Employer Groups Don’t See Eye to Eye on EEOC Wellness Plan Ruling

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By Carmen Castro-Pagan

Sept. 22 — Employer groups are at odds over what a recent decision by a federal court in Wisconsin on the EEOC’s wellness plan regulation will actually mean for the rule and future lawsuits.

A Sept. 19 decision by the U.S. District Court for the Eastern District of Wisconsin allows Orion Energy Systems Inc. to require employees who want to enroll in the company’s health-care plan to undergo medical examination or pay full premium coverage. Some are calling it a win for the Equal Employment Opportunity Commission and others are claiming a partial victory for the employer side.

The decision in EEOC v. Orion Energy Systems, Inc. is the first to weigh in on a new regulation by the agency that allows employers to offer limited financial incentives to encourage employees to participate in wellness programs without violating federal law.

This is a “mixed result” for employers, Kathryn Wilber, senior counsel for the American Benefits Council in Washington, told Bloomberg BNA Sept. 22. Orion won on the voluntary standard issue, but there should be a concern about the court’s application of the safe harbor provision in the Americans with Disabilities Act, Wilber said.

Frank C. Morris, an employee benefits attorney at Epstein Becker Green in Washington, D.C., agrees. “This is a classic split decision,” Morris said. Orion “scored a big win” since the court found that its wellness program didn’t violate the ADA because it was voluntary despite the fact that not participating in it would mean that an employee would have to pay 100 percent of the health-care premiums, Morris told Bloomberg BNA Sept. 22.

ADA’s Safe Harbor Provision

The ADA includes a safe harbor provision related to the insurance industry, which employers have successfully used to contest the EEOC’s challenges to the medical examinations they require as part of their wellness programs.

Another federal court in Wisconsin held last year in EEOC v. Flambeau, Inc. (W.D. Wis. 2015) ruled that the safe harbor provision allows employers to design insurance plans that require otherwise-prohibited medical examinations and inquiries as a condition of enrollment in a plan. That case is currently on appeal to the U.S. Court of Appeals for the Seventh Circuit, but it may be dismissed on jurisdictional grounds.

After Flambeau was decided, the EEOC issued regulations on employer-sponsored wellness plans. The regulations provide, among other things, that the ADA’s safe harbor provision doesn’t apply to medical examinations taken in connection with a wellness program like the ones at issue in this case and Flambeau.

The Orion court said that the EEOC’s take on the ADA’s safe harbor provision was a “permissible interpretation” of the statute and could be applied retroactively.

Employers’ Take on the Safe Harbor Ruling

The EEOC is “no doubt thrilled with the decision—they got almost everything they wanted,” James Gelfand, senior vice president of health policy at the ERISA Industry Committee in Washington, told Bloomberg BNA Sept. 22.

The Orion decision is “the first that really comes from a court that gives some perspective as to the regulation and how the safe harbor applies to these set of facts,” Wilber said.

Employers have taken a position that the safe harbor applies and the court essentially ruled that out in this case, she said. The deference the court is giving to the safe harbor provision isn’t what employers were hoping for, Wilber said.

Employers that want to assert the safe harbor defense should make sure that their wellness plan is really part of their health plan and that there is evidence that it is used to assist in underwriting, classifying and administering risk under the statutory language and as demonstrated in Flambeau, Morris said.

Voluntary Standard

Medical examinations that are voluntary and part of a health plan don’t violate the ADA. This was the rationale used by the court in ruling for Orion.

Some employer groups see this as a win for their side. The Orion decision is a “very strong rebuttal” to the EEOC’s final regulation that the limited incentives that employers can provide to participants in wellness plans can’t go over 30 percent, Mark Wilson, chief economist at the HR Policy Association in Washington, told Bloomberg BNA Sept. 21.

The EEOC’s final regulation provides that if an employer wishes to incentivize or penalize employees’ participation, the program remains voluntary if the employer provides a financial incentive at or below 30 percent of the total cost for self-only coverage.

In Orion, the court said that the EEOC didn’t argue that this part of the regulation applied retroactively. The EEOC, instead, argued that Orion’s program wasn’t voluntary, but compulsory, because it shifted 100 percent of the premium cost to an employee who opted out.

The court wasn’t persuaded by this argument. “Even a strong incentive is still no more than an incentive; it is no compulsion,” the court said. “Orion’s wellness initiative is voluntary in the sense that it is optional,” the court added.

The Orion court didn’t rule on the 30 percent incentive cap in the EEOC’s regulation. Moving forward, employers should carefully review the risks of using more than a 30 percent incentive for health plans as this limit is consistent with the Affordable Care Act rules for health-contingent plans, Morris said.

More Lawsuits and Appeals?

The Orion decision is significant because it may be the only one of a trio of cases brought by the EEOC that gets resolved on the merits. Late in 2014, the EEOC brought lawsuits challenging wellness programs at Honeywell International Inc., Flambeau Inc. and Orion Energy.

The case against Honeywell ended when a federal court in Minneapolis denied the EEOC’s request to block the company from penalizing workers who didn’t participate in a corporate wellness program.

The Flambeau court relied on the Eleventh Circuit decision in Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012), to uphold the medical examinations required in the employer’s wellness plan. In that case, the appeals court said that Broward County, Fla.'s wellness program fit within the ADA’s safe harbor provision for insurance plans.

Employer groups believe that more lawsuits will follow. The EEOC will likely ignore the court’s decision and will keep bringing lawsuits against other employers, Wilson said.

Asked whether he believed that the EEOC would likely wait until its regulation become effective in January 2017 to bring more lawsuits challenging employers’ wellness programs, Morris said yes.

“I think they will wait until 2017 unless they see a case where they allege special circumstances,” Morris said.

If Orion is appealed, and upheld on the circuit level, then there is a disagreement between the Eleventh and Seventh circuits, which would be a good reason for the Supreme Court to take up the case, Gelfand said.

The EEOC didn’t immediately respond to Bloomberg BNA’s request for comments.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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