Author, Samuel Choy, Atlanta, +1 404 572 4633, schoy@kslaw.com and Ryan Gorman, Atlanta, +1 404 572 4609, rgorman@kslaw.com .

On April 20, 2015, the U.S. Equal Employment Opportunity Commission ("EEOC") published proposed regulations addressing how employers can implement wellness programs that comply with the Americans with Disabilities Act ("ADA"). Although the ADA generally prohibits employers from making disability related inquiries or requiring medical exams, these activities are permissible as part of a voluntary wellness program. The EEOC's proposed regulations ("Proposed Regulations") include guidance on (i) the requirement that wellness programs be voluntary; (ii) employers' abilities to offer incentives for participation in the programs, (iii) the notice employers must provide to employees regarding the information obtained from the programs and the requirement to keep medical information confidential, and (iv) the design of wellness programs. The Proposed Regulations apply to all health programs, which include wellness programs regardless of whether they are offered as part of a group health plan or group health insurance coverage. However, some portions of the Proposed Regulations, including the notice requirement and incentive limitations, apply only to wellness programs that are part of or provided by a group health plan or a health insurance issuer offering group health insurance in connection with a group health plan.

Background and HIPAA Regulations

Wellness programs generally fall into two categories: participatory or health-contingent. Participatory programs do not provide any reward nor include any conditions for obtaining a reward based on an employee satisfying a particular health standard. Examples of participatory programs include fitness center reimbursements or rewards for participating in health risk assessments ("HRAs") without requiring any further action by employees to achieve a specific health standard.

Health-contingent programs require that a participant satisfy a standard related to a particular health factor to obtain a reward. Programs may be activity-only, which require employees to perform or complete a certain activity, such as a diet or exercise program, prior to obtaining a reward. Alternatively, health-continent programs may be outcome-based, which require that an employee attain or maintain a certain health standard to receive a reward, such as not smoking or attaining certain results on a biometric screening.

The EEOC is not the first administrative agency to regulate wellness programs. In 2013, the IRS, U.S. Department of Labor, and Health and Human Services Department issued final regulations on wellness programs based on statutory changes made by the Affordable Care Act (the "2013 Regulations"). The 2013 Regulations set forth criteria that could be used by group health plans to design wellness programs that complied with the nondiscrimination requirements of the Health Insurance Portability and Accountability Act ("HIPAA").

The EEOC, however, took the position that compliance with the 2013 Regulations may not be sufficient to satisfy ADA requirements. In fact, the EEOC filed lawsuits against three different employers in 2014 alleging that their wellness programs violated the ADA by financially penalizing employees who did not participate in the programs. At the core of the EEOC enforcement actions was the question of what constitutes a "voluntary" program. These actions were met with criticism given that the EEOC failed to issue any rules or guidance on the topic as employers had been attempting to comply with the existing 2013 Regulations. The Proposed Regulation provide more restrictive requirements for wellness programs than the 2013 Regulations.

Highlights of the Proposed Regulations Include Additional Requirements for Employers

The Proposed Regulations include the following:

• Meaning of "Voluntary": For a wellness program that includes a disability-related inquiry or medical examination to be "voluntary" under the ADA, the employer must not: (i) require employees to participate; (ii) deny access to health coverage or generally limit coverage under its health plans for non-participation; or (iii) take any other adverse action or retaliate against, interfere with, coerce, intimidate, or threaten employees (such as by threatening to discipline someone who does not participate or fails to achieve certain health outcomes).

• Incentives: To promote participation in wellness programs, employers are allowed to offer both financial and in-kind incentives in the form of a reward or penalty totaling no more than 30% of the cost of employee-only coverage. These incentive limitations apply only to programs that are part of a group health plan and include either participatory programs asking disability-related questions or conducting medical examinations, or health-contingent programs that require participants to satisfy a health standard.

o INSIGHT: The 2013 Regulations provide that the tobacco cessation incentives can equal up to 50% of the cost of coverage. In its guidance, the EEOC indicates that a program which simply asks if a participant is a smoker would not be subject ADA, so incentives could go up to 50% and not run afoul of the Proposed Regulations. However, if a blood test or biometric screening is used to determine the presence of tobacco, it would be subject to the ADA and the reward could not exceed 30%. Furthermore, the 30% maximum under the 2013 Regulations only applies to health contingent rewards, and the Proposed Regulations would apply to both health contingent and participatory rewards.

o INSIGHT: The 2013 Regulations provide that incentive amounts up to 30% of the total cost of family coverage may be provided under a wellness program, if dependents are allowed to participate in the program, whereas the Proposed Regulations would use the cost of employee-only coverage in determining the maximum incentive allowed.

• Notice: In addition, if the wellness program is part of a group health plan, employers must provide participants with a written notice that participants are reasonably likely to understand and that explains the medical information that will be obtained, how the information will be specifically used, who will receive it, the restrictions on the disclosure of such information, and the methods that will be used to ensure the information is not improperly disclosed.

o INSIGHT: The 2013 Regulations require a notice for health contingent wellness programs as well, but the notice requirement in the Proposed Regulations is more burdensome in that it requires more information and is required for both participatory and health contingent programs.

• Program Design: Wellness programs must be reasonably designed to promote health or prevent disease, such that the program has a reasonable chance of improving health or preventing disease in participants, and must not be overly burdensome, a scheme to violate the ADA or other discrimination laws, or implement highly suspect methods to promote health and prevent disease. An example of an acceptable program would include biometric screenings for the purpose of alerting employees to health risks. Examples of unacceptable programs would include asking employees to provide medical information through HRAs without providing feedback about risk factors or using the information to design programs or treat specific conditions or imposing an overly burdensome amount of time or participation to obtain a reward or requiring unreasonably intrusive procedures.

The Proposed Regulations also require that employers must make reasonable accommodations to enable employees with disabilities to fully participate in employee health programs, including the ability to earn any reward or avoid any penalty offered as part of the programs. The Proposed Regulations also make clear that compliance with the Proposed Regulations and 2013 Regulations does not relieve employers of complying with all other employment nondiscrimination laws, such as those prohibiting discrimination on the basis of race, sex, national origin, or age.

Conclusion

To the extent an employer's wellness program satisfies the 2013 Regulations, but may not satisfy the Proposed Regulations, prompt action and wellness program re-design may be necessary to comply with the laws once final regulations are issued. King & Spalding will continue to monitor developments regarding the Proposed Regulations as they proceed through the comment period (through June 19, 2015), and is happy to assist employers with any questions they may have regarding the design of wellness programs as it relates to this new guidance.