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The Bottom Is Not Falling Completely Out of The EEOC Wellness Incentive Regulations

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By Gibson - Jan 8, 2018 6:30:00 AM

ComplianceYou’ve probably read or heard by now that in late December 2017, the D.C. Circuit Court of Appeal (D.C. Circuit) vacated the EEOC Americans with Disabilities Act (ADA), and Genetic Information Nondiscrimination Act (GINA) wellness incentive rules, effective January 1, 2019. This is true.

You may have also heard that this means the entire framework of wellness plans as we know them are now in question. This is an exaggeration.

We are going to examine the relevant parts of American Association of Retired Persons (AARP) v. the United States Equal Employment Opportunity Commission (EEOC), 1:16-CV-02113-JDB to help you sort fact from fiction and be better informed about what is coming in 2018 and 2019 regarding wellness plan incentive rules.

The Details

AARP v. EEOC centers around AARP’s challenge to EEOC’s ADA and GINA incentive rules (“incentive rules”) that went into effect on July 1, 2016. Shortly following the effective date of the incentive rules, AARP sued EEOC to stop enforcement of the rules. AARP objected to the rules and argued the 30% incentives under the rules were inconsistent with the voluntary requirements of the ADA and GINA. AARP reasoned that employees who could not afford to pay a 30% increase in premiums would be forced to disclose their protected information when they otherwise would choose not to do. The lawsuit went through some procedural twists and turns until eventually the case was decided upon AARP’s motion for summary judgment. AARP successfully challenged EEOC’s incentive rules under the Administrative Procedures Act (“APA”).

Under the APA, courts must defer to an administrative agency’s action unless it is arbitrary, capricious, an abuse of discretion, or otherwise not by law. In determining whether an agency’s conduct meets this standard, courts must consider whether it acted within the scope of its legal authority, whether it explained its decision, whether the facts on which it purports to have relied have some basis in the record, and whether it considered the relevant factors. The Court must be sure the agency has examined the relevant data and articulated a satisfactory explanation for its action including a rational connection between the facts found and the choice made. The Court must overturn Agency actions that are not the product of reasoned decision-making.

AARP argued that the incentives are involuntary and that EEOC failed to explain its decision to (1) reverse its prior stance that in order for a wellness program to be voluntary employers could not condition the receipt of incentives on an employee’s disclosure of ADA or GINA protected information; and (2) how it arrived at 30% as an acceptable level for wellness incentives under the ADA and GINA. In response, EEOC offered three reasons for its reversal of its previous interpretation and its use of the 30% metric:

  1. to harmonize its regulations with the HIPAA regulations governing wellness programs and to induce more individuals to participate in wellness programs, as that was the goal expressed by Congress in the ACA
  2. the 30% incentive is a reasonable interpretation of voluntary based on “current insurance rates;” and
  3. a comment letter submitted by the American Heart Association which endorsed the 30% level.

The Court’s Response

The Court analyzed EEOC’s reasons and concluded it could find nothing in the administrative record that could explain the agency’s conclusion that the 30% incentive level was the appropriate measure for voluntariness. The Court further found the EEOC’s stated reasons were without merit.

  • First, the Court noted that the EEOC failed to explain why it made sense to adopt the 30% level found in HIPAA when HIPAA is a wholly different statute based on dissimilar reasons and considerations. The Court also commented that the term “voluntary” does not appear in the relevant provisions of HIPAA as it does in both the ADA and GINA.
  • Second, the Court noted that while the EEOC stated the 30% incentive level was a reasonable interpretation of voluntary based on “current insurance rates” in its brief, the final rule did not elaborate on what the rates were, how the Commission evaluated them, or what bearing they had on the questions of whether an incentive was coercive or voluntary. The Court noted that at the oral argument the EEOC conceded that the administrative record contained no study or analysis of “current insurance rates” or how they relate to the voluntary disclosure of information in wellness programs.
  • Finally, the Court examined the letter from the American Heart Association (AHA) referenced by the EEOC and found that the letter did not explain why the 30% incentive level was an appropriate measure of voluntariness as the EEOC stated in its brief. To the contrary, the Court noted the AHA stated, “it is not intuitive that a program is completely voluntary with an incentive attached that can significantly increase the cost of health insurance.” The letter also urged the EEOC to consider basing the 30% calculation on the total cost of coverage to achieve greater consistency with the ACA and HIPAA (rather than on self-only coverage).

In addition to finding EEOC’s stated reasons for the incentive level unpersuasive, the Court found the agency failed to consider any factors relevant to the financial and economic impact the regulation was likely to have on individuals who would be affected by the rule. The Court noted that the administrative record contained numerous comments expressing concern that the 30% incentive level would foreseeably be more coercive for employees with lower incomes and would likely disproportionally affect people with disabilities. The Court found this to be evidence that the EEOC failed to meaningfully engage with the text and purpose of the ADA when fashioning the 30% incentive rule.

On August 22, 2017, the Court found in AARP’s favor and remanded the regulations to the EEOC for reconsideration. Because the court was concerned that vacating the rules could cause too much disruption, it sent them back to the EEOC to address the rules’ failings, “in a timely manner.” On September 21, 2017, EEOC filed a mandatory Status Report with the D.C. Circuit wherein it stated it intended to have its Notice of Proposed Rulemaking issued by August 2018 and the Final Rule delivered in October 2019. EEOC added a footnote wherein it reported the final amended rule would not likely be applicable or go into effect until the beginning of 2021. EEOC based its timeframe, in part, on pending appointments of commissioners to the Commission.

On August 30, 2017, AARP filed a Motion asking the Court to amend its August Order and either vacate the rules but stay the mandate until January 1, 2018, or issue an injunction against the enforcement of the regulations effective January 1, 2018. On December 20, 2017, the Court rejected the specific relief request by AARP but agreed with it in that the Court felt EEOC was not fulfilling its obligation to comply with the Court’s August Order that the Commission address the rules’ failings in “a timely manner.” The Court vacated the rules, effective January 1, 2019, ordered EEOC to file a status report on or before March 30, 2018, and complete its Notice of Proposed Rulemaking by August 31, 2018. Further, the Court stated, “an agency process that will not deliver applicable rules until 2021 is unacceptable.” The Court strongly encouraged EEOC to move up its deadlines for issuing the notice of proposed rulemaking and to engage in other measures necessary to ensure that its new rules would be applied well before the current estimate of sometime in 2021.

What’s Next?

So, while it is true the D.C. Circuit vacated the existing EEOC incentives rules effective January 1, 2019, it did not do so without a plan (and judicial Orders) in place to have new rules either in place or at least provisionally drafted. Now, all eyes are on the EEOC. Its next status report is due to the Court on March 30, 2018, and its Notice of Proposed Rulemaking (NPRM) is due by August 31, 2018. We will continue to monitor the D.C. Circuit’s rulings as well as the EEOC’s activity and keep you informed of developments as they happen.

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