EEOC Issues Proposed Rule on Employer- Sponsored Wellness Programs

Issue 2 2015 EEOC Issues Proposed Rule on Employer- Sponsored Wellness Programs On April 20 th, the Equal Employment Opportunity Commission ( EEOC ) published a proposed rule that would amend the regulations and interpretive guidance implementing Title I of the Americans with Disabilities Act ( ADA ). Congress enacted the ADA in 1990 to prohibit discrimination against individuals with disabilities, and the EEOC issued implementing regulations in 1991 to provide additional guidance on the law s requirements and prohibited practices with respect to employment. This proposed rule is the first formal guidance that the EEOC has provided since 1991 and, in general, provides guidance on the extent to which the ADA permits employers to offer incentives to employees to participate in wellness programs. Background As a means of attempting to improve employees health and reduce health care costs, many employers that provide health coverage also offer employee health programs and activities to promote healthier lifestyles or prevent disease. Commonly referred to as workplace wellness programs, these programs may include, for example: nutrition classes, onsite exercise facilities, weight loss and smoking cessation programs, and/or coaching to help employees meet health goals. Wellness programs also may incorporate health risk assessments and biometric screenings that measure an employee s health risk factors, such as body weight and cholesterol, blood glucose, and blood pressure levels. Some employers offer incentives to encourage employees to participate in a wellness program, while others offer incentives based on whether employees achieve certain health outcomes. Incentives can be framed as rewards or penalties and often take the form of prizes, cash, or a reduction or increase in health care premiums or cost sharing. Employer-sponsored wellness programs generally must comply with laws enforced by the EEOC, including Title I of the ADA, as well as, the requirements of The Health Insurance Portability and Accountability Act of 1996 ( HIPAA ), as amended by the Patient Protection and Affordable Care Act ( PPACA ). HIPAA regulations have included limitations on the use of incentives in wellness programs since the first set of HIPAA nondiscrimination regulations were issued in December 2006. At that time, the maximum incentives allowed by the 2006 HIPAA regulations for wellness programs was 20% of the total cost of a participant s coverage under the underlying group health plan. The original HIPAA rules covered two categories of wellness programs participatory and health-contingent. The rules under PPACA continued to divide wellness programs into these two categories, and further subdivided the health-contingent category into activity-only programs and outcome-based programs. Moreover, starting in 2014, PPACA modified the HIPAA rules by increasing the total amount of permissible incentives from 20% to 30% (up to 50% for programs whose goal is to eliminate or reduce tobacco use) of the total cost PAGE 1 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

of the employee s elected coverage. Our June 2013 Healthcare Reform Update article, Departments Release Final Wellness Regulations Providing Clarification and Increasing Permitted Rewards, provides more detailed information on the current HIPAA rules as modified by PPACA. Click here for a copy. The ADA has specific restrictions related to when employers may obtain medical information from employees; however, the ADA does allow medical examinations of employees and inquiries about their health if they are part of a voluntary employee health program. Previously, the EEOC stated that health-related inquiries and medical exams under a wellness program were voluntary if the employer did not require participation and did not penalize employees who did not participate. However, prior to the issuance of the proposed rule, the EEOC had not said whether employers may offer incentives to encourage employees to participate in wellness programs or whether offering incentives would make participation involuntary -- even though HIPAA, as amended by PPACA, allowed wellness programs to offer incentives. The discrepancy in how the two laws impacted employers finally came to the forefront when the EEOC sued three employers for issues related to their wellness program incentives. The EEOC issued the proposed rule with the stated goals of: (1) providing employers with guidance on the ADA s requirements for wellness programs, and (2) aligning the requirements of the ADA, HIPAA, and PPACA as they relate to employer-sponsored wellness programs. And, while these proposed rules are somewhat similar to those already in effect under the HIPAA, as amended by PPACA, there are important differences, which we highlight below and in the chart beginning on page 8. New Proposed EEOC Guidance The proposed rule covers three key topics under the ADA: (1) what does it mean for a wellness program to be voluntary; (2) the notice and confidentiality requirements a wellness program must follow; and (3) what incentives an employer may offer employees as part of a voluntary wellness program. Voluntary The proposed rule reiterates that a wellness program that includes disability-related inquiries or medical examinations (including disability-related inquiries or medical examinations that are part of a health risk assessment) must be reasonably designed to promote health or prevent disease. Such a program will only be considered voluntary if the employer: 1. Does not require employees to participate; 2. Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation, or limit the extent of benefits for employees who do not participate; 1 3. Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees in violation of the ADA; and 4. Where the wellness program is part of a group health plan, the employer must provide employees with a notice containing certain information relating to the program (discussed in greater detail in the section below). 1 1 Current guidance states that an employer may not deny health insurance to employees who do not participate (EEOC Q&A#10). See link on page 7. PAGE 2 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

Notice and Confidentiality Requirements To ensure that a wellness program that includes disability-related inquiries or medical examinations and is a part of a group health plan is truly voluntary, an employer must provide an employee with a notice that: 1. Is written in a way that the employee from whom medical information is being obtained is reasonably likely to understand; 2. Clearly explains what medical information will be obtained; 3. Identifies who will receive the medical information; 4. Explains how the medical information will be used; and 5. States the restrictions on its disclosure, and the methods that the covered entity will employ to prevent improper disclosure of the medical information (including whether the program complies with HIPAA Privacy requirements). In addition, the proposed rule states that medical information obtained by a wellness program may only be used for purposes of plan operations and may only be disclosed to an employer in aggregate form that does not disclose, and is not reasonably likely to disclose the identity of specific individuals, except as is necessary to administer the plan. In the proposed rule, the EEOC also noted that under the HIPAA privacy rule, a group health plan may receive Protected Health Information ( PHI ) to administer the health plan without the individual s authorization, but only if the employer certifies to the plan that it will safeguard the information and not impermissibly use or disclose the information. Under the proposed rule, employers sponsoring wellness programs will similarly be required to take steps to protect the confidentiality of the information acquired by their wellness programs, such as ensuring proper training of individuals who handle medical information, and having clear privacy policies and procedures regarding the collection, storage and disclosure of any medical information. As a best practice, individuals who handle medical information that is obtained as part of a wellness program should not be responsible for making employment decisions, such as, hiring, disciplining, or terminating employees. Moreover, employers that administer their own wellness programs may need to put adequate firewalls in place to prevent unintended disclosure of medical information, or they may decide to use a third-party vendor to reduce the risk of improper disclosure. Finally, if a breach of confidential information does occur, then the breach should be reported immediately to all affected employees, and the breach must be thoroughly investigated. Employers sponsoring wellness programs are already required to satisfy notice and confidentiality requirements under HIPAA s privacy, security, and breach notification requirements. The proposed rule confirms that a wellness program of an employer subject to HIPAA will likely comply with the new ADA confidentiality obligations by complying with the HIPAA privacy rules, security, and breach notification rules, which are generally more restrictive. Lastly, the EEOC notes that although the ADA includes an exception to confidentiality that permits disclosure of some types of information to managers and supervisor in connection with necessary work restrictions or accommodations, such as exception would rarely, if ever, apply to medical information collected as part of a wellness program. PAGE 3 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

Maximum Incentives/Penalties As previously noted, HIPAA, as amended by PPACA, permits the use of limited incentives (which include both financial and in-kind incentives, such as time-off awards, prizes, or other items of value) in wellness programs that are part of group health plans. Under HIPAA and PPACA, the maximum incentive for health-contingent wellness programs, which generally require individuals to satisfy a standard related to their health to obtain a reward, is 30% of the total cost of coverage (or 50% for wellness programs designed to reduce or eliminate tobacco use). The total cost of coverage includes both the employee and employer share of premiums or contributions for employee-only coverage, or if, in addition to employees, any class of dependents may participate in the wellness program, the total cost of coverage in which an employee and any dependents are enrolled. When it released the proposed rule, the EEOC stated that one of its goals was to provide as much consistency as possible between the ADA and HIPAA, as amended by PPACA; however, as we highlight below, significant differences still exist. Under the proposed EEOC rule, the maximum allowable incentive of 30% would apply to a total wellness program, regardless of whether it is participatory, health-contingent, or both. However, incentives under a participatory program that does not include disability-related inquiries or medical exams would not be limited and the notice requirement would not apply. Regardless of whether a wellness program includes disability-related inquiries or medical examinations, reasonable accommodations (as defined by the ADA) must be provided, absent undue hardship, to enable employees with disabilities to earn whatever financial incentive an employer offers. Reasonable accommodation as required by the ADA is different from the reasonable alternative standard required for health-contingent wellness programs under HIPAA and PPACA. The purpose of reasonable accommodation is to ensure that individuals with disabilities are able to access the wellness program. The purpose of a reasonable alternative standard is to provide employees who can access the wellness program, but are not be able to satisfy a wellness program standard with a means to obtain the incentive (reward or penalty). Providing a reasonable alternative standard and notice to the employee of the availability of a reasonable alternative under HIPAA, as amended by PPACA, as part of a healthcontingent program would likely fulfill an employer s obligation to provide a reasonable accommodation under the ADA. However, under the ADA, a covered entity would have to provide a reasonable accommodation for a participatory program even though HIPAA and PPACA do not require such programs to offer a reasonable alternative standard. The EEOC provides several examples of reasonable accommodations related to wellness programs in the proposed regulations. First, if an employer offers a financial incentive to employees attend a class on nutrition (whether or not the employee reaches a healthy weight), they would have to provide a sign language interpreter for an employee who is deaf and needs to have an interpreter to understand the information presented in the class. In a second example, an employer that offers a reward for completing a biometric screening that includes a blood draw would be required to provide an alternative test (or certification requirement) so that an employee with a disability that makes drawing blood dangerous can still earn the reward. PAGE 4 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

Under the proposed rule, an employer may offer limited incentives up to a maximum of 30% of the total cost of employee-only coverage to promote an employee s participation in a wellness program. However, under HIPAA and PPACA, employers are permitted to offer incentives of up to 30% of the total cost of employee-only coverage, or if any dependents can participate in the wellness program, the coverage in which the employee and any dependents are enrolled. Thus, for example, under HIPAA, when an individual and his or her spouse are enrolled in family coverage, and spouses may participate in the wellness program, HIPAA and PPACA permit an incentive of up to 30% of the total cost of coverage in which the employee and spouse are enrolled. In contrast, the EEOC s proposed rule limits the maximum incentive to 30% of self-only coverage. This discrepancy will need to be clarified in the final rule. Furthermore, the proposed rule conflicts with the larger incentive permitted under HIPAA and PPACA for wellness programs designed to reduce or eliminate tobacco use. HIPAA, as amended by PPACA, permits employers to offer incentives as high as 50% for tobacco-related wellness programs; however, the proposed EEOC rule does not permit incentives greater than 30% if the wellness program includes any disability-related inquiries or medical examinations (e.g., nicotine testing). Biometric screenings or other medical exams that test for the presence of tobacco or nicotine would be considered to be medical exams under the ADA. If the program only asks employees whether or not they use tobacco, or whether or not they stopped using tobacco at the completion of the program, then the program is not considered to include disability-related inquiries or medical examinations and the employer would still be permitted to offer an incentive of up to 50%. Other Laws The EEOC reminds employers sponsoring wellness programs that other federal laws may apply and that compliance with the ADA and the proposed EEOC rule does not guarantee compliance with any other laws. Examples of other laws that may apply include the Genetic Information Nondiscrimination Act, Age Discrimination in Employment Act, the Equal Pay Act, and Title VII of the Civil Rights Act of 1964. In addition to the federal laws specifically mentioned by the EEOC, other federal laws such as Medicare Secondary Payer, COBRA, ERISA and some state laws may also apply. EEOC Requests Comments In its release, the EEOC specifically requests for comments from stakeholders, including employers. In particular, the EEOC requests comments on the following questions: 1. Whether to be considered voluntary under the ADA, entities that offer incentives to encourage employees to disclose medical information must also offer similar incentives to persons who choose not to disclose such information, but who instead provide certification from a medical professional stating that the employee is under the care of a physician and that any medical risks identified by that physician are under active treatment. 2. Whether to be considered voluntary under the ADA, the incentives provided in a wellness program that asks employees to respond to disability-related inquiries and/or undergo medical examinations should not be so large as to render health insurance coverage unaffordable under PPACA and therefore, in effect, coerce employees to participate in the wellness program (i.e., health insurance coverage would be affordable if the portion the employee would have to pay for employee-only coverage would not exceed 9.56% of household income (2015 value)). PAGE 5 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

3. Whether there are any additional methods by which the EEOC can effectuate the intent of both the voluntary requirement within the ADA and the provisions in HIPAA, as amended by PPACA, intended to encourage workplace health promotion and disease prevention. 4. Should the proposed notice requirements include a requirement that employees participating in health-plan related wellness programs, that include disability-related inquiries and/or medical examinations, provide prior, written, and knowing confirmation that their participation is voluntary? 5. Which best practices ensure that wellness programs are designed to promote health and are not subterfuges to shift costs to employees with health impairments or stigmatized conditions? 6. Whether employers offer (or are likely to offer in the future) wellness programs outside of a group health plan that include incentives to promote participation in those programs, or to encourage employees to achieve certain health outcomes, and the extent to which the ADA regulations should limit incentives provided under such programs. 7. What will be the practical effect of adopting the specific incentive limit set forth in the proposed rule (rather than expressly referencing and incorporating the wellness program incentive limits as they are defined under HIPAA, as amended by PPACA). Specifically, what, if anything, will be the impact of the proposed rule s 30% limit on incentives offered with respect to wellness programs intended to prevent or reduce tobacco use where such programs ask employees to respond to disability-related inquiries and/or undergo medical examinations? Comments may be submitted to the EEOC identified by RIN number 3046-AB01 - using one of the following methods, no later than June 19, 2015: Federal erulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. Fax: (202) 663-4114. Only comments of six or fewer pages will be accepted via FAX transmittal, in order to assure access to the equipment. Receipt of FAX transmittals will not be acknowledged, except that the sender may request confirmation of receipt by calling the Executive Secretariat staff at (202) 663-4070 (voice) or (202) 663-4074 (TTY). Mail: Bernadette B. Wilson, Acting Executive Officer, Executive Secretariat, Equal Employment Opportunity Commission, U.S. Equal Employment Opportunity Commission, 131 M Street, NE, Washington, DC 20507. Hand Delivery/Courier: Bernadette Wilson, Acting Executive Officer, Executive Secretariat, Equal Employment Opportunity Commission, U.S. Equal Employment Opportunity Commission, 131 M Street, NE, Washington, DC 20507. All comment submissions must include the agency name and docket number or the Regulatory Information Number ( RIN ) for this rulemaking. Comments need be submitted in only one of the abovelisted formats. All comments received will be posted without change to http://www.regulations.gov, including any personal information provided. PAGE 6 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

Next Steps The EEOC also released 10 Questions and Answers along with the proposed rule. In Q&As #9 and #10, the EEOC addressed the purpose of the proposed rule, what happens next, and what employers should do until a final rule is published. The immediate next step for the EEOC is to collect comments through June 19, 2015 and to then review those comments to determine what changes, if any, they may want to make to the proposed rule. Because the EEOC is requesting comments in several areas, it is expected that it will take some time before a final rule is issued. In Q&A #10, the EEOC stated that although employers do not have to comply with the proposed rule, they may do so It is unlikely that a court or the EEOC would find that an employer violated the ADA if the employer complied with the [proposed rule] until a final rule is issued. The Department of Health & Human Services ( HHS ) also issued two new FAQs reminding plan sponsors of the application of HIPAA requirements, and three departments (Labor, Health & Human Services, and Treasury) issued two new FAQs about the application of PPACA to wellness programs. Links to the proposed rule, a fact sheet, and the EEOC s FAQs along with FAQs from other departments are below. EEOC Proposed Rule Click Here EEOC Q and As Click Here EEOC Fact Sheet Click Here PPACA FAQs Click Here HIPAA FAQs Click Here Gallagher Benefit Services, through its compliance experts and consultants, will continue to monitor developments on healthcare reform legislation and regulation and will provide you with relevant updated information as it becomes available. In the interim, please contact your Gallagher Benefit Services Representative with any questions that you may have. The intent of this Technical Bulletin is to provide general information on employee benefit issues. It should not be construed as legal advice and, as with any interpretation of law; plans sponsors should seek proper legal advice for the application of these rules to their plans. Arthur J. Gallagher & Co. 2015 PAGE 7 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

Comparison of Some Important Differences between EEOC Proposed ADA Regulations and Final HIPAA/PPACA Regulations Requirement EEOC Proposed Rule Current HIPAA/PPACA Entities Required to Comply Programs Excluded from Requirements Reasonable Design Covered Entities under the ADA include: Employers Employment Agencies Labor Organizations Joint Labor-Management Committees Wellness program that does not include disability-related inquiries or medical examinations. 1 Program must be reasonably designed to promote health or prevent disease: Must have a reasonable chance of improving health or preventing disease; Must not be overly burdensome; Must not be a subterfuge for violating the ADA or other laws prohibiting employment discrimination; and Must not be highly suspect in the method chosen to promote health or prevent disease. Covered programs include: Wellness programs that are linked to the employer s group health plan Wellness programs that are health plans by themselves even if not linked to health plan Participatory wellness programs that are not health plans by themselves 2 and are not linked to an employer s health plan (e.g., gift card for biggest loser contest that is open to all employees regardless of plan participation) Program must be reasonably designed to promote health or prevent disease: Must provide a reasonable chance to improve health or prevent disease; Is not overly burdensome; Is not a subterfuge for discrimination based on health; and Is not highly suspect in the method chosen to promote health or prevent disease. 1 Although wellness programs that do not include disability-related inquires or medical exams are not generally covered by these proposed regulations, under general ADA requirements they must be made available to both disabled and non-disabled employees. 2 Participatory programs do not violate the HIPAA and PPACA requirements, as long as participation in the program is made available to all similarly situated individuals, regardless of health status. PAGE 8 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

Requirement EEOC Proposed Rule Current HIPAA/PPACA Maximum Incentive Maximum applies to all programs that include disability-related inquiries or medical exams (participatory programs, health-contingent programs, or some combination of the two): Maximum of 30% of total cost of self-only coverage Does not appear to permit 30% of dependent cost for dependents eligible to participate 30% maximum of total cost of self-only coverage for programs designed to reduce or eliminate tobacco use (smoker) if the program includes either disability-related inquiries or involves biometric screen for nicotine 50% maximum available only for tobaccorelated program that does not include disability-related inquiries or biometric screening (i.e., honor system) Incentive must be available at least once per year: No maximum for participatory programs 30% maximum for all health-contingent programs: o o 30% of self-only for employees 30% of employee plus dependent cost if dependents eligible to participate (e.g., 30% of cost of family coverage if employee and spouse are eligible for wellness incentive and enrolled in family coverage) 50% for programs designed to reduce or eliminate tobacco use Maximums are not additive; 50% is maximum if program includes both smoker and non-smoker elements Reasonable Alternative Standard No similar provision. Activity-only programs: allow a reasonable alternative standard for obtaining the reward for any individual for whom it is either unreasonably difficult due to a medical condition to meet the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard. Outcome-based programs: allow a reasonable alternative standard for obtaining the reward for any individual who does not meet the initial measurement, test, or screening. PAGE 9 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

Requirement EEOC Proposed Rule Current HIPAA/PPACA Voluntary Program Notice Requirement Wellness program will be considered voluntary only if the employer: Does not require employees to participate; Does not deny coverage under any of its group health plans or particular benefits packages with a group health plan for nonparticipation, or limit the extent of benefits for employees who do not participate; Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees; and Where the wellness program is part of a group health plan, plan provides employees with a notice concerning certain information. All wellness programs that are part of a group health plan must provide employees with a notice that: Is written so that the employee is reasonably like to understand it; Clearly explains what medical information will be obtained; Identifies who will receive the medical information; Explains how the medical information will be used; and States the restrictions on disclosure, and the methods that the entity will use to prevent improper disclosure of the medical program. Must be available to all similarly-situated individuals. Notices required for programs that are part of a group health plan and for health-contingent programs: Notice of availability of reasonable alternative standard required in any materials describing the standard to be met Notice of Privacy Practices required (under HIPAA privacy rule)* o Describe uses of PHI o Indicate individuals with access o Restriction on uses of genetic information o Describe individual s privacy rights *Can be included as part of group health plan PAGE 10 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015

Requirement EEOC Proposed Rule Current HIPAA/PPACA Reasonable Accommodation Confidentiality Reasonable accommodation required if necessary to make the program accessible to employees with a disability. Examples: Sign language interpreter for deaf employee Large print material for employee with vision impairment Alternative test/certification for individual for whom blood draw would be dangerous Requirements similar to HIPAA with some differences: Generally may not disclose to employer s supervisor or manager. Individuals who handle medical information generally should not be responsible for making employment decisions. Breach notification required immediately to affected employees. No separate requirement to notify EEOC or media. No similar provision. Under HIPAA privacy rule, must protect PHI obtained by the program including: May not use for employment purposes or for another employer-sponsored plan. Employer may receive information in aggregate form. May receive individually identifiable information in limited circumstances with certification. Breach notification required - immediate notice to affected individuals. Notice to HHS and in some cases, media. Note: EEOC proposed regulations do not include specific requirements under the Genetic Information Nondiscrimination Act ( GINA ). PAGE 11 2015 GALLAGHER BENEFIT SERVICES, INC. APRIL 2015