in agency proceedings before the National Labor Relations Board, the U.S. Equal Employment Opportunity Commission, the United States Department of Labor, the Ohio Civil Rights Commission, the Ohio Department of Job and Family Services, the Ohio Bureau of Workers’ Compensation, and other similar state administrative agencies.

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