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Wellness programs are the latest fashion experiment among companies in the ongoing battle to fight the inflation in health care costs and increase productivity in the workplace. But before your client or business joins the gaggle of enamored converts, the long-term costs of such programs must be thoroughly analyzed. This article identifies the potential pitfalls of wellness programs and why companies would be best served to let this trend pass.

Wellness programs come in a variety of shapes and sizes, and the rules that apply to them vary accordingly. Generally, wellness programs can be divided into three basic types: health assessment tests (e.g., cholesterol level); behavior modification programs (e.g., smoking cessation); and disease management programs (e.g., monitoring existing diabetes). In addition, programs may offer incentives or penalties to encourage participation or motivate employees to achieve specific health standards. Some wellness programs are group health plans while others operate independently of employers’ group health plans.

Depending on the design, a wellness program may be subject to a broad range of federal, state and local laws. Even supplemental insurance coverage, previously utilized as a loophole to comply with federal law, is now subject to wellness plan regulations based on a recent Field Assistance Bulletin issued by the Department of Labor’s Employee Benefits Security Administration. The regulations issued by the Department of Labor, the Department of Health and Human Services and the Internal Revenue Service on such programs as well as the rules promulgated under the Health Insurance Portability and Accountability Act provide a starting point for understanding the legal issues involved with wellness programs.

Broadly speaking, the HIPAA prohibits discrimination in health coverage based on health factors. Examples of health coverage include participation, eligibility, premiums and contributions. Health factors include, but are not limited to, health status, medical condition, medical history and genetic information. Employers whose group health plans violate the HIPAA’s Nondiscrimination Rule are subject to Department of Labor civil enforcement actions and, possibly, private lawsuits brought under the Employee Retiree Income Security Act.

The HIPAA provides an exception to its Nondiscrimination Rule for certain wellness programs. Wellness programs that reward employees simply for participating comply with the HIPAA if they are made available to all similarly situated individuals and do not base any part of the reward on outcome. For example, a program that reimburses employees for fitness club memberships or diagnostic tests is acceptable. By contrast, wellness programs that require satisfaction of a health-related factor are permissible only if they meet specific criteria. Examples of standard-based wellness programs include requiring employees to achieve a certain blood pressure or weight reduction to qualify for the program’s reward. Although a February 2008 Field Assistance Bulletin attempted to clarify several requirements applicable to standard-based wellness programs, many questions still remain and are likely to be litigated for years to come.

Beyond the issues involved in developing a narrowly tailored wellness plan that complies with the HIPAA’s Nondiscrimination Rule, what other risks do companies face in implementing and administering a wellness program? The answer is a significant number. Wellness programs implicate the HIPAA’s privacy and security requirements. Similarly, ERISA and the Consolidated Omnibus Reconciliation Act have reporting, disclosure and eligibility requirements that may be applicable. Moreover, employers must consider whether the incentives offered by wellness programs raise federal and state taxation issues and, if so, how to address them.

Regardless of whether a wellness plan is subject to and complies with the above laws, additional laws may still apply. Specifically, the Americans with Disabilities Act prohibits an employer from discriminating against a qualified individual with a disability in the employment relationship, including with respect to employee benefits. The ADA further limits an employer’s ability to make disability-related inquiries and to require medical examinations. Also, the ADA requires employers to provide reasonable accommodations to qualified individuals with disabilities. Thus, a wellness program that discriminates against individuals with disabilities or fails to make reasonable accommodations for individuals with disabilities could subject an employer to liability under the ADA.

The Civil Rights Act of 1964 (Title VII) prohibits discrimination based on race, color, national origin, sex and religion. An employer could unknowingly violate Title VII if its wellness program resulted in disparate treatment or disparate impact on a protected class. For example, if a particular medical condition is more common in individuals of a certain race, national origin, gender or religion and that medical condition resulted in higher premiums being paid by that protected class, there might be a violation of Title VII. For the wellness program to be permissible, the employer would have to show it is job-related and consistent with business necessity. Similarly, a program that provides cash rewards for employees within a certain bone density range could violate the Age Discrimination in Employment Act’s prohibition on discrimination in employment for individuals age 40 and over.

The Family and Medical Leave Act requires employers to provide qualified employees with medical leave under certain situations. Arguably, wellness programs could put an employer on notice of an employee’s current or future need to take FMLA leave. If the employer then takes an adverse employment action against that employee, the employee might bring a claim for retaliation under the FMLA.

Arguably, wellness programs could even impact the National Labor Relations Act. The NLRA prohibits employers from, among other things, penalizing employees for lawful concerted activity such as discussing terms and conditions of employment. An employee may attempt to sue an employer for a violation of the NLRA if an employee is penalized under a wellness program for smoking at an off-duty union meeting at which the union discusses various terms and conditions of employment, like insurance premiums. The case below demonstrates that this type of far reaching liability may already be upon us.

The case Huffman v. Smithkline Beecham Clinical Laboratories Inc., 111 F. Supp. 2d 921 (N.D. Oh. 2000) underscores the breadth of potential liability employers face for wellness programs. In January 1998, a Whirlpool employee had a blood test as part of a Whirlpool wellness program. The results showed that the employee had an abnormally low hemoglobin level. Although the employer/testing facility sent him the results indicating the abnormally low level, the results did not include any further explanation of the results. In March 1998, the employee went to the doctor to have his hemoglobin level checked and learned he had an aggressive form of colon cancer. In October, nine months after his blood test, the employee died of colon cancer. The employee’s widow brought suit against the employer and the testing facility. In her suit, she alleged the employer and the testing facility were negligent in interpreting, evaluating and providing her husband’s blood test results. The court ruled that there was enough evidence for the case to go to a jury on the theory that Whirlpool assumed a second status of personal medical care provider to its employees and their spouses. This astonishing result demonstrates the potential reach of wellness programs beyond what many initially anticipated.

In addition to the above federal laws, wellness programs implicate a variety of state and local laws. For example, many states have “lifestyle statutes” that prohibit employers from regulating or monitoring an employee’s legal off-duty conduct. In most cases, a wellness program regulates off-duty conduct in some form. Wellness programs could even violate privacy interests of employees and subject employers to liability for state tort claims.

Aside from the legal implications, wellness programs also raise additional nonlegal concerns. Where do employers draw the line in deciding what behavior to penalize or reward? Should companies charge employees that engage in high-risk activities (e.g., scuba diving, sky diving or heli-skiing) higher premiums than other employees? Is having high cholesterol more dangerous than not wearing a seatbelt, bicycle helmet or a motorcycle helmet? Even if an employer could draw the line, how does the employer monitor an employee’s conduct to ensure compliance? Finally, how would a wellness program affect the workplace environment? Will it result in medical conditions being more openly discussed and, therefore, more likely to result in discriminatory comments or actions. Will it impact morale because employees resent others that pay lower deductibles? Will employees begin to monitor each other? Employers should consider all of these issues before instituting any wellness program.

Although some suggest the short-term results of wellness programs demonstrate positive results, the long-term consequences are still unknown. Based on the existing laws, not to mention laws currently under consideration by Congress such as the Genetic Non-Discrimination Act, employers should seriously consider whether adopting such a program is right for them. Any financial gains employers might experience for such plans will most likely pale in comparison to legal expenses for developing, administering, and defending claims from them. In addition, wellness programs could have a significant impact on a company’s good will and the harmony in its workplace. Given all the above, it would seem wise to let wellness programs go the way of other short-lived fashion trends like the emperor’s clothes.

TODD ALAN EWAN is a partner in the labor and employment law practice group of Mitts Milavec. Ewan advises and counsels clients in various aspects of the employer-employee relationship, including personnel policies, employment contracts, severance agreements, and noncompetition, nonsolicitation and nondisclosure agreements.

CAROLYN M. PLUMP is a partner in the firm’s labor and employment law practice group. She has significant experience representing clients in litigation, mediation and arbitration matters in federal court and before administrative agencies involving Title VII, FLSA, FMLA, ADEA, ADA, OSHA and the WARN Act.

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