A Division of Thompson Media Group Wellness Program Design: Avoiding Legal Risks Under HIPAA, GINA and the ADA Presented by: Lynda M. Noggle Austen K. Townsend

Overview  What is a Wellness Program?  Recent Trends  Review of Pre-PPACA Laws Applicable to Wellness Programs  Analysis of Common Wellness Program Designs  PPACA Provisions Applicable to Wellness Programs 2

What is a Wellness Program?  A program designed to promote health and prevent disease  Examples of common wellness programs include: – blood pressure and cholesterol screenings – health risk assessments – smoking cessation programs – weight-loss programs 3

What is a Wellness Program?  A typical disease management program might target individuals who have diabetes and make case managers available to them to monitor compliance with medication protocols  Both wellness and disease management programs are often structured to provide a financial reward for participating 4

Recent Trends  A recent ADP survey found that 70% of midsized companies and 60% of large companies experienced a significant to moderate increase in the cost of providing health care benefits to employees over 2011, and the majority anticipate continued increases in  According to the survey, 91% of HR/benefits decision makers in midsized companies and 90% in large companies cite controlling health care costs as either a medium of high priority. 5

Recent Trends  As a result of dramatic increases in health care costs, many employers have implemented wellness programs in an attempt to contain these costs. According to a recent Mercer survey, in 2011: – 33% of large employers with wellness programs provided incentives or penalties to encourage participation in wellness programs. – Employers are using more substantial incentives. The most common incentive in 2011 was a lower employee premium contribution (median annual contribution reduction for employee only coverage was $240). 6

Recent Trends  According to the ADP survey, the most commonly cited reason for employers offering wellness programs is improving employee health (81% of midsized companies and 78% of large companies).  The second most common reason is controlling health care cost (64% of midsized companies and 71% of large companies).  Interestingly, only ¼ of midsized companies and slightly more than 1/5 of large companies measure the return on investment of their wellness programs. 7

Recent Trends  The Patient Protection and Affordable Care Act (PPACA) contains several provisions specifically relating to wellness programs.  Review of pre-PPACA laws applicable to wellness programs: – Health Insurance Portability and Accountability Act (HIPAA) – Americans with Disabilities Act (ADA) – Genetic Information Nondiscrimination Act (GINA) – Other Laws 8

HIPAA Nondiscrimination Rules  HIPAA prohibits group health plans (GHPs) from discriminating against persons based on their health status (referred to in HIPAA as a “health factor”) – Cannot deny individuals eligibility for benefits because of a health factor – Cannot charge individuals more for coverage because of a health factor 9

Wellness Program Exception to HIPAA Nondiscrimination Rules  HIPAA nondiscrimination rules do not prevent GHPs from establishing premium discounts or rebates or modifying otherwise applicable copayments or deductibles in return for participation in wellness programs  Two categories of wellness programs under HIPAA: – Participatory Wellness Programs – Standard-Based Wellness Programs 10

HIPAA: Types of Wellness Programs  Participatory Wellness Programs: – Do not condition eligibility for reward on ability to meet health standard – Must be available to all similarly situated individuals – Examples: Reimbursement for health club membership Diagnostic testing program that rewards participation, not results  Standard-Based Wellness Programs – Condition eligibility for reward on ability to meet health standard – Must meet five requirements – Examples: Premium reduction for participants who quit smoking Diagnostic testing program that provides rewards for “healthy” results 11

HIPAA: Standard-Based Wellness Programs  Under HIPAA: – Reward must be no more than 20% of cost of coverage; If dependents may participate, reward limit is measured as 20% of the cost of family coverage Do rewards impact a plan’s grandfathered status under PPACA? – Must be designed to promote health or prevent disease; – Must give individuals an opportunity to qualify for reward at least once a year; – Must be available to all similarly situated individuals; and – Must disclose that alternative standards or waivers are available. Cost of any reasonable alternative standard must presumably be paid for by the GHP 12

HIPAA: Standard-Based Wellness Programs  Each standard-based wellness program offered must meet these five requirements independently of any other program offered. – Example: Employer has 2 separate wellness programs. Program A requires an employee to lose weight to earn the reward. Program B provides a reward to employees who complete a weight-loss program, regardless of outcome. Program A violates HIPAA even though the employee could earn a reward by participating in Program B. 13

ADA Considerations  Wellness programs often involve disability-related inquiries and medical examinations (note broad definition of disability under ADA Amendments Act).  General Rule: Disability-related inquiries and medical examinations must be job-related and consistent with business necessity. – Employer must have a reasonable belief based on objective evidence that either an employee’s ability to perform an essential job function will be impaired by a medical condition; or an employee will pose a direct threat due to a medical condition. 14

ADA Considerations  Wellness programs tend to be implemented “across the board” without regard to an employer’s belief based on objective evidence. – Thus, wellness programs do not typically meet the “job- related and consistent with business necessity standard.”  EEOC guidance indicates that ADA also permits disability-related inquiries or medical examinations that are not job-related and consistent with business necessity provided they are voluntary. 15

ADA: Voluntary Wellness Program  Voluntary Wellness Program: – Employer may not require participation nor penalize employees who do not participate. – Information gathered: must be maintained according to confidentiality requirements set forth in the ADA and may not be used to discriminate against an employee. 16

ADA: Financial Incentives for Wellness Programs  Permissible Financial Incentives – No specific guidance about level of financial incentive that can be provided before wellness program is rendered involuntary. 1 – EEOC guidance: ADA violation to require an employee to complete an HRA as a condition of participation in an employer’s group health plan. 2 ADA violation to require an employee to complete an HRA as a condition of receiving medical expense reimbursements from employer’s health reimbursement account. 3 1 EEOC Informal Discussion Letter (June 24, 2011). 2 EEOC Informal Discussion Letter (March 6, 2009). 3 EEOC Informal Discussion Letter (Aug. 10, 2009). 17

ADA: Financial Incentives for Wellness Programs  Satisfaction of HIPAA 20% standard does not necessarily make the wellness program voluntary  Structure of Financial Incentive – “Reward” (e.g., premium discount) more likely to be permissible than “penalty” (e.g., premium surcharge)  Informal and possible forthcoming EEOC guidance  General sense that, despite strong support for wellness programs, EEOC is unwilling to shift from its current position 18

ADA Safe Harbor for Bona Fide Wellness Programs  Prohibition on disability discrimination should not be construed to prohibit or restrict “a person or organization covered by this chapter from establishing, sponsoring, observing, or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not consistent with state law.” 42 U.S.C. § 12201(c).  Exception “shall not be used as subterfuge to evade the purposes of the [ADA].” Id. 19

ADA Safe Harbor for Bona Fide Wellness Programs  ADA interpretive regulations indicate that this rule “is a limited exception that is only applicable to those who establish, sponsor, observe, or administer benefit plans, such as health and life insurance plans….The purpose of this provision is to permit the development and administration of benefit plans in accordance with accepted principles of risk assessment.” 29 CFR (f) & Appendix.  Regulations further provide that the “activities permitted by this provisions do not violate [the ADA] even if they result in limitations on individuals with disabilities, provided that these activities are not used as subterfuge to evade the purposes of this part.” Appendix to Part

ADA Safe Harbor for Bona Fide Wellness Programs  Unclear that this safe harbor was intended to apply in wellness program context – Has not historically been relied on as a general exception to the prohibition on disability-related inquiries and medical examinations otherwise applicable to wellness programs – EEOC has never raised this safe harbor exception in any of its guidance regarding wellness programs  On April 11, 2011, a Florida federal district court (in Seff v. Broward County) granted summary judgment in favor of an employer in a wellness program case based on this exception 21

ADA Safe Harbor for Bona Fide Wellness Programs  Seff v. Broward County, No CIV- MOORE/SIMONTON (S.D. Fla. Apr. 11, 2011) – Claim: Plaintiffs alleged that Broward County violated the ADA by imposing a $20 bi-weekly premium surcharge on anyone who failed or refused to complete a HRA and biometric screening as part of a “wellness program” – Ruling: Wellness program was permissible based on the ADA’s safe harbor exception for bona fide benefit plans because it was designed to develop and administer past and future benefit plans using accepted principles of risk assessment 22

ADA Safe Harbor for Bona Fide Wellness Programs  Seff v. Broward County – Significant Factors: Employer’s health plan insurer administered the wellness program Only those enrolled in the GHP were eligible to participate in the wellness program Program was described in communications materials related to the health plan Plan was not designed to evade the purposes of the ADA 23

ADA Safe Harbor for Bona Fide Wellness Programs  Seff v. Broward County – Decision cannot necessarily be seen as a green light for employers to disregard potential ADA issues EEOC was NOT party to this suit and decision is NOT binding on the EEOC (or even jurisdictions outside the Southern District of Florida) General sense that EEOC is unwilling to shift from its position that, in order to be permissible under the ADA, a wellness program must be voluntary, regardless of whether it is part of a GHP or stand-alone 24

GINA Title I Considerations  Prohibits GHPs from discriminating against individuals on the basis of their genetic information  Scope extends to wellness programs  Prohibits collection of genetic information prior to or in connection with enrollment or at any time for underwriting purposes 25

GINA: Definition of Genetic Information  Genetic Information includes information about: – An individual’s genetic tests; – The genetic tests of an individual’s family members; – The manifestation of a disease or disorder in an individual’s family member (i.e., family medical history); and – An individual’s request for, or receipt of, genetic services. 26

GINA: Definition of Underwriting Purposes  Underwriting Purposes include: – Rules for and determination of eligibility (including enrollment and continued eligibility); – Computation of premium and contribution amounts; and – Application of broader preexisting condition exclusions.  Broad definition, includes: – Changing deductibles or other cost-sharing mechanisms; – Providing discounts, rebates, or payments in kind; and – Other differential mechanisms in return for completing an HRA or participating in a wellness program 27

GINA Title I: Interaction with HIPAA Wellness Program Rules  Wellness programs that provide rewards for completing HRAs that request genetic information, including family medical history, violate the prohibition against requesting genetic information for underwriting purposes even if the rewards comply with the applicable HIPAA requirements. 28

GINA Title II Considerations  Applicable to wellness programs provided outside GHP  Includes a wellness program exception that allows employers to request genetic information if: – Employee provides prior, knowing, voluntary, and written authorization; – Only employee and licensed health care professional or board-certified genetic counselor receives individually identifiable information concerning the results; and – Individually identifiable information is only available for purposes of the program and is not disclosed to employer except in aggregate terms. 29

GINA Title II Considerations  Wellness programs seeking medical information must be “voluntary” – Same as ADA wellness program requirement – Voluntary only if employer neither requires participation nor penalizes employees who do not participate – Title II regulations indicate that offering a $150 financial inducement for wellness program participation is permissible 30

GINA Title II Considerations  Does Title II prohibit employers from offering financial incentives in return for an employee’s spouse completing his/her own separate HRA? – Rumor that an EEOC regional office views the provision of the spouse’s medical history as the employee’s family medical history so no financial incentive is permitted – The EEOC has not issued any official, written guidance prohibiting incentive-based spousal HRAs 31

Other Considerations  Employee Retirement Income Security Act (ERISA) – If wellness program constitutes an “employee welfare benefit plan” under ERISA §3(1) (e.g., EAP or certain on-site medical facilities providing more than first-aid type benefits), then it will be subject to requirements of Title I of ERISA. – Where wellness programs are provided through the employer’s larger GHP this should not be an issue. 32

Other Considerations  Consolidated Omnibus Budget Reconciliation Act (COBRA) – If wellness program constitutes a “group health plan” separate from the regular GHP, then it will be subject to COBRA. – Example: A wellness program that provides cholesterol screenings might be subject to COBRA because this service is considered medical care under Code §213(d). 33

Other Considerations  Age Discrimination in Employment Act (ADEA) – If an employer terminated or decreased wellness incentives, imposed a surcharge, or otherwise discriminated against any employee or group of employees over the age of 40 with respect to its wellness program, an ADEA violation could occur.  Title VII – If wellness program makes race, color, sex, religion, or natural origin distinctions, it will likely violate Title VII. – Title VII discrimination could also be asserted under disparate impact theory. 34

Other Considerations  Fair Labor Standards Act (FLSA) – Employers requiring participation in wellness programs should carefully review under FLSA and any similar state laws whether the wellness program is mandatory, which may result in time spent completing the program being compensable time. 35

Other Considerations  Internal Revenue Code – Benefits provided outside the GHP by an employer to its employees through a wellness program (e.g., $100 gift certificate for completing an HRA) are includable in employee’s gross income. – Premium discounts and other similar rewards are generally not taxable to the employee. – Employer’s cost in creating or administering wellness program may generally be deducted as a business expense. 36

Other Considerations  Potential Employer Liability – Could face liability for certain types of problems or injuries that arise during the course of an employer- sponsored wellness program – “Dual capacity” exception to workers compensation laws that limit employers’ liability for workplace injuries Possibility in the wellness program context that an employer could be seen as acting in a dual capacity vis-à-vis an employee seeking medical care, particularly when the wellness program includes on- site facilities – Huffman v. Smithkline Beecham Clinical Lab., Inc., 111 F.Supp.2d 921 (N.D. Ohio 2000) 37

Common Wellness Programs—Potential Pitfalls Smoker Surcharge Design 1 Smoker Surcharge Design 2 Persons who have smoked within the last 6 months are charged a higher GHP premium than persons who have not smoked in last 6 months. Only way to qualify for lower premium is to quit smoking. Same as Design 1 except can also qualify for the lower premium by completing a smoking cessation program. 38

Common Wellness Programs—Potential Pitfalls Diabetes Management Program Design 1 Diabetes Management Program Design 2 Offered to individuals who have or are at risk for developing diabetes. Genetic information may be used to demonstrate that individual is at risk. Provides enhanced benefits related to diabetes and enhanced benefit in the form of a lower annual deductible that applies to all medical expenses incurred. Same as Design 1 except provides enhanced benefits related to diabetes only. 39

Common Wellness Programs—Potential Pitfalls HRA Completion + Healthy Results Option 1 HRA Completion + Healthy Results Option 2 GHP enrollment conditioned on HRA “healthy” results. GHP financial incentives conditioned on HRA “healthy” results. 40

PPACA Provisions Applicable to Wellness Programs  PPACA contains several provisions specifically relating to wellness programs: – PPACA §1001, which creates new PHSA §2717 concerning reporting requirements for group health plans; – PPACA §1201, which creates new PHSA §2705 prohibiting discrimination on the basis of health status; – PPACA §4303 (as amended), which creates sections in the PHSA, including §399MM, that provide for CDC grants for employer-based wellness programs; and – PPACA §10408, concerning workplace wellness grants. 41

PPACA Provisions Applicable to Wellness Programs  Are wellness programs subject to the coverage mandates? – Likely yes, if they provide medical benefits that would cause the program to be consider a GHP under ERISA – Shouldn’t be a concern for wellness programs integrated with employer’s GHP because the underlying GHP will also be subject to the coverage mandates – Stand-alone program may have to comply with applicable coverage mandates Example: Biometric screening and associated health counseling 42

PPACA: Codification of HIPAA Wellness Program Rules  Codifies verbatim (except for two changes), the employer-based wellness program rules established by HIPAA.  Changes to HIPAA wellness program rules: – Increase the 20% limit on wellness program rewards to 30% of the cost of coverage. In addition, the reward limit may be increased to 50% in future years. – Wellness program reward may not be reduced or withheld based on a participant’s lawful ownership, possession, storage, or use of a firearm or ammunition. 43

Application of PPACA Wellness Program Rules  Application to Grandfathered Plans – Technically effective in plan years beginning on or after January 1, 2014 and appear not to apply to grandfathered plans. – However, it was likely intended that all wellness programs, whether offered under a grandfathered or non-grandfathered health plan, would be governed by the reform law beginning in

Application of PPACA Wellness Program Rules  Effect of Penalties on Grandfathered Status – DOL, HHS, and Treasury have cautioned that, while GHPs may continue to provide incentives for wellness by providing premium discounts or additional benefits to reward healthy behaviors, penalties (such as cost- sharing charges) may implicate a GHP’s grandfathered status 45

PPACA-Recognized Wellness Program Activities  Include personalized wellness and prevention services coordinated, maintained, or delivered by a health care provider, a wellness and prevention plan manager, or a health, wellness, or prevention services organization that conducts HRAs or offers on-going face-to-face, telephonic or web-based intervention efforts.  May not require disclosure or collection of any information related to presence or storage of a lawfully possessed firearm or ammunition. 46

PPACA: New Reporting Requirements for Wellness Programs  GHPs must submit an annual report to HHS and to plan participants regarding quality of care requirements.  Could apply to wellness programs that are GHPs.  Unclear how broadly the reporting requirements will apply to employer-based wellness programs. 47

PPACA: Effective Date of Wellness Program Reporting Requirements  Technically effective for plan years beginning on or after September 23, 2010, even though HHS had until March 23, 2012 to develop reporting requirements  Practically speaking, the reporting requirements cannot be enforced until HHS issues guidance. As of today, no guidance has been issued  HHS guidance necessary to clarify whether ERISA-governed plans are subject to the new reporting requirements, among other things 48

PPACA: Monetary Grants in Support of Wellness Programs  Financial Support for Wellness Programs Provided To Date – In 2011, the CDC made $9 million available to support a national initiative to establish and evaluate comprehensive evidence-based workplace health promotion programs. – Initiative is aimed at improving the health of workers and their families, thereby controlling health care spending by reducing risk factors for chronic diseases. 49

PPACA: Non-Monetary Support of Wellness Programs  CDC is required to provide employers with technical assistance, consultation, tools and other resources to evaluate their wellness programs.  CDC must help employers measure and increase participation in wellness programs and evaluate effectiveness of the programs.  CDC must train employers on how to evaluate their wellness programs.  Unclear when CDC resources will be available to employers. 50

Effect of PPACA on ADA and GINA Considerations  PPACA did not enact any changes to ADA or GINA regarding wellness programs.  PPACA clearly supports the continued use and expansion of wellness programs.  Will PPACA cause the EEOC to revisit their approach to wellness programs under the ADA and GINA? 51

Questions? 52

Lynda M. Noggle Associate  Lynda M. Noggle is an Associate in the Employee Benefits, Executive Compensation & ERISA Litigation Practice Center, resident in the Washington, D.C. office. Ms. Noggle advises employers in all aspects of employee benefits law. A substantial portion of her practice is devoted to the design, administration and compliance of tax-qualified retirement plans and welfare plans. In this regard, she designs and prepares plan documents and participant communications, negotiates service-provider contracts, prepares required governmental filings, and advises on a broad range of employment and benefit matters, including tax-qualification, HIPAA privacy and security, COBRA, fiduciary liability and prudent plan administration practices. Ms. Noggle also advises employers regarding the design and implementation of non-qualified retirement plans and executive compensation arrangements. In addition Ms. Noggle handles employee benefits matters in connection with business transactions by conducting due diligence, negotiating and preparing contract provisions, and addressing transitional issues. Ms. Noggle is a Contributing Editor of a nationally-circulated loose leaf publication published by Thompson Publishing Group, Mandated Health Benefits – The COBRA Guide. Lynda is also a contributing author of The New Health Care Reform Law – What Employers Need to Know (A Q&A Guide), published by Thompson Publishing Group

Austen K. Townsend Associate  Austen K. Townsend is an Associate in the Employee Benefits, Executive Compensation & ERISA Litigation Practice Center, resident in the Washington, D.C. office. Ms. Townsend counsels clients on all aspects of employee benefits and executive compensation, including compliance with the Internal Revenue Code and ERISA and the treatment of employee benefits in corporate transactions. Her practice covers tax-qualified retirement plans, health and welfare plans, equity compensation, and nonqualified deferred compensation plans, among other areas. In addition, she advises employee benefit plans and funds of funds on investments in private equity funds, hedge funds, and complex financial instruments. As a member of Proskauer’s Health Care Reform Task Force, Ms. Townsend assists clients with all aspects of the new health care reform laws. She is also a contributing editor of The New Health Care Reform Law: What Employers Need to Know (A Q&A Guide)

Contact Information Lynda M. NoggleAusten K. TownsendProskauer Rose LLP1001 Pennsylvania Ave., NWSuite 400, South Washington, DC 20004Washington, DC (202) (office)(202)

This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with the presenter(s). You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances.

57 Copyright Consent Information This presentation is a copyrighted document. As the registered attendee, you are hereby granted permission to copy and distribute this presentation to your colleagues who attend this audio conference. Please list these conference attendees using the form below and fax this page to (800) Name Address Title _____________________ ____________________________ ____________________ *Feel free to duplicate this page for additional attendees.