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Sunday, 07 December 2014 22:00

Carrot vs. Stick: Could companies end up in court over wellness program penalties?

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A federal lawsuit against Honeywell International Inc. illustrates the need for employers to tread carefully when incorporating rewards or penalties in their employee wellness program, experts say.

Filed by the U.S. Equal Employment Opportunity Commission’s (EEOC) Chicago office, the case claims Honeywell’s planned, but now delayed use of penalties that could have totaled up to $4,000 per employee in 2015 violates both the federal Americans with Disabilities Act (ADA) and the Genetic Information Non-discrimination Act (GINA).

The potential penalties included the loss of a $1,500 health savings account contribution if employees refuse to undergo biometric testing to screen for health risks and a $500 surcharge on the cost of their medical plans, plus two $1,000 surcharges for employees and their spouses who decline testing to show they do not use tobacco.

Mary Bauman, chair of the employee benefits practice group and a partner at law firm Miller, Johnson, Snell & Cummiskey PLC in Grand Rapids, said the case isn’t about employers’ use of rewards or penalties to drive employee participation in wellness. Rather, it focuses on the amount of those penalties.

The EEOC claims in its court filing that because of the size of the penalties, Honeywell’s biometric testing of employees “is not voluntary.”

The EEOC is “taking a new, more aggressive position in this case than they have done in the past” on wellness programs, Bauman said.

“What they’re saying is that you cannot ask employees or obtain medical information about employees through an examination of any kind unless it’s voluntary and no more than nominal incentives or penalties are associated with that,” she said. “It doesn’t matter if it’s a carrot or a stick, a penalty or an incentive. The key is that it is nominal. The key is how significant it is.”

Across West Michigan, employers with wellness plans typically incorporate incentives that amount to far less than what Minneapolis, Minn.-based Honeywell uses, Bauman and others say.

Employers that use or plan to launch a wellness program with incentives need to make sure that they comply not just with GINA and the ADA, but also with the parameters of the Patient Protection and Affordable Care Act, which allows employers to offer incentives of up to 30 percent of the cost of their medical plans. The incentives can go to 50 percent if it’s designed to help someone quit smoking or is tobacco-related.

At stake in the case is the ability of employers to run a wellness program that penalizes employees who decline to submit to health testing that’s designed to lower the cost of coverage, said attorney John Arendshorst of the Grand Rapids office of Varnum LLP.

Ultimately, it could become a case that other courts and employers look at when weighing the use of aggressive wellness incentives, Arendshorst said. The lawsuit is “somewhat” of a precedent-setting case “legally speaking,” he said.

“For employee practices going forward, it absolutely is because this is an area where there has not been a lot of precedent, so this will really be the stand-out case,” Arendshorst said. “People will take a couple steps back if this is struck down and be quite conservative in setting up these kinds of programs. Whereas if it’s allowed to stand, that gives a level of comfort to employers to implement more aggressive wellness programs that reward employees for health screening and other good behaviors.

“This will absolutely set the bar for employers looking to design fairly aggressive wellness program benefits.”

A federal judge in Minnesota last month rejected the EEOC’s request for a temporary restraining order against Honeywell.

Outside the case, exactly what’s allowed for incentives and penalties remains subject to guidance that has yet to come out from the EEOC and other federal agencies implementing the Affordable Care Act, Bauman said. For now, she advises employers against getting too aggressive in their wellness programs and to make the sure the particulars are reviewed by legal counsel.

“I always say to employers, ‘You want to take it slow (and) take it incrementally,’” she said. “That’s going to do a couple things. First of all, it’s not going to be a shock to the system of your employees. Second of all, if there are any employees who are unhappy in those initial steps, they’re going to let you know.”

Employers have increasingly turned to wellness programs to control or lower the cost of employee medical claims and health coverage. Among the West Michigan employers responding to the 2014 health care cost survey by the Alliance for Health and The Employers’ Association in Grand Rapids, 37 percent said they now have some form of wellness program. More than one-third of those conduct health screenings, such as checking blood pressure or cholesterol levels, to identify health risks for employees.

Among Ken Holtyn’s clients at Holtyn & Associates LLC in Kalamazoo, annual incentives to drive employee participation typically range from $250 to $500 in value per employee.

Likewise, Priority Health primarily sees employers building incentives into their wellness programs that average $250 to $800, although some large employers do go higher, said Kandi Lannen, the insurance provider’s wellness director.

Both Holtyn and Lannen say creating a “culture of wellness” within a company is more important in the long run than providing a few hundred dollars in incentives. While incentives can drive employee participation initially, paying people a reward eventually becomes financially unsustainable, Holtyn said.

Crafting an environment where people are intrinsically motivated to take good care of their health will generate far better long-term results as wellness “becomes just a ‘what we do around here’ thing,” he said.

“That’s the only thing that studies show actually works,” Holtyn said. “You have to build the environment and culture and you have to have a good communication process.”

At Priority Health, some clients simply offer wellness as a benefit with no incentives or requirements to participate, Lannen said. She doubts the EEOC case against Honeywell will cause employers to steer away from wellness, although it may make them “pause and re-evaluate” what they’re doing.

“They’ll take a little slower approach to make sure they’re very compliant,” Lannen said. “They’ll have a little more thoughtful approach.”

 

Read 3009 times Last modified on Sunday, 07 December 2014 23:22

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