Federal Court Instructs EEOC to Reconsider Final ADA/GINA Wellness Regulations

Practical Law Legal Update w-010-0003 (Approx. 6 pages)

Federal Court Instructs EEOC to Reconsider Final ADA/GINA Wellness Regulations

by Practical Law Employee Benefits & Executive Compensation

Background

The ADA permits employers to conduct medical examinations and collect employee medical history as part of a wellness program if the employee's participation is voluntary (42 U.S.C. § 12112(d)(4)(B)). Similarly, GINA allows employers to collect certain genetic information as part of a wellness program if an employee provides the information voluntarily (42 U.S.C. §§ 2000ff-1(b)(2)(A)–(B)). Neither statute defines the term "voluntary."

Before 2016, the EEOC took the position that conditioning an employee's receipt of incentives on the employee's disclosure of information protected under the ADA or GINA would render the wellness program involuntary. In 2016, however, the EEOC reversed this position in final regulations issued under the ADA and GINA. Under the final regulations, employers may:

Include an incentive or penalty of up to 30% of the cost of self-only coverage for an employee to disclose ADA-protected information under a wellness program.
Offer an incentive of up to 30% of the cost of self-only coverage for disclosure of information under a wellness program about a spouse's manifestation of a disease or disorder (which qualifies as "genetic information" under GINA) (42 U.S.C. § 2000ff(4)(A)).

(See Practice Notes, Wellness Programs, Wellness Programs: EEOC Rules Under the ADA, and Wellness Programs: EEOC Rules Under GINA; see also Legal Updates, EEOC Final Wellness Program Rules Address GINA Compliance and EEOC Final Wellness Program Rules Reflect Split Over ADA Insurance Safe Harbor.)

AARP sued under the Administrative Procedure Act (APA) on behalf of its members, challenging the EEOC's final ADA and GINA regulations as arbitrary and capricious. AARP argued that the 30% incentive limit conflicted with the requirements under the ADA and GINA regarding voluntary participation in an employer's wellness program. The parties' dispute centered on the EEOC's interpretation of the term "voluntary."

The EEOC filed a motion to dismiss, or in the alternative, a motion for summary judgment, and AARP filed a cross-motion for summary judgment.

Outcome

Siding with AARP, the court ruled that:

AARP had associational standing to bring suit on behalf of its members.
The EEOC failed to provide a reasoned explanation for its decision to interpret the term "voluntary" in the ADA and GINA as permitting the 30% wellness program incentives limit.

EEOC Had Associational Standing

Addressing the threshold issue of standing, the court rejected the EEOC's challenge to AARP's associational standing. The court found that AARP had associational standing to challenge both the EEOC's final ADA and GINA regulations on behalf of its members.

EEOC's Interpretation of the Term "Voluntary" Was Arbitrary and Capricious

The court reviewed the EEOC's interpretation of the term "voluntary" under the two-part analysis set out in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. (467 U.S. 837 (1984)). Under the Chevron analysis a court must evaluate, in turn, whether:

Congress has addressed the precise question at issue; if so, Congress' meaning controls, and the agency is not entitled to deference.
An agency's interpretation is based on a permitted construction of the statute (regarding a statute that is silent or ambiguous as to the question at issue).

Under the first step of Chevron, the court concluded that the term "voluntary" in the ADA and GINA is ambiguous because neither the ADA nor GINA defines or explains the term. Looking at the plain meaning of "voluntary," the court reasoned that "voluntary" could mean "free from coercion" or "without valuable consideration."

The primary dispute in this litigation, however, focused on the second step of the Chevron analysis. Under this step, the court considered whether the EEOC's interpretation was reasonable and whether the agency had provided an adequate explanation for its interpretation.

EEOC Failed to Give a Reasoned Explanation for the Incentive Limit in the ADA Rule

After reviewing the administrative record, the court determined that the EEOC failed to give a reasoned explanation for interpreting "voluntary" as permitting incentives of up to 30%.

The EEOC asserted three reasons for reversing its interpretation:

The agency's new interpretation under its ADA and GINA final regulations harmonized with Health Insurance Portability and Accountability Act (HIPAA) regulations on wellness programs (see Practice Note, Wellness Programs: HIPAA).
The 30% incentive limit was a reasonable interpretation of "voluntary" based on current insurance rates.
A comment letter by the American Heart Association endorsed the 30% incentive limit.

First addressing the EEOC's ADA final regulations, the court rejected each of these arguments.

Regarding the EEOC's HIPAA argument, the court observed that while HIPAA includes a 30% cap on incentives:

HIPAA and the ADA serve different purposes (preventing discrimination in health plans based on a health factor versus preventing employment discrimination).
HIPAA's 30% limit applies only to health-contingent wellness programs and does not impose a cap on participatory wellness programs. The EEOC's ADA final regulations, by contrast, extended the limit to cover participatory wellness programs (which comprise the majority of wellness programs).

As a result, the court noted that the ADA final regulations are actually inconsistent with the HIPAA regulations as to most wellness programs. (Regarding the difference between participatory and health-contingent wellness program designs, see Practice Note: Wellness Programs: EEOC Rules Under the ADA: HIPAA Nondiscrimination and Wellness Program Design.)

The court also rejected the EEOC's arguments regarding current insurance rates and comment letters as conclusory or lacking a basis in the administrative record. Finally, the court highlighted the EEOC's failure to address factors related to the economic impact of the incentives, which could disproportionately affect people with disabilities.

EEOC Failed to Give a Reasoned Explanation for the Incentive Limit in the GINA Rule

According to the district court, the EEOC' final regulations under GINA suffered from the same shortcomings as the ADA rule. Specifically, the EEOC did not adequately explain why it interpreted the term "voluntary" as permitting the 30% incentive limit.

The court also noted that the EEOC's explanation supporting its interpretation seemed to conflict with GINA's goal of preventing discrimination against employees (see Practice Note, GINA Compliance for Health and Welfare Plans).

GINA defines "genetic information" to include the manifestation of a disease or disorder in an employee's spouse (42 U.S.C. §§ 2000ff(3), (4); 29 U.S.C. § 1181(f)(2)). Under the GINA rule, employers may impose a 30% incentive or penalty to encourage the disclosure of a spouse's manifestation of a disease or disorder. Employers may not impose an incentive or penalty with respect to the disclosure of information regarding the:

Genetic information of an employee's spouse or children.
Manifestation of a disease or disorder in an employee's children.

The EEOC argued that an employer was less likely to discriminate against an employee based on the disclosure of a spouse's medical history. The court disagreed, noting that the risk of discrimination stemmed from the concern over potentially increased costs caused by anyone covered under the employer's health plan.

Remedy: Remand of Final Regulations to EEOC for Reconsideration

Having found the EEOC's final regulations under the ADA and GINA to be arbitrary and capricious, the district court remanded the regulations to the EEOC for reconsideration. The court declined, however, to vacate the regulations. Despite the rules' serious deficiencies, the court determined that the potential consequences of vacating the rules outweighed those deficiencies for the time being.

Practical Impact

The district court's decision in this case is highly critical of the EEOC's failure to offer an acceptable explanation for adopting the 30% incentive standard in its ADA and GINA final regulations. (The agency's arguments in this regard are referred to as "deeply flawed," "utterly lacking in substance," and a "serious failing.") That said, the court was also aware that vacating the EEOC's regulations, which became applicable on January 1, 2017, would have a significant impact on employer-sponsored wellness programs. The court acknowledged that such a decision:

Could result in employees having to repay incentives they had already received.
Could require employers to repay penalties they had already collected from employees.
Would not undo the disclosure of protected medical information that has already been provided by employees.

Nonetheless, this decision raises significant questions concerning wellness program compliance and enforcement going forward – and at a time when plan design decisions for the 2018 plan year are being made. Ideally, the EEOC will provide employers interim guidance in response to this decision as it carries out the court's order to reconsider its ADA and GINA final regulations.

Federal Court Instructs EEOC to Reconsider Final ADA/GINA Wellness Regulations | Practical Law