Can an Employer Offer Different Incentives for Different Tiers of a Wellness Program?

Fundamentals

The question of whether an employer can structure a wellness program with varying incentives is a matter of navigating a complex and evolving legal landscape. The answer is a conditional yes, contingent upon a deep understanding of the federal regulations designed to protect employees from discrimination.

At its heart, this issue revolves around a central tension ∞ the desire to foster a healthier workforce versus the legal mandate to ensure that all wellness initiatives are truly voluntary and do not penalize individuals based on health status or disability.

Three primary federal laws govern the design of workplace wellness programs. The Health Insurance Portability and Accountability Act (HIPAA) provides a framework for wellness programs that are part of a group health plan, permitting premium discounts and other rewards for participation.

The Americans with Disabilities Act (ADA) prohibits discrimination based on disability and places constraints on employers’ ability to make medical inquiries or require medical examinations, unless they are part of a voluntary wellness program. Lastly, the Genetic Information Nondiscrimination Act (GINA) protects employees from discrimination based on their genetic information and, similar to the ADA, requires that wellness programs requesting such information be voluntary.

The legality of tiered wellness incentives hinges on adherence to a complex web of federal regulations designed to prevent discrimination.

The concept of “voluntary” is where much of the complexity lies. While HIPAA allows for financial incentives to encourage participation, the ADA and GINA introduce a level of scrutiny to ensure these incentives are not so substantial as to be coercive.

An overly generous reward for disclosing health information could be interpreted as penalizing those who choose not to participate, thereby rendering the program involuntary in the eyes of the law. This creates a delicate balancing act for employers, who must design programs that are engaging and effective without crossing the line into undue influence.

To begin to understand this balance, it’s useful to distinguish between two broad categories of wellness programs:

• Participatory Programs These programs reward employees for simply taking part in a health-related activity, such as attending a seminar or completing a health risk assessment. The reward is not contingent on achieving a specific health outcome.
• Health-Contingent Programs These programs require employees to meet a specific health-related goal to earn a reward. This could involve achieving a certain biometric target, such as a healthy cholesterol level, or completing a smoking cessation program.

The legal requirements, particularly concerning the size and nature of incentives, differ significantly between these two types of programs. The following sections will explore these distinctions in greater detail, providing a clearer roadmap for designing a wellness program that is both effective and compliant.

Intermediate

Delving deeper into the regulatory framework, the distinction between participatory and health-contingent wellness programs becomes paramount. The level of permissible incentives is directly tied to the design of the program and the type of information it collects from employees. Understanding these nuances is essential for any employer considering a tiered incentive structure.

The Two Pillars of Wellness Program Design

As introduced in the fundamentals, wellness programs are generally categorized into two types, each with its own set of rules under HIPAA, the ADA, and GINA.

1. Participatory Wellness Programs These programs are the most straightforward from a compliance perspective. Because they do not require an individual to meet a health-related standard to earn a reward, they are subject to fewer restrictions. Examples include programs that reward employees for attending a nutrition class, completing a health risk assessment without any requirement for follow-up action, or participating in a fitness challenge based on participation rather than results.
2. Health-Contingent Wellness Programs This category is further divided into two sub-types:
   • Activity-Only Programs These require an individual to perform or complete a health-related activity to earn a reward, but do not require them to achieve a specific health outcome. Examples include walking programs, dietary counseling, or smoking cessation programs. If a reasonable alternative standard is not provided for individuals for whom it is medically inadvisable to complete the activity, these programs are treated as outcome-based.
   • Outcome-Based Programs These require an individual to attain or maintain a specific health outcome to receive a reward. Examples include achieving a certain body mass index (BMI), cholesterol level, or blood pressure reading. These programs are subject to the most stringent requirements, as they directly tie financial incentives to an individual’s health status.

Incentive Limits a Tale of Two Agencies

The primary source of confusion and complexity in wellness program design stems from the differing, and at times conflicting, guidance from the Department of Labor (which enforces HIPAA) and the Equal Employment Opportunity Commission (EEOC), which enforces the ADA and GINA.

HIPAA, as amended by the Affordable Care Act (ACA), allows for significant financial incentives for health-contingent wellness programs that are part of a group health plan. The general rule under HIPAA is that the total reward for all health-contingent wellness programs cannot exceed 30% of the total cost of self-only health coverage. This limit can be increased to 50% for programs designed to prevent or reduce tobacco use.

Navigating the conflicting guidance from different federal agencies is a central challenge in designing compliant wellness programs.

The EEOC, however, has taken a more cautious approach, particularly concerning the ADA’s requirement that wellness programs be voluntary. The commission has expressed concern that large incentives could coerce employees into disclosing medical information they would otherwise keep private. This led to a series of proposed and withdrawn rules, creating a period of legal uncertainty.

For a time, the EEOC aligned with the 30% incentive limit, but a 2017 court decision invalidated that rule, leaving employers with a lack of clear guidance. The most recent proposed rules from the EEOC suggest that for a wellness program that involves a medical examination or disability-related inquiries to be considered voluntary under the ADA, any incentive offered must be “de minimis,” such as a water bottle or a gift card of modest value.

This table illustrates the differing incentive limits under HIPAA and the EEOC’s proposed ADA guidance:

What Is the Current State of Affairs for Employers?

Given the legal flux, employers must proceed with caution. While HIPAA provides a clear safe harbor for incentive levels, the unresolved questions surrounding the ADA mean that a program compliant with HIPAA could still be challenged as discriminatory. The most conservative approach for employers with programs that include medical inquiries or exams is to offer only de minimis incentives.

However, many employers continue to follow the 30% rule outlined in HIPAA, accepting the risk of a potential ADA challenge. The legal landscape remains unsettled, and employers should consult with legal counsel to assess their specific risk tolerance and design programs that are as compliant as possible with all applicable laws.

Academic

A critical examination of the legal framework governing tiered wellness incentives reveals a fundamental tension between public health objectives and civil rights protections. The legislative and regulatory history is characterized by a continuous recalibration of the balance between encouraging healthy behaviors through financial incentives and safeguarding employees from coercive medical inquiries and discriminatory practices.

This section will analyze the evolution of these regulations, the legal reasoning behind the current state of uncertainty, and the practical implications for employers attempting to design effective and equitable wellness programs.

The Evolution of “voluntary” a Legal Tug of War

The concept of a “voluntary” wellness program is the lynchpin of the entire regulatory structure, yet its definition has been the subject of considerable debate and litigation. Initially, the EEOC’s guidance on the ADA suggested that a wellness program was voluntary as long as participation was not required and there were no penalties for non-participation.

This seemingly straightforward definition became complicated with the rise of incentive-based programs. The core legal question that emerged was whether a large financial incentive could be considered coercive, effectively penalizing employees who, for reasons of privacy or health, chose not to participate.

The ACA’s amendment of HIPAA, allowing for health-contingent incentives up to 30% of the cost of coverage, brought this issue to a head. This created a direct conflict with the EEOC’s interpretation of the ADA, which viewed such substantial incentives with suspicion.

In an attempt to harmonize these conflicting statutes, the EEOC issued regulations in 2016 that largely adopted HIPAA’s 30% incentive limit, seemingly providing a clear path for employers. However, this attempt at harmonization was short-lived. A federal court, in the case of AARP v.

EEOC, found that the EEOC had failed to provide a reasoned explanation for why a 30% incentive was not coercive, and it vacated the rule. This judicial intervention threw the regulatory landscape back into a state of uncertainty, where it largely remains today.

The legal definition of a “voluntary” wellness program remains a moving target, subject to shifting regulatory interpretations and judicial scrutiny.

GINA and the Complication of Family History

The Genetic Information Nondiscrimination Act adds another layer of complexity. GINA prohibits employers from requesting or requiring genetic information from employees, with a narrow exception for voluntary wellness programs. This becomes particularly relevant when wellness programs offer incentives for spouses to participate in health risk assessments, as this can involve the disclosure of genetic information in the form of family medical history.

The EEOC’s proposed rules under GINA have consistently taken a restrictive view, suggesting that only de minimis incentives can be offered in exchange for an employee’s family member providing health information. This creates a compliance challenge for employers who wish to extend their wellness programs to employees’ families, a common practice aimed at maximizing the program’s impact.

A Comparative Analysis of Regulatory Frameworks

The following table provides a deeper analysis of the requirements under the three key federal statutes, highlighting the areas of overlap and divergence that create compliance challenges.

What Is the Path Forward for Evidence Based Wellness?

The current legal ambiguity presents a significant challenge for employers seeking to implement evidence-based wellness programs. The most effective programs often rely on biometric screenings and health risk assessments to tailor interventions to individual needs. However, these are the very programs that fall under the strictest scrutiny of the ADA and GINA.

Without clear guidance on permissible incentive levels, employers are caught between two competing risks ∞ offering incentives that are too low to drive meaningful participation, or offering incentives that are high enough to be deemed coercive and discriminatory.

This regulatory impasse may have a chilling effect on the adoption of comprehensive wellness strategies, pushing employers toward less impactful, purely participatory programs to avoid legal risk. A final resolution, either through new legislation or definitive regulatory action, is needed to provide the clarity that employers require to invest confidently in the health and well-being of their workforce.

Reflection

The information presented here offers a map of the legal terrain surrounding workplace wellness incentives. It details the boundaries, the hazards, and the areas of uncertainty. This knowledge provides a framework for understanding the “what” and “how” of compliance. Yet, the most critical step extends beyond this external landscape and turns inward.

It prompts a consideration of the “why” behind these programs, both for the organization and for the individuals within it. What does a culture of well-being truly look like, and how can it be nurtured in a way that is both meaningful and respectful of individual autonomy?

The regulations provide the necessary guardrails, but the path toward a genuinely healthier and more supportive work environment is one that each organization must navigate with intention and a deep commitment to the well-being of its people.