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EEOC Issues Notice of Proposed Rulemaking Related to Wellness Programs

Since 2019, employers faced uncertainty regarding the status of wellness program incentives under the ADA and GINA. On January 7, 2021, the EEOC issued a Notice of Proposed Rulemaking on Wellness Programs Under the ADA and GINA that addresses this issue. The proposed rules deviate somewhat from prior EEOC guidance and positions.  

Specifically, the proposed rules apply the ADA’s insurance “safe harbor” to health contingent wellness programs offered as part of, or qualified as, an employer-sponsored group health plan, thereby segregating them from health contingent wellness programs offered to all employees, regardless of their participation in the employer’s health plan.  Instead, the latter are lumped in with non-health contingent wellness programs (i.e., wellness programs that involve a disability-related inquiry or medical exam but are not activity-based or outcome-based) and subject to the ADA wellness rules. 

Consistent with the EEOC’s announcement in the summer of 2020, the proposed rules require any incentives provided for participatory wellness programs and/or wellness programs not offered as part of a group health plan to be “de minimis.”  If the rules are finalized as proposed, employers may no longer rely upon the 30% (or 50% for smoking cessation) limit on incentives for these types of programs. 

Finally, the proposed rules amend the GINA regulations by, among other things, limiting wellness program incentives for employees who complete health risk assessments that contain information about their spouse or dependents’ family medical history or other genetic information to a similar de minimis amount. 

The proposed rules are described in more detail below.

Background

As background, under the ADA, wellness programs that involve a disability-related inquiry or a medical examination must be “voluntary.”  Similar requirements exist under GINA when there are requests for an employee’s family medical history (typically as part of a health risk assessment).  For years, the EEOC had declined to provide specific guidance on the level of incentive that may be provided under the ADA, and their informal guidance suggested that any incentive could render a program “involuntary.”  In 2016, after years of uncertainty on the issue, the agency released rules on wellness incentives that resembled, but did not mirror, the 30% limit established under U.S. Department of Labor (DOL) regulations applicable to health-contingent employer-sponsored wellness programs.  While the regulations appeared to be a departure from the EEOC’s previous position on incentives, they were welcomed by employers as providing a level of certainty.

However, the rules were subsequently challenged by the AARP, which alleged that the final regulations were inconsistent with the meaning of “voluntary” as that term was used in ADA and GINA.  After much back and forth in the lawsuit, in December 2017, the court vacated, effective January 1, 2019, the portions of the final regulations that the EEOC issued in 2016 under the ADA and GINA addressing wellness program incentives.  This was, in most part, due to the timing proposed by the EEOC to develop new regulations. 

Accordingly, since January 1, 2019, employers have been operating with little guidance or clarity regarding whether incentives provided for participatory wellness programs would be agreeable to the EEOC.

EEOC Proposed Wellness Regulations

ADA Proposed Wellness Regulations

The EEOC’s proposed rule seeks to amend two sections of the ADA regulations, related medical examinations and inquiries, and the insurance safe harbor.  In the preamble to the proposed rule, the EEOC recognizes that the meaning of “voluntary” is in the eye of the beholder but takes the position that if incentives are too high, then employees may feel coerced to disclose protected medical information in order to be rewarded or avoid a penalty.  Accordingly, participatory wellness programs that include a disability-related inquiry and/or a medical examination or health-contingent programs that are not part of, or do not qualify as, a group health plan must not impose terms that would adversely affect the terms, conditions, or privileges of employment for employees who do not participate and, therefore, must limit incentives to a de minimis amount.

While “de minimis” is not specifically defined, the EEOC provides some examples to help guide employers, including:

• Providing a water bottle
• Providing a gift card of “modest” value

Items the EEOC indicates would not be de minimis include:

• Providing a $50 a month premium reduction for completing a health risk assessment
• Paid airline tickets
• Annual gym memberships

The EEOC requested comments on the types of incentives that should/should not be considered de minimis.

The proposed rules list four factors that can be used to determine whether a wellness program is “part of” a group health plan:

1. the program is only offered to employees who are enrolled in an employer-sponsored health plan;
2. any incentive offered is tied to cost-sharing or premium reductions (or increases) under the group health plan;
3. the program is offered by a vendor that has contracted with the group health plan or issuer; and
4. the program is a term of coverage under the group health plan.

The proposed rules included other protections for employees.  Specifically, they (1) prohibit employers from retaliating, interfering with, coercing, intimidating, or threatening employees, such as coercing them to participate in the program or threatening disciplinary action if they don’t participate, (2) protect employee confidential information obtained by a participatory wellness program or a health-contingent wellness program that is not part of the group health plan by requiring information collected to be aggregated in a form that does not disclose, and is not reasonably likely to disclose, the identity of specific individuals, (3) with limited exceptions specific to carrying out wellness program functions, prohibit the employer from requiring the employee to agree to the sale or disclosure of medical information or waive confidentiality protections under the ADA to participate in the program; and (4) clarify that employers must still comply with other federal civil rights laws.

Finally, because the EEOC is now proposing a de minimis incentive standard for most wellness programs, it no longer believes that it is necessary to require employers to issue a unique ADA notice that describes, among other things, the type of medical information that will be obtained and the purposes for which the information will be used.

GINA Proposed Wellness Regulations

Under the proposed GINA rules, employers may provide de minimis incentives to employees who complete health risk assessments that contain information about their spouse or dependents’ family medical history or other genetic information.  The EEOC uses the same examples of what would be de minimis under the ADA for purposes of GINA, such as providing a water bottle or a modest gift card. 

The proposed rule does not prohibit an employer from offering a greater incentive (i.e., a non-de minimis incentive) to employees who provide their own genetic information as long as the employer makes it voluntary for the employee to complete the questions regarding genetic information (and the instructions clearly indicate which questions are voluntary), or to an employee who completes a health risk assessment that includes genetic information, if the employee participates in a disease management program, other program that promotes a healthy lifestyle, and/or meet a particular health goal, as long as the programs are also offered to individuals with current health conditions or health risks. 

The EEOC uses an example of an employer who offers $150 for completion of a health risk assessment which requests information about family medical history or other genetic information but makes it clear that the incentive is available regardless of whether the employee completes any questions related to genetic information.  The assessment identifies which questions are related to genetic information.  Employees can earn $150 if they disclose family medical history and participate in a program designed to encourage weight loss or a healthy lifestyle; however, if the employee does not want to complete the questions related to genetic information, they can still earn the $150 if they attain a certain health outcome by participating in other activities.  The incentive complies with GINA.

What’s Next for Employers?

The wellness regulations are proposed at this time and it is uncertain when they will be finalized; however, if history is any indication, any final regulations will be challenged in court.  While employers are not required to make any changes to their wellness programs at this time, they should continue to monitor developments and work with employee benefits counsel when designing their wellness programs.  Release of final regulations may be further delayed if the Biden administration freezes new rules pending further review. 

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About the Authors.  This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com

After weeks of negotiations, Congress overwhelmingly passed a second COVID-19 stimulus package – the COVID-Related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both part of the Consolidated Appropriations Act, 2021 (CAA, 2021).  President Trump signed the bill into law on December 27, 2020.  The new stimulus package includes several employee benefits-related provisions relevant to health and welfare plans, as summarized below.  A provision on surprise medical billing (effective for plan years beginning in 2022) will be the subject of a future client alert. 

FFCRA Paid Leave

As the COVID-19 pandemic continues and the vaccine is unlikely to be available on a wide-scale basis in the next several months, the refundable payroll tax credits for emergency paid sick leave (EPSL) and extended family and medical leave (E-FMLA), which were enacted pursuant to the Families First Coronavirus Response Act, are extended through March 31, 2021.  Notably, only the tax credits are extended, which means compliance with the EPSL or E-FMLA requirements is voluntary for employers after December 31, 2020. 

The policy behind this may have been to incentivize employers to continue allowing employees in the middle of FFCRA leave as of January 1, 2021 to finish out, and be paid for, any remaining leave to which they would have otherwise been entitled.  The tax credit is only available for leave that would otherwise satisfy the FFCRA, had it remained in effect, i.e., if employees for whom the employer provides paid leave would otherwise meet the eligibility requirements under the FFCRA and did not use the full amount of EPSL or E-FMLA leave between April 1, 2020 and December 31, 2020.

Relief for Health Care and Dependent Care Flexible Spending Accounts

As many employees are approaching the end of the year with significantly more unused funds in their health FSA and/or dependent care assistance plan (DCAP) than usual due to COVID-19, the stimulus package provides employers with the option of amending their plans to allow the following:

• Employers offering a DCAP or health FSA may allow participants to carry over all unused DCAP and health FSA contributions or benefits remaining at the end of the 2020 plan year to the 2021 plan year.
• Employers offering a DCAP or health FSA may allow participants to carry over all unused DCAP and health FSA contributions or benefits remaining at the end of the 2021 plan year to the 2022 plan year.
• Employers offering a DCAP or health FSA may extend the grace period for using any benefits or contributions remaining at the end of a plan year ending in 2020 or 2021 to 12 months after the end of the applicable plan year.
• Similar to DCAPs, employers offering a health FSA may allow participants who cease participation during the 2020 or 2021 plan year to continue to be reimbursed from any unused benefits through the end of the plan year (and applicable grace period) in which participation ceased.  This is often referred to as a “spend down” provision when included in a traditional DCAP. 
• Employers offering DCAPs may reimburse employees for dependent care expenses for children who turned 13 during the pandemic.  The relief applies to plan years with open enrollments that ended on or before January 31, 2020 (e.g., calendar year 2020 plans).  It also applies for the subsequent plan year (e.g., calendar year 2021 plans) to the extent the employee has a balance at the end of the 2020 plan year after any relief adopted by the employer, such as an extended grace period or carry over.  The relief allows the employer to substitute “age 14” for “age 13” for purposes of determining eligibility for reimbursement of a child’s expenses.  In general, DCAP eligibility ends at age 13, except in cases of mental or physical incapacity.
• Employers offering a health FSA or DCAP may allow employees to make prospective election changes (subject to annual limitations) to their 2021 contributions without experiencing a change in status event.

The stimulus bill allows employers to retroactively amend the plan to take advantage of any of the relief described above; however, any amendment must be adopted no later than the “last day of the first calendar year beginning after the end of the plan year in which the amendment is effective.” The employer must also operate the plan consistent with the terms of the amendment in the interim between date the amendment is intended to be effective and when it is ultimately adopted by the plan. For calendar year plans, this means any changes to the 2020 plan year must be adopted on or before December 31, 2021 and any changes to the 2021 plan year must be adopted on or before December 31, 2022.

Employers who adopt any of the relief options must amend their cafeteria plan by the applicable deadline and communicate the changes to employees.

Conclusion

Employers should familiarize themselves with these changes and determine next steps.  Employers should also consider any state or local COVID-19 related leave requirements. If an employer has employees in a state or locality with mandatory COVID-19 related leave, the expiration of mandatory paid leave under the FFCRA does not relieve employers of their obligation under state law.  Finally, employers who intend to adopt any of the health FSA or DCAP related relief should communicate these changes to employees, operate the plan in accordance with these intended changes, and adopt the necessary amendments before the applicable timeframe. 

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About the Authors.  This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com

The IRS has released Notice 2020-84, which sets the applicable PCORI fee for plan years ending between October 1, 2020, and September 30, 2021, at $2.66 per covered life.

As a reminder, the PCORI was established as part of the Affordable Care Act (ACA) to conduct research to evaluate the effectiveness of medical treatments, procedures, and strategies that treat, manage, diagnose or prevent illness or injury.  Under the ACA, most employer sponsors and insurers were required to pay PCORI fees until 2019 or 2020, as it only applied to plan years ending on or before September 30, 2019.  However, the PCORI fee was extended to plan years ending on or before September 30, 2029, as part of the Further Consolidated Appropriations Act, 2020. 

The amount of PCORI fees due by employer sponsors and insurers is based upon the number of covered lives under each “applicable self-insured health plan” and “specified health insurance policy” (as defined by regulations) and the plan or policy year end date.  The fee must be paid on or before July 31^st each year.  The fees due by July 31, 2021 are for plan years ending in 2020 and are as follows:

• For plan years ending between January 1, 2020 and September 30, 2020, the fee is $2.54 per covered life.
• For plan years ending between October 1, 2020 and December 31, 2020, the fee is $2.66 per covered life.

Employers that sponsor self-insured group health plans must report and pay PCORI fees using the second quarter IRS Form 720, Quarterly Federal Excise Tax Return.  

The average number of covered lives for the plan year is generally calculated using the snapshot, snapshot factor, actual count, or Form 5500 method.  These counting methods will be described in more detail in a future alert as we approach the 2021 filing deadline.  Additionally, prior IRS guidance provided transition relief for employers who may not have anticipated that the PCORI fee would continue to apply after 2019.  For plan years ending between October 1, 2019, and September 30, 2020, employers may use any reasonable method for calculating the average number of covered lives so long as they apply that method throughout the year.

Insurance carriers are responsible for calculating and paying the PCORI fee for fully insured plans.  The employer is responsible for paying the fee on behalf of a self-insured plan, including an HRA.  In general, health FSAs are not subject to the PCORI fee.

Also note that because the PCORI fee is assessed on the plan sponsor of a self-insured plan, it generally should not be included in the premium equivalent rate that is developed for self-insured plans if the plan includes employee contributions.  However, an employer’s payment of PCORI fees is tax-deductible as an ordinary and necessary business expense. 

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About the Authors.  This alert was prepared by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.