Notice & Comment

A judge rules that EEOC’s rule on wellness programs is busted.

Back in November 2015, I criticized a proposed rule about wellness programs that the Equal Employment Opportunity Commission was then considering. The rule would have allowed employers to impose a financial penalty—up to 30 percent of annual premiums—on employees who declined to participate in a wellness program.

The trouble was that the Americans with Disabilities Act prohibits employers from compelling employees to undergo medical exams, including taking a medical history, unless they’re “voluntary.” And most wellness programs require employees to fill out a health assessment, which is a kind of medical history. As I explained:

[That’s] where the EEOC’s argument falls apart. The average premium for a family plan in 2015 is $17,545; 30% of that is $5,263. Under the EEOC rule, then, an employer can dock an employee with a family more than $5,000 if she doesn’t take a health assessment. With that kind of financial inducement, it’s nuts to say that the assessment is voluntary. Sure, the employee could always turn down the $5,000. But no reasonable person would. The health assessment is mandatory in every meaningful sense of the word.

The EEOC went ahead anyway, saying that it wanted to harmonize its rule with HIPAA, which the ACA had amended in an effort to promote wellness programs. In a subsequent article published in Health Matrix, several colleagues and I pressed the ADA point again, and identified a handful of other legal problems with the EEOC’s rule, including its inconsistency with the Genetic Information Discrimination Act, or GINA.

The AARP picked up on these arguments and filed suit against the EEOC. Yesterday, the highly respected Judge Bates in Washington, D.C. held that the rule was unlawful for substantially the same reasons that we’d identified:

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. …

Significantly, the Court can find nothing in the administrative record—or the final rule—to indicate that the agency considered any factors that are actually relevant to the voluntariness question. Having chosen to define “voluntary” in financial terms—30% of the cost of self-only coverage—the agency does not appear to have considered any factors relevant to the financial and economic impact the rule is likely to have on individuals who will be affected by the rule. … For example, commenters pointed out that, based on the average annual cost of premiums in 2014, a 30% penalty for refusing to provide protected information would double the cost of health insurance for most employees. … At around $1800 a year, this is the equivalent of several months’ worth of food for the average family, two months of child care in most states, and roughly two months’ rent. … Indeed, many of the comments in the administrative record expressed concern that the 30% incentive level was likely to be far more coercive for employees with lower incomes, and was likely to disproportionately affect people with disabilities specifically, who on average have lower incomes than those without disabilities.

The court’s decision leaves open the possibility that EEOC can explain why a 30 percent penalty means that a health assessment is still “voluntary.” But the agency’s failure to do so in the first instance suggests that it will struggle with that assignment—and for good reason. The argument is nuts. (The court also found the EEOC’s rule to be inconsistent with GINA, again for much the same reasons that my colleagues and I pressed in our article.)

The AARP’s victory may be Pyrrhic, however. In the normal course, a rule that’s found to be arbitrary and capricious would be invalidated. But there’s an exception for rules whose deficiencies are modest and whose invalidation would be disruptive. In those cases, the courts will sometimes keep a rule in place while giving the agency an opportunity to offer a sensible explanation for it.

Judge Bates seemed torn about whether the EEOC’s rule qualified for remand without vactur. The rule’s deficiencies were substantial, he said—but then again, invalidating the rule in the middle of a plan year “appears likely to cause potentially widespread disruption and confusion.” In the end, Judge Bates opted to keep the rule in place to give EEOC a chance fix the rules “in a timely manner.”

I’m a little flummoxed by the remedy. Declining to vacate through the end of 2017 is arguably appropriate; Judge Bates is right that it’d be really disruptive. But EEOC shouldn’t be allowed to keep its rule in effect into 2018 and beyond unless it can offer a reasoned explanation for why a 30 percent penalty isn’t coercive—and I don’t think it can.

Judge Bates’s optimism that EEOC will promptly revisit its rule is likely misplaced. Agencies are notoriously slow to respond when courts decide not to vacate their rules. From their perspective, what’s the rush? The rule remains in place while they dither. Given that, it would have been more appropriate, I think, for Judge Bates to have vacated EEOC’s rule while declining to put his order into effect—in legalese, he should have stayed the release of the mandate—until January 1, 2018.

Staying the mandate would have avoided disruption while still giving EEOC an incentive to quickly revisit its rule. Indeed, I’d strongly encourage the AARP to file a motion to amend the judgment to seek precisely that relief. Given Judge Bates’s “serious concerns about the agency’s reasoning,” he may be receptive to the suggestion.


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