To design legal wellness programs and health benefit plans, you need working knowledge of an alphabet soup of laws, including HIPAA, GINA, ERISA and the ADA.
To learn more, read our Q&A with Sarah below and download the accompanying presentation and legal briefing from Drinker Biddle & Reath below to learn more.
Relevant laws and consequences
Jennifer Stewart: There are a number of laws regarding wellness programs and benefits plan design—which are the ones HR leaders have to know?
Sarah Millar: The big four to keep top of mind are:
- The Employee Retirement Income Security Act of 1974 (ERISA)
- The Health Insurance Portability and Accountability Act of 1996 (HIPAA) nondiscrimination rules
- The Genetic Information Nondiscrimination Act of 2008 (GINA)
- The Americans with Disabilities Act of 1990 (the ADA)
ERISA comes into play if you have a group health plan, and because ERISA defines "group health plan" rather broadly, wellness programs are regulated by this law.
HIPAA nondiscrimination rules apply when your plan requires achieving a particular health status, like a certain BMI or cholesterol level. When there is a request for, or use of, genetic information (including family medical history), you have to think about GINA.
And finally, if there is discrimination based on a disability—which includes obesity, nicotine addiction, and failure to meet biometric standards—the ADA is applicable.
In addition to these four laws, there are a host of other regulations. For example, there are state laws that apply to games of chance, so if you are doing raffles, there is another set of laws that you have to keep in mind.
JS: What are the consequences for not complying with these laws?
SM: All of these laws are important. First and foremost because they provide guidelines that help shape programs that are reasonable and fair to employees. Fair and reasonable programs not only increase employee engagement but also reduce your risk of litigation from current or former employees.
Beyond that, there are real financial consequences if organizations aren't compliant with the laws. The big one is a tax penalty that can cost the organization $100 per day per affected individual—and you have to self-report it or face additional penalties. This applies if you violate HIPAA non-disclosure rules or GINA.
If you violate ERISA, there could be a penalty of $100 per day per affected individual or other consequences, such as DOL investigation and civil penalties or a participant lawsuit claiming benefits or breach of fiduciary duties.
How to structure wellness programs
JS: Many organizations offer monetary rewards to employees who reach certain wellness goals. How do you recommend structuring that kind of reward to avoid negative tax consequences?
SM: Let's take the example of offering a $50 gift card to people who go to the local fitness center 10 times in a month. The important thing to know is a gift card is taxable income that needs to be reported on the employee's W2—no matter what the amount is.
Poster: Know what to expect from your wellness program
If you're giving an employee a gift card, it's effectively for services rendered, so it's taxable. The IRS has a very broad rule there. An alternative is to structure the reward as part of the health plan (e.g., premium reduction). Then the reward would not be taxable.
JS: Some plans have requirements like completing HRAs or a biometric screen for enrollment. Are there potential legal pitfalls here, too?
SM: Yes—let's think about requiring a health risk assessment (HRA) as a condition of being eligible for the health plan. Based on current guidance, it would be problematic to deny coverage altogether if an employee does not complete the HRA.
When regulators look at this type of design, their question is, "Is the requirement reasonable?" If somebody needs coverage and you're effectively taking coverage away if he or she doesn't participate, the HRA isn't really voluntary, so that is an unreasonable program requirement.
And, if your HRA asks about family medical history, a separate issue emerges because family history falls under GINA. There are three possible options to avoid GINA issues:
- Do not ask family medical history questions on the HRA
- Do not incentivize people to answer questions about family medical history
- Offer two different questionnaires: one that asks the family medical history questions (no incentive for completion) and another that does not ask family medical history questions (with an incentive for completion)
An HRA without family medical history adds limited value, so while option three can be a logistical challenge, this is your best option under GINA.
JS: If HR leaders can't require the HRA and there are specific laws around the types of rewards, what's the safest way to incentivize people to complete the HRA?
SM: If one of the goals is to provide a benefit without creating a negative tax consequence for the participant, then consider a reduction in premiums or adjusting copays or co-insurance, instead of giving cash and gift cards for HRA completion.
For example, giving employees $20 off per pay period on their premium as long as they complete the HRA within 30 days of enrollment. This is very similar to the reward structure for employees who reach certain participation-based wellness program goals (such as going to the gym 10 times).
JS: What about organizations that want to reward employees for meeting specific health outcomes, such as a target weight or blood pressure?
SM: That's known as a "health-contingent wellness program" (versus a participatory program). Health-contingent programs offer a reward to individuals who satisfy a health-related standard (e.g., BMI, cholesterol, or HbA1C levels). Just as with participatory programs, health-contingent programs should be reasonably designed to promote health or prevent disease.
Should healthier employees pay less for health insurance?
One of the most important aspects for regulatory compliance is to offer an alternative way for the employee to earn the reward. This way your program isn't overly burdensome to someone who—for a medical reason or otherwise—can't achieve the health standard.
JS: Do the recent legal challenges to wellness programs change how HR leaders should approach wellness programs and benefit plans?
SM: One significant case is EEOC v. Honeywell where the EEOC has argued that Honeywell's wellness program violates the ADA because it provides an incentive of up to $4,000 per year under the medical plan, but only for employees who participate in a biometric screen.
In two earlier cases (EEOC v. Orion Energy Systems, Inc. and EEOC v. Flambeau, Inc.), the penalties for refusing to participate in both employers' biometric screenings were much steeper—in Flambeau, an employee became ineligible for medical coverage, and in Orion, an employee would pay the full single premium for medical plan coverage.
It may take several months (if not years) before these EEOC cases are resolved and there is additional clarity on this issue. Employers who sponsor wellness programs should consult with their legal counsel about the significance of these cases and the potential impact the cases may have on employer-sponsored wellness programs.
In particular, programs should be evaluated to assess whether the employer can or should take steps to mitigate the potential for litigation and associated costs. In the meantime, Drinker Biddle & Reath, as well as many industry and trade groups, are requesting that the EEOC provide additional guidance on this topic.