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New Healthcare Provisions and Potential for Employment Practices Issues

New Healthcare Provisions and Potential for Employment Practices IssueRewards, Penalties for Participation in Wellness Programs and the ADA

There’s a great deal of concern over the Affordable Care Act (ACA) and the impact it will have on businesses, employees and individuals, including whether there will be cost savings as a result of the reforms being implemented. There are also employment practices issues beginning to take shape. One recent topic being discussed is whether certain provisions regarding employer wellness programs under the ACA set to take effect in 2014 will end up running afoul of other federal laws, specifically the Americans with Disabilities Act (ADA).

Employers as a whole, particularly larger companies, are moving towards implementing financial incentives and rewards, such as discounted health coverage, to help drive employee participation in their wellness programs. Wellness programs are designed to help employees take more responsibility and accountability for their health, which, in turn, helps to reduce employee absenteeism, lost productivity, healthcare expenses, etc. But in order for these programs to work, employees have to be engaged and participate. In fact, a recent study by Towers Watson, a global professional services company, indicates that nearly 77% of employers view a lack of employee engagement as the biggest obstacle to changing behavior. Despite offering a variety of health and productivity programs, employers report that actual program participation is low.

This could all change with wellness programs getting a boost under the ACA. Under the Affordable Care Act, which affects plan years beginning on or after January 1, 2014, employers will be permitted to charge a 30% healthcare premium differential to employees based on participation or performance in health promotion; smokers can be charged up to a 50% difference. The ACA regulations draw a distinction between participatory and health-contingent wellness programs. Participatory wellness programs do not require employees to satisfy any particular standard related to a health factor in order to receive a reward (such as joining a gym or participating in a smoking-cessation program). Health-contingent wellness programs require either that the employee performs an activity related to a health factor in order to obtain a reward (activity-only wellness programs) or achieves a specific health outcome in order to obtain a reward (outcome-based wellness program). There are also set requirements for rewards to be given under health-contingent programs.

The question many legal minds are now pondering is at what point does the financial incentive to participate or the penalty for nonparticipation become so great as to render a wellness program involuntary? Furthermore, when it relates to employment practices, what does the Equal Employment Opportunity Commission (EEOC) have to say?

In contrast to the detailed wellness program compliance guidance available under the ACA, the EEOC has yet to issue any guidance under the American Disabilities Act (ADA) as to whether and to what extent participation rewards – or penalties for non-participation – are lawful. As the deadline for implementation of the ACA’s wellness program regulation draws nearer, pressure is mounting for the EEOC to provide guidance.

The ADA generally prohibits employers from asking employees disability-related questions or from asking employees to submit to medical exams unless those inquiries or examinations are job-related and consistent with business necessity. Under the ADA, wellness programs may include such questions or exams only if the program is voluntary – which, according to the EEOC, means that participation is not required and employees who decline to participate are not penalized. But, again, the EEOC has yet to draw a line between what it considers “voluntary” and “involuntary.”

Earlier this year, at an EEOC meeting, some of the participants stated that compliance with the Affordable Care Act’s limits on incentives to 30% of the cost of coverage and 50% for smoking cessation should also constitute ADA compliance. Yet this has yet to be determined and employers could find themselves in compliance with one federal law while simultaneously risking violation of another. As a result, many employers are wondering how to proceed. Some cautious employers may decide to implement rewards/penalties that are below the levels endorsed by the ACA, yet it is still unclear whether the EEOC would consider a program involuntary even at those lower levels.

When looking at the Towers Watson study, so far it’s estimated that in 2014, almost four in 10 (36%) companies will indeed be using penalties such as an increase in premiums and deductibles for individuals who do not complete the requirements of health management activities (with a jump to 61% for 2015/2016). Outcome-based incentives that reward or penalize employees based on tobacco use will grow from 54% next year to 71% in 2015/2016, says the study. Additionally, rewards and penalties for other biometric outcomes (e.g., health-contingent targets such as BMI, blood pressure or cholesterol level) will dramatically increase from 26% in 2014 to 68% in 2015/2016.

As you can see, this is another potential emerging risk for employers with regard to employment practices. It’s best to work closely with professionals, including an attorney, when setting up your healthcare and wellness programs. Additionally, be sure you have a sound Employment Practices Liability Insurance in place to protect your company in the event of a lawsuit alleging discrimination and other workplace violations.

Axis Insurance Services, LLC is a leading professional and management liability insurance specialist, and offers employers Employment Practices Liability Insurance (EPLI) coverage, including to large corporations and small businesses. Give us a call at (877) 787-5258 to discuss our insurance programs.

Sources: MONDAQ, Towers Watson

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Blogged on: October 17, 2013 by Mike Smith
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