(You've been warned.)

As I reported Tuesday, a federal judge has ruled that the wellness regulations issued by the Equal Employment Opportunity Commission are invalid. Judge John D. Bates of the District of Columbia did not vacate the rules but remanded them to the EEOC to address the rules' "failings." Now that I've had a chance to read the decision, I wanted to provide some analysis.

In May 2016, the EEOC issued final rules on wellness programs and the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act. The ADA rule applies to requests for health information from employees. The GINA rule applies to requests for health information from employees’ family members. The rules took effect in July 2016, but applied only to plans dated January 1, 2017, or later.

The issue

The ADA and the GINA sharply restrict employers' ability to request or obtain medical information from applicants, employees, or employees' family members. However, this information can be requested or obtained from employees or family members in connection with a "voluntary" wellness program. Neither statute defines what "voluntary" means.

(To keep a complicated topic as simple as possible, I'm going to refer to participants from now on as "employees," even though the EEOC's GINA rule applies to spouses of employees. I'll refer to "spouses" separately only when necessary for clarity.)

The EEOC rules issued in 2016 provide that participation in a wellness program will still be "voluntary" within the meaning of the ADA and the GINA if employers offer “inducements” (rewards for participation, or penalties for non-participation) to get employees and their spouses to disclose personal health information or submit to medical examinations in connection with wellness programs. But this is the case only if the inducements are within limits that are roughly, although not exactly, consistent with the limit of 30 percent of the cost of coverage set forth in the Health Insurance Portability and Accountability Act and the Affordable Care Act.

It’s pretty clear that in its wellness rules the EEOC was trying to reconcile the ADA and the GINA with the more or less “pro-wellness” approach taken in the Health Insurance Portability and Accountability Act and the Affordable Care Act.

In October 2016, the AARP filed suit seeking to block the rules from taking effect. I've written about the AARP lawsuit here, here, and here. The AARP essentially argues that the 30-percent inducement level is too high to give employees a "meaningful choice" regarding whether to participate and disclose their confidential medical information. From a more technical standpoint, the AARP argues that the EEOC rules are "arbitrary and capricious" because the EEOC did not provide adequate explanation or justification for the 30-percent incentive level.

Judge Bates's decision

Judge Bates agreed with the AARP that the EEOC had failed to provide "a reasoned explanation for its decision," as required by law. The "harmonization" rationale didn't fly, he found, because the 30 percent level in HIPAA was established in a different context. According to the court, "HIPAA's non-discrimination provisions are designed to prevent health plans and insurers from denying individuals coverage or benefits, or imposing increased costs, based on a health factor." HIPAA does not address at all whether participation by a particular employee or family member is "voluntary."

Moreover, the EEOC and HIPAA incentive levels don't match exactly. Under HIPAA, there is no cap on incentives for "participatory" wellness programs (that is, programs that do not require the employee to achieve a certain health-related "result"). By contrast, the EEOC's 30 percent cap applies to both participatory and health-contingent programs (programs that do require achievement of a particular "result," such as BMI below a certain level). In addition, the EEOC's "30 percent" is based on the cost of self-only coverage while the HIPAA "30 percent" is based on the total cost of coverage.

The EEOC also unsuccessfully argued that a 30 percent incentive limit preserved "voluntariness" "based on 'current insurance rates.'" However, the agency's evidence in support of this argument did not address "voluntariness" at all. Accordingly, Judge Bates said, "EEOC's argument about current insurance rates appears to be utterly lacking in substance . . .."

Nor was the EEOC able to justify its decision based on comments it received in response to the proposed rules. According to the Judge, the EEOC relied on only one comment -- from the American Heart Association, in support of the 30 percent limit -- and did not explain why it chose to disregard comments to the contrary from both the business and disability rights communities. Moreover, even though the American Heart Association endorsed that level, it did "not explain why [it was] an appropriate measure of voluntariness . . .."

In addition, the EEOC did not address comments it received indicating that the 30 percent limit "would double the cost of health insurance for most employees," or that it would have a particularly severe impact on lower-income individuals.

With respect to the ADA rule, Judge Bates concluded,

Based on the administrative record, it appears that EEOC co-opted the 30% incentive level from the HIPAA regulations without giving sufficient thought to whether or how it should apply in the context of the ADA, and particularly in the context of the ADA's requirement that wellness programs be "voluntary."

With respect to the GINA rule, Judge Bates found that there wasn't a basis in the statute for the EEOC to treat the medical information of employees' spouses differently from other genetic information. (The EEOC's incentives apply only to employees and their spouses.) The court assumed that the purpose of including spouses, who are not blood relatives, in the GINA was to prevent employers from discriminating against employees based on their spouses' medical conditions, which could drive up the cost of insurance for the employers.

Otherwise, the court essentially found that the EEOC failed, as it did with the ADA rule, to provide a reasoned explanation as to how the 30 percent level affected "voluntariness" for GINA purposes. Most importantly, the EEOC mentioned but failed to consider the effect of "stacking": under the ADA rule, an incentive of up to 30 percent can be provided to induce the employee to participate in the wellness program, and under the GINA rule, a second 30 percent incentive can be provided to induce the employee's spouse to participate. The effect is even more economic pressure on employees and their spouses.

While recognizing that courts normally defer to agency interpretations of ambiguous legislation, Judge Bates said, "'deference' does not mean that courts act as a rubber stamp for agency policies." Based on the EEOC's failure to provide reasoned explanations for how its wellness rules affected the voluntariness of the employees' and spouses' disclosures of medical information protected by the ADA and the GINA, he found that the rules were arbitrary and capricious.

However, because the rules are already in effect, because employers have already designed their 2017 plans based on the rules, and because any disclosures of medical information as a result of the incentives have already been made and can't be taken back, Judge Bates ruled that the best solution was to remand the rules to the EEOC. The Judge hinted that he might ultimately vacate the rules if the EEOC did not act promptly, saying that vacating the rules would not be proper "[a]ssuming that the agency can address the rules' failings in a timely manner . . ." (emphasis added). Judge Bates also said that he was remanding instead of vacating the rules "for the present." (Emphasis added.)

What does it all mean?

*First, I will drop dead from shock if the EEOC doesn't appeal.

*Second, even if there is an appeal, I would expect the EEOC to go back to the drawing board and try to fix the rules while its appeal is pending. If the EEOC succeeds, the appeal may become moot.

*Third, because Judge Bates did not vacate the rules, it appears that employers can continue to administer their wellness programs for 2017 as they have been doing. The big question will be what happens with subsequent plan years, especially if the EEOC hasn't amended the rules and we don't have a definitive court determination.

On plans beginning after this year, and while this issue is in limbo, employers should consider being conservative with incentives. Judge Bates did not find that incentives are coercive per se, but it appears that 30 percent (or 30 percent + 30 percent, if the employee's spouse is a participant) may be.

Image Credits: From flickr, Creative Commons license. Nerd Crossing sign by Jon Parise, nerd with Epcot Center's Figment by Jimmy Snell, Nerds candy by Denison Family, nerdy cat by Found Animal Foundation.