When are wellness programs illegal?

In what appears to be the first major legal volley against wellness programs, the Equal Employment Opportunity Commission (EEOC) filed suit on Wednesday against a Wisconsin company for allegedly firing a worker because she refused to undergo a health assessment.

According to the EEOC, Orion Energy Systems instituted a wellness program in 2009 and asked its employees to undertake a “health risk assessment.” That’s standard practice. Employers say (not implausibly) that the assessments provide an opportunity for employees to take stock of their health needs. But some workers fear (also not implausibly) that their employers are intruding on their privacy.

Employers don’t usually insist that their workers sign up for a wellness program. Instead, workers are given an incentive to participate—the average incentive is about $50 a month. Not Orion, though. For workers who declined to take the assessment, Orion said that it would no longer cover any of their insurance premiums. Not a dime.

Nonetheless, one Orion employee—Wendy Schobert—still opted out. To keep her insurance, she was going to have to pay more than $400 a month, as well as an extra $50 monthly penalty. But about a month later, Schobert was fired, allegedly in retaliation for her refusal to take the assessment.

The EEOC filed suit against Orion on her behalf. The core of the EEOC’s complaint is the claim that requiring Schobert to participate in the wellness program, and then firing her for refusing, violated the Americans with Disabilities Act. The ADA prohibits businesses from discriminating against the disabled, and that includes subjecting workers to “medical examinations and inquiries.”

But not all medical examinations or inquiries are prohibited. Health assessments are thought to pass muster under the ADA so long as they’re voluntary. The trouble with Orion’s plan was that it wasn’t really voluntary. There was too much money at stake to leave Schobert with a meaningful choice.

When do financial incentives become so large that wellness programs are no longer voluntary? It can’t be that incentives are always okay but penalties are verboten. Any penalty (“I’ll dock your paycheck $100 a month if you don’t sign up”) can be recast as an incentive (“You’ll get an extra $100 a month if you do sign up.”). The question has to be whether the payment in question leaves workers with a real choice. If not, the wellness program is effectively mandatory, which would violate the ADA.

Where do you draw the line? The Affordable Care Act allows employers to vary premiums by as much as 30% in connection with a wellness program. Is a plan that varies premiums by 30% truly voluntary? If Orion had adopted a 30% plan, Schobert’s refusal to participate would have cost her about $1,500 over the year—much more if she had a family plan. Might such a plan violate the ADA, even if it was authorized by the ACA? The EEOC is supposed to issue guidance on this question, but it hasn’t yet.

Because Orion’s wellness program was so draconian, the EEOC’s lawsuit probably isn’t a harbinger of the end of wellness programs. The case nonetheless underscores just how tricky it is to get wellness programs right. As Austin and Aaron have said time and again, wellness programs, at least as they’re currently structured, don’t seem to save money or improve health.

One reason might be that current financial incentives are too modest to encourage meaningful behavioral change. If that’s the concern, however, businesses may be in a bind. Ratcheting up the incentives might be the only way to make their wellness programs work. But ratcheting up the incentives might also violate the ADA. In other words, it’s possible that wellness programs can either be effective or legal—but not both.


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