On May 16, 2016, the Equal Employment Opportunity Commission (EEOC) issued final regulations under the Americans with Disabilities Act (ADA) addressing when employers may use employee incentives to encourage participation in wellness programs that include disability-related inquiries or medical examinations (see Practice Notes, Wellness Programs: EEOC Rules Under the ADA and Wellness Programs). The regulations, which finalize proposed regulations issued in April 2015, reflect a conflict with certain federal court decisions in which the EEOC suffered litigation defeats (see Legal Updates, ADA Allows Wellness Exams as Condition of Health Plan Enrollment: Western District of Wisconsin and EEOC Rules Address Wellness Incentives under the ADA). The EEOC also issued related FAQs and a fact sheet for small employers.

As relevant to wellness programs, Title I of the ADA:

Among other topics, the final regulations address:

In the proposed regulations, the EEOC requested comments regarding how its rules should apply to wellness programs offered outside of employer-sponsored group health plans. The final regulations, including the notice and incentive limit provisions, apply broadly to all wellness programs that include disability-related inquiries or medical examinations, whether offered:

In a controversial issue under the final regulations, the EEOC continues to believe that the ADA's safe harbor for insurance does not apply to an employer's decision to offer rewards or impose penalties regarding wellness programs that include disability-related inquiries or medical examinations (see Practice Note, Practice Notes, Wellness Programs: EEOC Rules Under the ADA: EEOC Rejects Broward County Analysis, But Some Courts Have Followed It). In the EEOC's view, the ADA includes another provision under which employers may make disability-related inquiries or conduct medical examinations as part of a wellness program, provided that employee participation is voluntary. As a result, the EEOC argues, applying the insurance safe harbor to wellness programs would render the other ADA provision superfluous.

The EEOC expressly disagrees with two district court decisions that applied the insurance safe harbor to permit the imposition of penalties on employees who do not answer disability-related questions or undergo medical examinations in connection with wellness programs (see Legal Updates, Broward County Wellness Program Falls within ADA Safe Harbor: Eleventh Circuit and ADA Allows Wellness Exams as Condition of Health Plan Enrollment: Western District of Wisconsin).

Under the final regulations, an employee health program must be reasonably designed to promote health or prevent disease. This "reasonably designed" standard is:

To meet this standard, a wellness program must:

According to the EEOC, a program consisting of a measurement, test, screening, or collection of health-related information that does not provide results, follow-up information, or advice to improve a participating employee's health is not reasonably designed to promote health or prevent disease. An exception to this general rule applies if the collected information actually is used to design a program that addresses a subset of conditions identified.

Participation in employee health programs that include disability-related inquiries or medical examinations must be voluntary. Under the final regulations, participation is voluntary if the employer:

In a rule intended to ensure voluntary employee participation, the final regulations require employers to provide a notice that clearly explains:

The notice must be written so that the employee from whom medical information is obtained is likely to understand it.

The notice requirement applies to all wellness programs that ask employees to respond to disability-related inquiries or undergo medical examinations.

By mid-June, the EEOC plans to provide an example on its website of a notice that complies with the final regulations.

The EEOC permits an employer to offer incentives (rewards or penalties) up to a maximum of 30% of the total cost of self-only coverage to promote an employee's voluntary participation in a wellness program that includes disability-related inquiries or medical examinations. Under the EEOC rules, this limit applies whether the program is participatory-only, health contingent, or a program that includes both participatory and health-contingent components.

The EEOC acknowledges that its position (that is, applying the 30% to include participatory wellness programs) is different than what is required under HIPAA and the Affordable Care Act (ACA) (see Practice Notes, Wellness Programs and Affordable Care Act (ACA) Overview).

The final regulations address how to calculate the incentive limit in four situations. An employer's lowest cost self-only coverage under a major medical health plan is the benchmark for establishing the incentive limit for employers with more than one group health plan.

In-kind incentives count toward the 30% limit on incentives, though employers have discretion to determine the value of in-kind incentives, provided that the method they use is reasonable. De minimis incentives are also included in the cap.

The final regulations, reflecting a rule from the proposed regulations, permit disclosure of medical information obtained by a wellness program to employers only in aggregate form, unless necessary to administer the health plan. The aggregate form information cannot disclose (or be reasonably likely to disclose) the identity of specific individuals, except as needed to administer the health plan and as otherwise permitted. This requirement applies to employers that sponsor wellness programs and administrators acting as agents of employers. The final regulations also include additional requirements to further protect employees' personal health information.

Under a new provision included in the final regulations in response to comments, an employer may not require an employee to either agree to the sale, exchange, sharing, transfer, or other disclosure of medical information (unless permitted to carry out specific activities related to the wellness program), or waive confidentiality protections available under the ADA as a condition for participating in a wellness program or receiving a wellness program incentive.

The EEOC notes that compliance with its ADA wellness program rules is only one piece of the overall regulatory framework for wellness programs. Employers also must comply with other laws, including other employment nondiscrimination laws (for example, Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act (ADEA)). As a result, even though an employer's wellness program complies with the ADA-related incentive limits, the employer could violate other nondiscrimination laws if its wellness program discriminates on the basis of race, sex (including pregnancy, gender identity, transgender status, and sexual orientation), color, religion, national origin, or age (see Practice Note, Wellness Programs).

As was the case with the proposed regulations, the EEOC's final regulations under the ADA are not entirely consistent with the HIPAA nondiscrimination rules, especially when it comes to participatory wellness programs (for example, the "reasonably designed" requirement). These inconsistencies make wellness program compliance that much more challenging for employers trying to navigate multiple sets of laws and regulations.

And although the EEOC hasn't backed down regarding its interpretation of the insurance safe harbor, it remains to be seen whether the courts will accept that position now that the EEOC's regulations are final. The EEOC has appealed the decision in Flambeau, so we may receive the Seventh Circuit's views on this question in the not-so-distant future (see Legal Update, ADA Allows Wellness Exams as Condition of Health Plan Enrollment: Western District of Wisconsin).