Employment Law Daily EEOC wellness regs arbitrary and capricious, but left standing for agency to fix
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Friday, August 25, 2017

EEOC wellness regs arbitrary and capricious, but left standing for agency to fix

By Kathleen Kapusta, J.D.

The EEOC’s wellness regulations under the ADA and GINA are arbitrary and capricious, the federal district court in the District of Columbia ruled, granting the AARP’s motion for summary judgment on its Administrative Procedure Act challenge to the regulations. The regulations provide that the use of a penalty or incentive of up to 30 percent of the cost of self-only coverage does not render “involuntary” a wellness program (either participatory or health-contingent) that seeks the disclosure of ADA- or GINA-protected information. The EEOC failed to adequately explain its decision to construe the term “voluntary” in the ADA and GINA to permit the 30-percent incentive level, the court said. However, the court noted that its “serious concerns” about the EEOC’s reasoning were outweighed by the “disruptive consequences” likely to result from vacatur. Thus, it remanded the rules to the EEOC for reconsideration without vacatur (AARP v. EEOC, August 22, 2017, Bates, J.).

EEOC regs. In May 2016, the EEOC issued regulations under the ADA and GINA to address incentives employers may offer employees for participating in healthcare wellness programs, which may require employees to reveal information protected under either the ADA or GINA. The ADA rule provides that the use of a penalty or incentive of up to 30 percent of the cost of self-only coverage will not render “involuntary” a wellness program that seeks the disclosure of ADA-protected information. Likewise, the GINA rule permits employers to offer incentives of up to 30 percent of the cost of self-only coverage for disclosure of information, pursuant to a wellness program, about a spouse’s manifestation of disease or disorder (which falls within the definition of the employee’s “genetic information” under GINA).

Preliminary injunction denied. Filing suit on behalf of its members, AARP challenged both rules under the APA, arguing that the 30-percent incentives were inconsistent with the “voluntary” requirements of the ADA and GINA, and that employees who could not afford to pay a 30-percent increase in premiums would be forced to disclose their protected information. Previously, the AARP sought a preliminary injunction, which the court denied, finding that while AARP had associational standing, it had not shown either irreparable harm or a likelihood of success on the merits. The EEOC subsequently moved to dismiss and both parties moved for summary judgment.

Associational standing. Addressing the EEOC’s request to revisit its finding that AARP is a “membership organization” that can assert associational standing, the court found that AARP’s members play a role in leadership and financing of the organization and in guiding its activities and the EEOC failed to point to any cases suggesting this was insufficient to establish associational standing. It also found that new information offered by the EEOC provided no basis for it to reconsider its conclusion that Declarant A, an AARP member, had individual standing to challenge the rules, which was necessary for AARP to assert associational standing. Thus, it denied the EEOC’s motion to dismiss for lack of jurisdiction.

Voluntary. Noting that both parties agreed the EEOC’s interpretation of the term “voluntary” in the ADA and GINA should be reviewed under Chevron’s two-step analysis, the court briefly considered step one—whether the meaning of “voluntary” as used in both statutes was ambiguous. The ADA provides that a “covered entity may conduct voluntary medical examinations, including voluntary medical histories, which are part of an employee health program” while GINA permits a covered entity to collect the genetic information of an employee where “health or genetic services are offered by the employer, including such services offered as part of a wellness program,” so long as the employee “provides prior, knowing, voluntary, and written authorization.” Neither statute, observed the court, offers a definition of “voluntary” or explains what it means to participate in a “voluntary” medical exam or to voluntarily provide medical information in order to participate in a wellness program. Nor does either statute directly prohibit the use of incentives in connection with wellness programs.

Observing that the ordinary meaning of voluntary has several definitions, and thus the term appeared to be ambiguous, the court found the EEOC, in defining “voluntary” to permit a 30-percent incentive level, chose an interpretation that was within the range of interpretations possible under the statutes and thus it moved on to Chevron step two—whether the agency’s interpretation is based on a permissible construction of the statute.

ADA rule . . . AARP argued that the 30-percent level was inconsistent with the “ordinary meaning” of voluntary because it was too high to give employees a meaningful choice regarding whether or not to participate in wellness programs requiring the disclosure of ADA-protected information. It also argued that the EEOC did not adequately justify the reversal of its longstanding policy that prohibited the use of incentives and did not adequately explain how it determined that the 30-percent incentive level was a good measure of whether the disclosure of protected medical information was voluntary. Agreeing that the agency did not provide a reasoned explanation for its interpretation, the court found nothing in the administrative record explained the agency’s conclusion that the 30-percent incentive level was the appropriate measure for voluntariness.

. . . HIPAA harmonization. While the EEOC argued that it adopted the incentive level to harmonize its regulations with HIPAA, the court found this reasoning to be “deeply flawed.” HIPAA, said the court, is intended to prevent insurance discrimination and unlike the ADA—or GINA—it does not contain an explicit “voluntary” requirement with respect to wellness programs. Whether an individual’s participation in a wellness participation is voluntary is not an issue under HIPAA and compliance with HIPAA does not guarantee compliance with other federal nondiscrimination statutes. “EEOC does not explain why it makes sense to adopt wholesale the 30% level in HIPAA, which was adopted in a different statute based on different considerations and for different reasons, into the ADA context as a permissible interpretation of the term ‘voluntary’—a term not included in the relevant provisions of HIPAA—beyond stating that this interpretation ‘harmonizes’ the regulations,” the court stated.

Further, said the court, the ADA rule is actually inconsistent with the HIPAA regulations for the majority of wellness programs as only health-contingent wellness programs are subject to the 30-percent cap under HIPAA while the ADA rule extends this cap to both participatory and health-contingent programs. Moreover, the HIPAA regulations also calculate the 30-percent incentive level based on the total cost of coverage, which includes the cost of family coverage, rather than the cost of self-only coverage that the ADA rule adopts.

. . . current insurance rates. As to the EEOC’s conclusion that the 30-percent incentive level was a reasonable interpretation of the term “voluntary” based on “current insurance rates,” the court pointed out that the final rule does not elaborate on what these rates are, how the agency evaluated them, or what bearing they have on the key question of whether an incentive level is “coercive” or “voluntary.” Thus, this argument “appears to be utterly lacking in substance based on a review of the administrative record.”

. . . comment letters. And while the EEOC also stated that it relied on comment letters, it identified only a letter submitted by the American Heart Association, which did not explain why the 30-percent level was an appropriate measure of voluntariness, noted that it “is not intuitive that a program is completely voluntary with an incentive attached that can significantly increase the cost of health insurance,” and urged EEOC to consider basing the 30-percent calculation on the total cost of coverage to achieve greater consistency with the Affordable Care Act (ACA) and HIPAA.

. . . relevant factors. Finally, the court found nothing in the administrative record—or the final rule—to indicate the agency considered any factors actually relevant to the financial and economic impact the rule was likely to have on individuals who would be affected by it. Noting that commenters pointed out that a 30-percent penalty for refusing to provide protected information could double the cost of health insurance for most employees, the court noted that the possibility the ADA rule could disproportionately harm the group the ADA was designed to protect would appear to pose a “significant problem.” And while the EEOC argued that under the ACA, large employers are already incentivized to offer full-time employees “affordable” coverage or face an additional tax, this ignored the fact that the ADA covers employers with 15 or more employees while the ACA “affordability” tax applies to employers with 50 or more employees.

EEOC was essentially arguing it doesn’t matter if the 30-percent incentive level is inconsistent with the voluntary requirement because another statutory provision might prevent employers from imposing insurance costs on employees that could coerce them into disclosing protected information. The court found this to be “a woefully insufficient justification for EEOC’s chosen statutory interpretation.” Accordingly, it found the EEOC’s interpretation of the ADA’s voluntariness requirement was neither reasonable nor supported by the administrative record.

GINA rule. The GINA rule permits employers to impose a 30-percent incentive/penalty on employees to encourage the disclosure of a spouse’s manifestation of disease or disorder but does not permit employers to use incentives to collect information about the spouse’s genetic information, or about the manifestation of diseases or disorders in an employee’s children, or the genetic information of the children. The court found troubling the EEOC’s conclusion there was less risk of employer discrimination based on the disclosure of a spouse’s medical history, because the spouse’s history does not reveal actual genetic information about the employee, and therefore could not be used to make predictions about an employee’s health. Employers are likely to discriminate on the basis of health status or genetic information due to the potential for increased insurance costs to the employer, and this concern about increased costs would apply to anyone covered by the health plan, including dependents, the court observed. Presumably, this is why Congress included spousal information in the definition of genetic information of the employee. Noting that the purpose or objectives of the statute are important in considering the reasonableness of the agency’s statutory interpretation, the court observed that the EEOC did not appear to have considered—or even acknowledged—this concern at all.

Further, the GINA rule also suffered from the same problems as the ADA rule. The EEOC did not adequately explain the basis for its decision to interpret GINA’s “voluntary” provision as permitting the 30-percent incentive level, and the administrative record contained no explanation as to how the EEOC concluded that the 30-percent level was the appropriate measure for voluntariness or was consistent with GINA’s statutory requirement that the disclosure of information be voluntary. “In short,” said the court, “EEOC’s explanation for its chosen interpretation of ‘voluntary’ in the GINA rule fares no better than its explanation in the ADA rule—principally because EEOC relies primarily on its decision in the ADA rule as the basis for its decision here.”

Remand to EEOC. In determining that remand to the EEOC, rather than vacatur, was the more appropriate remedy, the court pointed out that the rules were promulgated in May 2016, took effect in July 2016, and became “applicable” on January 1, 2017, in order to give businesses time to bring their wellness programs into compliance. Employer health plans for 2017 were undoubtedly designed in reliance on these rules, and it was far from clear it would be possible to restore the status quo ante if the rules were vacated, the court observed, noting that vacatur “appears likely to cause potentially widespread disruption and confusion.” Thus, it remanded the rules to the EEOC for reconsideration without vacatur.

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