Benefits and Compensation

Wellness? Sure, But Beware of Legal Pitfalls

Jones, who is a partner at Pillsbury Winthrop Shaw Pittman LLP in Los Angeles, offered his wellness guidance at a recent Benefits Bootcamp sponsored by BLR® and HR Hero®.

Generally, wellness programs are healthcare options that employers offer to employees to reduce preventable illnesses. They offer obvious benefits to the employee—better health—and benefits to the employer—lower costs and reduced absenteeism.

Common wellness programs include:

  • Health risk assessments (typically a questionnaire that asks about health and habits to help employees learn about their health and design a personal wellness program that meets their specific needs)
  • Smoking cessation classes
  • Discounted gym memberships
  • Flu vaccinations
  • Diet and weight loss programs
  • Biometric testing (for example, cholesterol and glucose screenings)
  • Health fairs
  • Nutrition classes
  • Changing food at company cafeteria to more healthy fare
  • Health-related newsletters and website

Put your lawyer hat on and look at this list, says Jones. Which are likely to cause the employer problems from sharing private data? The number one culprit is health risk assessments and number two is biometric testing.

Typical problems:

An employee goes to a health fair and a screening showed a risk factor, say high cholesterol or high blood pressure. The employee doesn’t get an expected promotion. There may be a suspicion that because of the information uncovered at the health fair, the employee didn’t get the promotion.

So companies need to design programs in a way that insures that information is kept confidential, Jones says.

And which items on the list are most likely to cause problems with discrimination. It’s when there is a financial incentive, he says. For example:

  • Say you offer a discount on health insurance to nonsmokers or smokers who participate in smoking cessation class. The smoker who doesn’t want to participate or has a schedule conflict could believe he or she was being discriminated against because of what might be a disability.
  • You give discounts or make a $100 contribution to employees’ flex spending accounts if they improve their body mass index by X  percent. If an older employee is struggling with obesity and unable to reach the goal, he or she may feel discriminated against.

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Tax Surprises

Different programs have different tax implications, says Jones. For example, employees given a discount for gym membership are subject to tax on the discount. However, a $100 contribution to an employee’s flexible spending account (FSA) shouldn’t be taxable as long as the employer has complied with all requirements.

Legal Risks

Despite employers’ best intentions, workplace wellness programs can lead to unintended legal consequences. For example:

  • Health screenings, restrictions on employee conduct, and the collection of health information may violate the privacy rights of your workers.
  • Some employees may believe they are subject to discrimination by wellness programs on the basis of their health status, disability, or age.
  • Employers that provide medical benefits with their wellness programs may be subject to penalties for failing to properly document the programs, file annual reports on Form 5500, or offer COBRA continuation coverage.

Recent Developments Under Healthcare Reform

The Pension Protection and Affordable Care Act (ACA) contains several provisions that could positively affect your workplace wellness programs:

  • Online Tools. There are new online tools for employers that would like to implement or improve their wellness programs at http://www.cdc.gov/nccdphp/dnpao/hwi/index.htm, the healthier worksite initiative. The site features easy-to-use program design aids and other helpful materials.
  • Bigger rewards. Higher limits on the rewards you may offer workers who attain a health standard, such as completing a smoking cessation course, up from 20 to 30% of the employee’s premium costs (effective 2014).  For example, says Jones, if you sign up for a diet program and succeed in reducing body mass index by 5%, a discount is OK as long as it is not more than 20% (30% in 2014) of the total premium.
  • Clearer guidance. We now have better guidance (effective 2014) on what alternative standards employers must make available for individuals who could not otherwise satisfy the health standard necessary to earn a reward.

Important Legal Decision

Seff vs. Broward County, Florida, an 11th Circuit Court decision in August 2012 helps to clarify the issue of cash rewards and penalties, says Jones.

In the case, employees had a lot of costs related to diabetes and high cholesterol, so the county decided to make an additional $20 biweekly payroll deduction on county employees who did not complete a health risk assessment and biometric testing during open enrollment.

Employees who didn’t want to participate claimed that the penalty violated the American with Disabilities Act (ADA).

The finding (upheld on appeal) was that the wellness program did not violate the ADA because it is:

  • Part of a bona fide benefit plan
  • Designed to gather and use data to lower premiums
  • Not intended to discriminate on the basis of disability

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New final HIPAA Privacy Regulations

Wellness programs provided under a group health plan are subject to the following new privacy requirements (effective March 26, 2013):

  • Privacy and security protections apply directly to wellness program providers and other business associates (third parties like wellness program providers).
  • Business associate agreements must be modified to reflect the new rules at the earliest of (1) renewal, (2) modification, or (3) September 22, 2014.
  • Business associates must enter into business associate agreements with subcontractors that create or receive protected health information (PHI).
  • Plans and providers are liable for breaches of unsecured PHI by any business associate acting as an agent.
  • Business associates must report any breach of unsecured PHI.

In tomorrow’s Advisor, Jones’ checklist for avoiding legal entanglements related to your wellness program, plus an introduction to the all-compensation-in-one-place website, Compensation.BLR.com.

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