Where There’s Smoke There’s Questions: Designing Compliant Wellness Programs That Target Tobacco Use
The final regulations concerning wellness programs under the Health Insurance Portability and Accountability Act, as amended (HIPAA) continue to generate a number of questions and concerns for employers whose programs seek to promote employee health by curbing tobacco use. The compliance status of some programs is further complicated by the recent release of Equal Employment Opportunity Commission (EEOC) proposed rules, which depart from the 2013 HIPAA regulations in important ways when it comes to tobacco-related wellness programs. Here is a sampling of questions we have received from clients, with brief responses that include observations about the proposed rules recently published by the EEOC.
1. Is it acceptable to design a program where employees who use tobacco may avoid a higher insurance premium (or surcharge) only by quitting tobacco use?
No. A program may not require an employee to actually stop using tobacco as the only means of earning a reward or avoiding a penalty. A program that penalizes employees for using tobacco is an "outcome-based" wellness program that must provide (and disclose the availability of) a reasonable alternative standard that would enable a tobacco user to avoid the penalty if she cannot meet the initial standard (i.e., she is not tobacco free). The alternative standard must be made available without requiring physician verification that it would be unreasonably difficult or medically inadvisable for the individual to stop using tobacco. Common reasonable alternatives are smoking cessation and nicotine counseling programs where an employee receives the reward for completing the program (even if the employee does not quit). A re-test for tobacco use at a later date is not considered a "reasonable alternative standard." Programs that do not provide a reasonable alternative are not considered "voluntary" under the standards outlined in the EEOC proposed rules and could therefore be found to violate the Americans with Disabilities Act (ADA).
2. Are there any limits to the "reasonable alternative standard" an employer can require for tobacco users to obtain the reward?
Yes. Although an employer is not required to identify a specific alternative in advance of an employee's request, a reasonable alternative standard must be available if the employee asks for one. Whether a particular alternative is "reasonable" must be determined on the basis of the facts and circumstances involved. This requirement is consistent with the notion, common to both the HIPAA regulations and the EEOC proposed rules, that wellness programs must be reasonably designed to promote health or prevent disease. A program that is overly burdensome (for example, in the time or conditions required for participation) or that imposes significant costs on employees will not be considered "reasonable."
The HIPAA regulations do provide some guidance concerning what alternatives are "reasonable": (1) if the alternative is the completion of a cessation program, the employer either must make a program available or assist employees in finding a program, (2) the employer may not require the individual to pay for the cost of the program, (3) the program must be reasonable as to the time commitment required, and (4) recommendations of an individual's personal physician must be accommodated as a second alternative. Alternative standards may be different in each year of the program.
3. Is it acceptable to design a program that restricts participation in certain health benefit options to employees who are tobacco-free (i.e., maintain a tobacco-free "threshold" requirement for participation in certain health plans)?
Generally, no. Threshold requirements limiting participation in certain plans or health benefits to employees who are tobacco-free or who complete a tobacco-related reasonable alternative is an aggressive design, but not one that is specifically prohibited under the HIPAA regulations. The EEOC proposed rules prohibit the use of a disability-related inquiry or medical exam in a way that would deny coverage under any group health plan to employees who do not participate or would withhold a benefit from such employees. Therefore, health-contingent programs that test for nicotine or tobacco cannot limit the types of coverage or benefits available to employees who test positive and refuse to participate in a reasonable alternative.
4. Does it matter whether an employer characterizes the different treatment of employees who use tobacco (and refuse to complete an alternative standard) and tobacco-free employees as a penalty or a reward?
No. The HIPAA regulations include both economic benefits (such as a premium discount or cost-sharing waiver) and the avoidance of a penalty (such as a tobacco surcharge) within the definition of "reward." The EEOC proposed rules define incentives in the same manner as "rewards" under the HIPAA regulations, meaning both economic benefits and penalties are permissible "incentives" under the rules. A program that highlights incentives (rather than penalties), however, will likely decrease employee resistance to participation.
5. How should an employer calculate the maximum reward (or penalty) for participation in a health-contingent wellness program that exclusively targets tobacco use?
Under the HIPAA regulations the maximum reward available to employees who are tobacco-free is 50% of the total cost of the employee-only coverage in which the employee is enrolled. The "total cost" of coverage is the sum of employee and employer contributions toward the cost of coverage. If an employee's spouse or dependents are permitted to participate in the program, the maximum reward is 50% of the total cost of coverage in which the employee and any spouse or dependents are enrolled (e.g., employee + 1, family, etc.). The maximum reward allowed under the EEOC proposed rules for a tobacco-related wellness program that includes a disability-related inquiry or a medical exam is capped at 30% of the cost of coverage. Programs that simply ask employees whether they use tobacco are not deemed to involve disability-related inquiries and may continue to offer rewards up to 50% of the cost of coverage. Because the EEOC indicates that employers may rely on the proposed rules pending the release of final rules, employers with health-contingent programs that test for the presence of nicotine or tobacco are well-advised to cap the available reward at 30% of the total cost of coverage.
6. Should employers be concerned about state smoker-protection laws?
Probably not. Several states and the District of Columbia have "smoker protection" laws that prevent employers from discriminating against employees who smoke. If the smoker-protection law in question is a state insurance law, it will not apply to self-insured group health plans. In states where the smoker-protection law is not classified as an insurance law (or, even if it is, and the employer maintains an insured group health plan) it is likely that ERISA will preempt the state law to the extent the wellness program is part of an "employee benefit plan" under ERISA. See ERISA § 514(a); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 100 (1983).
Employers should be aware that compliance with the HIPAA regulations will not ensure compliance with the ADA or the Genetic Information Nondiscrimination Act. Fortunately, the EEOC has not initiated any new wellness litigation in 2015 and has finally released proposed wellness program rules that provide some insight into the wellness program features the EEOC views as required under the ADA. We will provide updates regarding the release of final EEOC rules or guidance addressing the inconsistencies between its proposed rules and the HIPAA regulations on Benefits Law Update.