How Wellness Incentives Work

Most American companies now have wellness programs and most of these programs use some kind of financial incentives to increase employee participation. The recent EEOC lawsuit seeking to stop Honeywell from conducting biometric screening as part of its wellness program attracted national attention. One big reason may be the size of the financial incentive involved--an employee who refused to participate would pay up to $4,000 per year more for his health insurance than his coworkers who participated. The EEOC claims that the size of the financial incentive no longer made the program “voluntary,” as it must be under the Americans with Disabilities Act (ADA). Honeywell responded that the program complies with both Patient Protection and Affordable Care Act (ACA) and Health Insurance Portability and Accountability Act (HIPAA). To understand these arguments, it is helpful to understand that there are two types of wellness programs, subject to different rules.

One type of program, a participatory program, ties a financial incentive only to participation in a health-related activity, not to any particular outcome. For example, an incentive may be tied to having biometric screening or attending a smoking cessation class. In participatory programs, the results of the screening are not considered when determining eligibility for incentives. Nor would it matter whether the employee quit smoking after attending the class. Just participating in the activity qualifies her for the incentive. Current law places no limits on the size of incentives in participatory programs as long as the activity that leads to an incentive is available to all similarly situated employees, regardless of health status. Employers must provide another means to qualify for a participatory incentive for employees who cannot participate in an activity for medical reasons.

The second type of wellness program is a health-contingent program. These programs tie the incentive to meeting specific targets for health factors, such as level of cholesterol, blood pressure, glucose or Body Mass Index (BMI). A health-contingent program can also link incentives to performing or completing a specific activity related to a health factor, such as following a doctor’s prescription to lower blood pressure. The health factors subject to incentives must be “reasonable” and “not overly burdensome,” but the regulations do not define what this means.

In contrast to participatory incentives, health-contingent incentives are not unlimited. Regulations under the ACA cap the size of health-contingent incentives at 30 percent of the cost of coverage, including both the portion paid by the employer and that paid by the employee. An exception to the 30 percent limit is smoking cessation, when incentives can be as high as 50 percent of the cost of coverage. Additionally, when an employer calculates whether it provides “affordable” health insurance as required under the ACA, the calculation cannot be based on the assumption that employees will earn wellness incentives to offset some of the cost.

Employees who participate in health-contingent wellness programs must be given an alternative way of earning the incentive if they cannot meet the initial health target or if it is medically inadvisable for them to try. For example, a pregnant woman may have BMI above target, but it would not be advisable for her to try to meet the target during pregnancy. Instead, she may qualify for a weight-related incentive by following weight recommendations of her obstetrician. The alternative can be worked out between the wellness program and the employee, but every program must offer employees a “reasonable” path to earning a health-contingent incentive at least once per year.

Employers can offer both participatory and health-contingent incentives at the same time. For example, they can offer a participatory incentive for completing a biometric screening and a health-contingent incentive for a negative nicotine drug test.

The Honeywell case is about the meaning of a “voluntary” wellness program. The ADA generally prohibits medical exams not related to a job requirement or business necessity. For example, employers may test whether a potential or current employee can meet the physical requirements of a job, such as seeing with a certain level of acuity or being able to lift or move objects of a certain weight. However, these tests must directly relate to job requirements. Voluntary wellness programs are an exception that permits employers to do medical exams on employees even though the characteristics being measured are not related to those employees’ jobs.

The Honeywell case raises the question about the way financial incentives influence what is considered “voluntary.” It also raises questions about whether the ability to maintain one’s privacy by refusing to disclose personal information will be based on ability to pay. As personal information increases in economic value to those who wish to collect and use it, refusal to disclose such information carries increasing economic and social consequences. The Honeywell case gives us an opportunity to examine these issues.

Originally published on LinkedIn on November 6, 2014

© 2015 - 2020 Anna Slomovic, All Rights Reserved

Privacy Policy