Carrot Or Stick? When Does A Voluntary Wellness Program Become Involuntary?


A version of this article was originally published in the September 2013 issue of The HR Specialist. It is reprinted here with permission.

Employer wellness programs, which are designed to stem rising health care costs by encouraging healthy behaviors among employees, are rising in popularity. Such programs will receive another boost when certain provisions of the Affordable Care Act take effect next year. However, it is possible that employers offering wellness programs that comply with the Affordable Care Act may still run afoul of other federal laws, such as the Americans with Disabilities Act (ADA).

Employers are increasingly using financial incentives, such as discounted health coverage, to drive employee participation in wellness programs. This raises a critical question: at what point is the financial incentive to participate or the penalty for nonparticipation so great as to render a wellness program involuntary – and perhaps more to the point, how does the Equal Employment Opportunity Commission (EEOC) define that tipping point?

Simply put, the details matter. Under the Affordable Care Act, which affects plan years beginning on or after January 1, 2014, offering incentives for participation is permitted. Affordable Care Act regulations draw a distinction between participatory and health-contingent wellness programs. Participatory wellness programs do not require employees to satisfy any particular standard related to a health factor in order to receive a reward (such as joining a gym or participating in a smoking-cessation program). Health-contingent wellness programs require either that the employee performs an activity related to a health factor in order to obtain a reward (activity-only wellness programs) or achieves a specific health outcome in order to obtain a reward (outcome-based wellness program).

Health-contingent wellness programs may offer rewards only if five requirements are met:

  1. employees must have the opportunity to qualify for the reward at least once per year
  2. the maximum permissible reward is 30 percent of the cost of coverage (up to 50 percent for programs designed to prevent or reduce tobacco use)
  3. the program must be reasonably designed to promote health or prevent disease
  4. all similarly situated individuals must be eligible for the same reward, meaning that individuals must be offered (a) a reasonable alternative standard for obtaining the reward if it is medically inadvisable or unreasonably difficult for medical reasons to satisfy the standard (for activity-only programs), or (b) a reasonable alternative means for obtaining the reward (or a waiver of the applicable standard) if the individual does not meet the initial standard for any reason (for outcome-based programs), and
  5. all plan materials must disclose that a reasonable alternative standard is available.

In contrast to the detailed wellness program compliance guidance available under the Affordable Care Act, the EEOC has yet to issue any guidance under the ADA on whether and to what extent participation rewards – or penalties for non-participation – are lawful. As the implementation of the Affordable Care Act’s wellness program regulations draws closer, the EEOC is under increasing pressure to issue guidance.

The ADA generally prohibits employers from asking employees disability-related questions or from asking employees to submit to medical exams unless those inquiries or examinations are job-related and consistent with business necessity. Under the ADA, wellness programs may include such questions or exams only if the program is voluntary – which, according to the EEOC, means that participation is not required and employees who decline to participate are not penalized. But, again, the EEOC has yet to draw the line between what it considers “voluntary” and “involuntary.”

A May 8, 2013 EEOC meeting focused on the circumstances under which a financial incentive is lawful under the ADA. Some participants said that compliance with the Affordable Care Act’s limits on incentives to 30 percent of the cost of coverage (50 percent for smoking cessation) should also constitute ADA compliance. But if, for example, the EEOC were to take the position that a 30 percent financial incentive would render a wellness program involuntary under the ADA, employers would be put in the difficult position of complying with one federal law while simultaneously risking violation of another.

In his testimony, Christopher Kuczynski, acting associate legal counsel for the EEOC, said that any guidance the agency issues should consider whether the ADA permits offering a financial incentive to participate in a wellness program based on achievement of certain health outcomes and, if so, whether such financial incentives should be limited. Notably, Mr. Kuczynski asked a critical question: should compliance with the Affordable Care Act satisfy the ADA’s requirement that wellness programs be voluntary or is there a meaningful way to distinguish between the Affordable Care Act and the ADA?

No employer wants to be the EEOC’s test case on incentives, so until the EEOC issues guidance, many are left wondering how to proceed. Unfortunately, there are no easy answers. While cautious employers may decide to implement rewards/penalties that are below the levels endorsed by the Affordable Care Act, it is unclear whether the EEOC would consider a program involuntary even at those lower levels. Even more cautious approaches include offering non-financial incentives, offering participatory instead of health-contingent wellness programs, or offering programs that do not require medical exams or health or disability-related questions. However, these alternatives may not be as effective in incenting participation in wellness programs and in helping individuals attain the health goals that the programs are designed to promote.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pepper Hamilton LLP | Attorney Advertising

Written by:


Pepper Hamilton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.