The company workout plan: Legal considerations when implementing an employee wellness program

Editor’s Note: Mr. Still is a member of the Labor and Employment Practice Group of Ward and Smith, P.A.

Today, one of the many factors considered by job applicants when choosing among a number of job offers is the quality of health benefits available from each employer. Providing health benefits, of course, is not cheap for employers. Indeed, skyrocketing health insurance costs have made employee health benefits an ever-increasing challenge and expense for employers, especially in a society that is notorious for sedentary lifestyles, overconsumption, and poor nutrition. In response to these challenges, many employers have initiated employee wellness programs. In their most basic form, employee wellness programs provide employees with incentives to participate in activities that promote their health. For example, a company may offer an incentive to employees who participate in on site health screenings for blood pressure, cholesterol, and pulmonary functions. Employee wellness programs also can take the form of competitions in which employees who walk the furthest or lose the most weight receive a prize. Wellness programs can be as simple as an employer-sponsored aerobics course or a company gym.

Many employee wellness programs have posted positive results. Employers have reported that the benefits of employee wellness programs go well beyond improved insurance premiums, and include reductions in absenteeism, on-the-job injuries (and, by extension, workers' compensation costs), and disability management costs. Many employers also report that employees participating in employee wellness programs have increased productivity and improved morale.

With all of these benefits, it is no surprise that more and more employers are adopting wellness programs for their workforces. Employers deciding to adopt such programs, however, must comply with certain complicated provisions of federal employment statutes. These statutes, in their most basic sense, attempt to eliminate differential treatment toward an individual based on that individual's health status.

Legal Considerations Under HIPAA

The Health Insurance Portability and Accountability Act ("HIPAA") contains nondiscrimination provisions that prohibit group health plans and group health insurance issuers from denying health benefits thereunder based on an employee's health factors. Similarly, HIPAA prohibits the charging of higher premiums to an individual under a group health plan based on the individual's personal health factors. Under HIPAA, a health factor can be the individual's health status, medical condition (whether mental or physical), claims experience, prior health care coverage, genetic information, medical history, evidence of insurability, or disability.

On December 13, 2006, the U.S. Departments of Labor, Treasury, and Health and Human Services issued important joint regulations on the nondiscrimination provisions of HIPAA, and provided guidance on how employers and insurers should implement wellness programs given the HIPAA restrictions. Under these joint regulations, an employer can vary the health benefits it provides to, and premiums paid by, employees based upon such employees' successful participation in a wellness program. However, an employer cannot condition a reward under the wellness program on an employee meeting a certain standard related to a health factor. For example, an employee wellness program may not give rewards to employees who have genetic backgrounds that are less prone to heart disease or high blood pressure. If no reward is offered at all, a wellness program is deemed to have met the HIPAA nondiscrimination requirements.

Permissible Non-Reward Programs

The U.S. Department of Labor provides the following examples as situations in which a wellness program complies with HIPAA's nondiscrimination provisions by not conditioning benefits on the basis of rewards for satisfying a standard related to a health factor:

▪ Providing reimbursement for all or some of an employee's membership fees to a fitness center;

▪ Providing rewards for participation in (rather than for the outcome of) diagnostic testing programs;

▪ Encouraging preventive care by waiving co-payment or deductible requirements for the costs of programs related to prenatal care or other similar services;

▪ Reimbursing employees for the costs of smoking cessation programs without regard to whether or not the employee quits smoking; and,

▪ Providing rewards to employees for attending a monthly health education seminar.

Permissible Reward Programs

If an employee wellness program does base a reward on an employee's success in satisfying a standard related to a health factor, the joint regulations further provide that such a program is permissible under HIPAA's nondiscrimination provisions only if it can meet five requirements.

▪ The total reward gained by employees under the program generally cannot exceed 20% of the cost of coverage under the plan;

▪ The program must reasonably be designed to promote health and/or prevent disease;

▪ The program must give individuals who are eligible to participate the chance to qualify for a reward at least once a year;

▪ Rewards must be available to all similarly situated individuals;

▪ The program must provide reasonable alternatives to persons unable to participate in the program because of a medical condition; and,

▪ The plan must publicize in all materials for the program the availability of such reasonable alternatives.

While employee wellness programs can provide great incentives for employees to stay fit and healthy, employers must design and implement the programs in compliance with the requirements of HIPAA. While this article has focused on the newer HIPAA regulations, employers must remember that, in addition to HIPAA, employee programs also must comply with the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, and Title VII of the Civil Rights Act of 1964. The most important thing for employers to keep in mind is to account thoroughly for the laws and regulations surrounding such programs so that, in the process of getting their employees healthy, employers also keep their programs healthy under the law.

© 2008, Ward and Smith, P.A.

Ward and Smith, P.A. provides a multi-specialty approach to the representation of technology companies and their officers, directors, employees, and investors. Kyle R. Still practices in the Labor and Employment Practice Group, where he represents clients before the U.S. Equal Employment Opportunity Commission, the North Carolina Industrial Commission, and the Employment Security Commission of North Carolina. Comments or questions may be sent to ks@wardandsmith.com

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.