In an unexpected turn of events, the very premise of the wellness incentive rules under the Affordable Care Act (ACA) (and arguably the Americans with Disabilities Act (ADA) – discussed later) is being challenged because of a recent Supreme Court case. This challenge is coming from a tobacco surcharge case brought in 2017 by the U.S. Department of Labor (DOL) against Macy’s, Inc. We have written about that case before. On November 25, 2024, Macy’s filed a motion for the court to reconsider the allegations that it violated the ACA wellness incentive rules by failing to refund or credit participants for the tobacco surcharge retroactively to the beginning of the plan and even if they did not stop smoking. See DOL v. Macy’s Inc., Case No. 17-cv-541, dkt. #84 (Nov. 25, 2024).
Offering employees a “Reasonable Alternative Standard” (RAS) in health contingent (activity-based and outcomes-based) wellness programs in all cases, as well as refunding employees any extra premiums paid once they complete an RAS (including retroactive reimbursement of extra premiums to the beginning of the plan year) have been standing operating procedure for many health contingent wellness programs. See 29 CFR § 2590.702(f). These procedures have been adopted by corporate wellness programs for over ten years, if not more. But now, Macy’s is challenging those and other assumptions through the lawsuit brought against it by the DOL. If the court agrees with Macy’s arguments, it could upend numerous corporate wellness programs as we currently know them.
How did we get here?
Back in June 2024, the U.S. Supreme Court rendered an earth-shattering decision in Loper-Bright Enterprises v. Raimondo, 603 U.S. ____ (2024), dismantling decades-old precedent that courts give agency rules, such as those issued by the Department of Labor (DOL) or the Equal Employment Opportunity Commission (EEOC), deference. The legal community called that deference “Chevron deference,” referring to the 1984 Supreme Court case, Chevron U.S. A. Inc. v. National Resources Defense Council, Inc., 467 US 837, that started such deference. Relying in part on a case from 1803, the Supreme Court overturned Chevron and declared that it was the job of the courts to interpret the law, not executive branch agencies. The 1803 case was Marbury v. Madison, where the first Chief Justice of the US Supreme Court, John Marshall, said that “[i]t is emphatically the province and duty of the judicial department to say what the law is.” Loper Bright, at 7.
The Supreme Court says that when interpreting statutes, there is always a “best meaning” if it is otherwise ambiguous, and it is the court’s job to find that best meaning. Id. at 31. A key question courts must ask when evaluating executive agency administration of statutes (whether by promulgating rules or enforcing compliance with those rules) is “Does the statute authorize the challenged agency action?” Id. at 29. Of course, courts can be persuaded by agency interpretation of statutes, but they do not have to give deference to that interpretation unless Congress specifically delegates such authority to the agency. Id. at 35. But agency interpretation of statute should be afforded even less persuasion if its interpretation changes over time. Id. at 8 (noting that respect of an agency’s interpretation is especially warranted when the interpretation is issued roughly contemporaneously with enactment of the statute and remained consistent over time); see also id., at 33 (noting that Chevron deference gives agencies license to change positions on the meaning of statutes even when Congress gives them no power to do so).
Latching onto this pivotal decision, Macy’s is asking the court to reconsider its rejection of its motion to dismiss the case against it by the DOL because the court and Macy’s relied on Chevron deference. Macy’s is asking the court to take another look at the statutes that govern corporate wellness programs and determine that the ACA wellness incentives rules promulgated by the DOL no longer make sense in a lot of areas.
Key Arguments by Macy’s
In its brief to support its motion for reconsideration Macy’s points out three key flaws in the current DOL ACA wellness incentive rules.
First, the statutory language that allows group health plans to vary premiums or offer rewards based on a “health factor” (such as weight, tobacco use status, physical activity, etc.) can only do so “in return for adherence to programs of health promotion and disease prevention.” 42 USC § 300gg-4(b)(2)(B) (emphasis added). Macy’s points out that “adherence” means “the fact of someone behaving exactly according to rules, beliefs, etc.” or “obeying a rule of law.” DOL v. Macy’s, 17-cv-541, dkt. #84, at 2 (citing Cambridge Dictionary). Macy’s then cites the federal government’s own guidelines that state quitting smoking completely is the best way to promote health and prevent disease. Id. at 13 (citing federal clinical guidelines Treating Tobacco Use and Dependence: 2008 Update). Thus, according to Macy’s argument, if a corporate wellness program includes an outcomes-based tobacco cessation component, for a participant to earn the reward (such as a lower premium) they have to cease smoking to continue to earn the reward. In other words, they need to continue to “adhere” to the wellness program standard. Yes, the statute also requires the wellness program to offer an RAS, such as a tobacco cessation program, but even after participating in the tobacco cessation program if the employee continues to use tobacco products, they are no longer “adhering” to the wellness program and should not be eligible for the reward. Macy’s goes on to argue that if an employee has trouble quitting even after attending a tobacco cessation program because of addiction to nicotine, there are nicotine replacement therapies that they can use to help them stay tobacco-free. Id. For Macy’s, this means they did not violate the ACA wellness incentive requirements when they did not reimburse tobacco surcharges to individuals who continued to smoke.
Relatedly, Macy’s argues that because a wellness program requires “adherence,” that is, active obedience to a program rule, no reward should be paid to employees for the time period when they were not “adhering” to the program. As a result, Macy’s argues that they should not have to reimburse employees retroactively for tobacco surcharges paid before they started “adhering” to the tobacco cessation program.
This leads to a second flaw in the ACA wellness incentive rules. In the 2013 wellness incentive rules, the DOL states that “regardless of the type of wellness program, every individual participating in the program should be able to receive the full amount of any reward or incentive, regardless of any health factor.” DOL v. Macy’s, dkt. #78, at 18 (citing 78 Fed. Reg. at 33160) (emphasis added). Macy’s points out that this conclusion by the DOL is contrary to the wellness incentive statute. The statute requires an RAS in health contingent wellness programs only for individuals for whom, for that period, “it is unreasonably difficult due to a medical condition to satisfy the otherwise applicable standard;” or for whom it is “medically inadvisable to attempt to satisfy the otherwise applicable standard.” Id. at 18; 42 USC § 300gg-4(j)(3)(D). Thus, not everyone gets an RAS in an activity-based or outcomes-based wellness program. Only those who can’t perform the original activity or achieve the original outcome because of a medical condition must get an RAS.
The third flaw in the DOL wellness incentive regulations involves the physician verification issue. Under the rules, only activity-based wellness programs can seek verification from an employee’s personal physician about why a medical condition makes it unreasonably difficult for the individual to participate in the activity. Id. at 17. Outcomes-based programs are not allowed to seek physician verification. 29 CFR § 2590-702(f)(4)(iv)(E). Yet, the statute does not distinguish between activity-based or outcomes-based wellness programs when permitting wellness programs from seeking physician verification. 42 USC § 300gg-4(j)(3)(D)(ii). Rather, if it is reasonable under the circumstances, a group health plan wellness program could seek verification from an individual’s physician that it was medically inadvisable for the person to stop using tobacco or not being able to use nicotine replacement therapies, if that was the allegation presented by the individual employee.
Recap: Things the ACA Wellness Incentive Rules May Have Wrong
Here is a summary list, based on a comparison of the ACA rules and statutes, that a court may find wrong with the ACA wellness incentive rules:
- Not allowing for physician verification in outcomes-based wellness programs
- Not allowing wellness programs to deny rewards if employees do not “adhere” to the wellness program (particularly for tobacco cessation)
- For tobacco cessation, ceasing the use of tobacco products is what must be adhered to.
- The full reward is measured from when the participant begins to adhere to a wellness program
- Only those for whom it is unreasonably difficult due to a medical condition or it is medically inadvisable to satisfy the initial activity or outcome are eligible for a RAS
- For tobacco users, that means individual must be addicted to nicotine to be eligible for RAS
- Could seek verification from physician to confirm
Could the ADA Rules be at Risk?
Given that the Equal Employment Opportunity Commission (EEOC), the federal agency responsible for promulgating the ADA wellness incentive rules, has changed those rules over time, one could argue that courts should not defer to the EEOC’s interpretation of the ADA wellness rules. In particular, the EEOC decided without Congressional authority, to not apply the insurance safe harbor to group health plan wellness programs, which meant that if a wellness program collects employee health information through biometric screens or health risk assessments, such information collection had to be “voluntary.” But the ADA statute does not make that distinction and allows employer benefit plans to “administer the terms of a bona fide benefit plan, as well as administer the plan based on underwriting risks, classifying risks, or administering risks.” See e.g., 42 USC § 12201(c). Two federal courts have already interpreted that ADA provision to allow group health plans to incentivize up to 100% of the value of employee health coverage participation in health information collection activities without violating the ADA wellness incentive rules. See e.g., Seff v. Broward County, 691 F.3d 1221 (11th Circ. 2012) and EEOC v. Flambeau, Inc., 14-cv-638, Opinion and Order, dkt. #38 (W.D. Wis. 2014).
It is possible that other wellness incentive rules may also be at risk. Without a doubt, the Loper Bright case through agency rulemaking and enforcement into chaos, in corporate wellness and beyond. We at the Center for Health and Wellness Law will continue to update you as the law for corporate wellness evolves. Contact us today to evaluate your wellness incentive programs to determine your legal risk in this new regulatory landscape.