Friday, February 3, 2017

7th Circuit Moves Sideways on Wellness Program Penalties

Last week the 7th Circuit Court of Appeals disappointed employers and other stakeholders who were anxiously awaiting its decision on the merits in the case of EEOC v. Flambea, Inc.

Back in 2014, we reported on this case as the first of its kind to address the issue of whether participation in the company sponsored health insurance plan contingent on a medical evaluation through its wellness program violated the ADA.

The EEOC alleged that the employee of Flambeau, Inc., in Baraboo, Wisconsin, was hospitalized with a heart condition at the time that his employer mandated that all employees receiving employer sponsored health insurance undergo biometric testing and a health risk assessment as part of their wellness program. Part of the biometric testing and risk assessment required employees to, among other things, undergo tests and disclose medical history that would reveal conditions covered by the ADA that were not job related. Moreover, the employer had a policy that any employee who did not undergo the evaluation would lose their right to participate in the employer sponsored insurance plan with the employer contribution towards premium. Rather those non-participating employees would be forced to continue coverage through COBRA. The EEOC argued that the employer violated the ADA which provides that a “covered entity shall not require a medical examination...unless such examination is shown to be job-related and consistent with business necessity.” In plaintiff's view, defendant violated the Act because the wellness program evaluation was not job related and that the wellness program itself was not a part of the actual insurance plan.

The Court held in favor of the defendant employer. In a first of its kind finding, the court ruled that the company’s wellness program was, in fact, a part of its insurance plan as it impacted the assessment of risk for the group. As a part of the company’s insurance plan, the court easily found that the evaluation requirements which included examination which was not job related fell under the exception in the ADA provides in relevant part that the ADA “shall not be construed to prohibit or restrict” an employer from establishing or administering “the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks.

The EEOC appealed to the 7th Circuit Court of Appeals. While the court considered the case, a couple of important things happened as well. First of all, the EEOC issued regulations last May, which became effective on the first of this year which declared that wellness programs could require disclosure of medical information if such disclosure and participation were voluntary. The EEOC regulation set forth a number of employer requirements in order to meet the voluntary definition, including notice and privacy requirements as well as the requirement that an employer sponsored wellness program would not be voluntary if it includes an incentive or penalty that exceeds 30% of the total amount of self-only coverage. Obviously, everyone is interested in whether the courts would give deference to the EEOC’s new regulations or uphold the decision of the lower court in Flambeau.

Since the lower court issued its decision, not only has the EEOC issued contrary regulations, but changes happened at the company as well. Flambeau, Inc. actually abandoned its wellness program and the employee who was the subject of the suit, resigned. In light of the developments at the company, the 7th Circuit found that the case was moot, thereby upholding the district court decision, but never addressing the issues on the merits.

Naturally, this leaves employers wondering how to structure their wellness programs, which continue to be popular. The conservative advice would be to follow the EEOC regulations which limit the incentive/penalty for non-participation to 30% of the cost of self-only coverage. Employers who are less risk averse can rely on the district court decision in Flambeau which supports no limit on the penalty/incentive for participation or non-participation in such programs.

Keep tuned to the Workplace Report for important updates on this issue.