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Self-funded wellness plans may stand up against EEOC attacks

January 18, 2016

By Anthony Kaylin, courtesy of SBAM Approved Partner ASE

How the Americans with Disability Act (ADA) impacts wellness programs still makes employers’ heads spin.  On the one hand, the Affordable Care Act (ACA) encourages such programs as a way to control costs. On the other hand, the EEOC has the opinion that such programs can be used only in limited ways. The result is that many employers are shying away from wellness programs.

ASE’s 2015 Healthcare Insurance Benefits Survey bears this out. Nearly half of the employers surveyed offer no wellness benefits. Of those that do, just 35% of nonunion and 45% of union employers offer screening services such as biometric or clinical scans. 

Even so, the EEOC has been shot down again by the courts in their interpretation of legally appropriate and inappropriate wellness programs for self-funded plans, and for their approach in this lawsuit. The case is EEOC v. Flambeau, Inc., tried in western Wisconsin Federal District Court. The EEOC accused Flambeau of violating the ADA by forcing one of its employees to submit to medical assessment and testing in connection with its wellness program under threat of being dropped from the employer’s health insurance plan.

Flambeau’s plan is self-funded and self-insured, although it is administered by a third party administrator (TPA). Flambeau employees had to complete the wellness assessment and test if they wanted to participate in the company’s insurance plan. The assessment involved two steps—completing a health risk assessment questionnaire and undergoing a biometric test, which was similar to a routine physical exam.

Flambeau used the information gathered from these assessments to estimate the cost of providing insurance, set participants’ premiums and stop-loss levels, and adjust co-pays for preventive exams and prescription drugs. Flambeau saw no individual employee data; it only saw data in the aggregate.

In order to control costs, Flambeau adopted a policy of offering health insurance only to those employees who completed the wellness program. Participating in the wellness program was not a condition of continued employment, but it was a condition of enrolling in the company’s health insurance plan.

Arnold did not complete the biometric testing and health risk assessment in a timely fashion. Flambeau dropped him from its insurance program for failure to participate, offering him COBRA in its place. What had happened was that on the day he was to take the assessment, he was on medical leave and being treated in the hospital for cardiomyopathy and congestive heart failure.

Arnold declined COBRA and then filed a union grievance, a complaint with the Department of Labor (DOL) and a complaint with the EEOC.  After the DOL intervened, the company agreed to allow Arnold to retake the assessment. He did, and his insurance was reinstated back to the date it was initially dropped.

The EEOC still sued Flambeau, arguing that the wellness plan violated the ADA provisions that state that a “covered entity shall not require a medical examination . . . unless such examination is shown to be job-related and consistent with business necessity.” 

Flambeau counter-argued that its plan fell under the ADA safe harbor provisions that a plan “shall not be construed to prohibit or restrict” an employer from establishing or administering  “the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks.” 

The EEOC replied that the safe harbor provisions never considered whether wellness plans were covered.

The trial judge recognized that the issue at hand was one of first impression with the court. The 7th Circuit had not ruled on this issue.

First, the court ruled that wellness plans are covered by the safe harbor provisions of the ADA.  Second, the court ruled that the wellness program requirement was a “term” of defendant’s benefit plan even though it was not formally written in the Summary Plan Description.  The court stated that employees were on notice of the requirement through other literature provided by Flambeau and other means.

In addition, the court ruled that the wellness program was clearly used to determine underwriting risks, classify risks, or administer such risks. Flambeau’s consultants used the data gathered through the wellness program to classify plan participants’ health risks and calculate defendant’s projected insurance costs and premiums for the benefit year.

Finally, the court ruled that the wellness plan was not a subterfuge to evade ADA requirements and was not used to discriminate against any employee.  The health coverage was voluntary and all employees who wanted to participate had to complete the wellness plan assessments.  Moreover, there was no evidence that the information gathered from the tests and assessments was used to make disability related distinctions with respect to employees’ benefits.

Although the case is likely to be appealed, the takeaway on this case, at least for self-funded health plans, is that wellness plans used in the same way to assess risks, costs, and premiums will likely fall under the safe harbor provisions of the ADA and be permissible under the law.

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