New EEOC rules severely restrict wellness incentives

The EEOC has just released their rules for clinically based wellness programs in a “Notice of Proposed Rulemaking,” or NPRM. This NPRM will soon be published to allow 60 days for public comments, before final revisions and implementation for 2022. Once the NPRM is published, you can visit https://www.regulations.gov/ and type “EEOC” into the search bar, find the NPRM, and comment.

The proposed rules, as directed by the 2017 decision in AARP v. EEOC, could reduce employee participation in wellness programs by capping allowable incentives at “de minimis.”

Also: EEOC issues revised wellness rules proposal

What constitutes a de minimis incentive?  The EEOC is requesting comments here, but their starting proposition sounds like the IRS’s definition:

For example, should de minimis incentives include additional examples other than a water bottle and a gift card of modest value?  Would it be helpful to provide examples of incentives other than those given in the interpretive guidance (e.g., a paid annual gym membership or free airline tickets) that would violate the de minimis limit?

Most employers, especially larger ones, find that employees participate in these programs only if they are highly incentivized, threatened with large fines for non-participation, or forced to make a choice between a more and less attractive health benefit. None of these will be allowed, no matter where the de minimis line is drawn.

The loophole for participation programs

For statutory, this de minimis limit applies only to clinical programs, meaning those involving health risk assessments, biometric screens, checkups, and clinical coaching. Activity-based programs are exempted. Examples of activity-based programs are steps challenges, gym memberships, lunch-and-learns, and employee health literacy training.

The dividing line between activity-based and clinical is clear and easily understood with an example: You can offer whatever incentive or penalty you like to encourage employees to lose weight, but the act of weighing employees would cross the line into clinical.

The specific loophole is that if you allow employees to earn their incentive/avoid a penalty by a combination of activities, you can maintain your current financial structure, provided it is possible for employees to earn their threshold points by participating only in activity-based programs.

As an example, consider this employer program. It already offers a mix of activity-based and clinical programs, with dollars assigned to all:

This menu is not organized into clinical and activity-based, but two team challenges ($100), four health seminars ($100) and attesting to being tobacco-free ($250) would get an employee to $450.  (Tobacco-related inquiries/disclosures have historically not been considered clinical.)

Slightly tweaking these payments would put a program into compliance, allowing the entire $500 to be earned with no disclosures of clinical information. You may, in this example, authorize six hours of health seminars instead of four, or pay employees $50 more apiece to sit through just the four.

These tweaks are easy enough that some activity-based vendors will even guarantee EEOC compliance for your entire program at current incentives, as long as the arithmetic similar to the above can be tweaked as described.

Outcomes-based programs still allowed

Outcomes-based (“health-contingent”) programs have fallen out of favor due to ineffectiveness, expense, administrative burden, and as described at length in many comments to a Slate article on this topic (“I’d like to punch them in the face”), unpopularity. Speaking of unpopularity, you may recall that the 2019 West Virginia teachers’ strike was triggered by the implementation of an outcomes-based wellness program, as well as wage disputes.

However, the EEOC is still encouraging outcomes-based programs because:

We believe that the de minimis incentive standard will make it unlikely that an employee will choose to participate in a program that requires providing medical information unless the employee believes the program has some value in promoting health or preventing disease.

The conundrum is that very few of these programs have demonstrated savings. No cost savings are claimed. No other credible cost savings claims have been made, while the most comprehensive randomized control trials find no reduction at all in risk factors. Savings weren’t even hypothesized because without risk factor reduction there can be no savings.

Occasionally, they cause employee health to deteriorate, as happened even with a program awarded as the best in the country, Wellsteps/Boise. Oftentimes, employees can be harmed by overscreening. Even worse, programs have actually harmed individual employees.

As a result, it isn’t even clear that these programs “reduce risk or prevent disease,” as required by the Affordable Care Act (ACA). An outcomes-based program could be in compliance with this new EEOC rule, while violating the ACA.

So why would you switch to an outcomes-based program in order to take advantage of the EEOC’s exemption? The huge advantage of outcomes-based wellness programs is that their unpopularity allows you to finance them through “immediate employer cost savings,” although most vendors no longer publicly advertise this attribute.)

Enough employees decline these programs and accept the penalties to more than offset the cost of these programs for participants.

What should you do next?

I’ll close with some editorial comments.

First, I myself get screened every year now, since I’m 64. I strongly believe that screens should remain part of an employer’s offering.

Second, screens should be truly voluntary. People who want the screens are the ones most likely to benefit from them. Don’t try to coerce employees into them. Encourage high-risk employees to get screens, while low-risk employees can do something else.

Third, don’t just multiply your activity alternatives in order to allow employees to get to your magic incentives number. Ask yourself what an employee would learn of any value by sitting through all those seminars?  They know sugar is bad for them. But no number of seminars will convince them it doesn’t taste good.

Finally, don’t jump to outcomes-based programs just because you can get a quick “employer cost savings” through forfeitures from refuseniks. The cost, administrative burden, and odds of harming employees are simply too great, with no evidence of reducing health spend.

Al Lewis is CEO of Quizzify, the leading employee health literacy company. He is also author of two trade-bestselling books on wellness, Why Nobody Believes the Numbers and Cracking Health Costs.