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BFV Perspectives, Corporate Matters, | Nov 21, 2014

"Voluntary" Corporate Wellness Programs and Employer Liability

Chronic diseases and conditions, such as heart disease, stroke, cancer, diabetes, obesity, and arthritis, are among the leading causes of death and disability in the United States. The Center for Disease Control and Prevention (the “CDC”) has reported that as of 2012, about half of all adults in the United States have one or more chronic health conditions. That is approximately 117 million people. Similarly, seven of the top 10 causes of death in 2010 were chronic diseases – heart disease and cancer accounted for nearly 48% of all such deaths. Obesity is another serious health concern: slightly more than one of every three adults in the United States is obese (approximately 78.6 million people).1

Beyond the obvious cost to human life, chronic diseases and conditions constitute an overwhelming percentage of health care expenditures in the United States, which directly impacts employers’ bottom lines. The majority of United States costs associated with medical conditions are for the costs of chronic diseases and conditions, as well as for associated health risk behaviors. For example:
• The total estimated medical costs linked to obesity were approximately $147 billion in 2008 – the pure medical costs were $1,429 higher for obese individuals than for those of a “normal” weight;
• The total estimated cost of diagnosed diabetes in 2012 was $245 billion, including $176 billion in direct medical costs and $69 billion in decreased productivity as a result of people being absent from work, being less productive at work, or not being able to work at all because of diabetes; and
• The total estimated costs of heart disease and stroke in 2010 were estimated to be $315.4 billion, including $193.4 billion for direct medical costs, not including costs of nursing home care.2

Wellness Programs as an Answer to Chronic Disease and Conditions
However, many of these chronic conditions may be prevented by taking steps toward healthier behaviors. The CDC has identified four health risk behaviors that cause much of the illness, suffering, and early death related to chronic diseases and conditions: lack of exercise or physical activity, poor nutrition, tobacco use, and drinking excessive amounts of alcohol.3

In the face of these staggering figures and considering the preventability of many of these chronic conditions, it should not come as a surprise that employee health and wellness is an issue at the forefront of many employers’ minds. In fact, as of 2009, 92% of employers with 200 or more employees reported offering workplace wellness programs targeted to promoting health-related behaviors and disease management.4 While implementing a workplace wellness program for employees may help reduce medical costs to employees for preventable chronic diseases and conditions, as well as increase overall employee health and wellness, they are not without risk. Employers may leave themselves open to liability based on the manner in which their program is implemented. As a general rule, wellness programs that require employees to undergo medical inquiries or examinations must show that such inquiries or examinations are job-related and consistent with business necessity in order to meet the requirements of the Americans with Disabilities Act (the “ADA”). An employer may still conduct medical examinations and activities without violating the ADA only where they are part of a voluntary wellness program and so long as the records obtained are kept confidential. Two recent Wisconsin companies have found themselves in trouble with the Equal Employment Opportunity Commission (“EEOC”) for wellness programs the EEOC contends fail to meet these requirements.

The EEOC Takes on Wellness Programs under the ADA
The EEOC has recently filed lawsuits against two Wisconsin-based corporations, Orion Energy Systems and Flambeau, Inc., alleging the companies’ wellness programs violate certain provisions of the ADA and its 2008 Amendments.5
On September 30, 2014, the EEOC filed suit on behalf of Flambeau, Inc. (“Flambeau”) employee Dale Anderson who was allegedly penalized as a result of a failure to comply with the “voluntary” wellness program the company implemented.6As part of Flambeau’s wellness program, employees were required to complete biometric testing, which involved taking blood work and measurements, as well as a health risk assessment, which required employees to self-disclose their medical history. Where employees completed these tests and assessments, Flambeau would cover approximately three-fourths of their health insurance premiums. However, if an employee failed to complete the tests and assessments, his or her insurance would be cancelled and the employee would be required to pay the entire cost of the premiums his or herself. In this case, Mr. Anderson was unable to complete the biometric testing and health risk assessment at the time scheduled by Flambeau because he was on medical leave, being treated at a hospital for a serious heart condition. When he returned from medical leave, Mr. Anderson requested additional time and materials to complete the testing and assessment. However, Flambeau denied his request. Approximately a month later, Flambeau notified Mr. Anderson that his health insurance was being terminated because he had not completed Flambeau’s requirements, including the biometric testing and health risk assessment.

The EEOC has alleged that Flambeau’s wellness program violated Section 102(d)(4)(A) of the ADA because the biometric testing and health risk assessment were not job-related and consistent with business necessity.7 Under this Code section, “[a] covered entity shall not require a medical examination and shall not make inquiries of an employee as to whether such employee is an individual with a disability or as to the nature or severity of the disability, unless such examination or inquiry is shown to be job-related and consistent with business necessity.” The EEOC also argued that the wellness program was not “voluntary” as required under Section 102(d)(4)(B) of the ADA because Mr. Anderson was “subjected to termination of his health insurance and a financial penalty of having to pay the entire premium cost… to obtain reinstated coverage as a result of not completing the examinations and inquiries”.8

Prior to filing this lawsuit against Flambeau, on August 20, 2014, the EEOC filed a lawsuit against Wisconsin-based Orion Energy Systems, Inc. (“Orion”) on similar grounds.9 Orion implemented a wellness program for its employees in March of 2009. As part of Orion’s wellness program, employees were required to complete a health risk assessment, which required employees to self-disclose their medical history and complete blood work. The health risk assessment also included a fitness component which required employees to use a Range of Motion Machine in Orion’s physical fitness room. In order to use the machine, employees were also required to fill out a medical history form. The employee in this case, Wendy Schobert, objected to participation in the wellness program on the grounds that she did not believe it was voluntary and questioned whether medical information obtained in connection with the wellness program would be maintained as confidential. After voicing her objections, Ms. Schobert was called into a meeting with her supervisor and Orion’s personnel director, where she was told not to express any opinions about the wellness program to others. Ms. Schobert subsequently declined to participate in the wellness program, and signed a form opting out of the health risk assessment on April 24, 2009. Less than a month later, Ms. Schobert was terminated.

The EEOC has alleged that Orion’s wellness program violated Section 102(d)(4)(A) of the ADA because the health risk assessment and other medical examinations and inquiries associated with the health risk assessment were not job-related or consistent with business necessity. Further, the EEOC argued that the wellness program was not “voluntary” as required under Section 102(d)(4)(B) of the ADA because Ms. Schobert was subjected to a financial penalty and subsequently fired for not participating in the wellness program. Specifically, because she opted out of the wellness program, Ms. Schobert was required to pay the entire premium cost for single coverage for her health insurance. Had she agreed to participate, Orion would have covered the entire amount of her health care costs. Coupled with her termination so close in time to her decision to decline participating in the wellness program, the EEOC alleges that Orion’s wellness program was not “voluntary” as required by the ADA.

Wellness Programs in the Eleventh Circuit
While the EEOC cases are still pending and the outcome is unclear, the Eleventh Circuit has had the opportunity to address the question of whether a corporate wellness program violated the ADA in Seff v. Broward County.10 In that case, Broward County provided its employees a group health insurance plan, pursuant to which employees were eligible to participate in a wellness program sponsored by Broward County’s insurance company. The wellness program consisted of both a biometric screening (e.g., a finger stick for glucose and cholesterol) and an online health risk assessment questionnaire. The information obtained in the screening and questionnaire was used by the insurance company to identify employees who had one of a number of diseases; those identified employees with such a disease was eligible to participate in disease management coaching programs, after which the employees would become eligible to receive co-pay waivers for certain medications. While participation in the wellness program was not mandatory in order to enroll in the health plan, Broward County began to charge a $20 fee on each biweekly paycheck issued to employees who enrolled in the group health insurance plan but refused to participate in the wellness program. The fee was later suspended.

A former employee who incurred the $20 fees filed a class action lawsuit against Broward County, claiming that the employee wellness program’s biometric screening and online health risk assessment violated the ADA’s prohibition on non-voluntary medical examinations and disability-related injuries. The trial court found the employee wellness program fell within the ADA’s safe harbor provision as part of a bona fide benefit plan.11 Under 42 U.S.C. section 12201(c)(2), the ADA “shall not be construed to prohibit or restrict… a person or organization covered by this chapter from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law…” The trial court held that the wellness program qualified as a “term of a bona fide benefit plan” within the meaning of the provision as it constituted a “term” of Broward County’s group health plan; however, the court failed to determine whether the program imposed non-voluntary examinations or inquiries that would have otherwise been prohibited under the ADA.

The Eleventh Circuit affirmed, finding that the record established that the insurance company sponsored the wellness program as part of the contract to provide Broward County with a group health plan, which constitutes a “bona fide benefits plan” under the ADA. These decisions in Seff appear to hold that a wellness program that falls within the ADA’s safe harbor for bona fide benefits plan does not need to comply with the ADA requirements regarding medial inquiries and examinations. Based on the Seff holding, employers may avoid potential ADA liability by more closely incorporating their wellness programs with employer-provided group insurance plans. While this may seem like good news for the employers, Seff is the first appeals case that addresses this ADA issue – thus, how other jurisdictions will answer this question in the absence of formal EEOC guidance remains an open question. Similarly, with the EEOC’s current pending lawsuits, it does not appear that the EEOC intends to follow the holding set forth in Seff.

Conclusion
While the Flambeau and Orion lawsuits are still pending and the outcome is unclear (particularly their impact on the Seff decision), there may be a light at the end of the tunnel for employers. The EEOC filed another lawsuit based on corporate wellness programs against Honeywell International, Inc. (“Honeywell”) on October 27, 2014 in the U.S. District Court of Minnesota.12 The EEOC specifically sought to enjoin Honeywell from implementing its wellness program based on similar alleged violations of the ADA and the Genetic Information Nondiscrimination Act (“GINA”). The Court denied the EEOC’s request for a temporary restraining order and preliminary injunction, as it found that Honeywell’s program did not pose “irreparable harm” to the participants of the program.13 In spite of this determination, the Court did not specifically state whether the EEOC was likely to succeed on the merits of the case in the litigation; as a result, the lawsuit is still positioned to move forward.

However, on November 13, 2014, Senate Republicans criticized P. David Lopez, the EEOC’s general counsel, as a result of the Flambeau, Orion, and Honeywell lawsuits because the EEOC is pursuing litigation where no employee complained of discrimination.14  Specifically, Senator Lamar Alexander expressed concern that the EEOC has moved forward with multiple ADA discrimination lawsuits based on corporate wellness programs without first providing updated guidance to the business community on how to adopt a wellness program under the Affordable Care Act and how to avoid violating federal discrimination laws. It remains unclear how the EEOC will proceed following these setbacks and criticisms.

Although the impact of these criticisms and the recent court decision in Honeywell remains to be seen, the EEOC’s lawsuits against Flambeau, Orion, and Honeywell highlight the delicate balance an employer must achieve in creating and implementing a workplace wellness program. On the one hand, employers are attempting to create a wellness program that employees will actually want to participate in to achieve their desired health and wellness goals.15 In order to encourage participation in these wellness programs, employers provide incentives, such as cash or cash equivalents, or variances in health plan costs. On the other hand, where an employer conditions these incentives on employee participation in the wellness program, employers are often toeing a very fine line between a permissible wellness program and a violation of federal law, such as the ADA “voluntariness” requirement under Section 102(d)(4)(B) or the “nondiscrimination” provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”).16

Employers that are aware of these laws may better avoid potential liability under the ADA, HIPAA, and other related federal and state laws by considering the requirements and prohibitions set forth in such laws and drafting and implementing the wellness programs with such laws in mind. By doing so, employers may not only avoid potential liability, but may also improve productivity in the workplace and better the lives of their employees.
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[1] Obesity is defined as body mass index (“BMI”) of greater than or equal to 30 kg/m2.  “Chronic Diseases and Health Promotion,” Centers for Disease Control and Prevention, available at (May 9, 2014)

[2] Id.

[3] Id.

[4] Soeren Mattke, Christopher Schnyer, Kristin R. Van Busum, “A Review of the U.S. Workplace Wellness Market,” RAND Health, available at https://web.archive.org/web/20160816233509/https://www.dol.gov/ebsa/pdf/workplacewellnessmarketreview2012.pdf (July 2012).

[5]The EEOC has also filed suit seeking an injunction against Minnesota based corporation Honeywell International, Inc. based on alleged ADA violations arising from a company wellness program.  See Equal Employment Opportunity Commission v. Honeywell International, Inc., No. 14-cv-4517 ADM/TNL (D. Minn. October 27, 2014).  Honeywell International, Inc.’s program requires workers and their spouses to undergo biometric screening, including blood tests for cholesterol levels and BMI determinations based on height, weight, and circumference.  According to the EEOC’s complaint, employees who decide not to participate will be assessed a $500 surcharge on their 2015 medical plan costs, may lose as much as $1,500 in company contributions to health savings accounts, and may be docked as much as $2,000 more in tobacco-related surcharges.  Id.

[6] Equal Employment Opportunity Commission v. Flambeau, Inc., No. 3:14-cv-00638, 2014 WL 4966338 (W.D. Wis. Sept. 30, 2014).

[7] 42 U.S.C. § 12112(d)(4)(A).

[8] Further, the EEOC alleges that Flambeau told the employee and other employees that failing to attend the testing at his or her scheduled time would result in “disciplinary action”, and did not provide health insurance to new employees unless they submitted to the examinations and inquiries and did not offer health insurance to existing employees without the COBRA premium penalty unless they submitted to the examinations and inquiries.

[9] Equal Employment Opportunity Commission v. Orion Energy Sys., Inc., No. 1:14-cv-01019, 2014 WL 2014 WL 4180675 (E.D. Wis. Aug. 20, 2014).

[10]Seff v. Broward County, 691 F.3d 1221 (2012).

[11]Seff v. Broward County, 778 F. Supp. 2d 1370 (S.D. Fla. 2011).

[12] Equal Employment Opportunity Commission v. Flambeau, Inc., No. 14-cv-4517 ADM/TNL (D. Minn. October 27, 2014).

[13]See Equal Employment Opportunity Commission v. Flambeau, Inc., No. 14-cv-4517 ADM/TNL (D. Minn. Nov. 3, 2014), Memorandum Opinion and Order, Dkt.  24.

[14]Scott Flaherty, “GOP Sens. Tell Top EEOC Attorney Wellness Suits Need a Checkup”, Law360, available at http://www.law360.com/articles/594516/gop-sens-tell-top-eeoc-atty-wellness-suits-need-a-checkup (November 13, 2014).

[15] The Department of Labor found in a 2010 non-representative study that while wellness programs are relatively common place, typically fewer than 20 percent of eligible employees participate in wellness interventions.  See supra  note 4.

[16] These laws are by no means an exhaustive compilation of the considerations, legal or otherwise, that an employer should discuss prior to creating and implementing a corporate wellness program.  Other considerations may include obligations under GINA and the Employee Retirement Income Security Act (“ERISA”). Employers may also want to undergo a cost-benefit analysis of the potential benefits and risks associated with implementing a corporate wellness program.

BFV Perspectives, Corporate Matters, | Nov 21, 2014