Recently, wellness programs have gained popularity in the workplace. Approximately one half of all employers offer some kind of wellness program. This is due, in part, to the notion that healthy employees are more productive employees. Moreover, wellness programs are thought to increase a company’s bottom line by lowering overall healthcare costs for the employer and preventing opportunity loss if employees get sick less often. While the effects that wellness plans have on business performance are still not confirmed, the popularity of these programs continues to be on the rise.  

Although wellness plans are gaining in popularity, employers should be aware of the potential legal pitfalls when designing and administering their wellness plans.

What Is a “Wellness Plan”?

The U.S. Equal Employment Opportunity Commission (EEOC) defines wellness plans as “any program or activity offered through employer-provided health plans as a means to help employees improve health and reduce healthcare costs.”  Wellness plans can vary greatly based on the activities involved and incentives offered. Legal compliance issues generally arise when wellness plans are offered in conjunction with a group health plan rather than a standalone program. While neither rewards nor penalties are a required aspect of a wellness plan, they are often used to incentivize participation by the workforce. Examples of rewards include money, gift cards, premium discounts, and non-monetary awards such as a gym membership.  

How Can Wellness Plan Designs Differ?

Wellness plans are typically designed to be either participatory or health-contingent programs. Participatory programs are usually available to everyone regardless of their health. Participatory wellness programs are generally legally compliant as long as they are available to all similarly situated individuals. Health-contingent programs require participants to satisfy a certain health standard in order to receive the reward or not be penalized. This health standard can be achieved either though completion of an activity or attaining a specific health outcome, such as biometric results within certain levels. Any outcome-based or activity-based requirement should be paired with reasonable alternative standards to comply with the Americans with Disabilities Act (ADA) reasonable accommodations in the workplace requirement.

What are the Pitfalls of Wellness Plans?

While almost all wellness plan designs have potential for legal compliance issues, employers need to also be mindful of potential litigation exposure. Over the past few years, the EEOC has brought suit against a number of employers for the stringent requirements of their health-contingent wellness programs, allegedly in violation of the nondiscrimination requirements of the ADA. Fortunately, in April 2015, the EEOC published proposed rules clarifying how the ADA applies to wellness plans.  Not only do employers need to comply with the ADA, but complex wellness plans may also need to comply with other federal laws including the ACA, HIPAA, GINA, ERISA, and ADEA. Violation of any of these federal regulations may result in penalties and possible excise taxes imposed on the employer.   

Tips for a Compliant Wellness Plan

The following tips may help employers avoid some of the various wellness plan compliance issues:

1. Keep it simple and reasonable. The more complex and more numerous the requirements to be eligible for the reward are, the more likely the wellness plan will run into compliance issues.
2. Keep it participatory. While health-contingent programs may be more effective in changing employee behavior, participatory wellness plans are less likely to conflict with the ADA and other federal laws.
3. Make it voluntary and limit incentive(s) to 30%. If the program imposes a significant reward or penalty, a voluntary wellness plan may be construed as involuntary. Penalties or rewards of more than 30% are viewed as involuntary wellness plans. This cap could be increased to 50% for certain smoking cessation or reduction of tobacco use programs
4. Allow for reasonable alternative standards. Permit different methods of participation or eligibility requirements so that all employees can participate regardless of age or health status.
5. Give employees an annual opportunity to qualify. Allow employees to enroll or become eligible to receive wellness plan incentives at least once per year so that no employee is ever completely barred from being eligible for a reward.   

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

[View source.]