Health Hazards

Scotts LawnService hired Scott Rodrigues to treat Sagamore Beach, Mass., lawns with chemicals in the summer of 2006, on the condition he pass drug- and nicotine-screening tests. About six months earlier, the company had banned employees from smoking cigarettes anytime or anywhere. Scotts fired Rodrigues when his test came back positive for nicotine, even though he never smoked at work.

Rodrigues sued Scotts in January 2007, seeking compensatory and punitive damages for alleged violations of his privacy and civil rights and a permanent injunction barring Scotts from terminating employees for smoking outside of working hours. The pending suit pits employees' right to engage in off-the-job conduct that is legal but carries health risks against employers' business interest in a healthy workforce.

"The policy and the wellness initiative of which it is a part are based not on animus or hostility towards smokers, but rather on sound business concerns: combating tobacco's significant negative effect on employee productivity and controlling the ever-increasing cost of health and disability insurance," Scotts said in a court filing.

Companies like Scotts, which also charges employees more for health insurance if they decline to participate in an extensive health assessment and coaching program, are putting muscle into their wellness programs in a last ditch effort to rein in skyrocketing health care costs.

Experiments with different insurance plans and increased employee contributions failed to stem the tide--health insurance expenses have risen 87 percent since 2000.

So while few companies have gone as far as Scotts in forcing employees to change their lifestyles, many are luring employees with substantial incentives as they move in the direction of making wellness mandatory. At the same time, federal and state anti-discrimination and privacy laws limit how far an employer can go. In the absence of court rulings and regulatory guidance, employers venturing into mandatory programs run the risk of violating the law.

"As you travel the continuum from voluntary to mandatory programs, a host of issues come with you," says Garry Mathiason, senior shareholder in Littler Mendelson. "A corporate attorney recently told me that her company's new wellness program gave her more challenges than any other issue she has dealt with as an employment lawyer."

HIPAA Rules

The first of those challenges is HIPAA's final rules covering non-discrimination in wellness plans, which take effect July 1, or on whatever date an employer's plan year begins after that. For calendar year plans, that means the new rules apply beginning Jan. 1, 2008.

Essentially HIPAA prohibits employers from charging some employees more than others for health coverage. The new rules allow employers to provide incentives, including premium and co-pay reductions, in return for employees' participation in wellness plans.

Plans automatically comply with HIPAA if they don't require an employee to meet a health standard, such as reaching a Body Mass Index (BMI) goal. Wellness programs must meet additional tests to comply with HIPAA if they condition insurance discounts on such standards.

The rules try to strike a balance between allowing employers to offer incentives and protecting employees unable to meet such requirements from losing their benefits. Thus, the rules specify that if the reward for meeting a health standard is a reduction in the employee's cost for health insurance, that reduction must not exceed 20 percent of what the employee would otherwise pay for coverage. They also require employers to offer alternatives for those who have a physical limitation that prevents them from meeting the standard.

Announced in December, the final HIPAA rules tweak and amplify interim rules that went into effect six years ago.

"They should not be hitting industry blindsided," says Jim Jacobson, a partner at Holland & Knight. But he says many employers may have delayed implementation because the government promised to take no enforcement action until the final rules went into effect. "Enforcement starts now," Jacobson says.

ADA Landmines

The ADA presents additional landmines. The law bars employers from asking questions about employees' health or requiring them to undergo medical examinations and puts strict limits on the disclosure of employees' medical records.

Questions about how the ADA would impact mandatory wellness programs remain to be answered. But the EEOC has said that employers may ask medical information as part of a voluntary wellness program that focuses on early detection and management of disease--as long as the employer does not penalize employees who don't participate. The agency hasn't offered guidance on the tricky issue of when a reward for participation becomes so great it has the effect of making participation mandatory.

"If your incentive is significant, the EEOC might say that the incentive is so great that it turns your program into an involuntary one," says Michael Soltis, partner in Jackson Lewis. "That is still a wild card."

Another wild card is whether ADA confidentiality requirements are satisfied if a third-party administrator handles health assessments, conducts follow-up health coaching and maintains medical records. Many companies are betting that third parties can ask medical questions and maintain information that the employer itself could not.

"Third-party administration is an area fraught with pitfalls for those who haven't thought this through," says Gregory Keating, shareholder in Littler Mendelson. "If the health screening is voluntary and the third party only reports back trend data, I think you get around the ADA. But if everyone is required to take a health assessment, I can see challenges ahead."

Other Complications

Laws barring discrimination based on age and gender pose other possible pitfalls. For example, in order to comply with the Age Discrimination in Employment Act, an employer may need to modify a fitness program for older employees. To avoid sex discrimination complaints under Title VII, BMI goals should be adjusted for sex.

State laws also protect employee rights. Almost 30 states either prohibit discrimination against employees who smoke away from work or prohibit adverse employment action for any lawful off-duty conduct. Michigan and the District of Columbia prohibit discrimination against obese people, and Massachusetts is considering a similar law. Additionally, California, Hawaii, Maine, Maryland, Minnesota and Wisconsin have privacy laws to protect employee health information.

In unionized companies, National Labor Relations Board rulings require employers to bargain with unions on insurance plans, no-smoking policies and physical examinations. That means wellness programs that circumvent the bargaining process are ripe for litigation and grievances.

In fact, unionized firefighters in Taylor, Mich., filed one of the first court challenges to a wellness program in November 2004. The city of Taylor offered its firefighters free golf, ice skating and use of the city's other recreational facilities along with a health appraisal that included a mandatory blood draw to test cholesterol levels. The firefighters sued, claiming the blood draw violated their constitutional rights to be free from unreasonable searches and seizures. Their union filed a grievance saying the blood draws violated the collective bargaining agreement. The Federal District Court for the Eastern District of Michigan denied the city's motion for summary judgment in June 2006.

"Because state laws vary dramatically and because the posture GCs find themselves in varies by whether the workforce is unionized or not, the most important advice is to take time to think through your wellness program legally and practically," Keating says.

Perfect Storm

Still, employers such as Scotts are willing to push the envelope and face the consequences. With virtually no case law on wellness programs currently on the books, employers moving toward mandatory programs face a brave new world.

"Employers are thinking about it because the pain of health insurance costs is so great that they have to do something," Soltis says. "It's a matter of how much risk they want to take because no one can say what will pass muster or what won't."

But Mathiason is convinced that an approaching "perfect storm" pushing employers toward mandatory programs will move courts and regulators in that direction as well. Already Congress and several state legislatures are considering giving employers tax credits for implementing wellness programs, and most of the comprehensive health care reform proposals have a wellness component.

Mathiason's perfect storm is fueled by continued upward pressure on health insurance premiums with the aging workforce; the intense competition for workers, which will force employers to stay in the medical benefits game to remain competitive; and growing recognition that one-third of all illness is preventable.

"The question is do we continue to travel that continuum between voluntary and mandatory programs, or do we stop because of concerns over privacy and personal rights," he says. "But when you get so much force in the political system and you are riding on a powerful message that is positive, the regulatory and legislative systems will bend."

Senior Editor

Mary Swanton

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