The Legal Concerns Implicated By Corporate Wellness Programs

by Snell & Wilmer

[author: Joseph A. Kroeger]

Between the rising cost of health care coverage for employees and the significant incentives contained in the Patient Protection and Affordable Care Act of 2010 (PPACA), companies are paying increased attention to corporate wellness programs for employees.

The economic case for these programs is strong and supported by some pretty staggering statistics. According to a Milken Institute Study:

  • The Center for Disease Control reports that more than 75 percent of an employer’s health care costs and productivity losses are related to employee lifestyle choices;
  • Workplace alcohol, tobacco and other drug use costs American companies over $100 billion each year;
  • Obesity is a growing epidemic—health care spending for obese adults is 40 percent higher than for normal weight adults and the economic cost of obesity in the United States is increasing by more than $13 billion per year; and
  • Six of the seven most common chronic diseases can be caused or worsened by obesity – and these six diseases cost employers $1.1 trillion annually in lost productivity.

On top of the financial justification for these programs, wellness programs help to foster happy and healthy employees, improving attendance and morale. It is no wonder that these programs are becoming increasingly popular with companies across the United States.

However, employers must be aware of and proactively address a number of legal issues raised by these programs.

Health Insurance Portability and Accountability Act (HIPAA)
HIPAA generally prohibits health plans from basing coverage eligibility rules or premiums on health-related factors such as medical history. However, regulations issued in 2006 specifically allow employers to create wellness programs and even to reward employees for participation in the program in an amount up to 20 percent of the cost of employees’ health care coverage. (Under a current PPACA provision, assuming it survives the soon-to-be-issued Supreme Court decision challenging the law, these rewards could be increased to 30 percent of coverage cost, and the Secretaries of Health & Human Services, Labor and Treasury would have the discretion to increase this reward up to 50 percent of coverage cost.)

The Americans with Disabilities Act (ADA)
The ADA prevents discrimination based on disability. This can potentially raise some threshold concerns for wellness programs. For example, many wellness programs are designed to reduce obesity and eliminate smoking. Does such a purpose constitute discrimination under the ADA?

Historically, obesity and addiction to nicotine have not been found to be disabilities protected under the ADA. However, the EEOC recently has taken the position that obesity can, in fact, qualify as a disability and conditions associated with obesity (diabetes, high blood pressure) have definitely been found to be disabilities, particularly under the much broader disability definition contained in the recently implemented ADA Amendment Act. Employers need to be careful that the design and implementation of any wellness program do not violate the ADA’s disability discrimination prohibition.

Medical Exams
Many wellness programs require participants to undergo a medical screening as part of the program, providing their prescription history, blood pressure, body mass index and similar information. Such a screening likely constitutes a “medical exam” under the ADA. The ADA places strict limitations on when employers may conduct medical exams of employees.

The EEOC has issued guidance on wellness programs and declared that medical exams are permitted as part of such a program so long as: (1) the program is “voluntary,” meaning it does not require participation nor penalize employees who do not participate; and (2) all medical records acquired as part of the wellness program are kept confidential and separate from the employee’s personnel file.

Genetic Information Nondiscrimination Act (GINA)
GINA specifically forbids an employer from requesting or requiring genetic information of an employee or a family member. However, there is a statutory exception for wellness programs. Employers can comply with this exception so long as the program is: (1) voluntary; (2) conditioned on written authorization; and (3) contains strict privacy protections.

Protected Health Information (PHI)
HIPAA, the ADA and GINA all protect the confidentiality of PHI in some manner. Employers need to have in place policies and procedures to ensure the confidentiality of any PHI obtained as part of their wellness programs. At a minimum, they should ensure that such information is treated as confidential and kept separate from employees’ personnel files. If feasible, employers should consider having a third-party, such as the wellness program provider, retain the information with no access by the employer to avoid even the argument by an employee of improper access to the information by an employer (e.g., an employee terminated for performance reasons might allege that his supervisor accessed his PHI and was motivated to terminate him by knowledge of a genetic condition or disability).

Age Discrimination in Employment Act (ADEA) / Title VII of the Civil Rights Act of 1964
Both the ADEA and Title VII prohibit discrimination not only in hiring and termination decisions, but in all terms and conditions of employment, including health benefits. A wellness program is likely a health benefit and certainly a reduction in coverage costs of 20 percent would be deemed a health benefit under these statutes. Further, both statutes prohibit not only discriminatory treatment based on a protected category, but also disparate impact. This means that a wellness program designed in a manner that has a disparate impact on older employees, or favors men more than women, could arguably create a disparate impact claim under one of these statutes. Employers need to be careful to design their programs not to have a disparate impact on any protected category under federal or state law.

Other Laws
There are other laws potentially implicated by wellness programs that are beyond the scope of this article, including the Employment Retirement Income Security Act and the Internal Revenue Code.

Wellness programs make fiscal and policy sense for many employers and can be implemented in compliance with the web of employment laws discussed above. However, to avoid a potential “no good deed goes unpunished” result, incurring legal liability in the effort to encourage employee health and reduce coverage costs, it would be prudent for employers to proactively take steps to avoid the above legal issues before implementing wellness programs.

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.

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