The same federal court that earlier sent the Equal Employment Opportunity Commission’s final wellness regulations back to the agency for reconsideration after finding the incentive provisions arbitrary and capricious has now vacated those portions of the regulations effective January 1, 2019 in AARP v. EEOC, 2017 WL 6542014 (D.D.C. 2017). The court ordered the EEOC to rewrite its definition of “voluntary” to achieve consistency with the dictionary definition and stated that these rules must be issued in advance so employers can incorporate any new limits for incentives and penalties into their wellness program. The EEOC is to have proposed regulations issued by August 31, 2018, which are to take effect no later than 2021. However, barring additional litigation, I would expect these new regulations to take effect before 2021.
Generally, a wellness program involves medical exams (screenings, biometrics) or inquires (health risk assessments) that must be voluntary to comply with the Americans with Disabilities Act (ADA) and the Genetic Information Non-Discrimination Act (GINA). The regulations permit incentives of up to 30% of the cost of coverage for plan years beginning on or after January 1, 2017. There is also a 50% limit but that only applies to tobacco usage. Last August, the court determined the EEOC had failed to adequately justify the 30% incentive level or ascertain what “voluntary” really meant but it did not vacate the regulations since they were already in effect. Subsequently, AARP asked the court to reconsider its decision and either vacate the regulations or block their enforcement which resulted in the recent court decision.
There has been limited guidance on allowable penalties or incentives that can be tied to wellness programs other than the ACA’s 30% cap and it should be noted that this limitation only applies to contingent (outcome based) wellness programs. Employers had even greater discretion with incentives and forfeitures with participatory wellness programs. I discussed that type of wellness program in detail in prior article involving the Flambeau case. In a participatory wellness program, an employer could compel participation in a health risk assessment in order for an employee to be eligible for company sponsored health insurance. The EEOC has challenged this position repeatedly.
This court decided the proper remedy for the EEOC’s failure to adequately explain its incentive regulations is to vacate them. Given the need for employers to have advance notice to allow them to plan for rule changes, the court decided to delay vacating the rules until 2019.
Although the regulations will be vacated as of January 1, 2019, the court declined AARP’s request to block their enforcement before that date. Thus, plan sponsors must continue to comply with the regulations currently in effect. It remains to be seen what the final impact any new regulations will have on wellness programs offered by employers. I have seen possible outcomes ranging from minimal changes to forcing employers to dramatically reduce incentives (which will reduce participation) to having employers add even more alternative options to participation.
See how BarFly Ventures went from fully insured to self-funded to gain more control of their employee benefits program: