Nondiscrimination Acts

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The following laws ban discrimination against protected groups in compensation and terms, conditions and privileges of employment.  These laws require that all employee benefits be provided in a nondiscriminatory manner unless a statutory exception provides otherwise.  They include:

1. The Age Discrimination in Employment Act
2. The Americans with Disabilities Act
3. Title VII of the Civil Rights Act of 1964 (including the Pregnancy Discrimination Act), and
4. The Genetic Information Nondiscrimination Act

The Health Insurance Portability and Accountability Act (“HIPAA”) also imposes rules on group health plans that prohibit discrimination based on health status factors. Employers should recognize that compliance with the HIPAA nondiscrimination rules does not imply compliance with other non-discrimination laws, and vice versa. Please see the HIPAA Compliance topic for more information.

The Affordable Care Act (ACA) extends (IRS) Section 105(h) nondiscrimination rules (relative to highly compensated individuals) to fully insured, non-grandfathered plans. These rules are not covered in this material, but you can click here for more information.

Please note that this section deals strictly with how these laws apply to group health plans. Employers should utilize other resources for compliance information on the employment related aspects of these laws.

1. The Age Discrimination in Employment Act (“ADEA”)

ADEA was enacted in 1967. The Older Workers Benefit Protection Act (OWBPA) of 1990 amended ADEA, clarifying Congress’s intent of protecting older workers.

Under ADEA, it is unlawful to discriminate against a person because of his/her age with respect to any term, condition, or privilege of employment, including hiring, firing, promotion, layoff, compensation, benefits, job assignments, and training. This encompasses all employee benefits. ADEA does not require employers to provide health and welfare plans. However, if an employer chooses to offer these plans, ADEA requirements apply.

Covered Employers

ADEA applies to employers who have twenty or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year.

Provisions

ADEA is satisfied when the benefits provided to older workers (40 years and above) are equal to the benefits provided to younger workers.

• In order for benefits to be equal, older and younger workers are subject to the same type of benefits, amount of benefits, and payment options.
• Equal benefits must be provided to older employees even if the benefits are not generally available to older workers in the marketplace.
• ADEA does not prohibit employers from providing better benefits to older employees than to younger employees.

Equal Cost Rule

A summary of the equal cost rule can be found below. We recommend that an employer seek legal advice before applying this rule to its benefits.

Congress recognized that the cost of providing certain benefits to older workers is greater than the cost of providing those same benefits to younger workers, and that those greater costs would create a disincentive to hire older workers. Therefore, under certain circumstances, an employer may reduce benefits based on age, as long as the cost of providing the reduced benefits to older workers is the same as the cost of providing benefits to younger workers.

Only benefits that become more costly as employees get older may be included in the equal cost rule. These include:

• Health insurance benefits
• Life insurance benefits
• Disability insurance benefits

Criteria for applying this rule include:

• The employer must use valid and reasonable cost data to justify providing lower benefit levels to older workers. If it  uses age brackets when looking at this data, those brackets cannot span more than 5 years.
• The lower benefit level or shorter duration of benefits must be clearly stated in plan documents.
• The actual cost incurred or payment made on behalf of an older worker can be no less than the cost incurred on behalf of a younger worker.

Other Provisions

Cost comparisons and adjustments can also be looked at on a benefit package basis. See paragraph (d) (2) (ii) “Benefit package” basis of Part 1625.10 of the Age Discrimination Act.  However, a benefit package approach cannot be used to justify reductions in health benefits greater than would be justified under a benefit-by-benefit approach.

In addition, special rules apply when employees contribute to the premium of a benefit, and that premium increases with age. See paragraph 4(c) of Part 1625.10 of the Age Discrimination in Employment Act.

Retirees

Offsets are available to reduce benefits paid to retirees by Medicare.

However, Medicare Secondary Payer (MSP) rules stipulate that an employer may not reduce benefits to active employees as a result of their being eligible for Medicare (see Coordination of Benefits). Therefore, this offset is generally only applied to retirees.

The ADEA does allow employers to reduce, change or eliminate retiree health benefits when the retiree becomes eligible for Medicare.

2. The Americans with Disabilities Act (“ADA”)

Covered Employers

The ADA applies to employers with 15 or more employees for each working day in at least 20 calendar weeks in the current or preceding calendar year.

Provisions

ADA states that an employer may not discriminate against a qualified individual with a disability, on the basis of disability, with respect to fringe benefits.

Congress recognized, however, that some types of benefit plans rest on an assessment of the risks and costs associated with various health conditions in accordance with accepted principles of risk assessment.

As a result, the ADA permits employers to make disability-based distinctions in employee benefit plans where the distinctions are based on sound actuarial principles or are related to actual or reasonably anticipated experience.

Disability Definition

For purposes of the ADA, an individual has a disability if she or she:

• has a physical or mental impairment that substantially limits one or more major life activities of such individual;
• has a record of such an impairment; or
• is regarded as having such an impairment

The law provides that it is to be construed broadly in favor of individuals.

Click here to view the new law or here for an overview.

Equal Benefits

For benefits to be equal, the same coverage must be provided, on the same terms, to all similarly situated employees. For example, benefit plans must be the same with regard to:

• premiums
• deductibles
• caps on coverage
• waiting periods

Disability Based Distinction

Not all provisions of an employer’s benefit plan that are related to health, and that result in unequal benefits for individuals with disabilities, are based on disability. A health-related distinction that is not disability-based, and that is applied equally to all employees, does not violate the ADA. Therefore, employers must determine whether any difference in benefits arises from a disability-based distinction.

A health-related distinction in a benefit plan is disability-based if it singles out:

• a particular disability
  
• For example, an employer’s health plan covers all physical and mental disorders except major depression.
• a discrete group of disabilities
  
• For example, an employer’s health insurance plan caps coverage for treatment of cancers at one million dollars but caps coverage for the treatment of all other physical conditions at 20 million dollars.   (This type of provision would also be problematic under the ACA.)
• disability in general
  For example, an employer requires employees who are no longer able to work because of a physical or mental disorder to retire on disability retirement, even if they also are eligible to retire under the employer’s service retirement plan.

Generally, a health-related distinction in a benefit plan is not disability-based if:

• it is a broad distinction which applies to a multitude of dissimilar conditions, and
• it constrains both individuals with and individuals without disabilities.
  For example, an employer’s health insurance plan covers only two Electronic Resonance Imaging (ERI) scans per year per patient. Because ERI scans are used for all kinds of conditions and because the limitation affects both individuals with and individuals without disabilities, this provision is not based on disability.

Justification

If an employer has made a disability-based distinction in a benefit plan, it will be liable for a violation of the ADA unless it can show that the distinction is justified. The ADA sets forth two elements to the defense.

An employer must demonstrate that:

• the benefit plan is bona fide; and
  • To be bona fide, a plan must exist and pay benefits; in addition, the terms of the plan must have been accurately communicated to eligible employees.
• the plan is not a subterfuge to evade the purposes of the ADA.
  • The term “subterfuge” refers to disability-based disparate treatment in an employee benefit plan that is not justified by the risks or costs associated with the disability.  Whether a provision of a benefit plan is a subterfuge must be determined on a case-by-case basis.

Legitimate Actuarial Data

• The employer may prove that the disability-based disparate treatment is justified by legitimate actuarial data, or by actual or reasonably anticipated experience, and that conditions with comparable actuarial data and/or experience are treated the same way.
• Employers may not, however, rely on actuarial data that is outdated or that is based on myths, fears, stereotypes, or assumptions about the disability at issue.

Even where employers can produce actuarial data that demonstrates that the risks and costs of treatment of a condition justify differential treatment of it, employers must also show that they have treated other conditions that pose the same risks and costs the same way. If there is evidence that an employer has treated other conditions differently from the disability at issue, the employer has discriminated by singling out a particular disability for disadvantageous treatment.

Other Justifications

An employer may justify a disability-based distinction by showing that:

• disability-based disparate treatment is necessary to maintain the solvency of the plan. To establish this defense, employers must show:
  • that covering the disability or disabilities at issue would require such substantial payments of benefits that it would threaten the fiscal soundness of the plan under commonly accepted or legally required standards, and
  • that there is no non-disability-based benefit plan change that could be made to limit those fiscal consequences.
• the challenged practice or activity is necessary to avoid unacceptable changes in the coverage of, or the premiums for, a benefit plan. An “unacceptable” change is a drastic increase in premium payments (or in co-payments or deductibles), or a drastic alteration to the scope of coverage or level of benefits provided, that would:
  • increase the cost to other employees so substantially that the benefit plan would be effectively unavailable to a significant number of them;
  • make the benefit plan so unattractive as to result in significant adverse selection; or
  • make the benefit plan so unattractive that the employer cannot compete in recruiting and maintaining qualified workers due to the superiority of benefit plans offered by other employers in the community.
• a particular treatment that it has excluded from a health insurance plan provides no medical benefit.

The ADA and Wellness Programs

The ADA generally prohibits employers from requiring employees to submit to physical exams and from asking health-related questions that are likely to elicit information regarding a disability. Many wellness programs do exactly that with their screenings and wellness assessment questionnaires. However, the ADA contains an exception for voluntary employee health programs.  A long-standing question has been whether, or to what extent, the availability of incentives/penalties in connection with these programs renders them “involuntary.”

Voluntary Participation and Incentives

For a wellness program to be considered voluntary under the ADA, the employer:

• may not require employees to participate, deny access to health coverage for nonparticipation, generally limit coverage under its health plans, take any other adverse action; or retaliate, interfere with, coerce, intimidate, or threaten an employee who does not participate or fails to achieve certain health outcomes; and
• must provide a notice clearly explaining what medical information will be obtained, how it will be used, who will receive it, and the restrictions on disclosure.

An employer may offer incentives up to a maximum of 30 percent of the total cost of self-only coverage (including both the employee’s and employer’s contribution) without causing a wellness program to be classified as involuntary.

For purposes of this limitation, the term “incentives” should be understood to include both rewards and penalties and rewards that are in-kind as well as financial.  Employers may use any reasonable method of valuing its in-kind incentives.  However, even “de minimis” incentives must be counted toward the 30% maximum.

This leaves the question of which plan an employer should use to calculate the 30% limit.  The rule details the choice of plan as follows:

• Where participation in a wellness program depends on enrollment in a particular group health plan, the limit is 30% of the total cost for self-only coverage under the plan in which the employee is enrolled.
• Where an employer offers a single group health plan, but participation in a wellness program does not depend on the employee’s enrollment in that plan, the limit is 30% of the total cost for self-only coverage under that plan.
• Where an employer has more than one group health plan, but participation in a wellness program does not depend on the employee’s enrollment in any plan, the limit is 30% of the total cost of the lowest cost self-only coverage under a major medical group health plan offered by the employer.  This rule also applies if the employer offers a single health plan with multiple coverage options.
• Where an employer does not offer a group health plan or group health insurance coverage, the rule uses the cost of the second lowest cost Silver Plan available through the state or federal health care Exchange established under the Affordable Care Act in the location that the employer identifies as its principal place of business as a benchmark for setting the incentive limit. Thus, the limit is 30% of the cost that would be charged for self-only coverage under such a plan if purchased by a 40-year-old non-smoker.

Note: the reasonable accommodation rules do apply, regardless of whether a wellness program is otherwise subject to the ADA Wellness regulation.  For example:

• an employer that offers employees a financial incentive to attend a nutrition class, regardless of whether they reach a healthy weight as a result, would have to provide a sign language interpreter so that an employee who is deaf and who needs an interpreter to understand the information communicated in the class could earn the incentive.
• an employer would have to provide written materials that are part of a wellness program in an alternate format, such as in large print or on computer disk, for someone with a vision impairment.
• an employer that offers a reward for completing a biometric screening that includes a blood draw would have to provide an alternative test (or certification requirement) so that an employee with a disability that makes drawing blood dangerous can participate and earn the incentive.

Confidentiality

An employer may obtain information collected as part of an employee health program in aggregate form that does not disclose, and is not reasonably likely to disclose, the identity of specific individuals as is necessary to administer the plan.

An employer may not require an employee to agree to the sale, exchange, sharing, transfer, or other disclosure of medical information (except to the extent as necessary to carry out specific activities related to the wellness program), or waive confidentiality protections available under the ADA as a condition for participating in a wellness program or receiving a wellness program incentive.

Reasonable Program Design

Wellness programs must be “reasonably designed to promote health or prevent disease.”  Examples of when this standard may be met include:

• Asking employees to complete an HRA and/or undergo a biometric screening for the purpose of alerting them to health risks of which they may have been unaware
• Using aggregate information from HRAs by an employer to design and offer health programs aimed at specific conditions identified by the information collected.

On the other hand, a program is not reasonably designed to promote health or prevent disease if it imposes, as a condition to obtaining a reward, an overly burdensome amount of time for participation, requires unreasonably intrusive procedures, or places significant costs related to medical examinations on employees.  A program also is not reasonably designed if it exists mainly to shift costs from the covered entity to targeted employees based on their health or if it exists simply to give an employer information to estimate future health care costs.

Some Caveats and Afterthoughts

The ADA wellness rules have been challenged in several court cases.

One line of cases turns on a safe harbor provision in the ADA which states that an insurer or any entity that administers benefit plans is not prohibited from ‘‘establishing, sponsoring, observing or administering the terms of a bona fide benefit plan based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.’’  These cases have relied on this safe harbor to uphold wellness programs that imposed penalties far in excess of those that would be permitted under the final rule.

Another case has found that a non-participation penalty that required employees to pay the entire amount of the health plan premium was nevertheless voluntary within the meaning of the ADA.

The EEOC has announced that it does not regard itself as bound by these decisions.  Employers that wish to ignore the final rules based on those cases are strongly urged to consult with counsel.

3. Title VII of the Civil Rights Act (“Title VII”)

Title VII states that health insurance benefits must be provided without regard to the race, color, sex, national origin, or religion of the insured.

Covered Employers

Title VII applies to employers with 15 or more employees for each working day in at least 20 calendar weeks in the current or preceding calendar year.

Provisions

An employer must provide to all similarly situated employees the same opportunity to enroll in any health plans it offers. An employer must also ensure that the terms of its health benefits are nondiscriminatory.

• The employer cannot provide different coverage to men and women where the risk insured against may impact both men and women.
• If the employer applies neutral standards to exclude treatment for conditions or risks that disproportionately affect either men or women, or employees on the basis of any other protected classification under the EEO laws, the employer must show that the standards are based on generally accepted medical criteria.
• Where both men and women are, or could be, affected by the same condition or helped by the same treatment, the employer will be liable for sex discrimination if it provides different coverage to employees of each gender on the basis of gender.

The Pregnancy Discrimination Act (“PDA”)

Under PDA, women who are affected by pregnancy, childbirth or related medical conditions must be treated the same as others who are similarly able or unable to work. Where an employer offers benefits of any sort, it must cover pregnancy and related medical conditions in the same way, and to the same extent, that it covers other medical conditions.

• If a plan covers expenses for spouses, it must cover expenses arising from a pregnancy related condition of a spouse.
• The plan does not have to cover pregnancy related expenses of other dependents of the employee, as long as it excludes this coverage equally for dependents of both male and female employees.
• If an employer offers more than one health plan, each plan must cover pregnancy related expenses.
• No additional, increased, or larger deductible can be imposed.
• If an employer provides any benefits to workers on leave, the employer must provide the same benefits for those on leave for pregnancy-related conditions.

4. The Genetic Information Nondiscrimination Act (“GINA”)

Congress passed GINA to ensure that employment and benefit decisions are not based on genetic information (including family medical history) and to encourage employees to seek genetic testing without fear of repercussions. GINA provides a baseline federal prohibition on genetic discrimination. However, if an employer’s state has laws that provide equal or greater protection, the employer must comply with the stricter state standard.

Covered Employers

GINA applies to employers with 15 or more employees for each working day in at least 20 calendar weeks in the current or preceding calendar year.

Provisions

GINA prohibits group health plans from using genetic information to determine health care coverage and benefits. Genetic information cannot be used to determine eligibility, continued eligibility, contributions, premiums, or any other activity related to the creation, renewal or replacement of health benefits. Genetic information can be used, if properly obtained under limited circumstances, for purposes other than underwriting.

Genetic Information

Genetic Information is defined in three ways:

1. An individual’s genetic tests.  A genetic test is any analysis of human DNA, RNA, chromosomes, proteins, or metabolites that detects genotypes, mutations, or chromosomal changes.
2. The genetic tests of a family member.  A family member is broadly defined to include up to fourth-degree relatives (including half-relatives) as well as persons who are relatives by way of marriage or adoption.
3. The manifestation of a disease or disorder in a family member.  The manifestation of a disease or disorder in an individual is not genetic information, but the manifestation of the same disease or disorder in a family member is.

GINA does not require health plans to cover specific diseases or disorders, but it prohibits the use of genetic information in determining health plan features offered as part of a group health plan.

Genetic Testing

The law also prohibits a group health plan from requesting or requiring an individual or family member from undergoing a genetic test, provided that this prohibition does not:

• Limit the authority of a health care professional to request an individual to undergo a genetic test.
• Preclude a group health plan from obtaining or using the results of a genetic test in making a determination regarding payment. In this case, the plan must request only the minimum amount of information necessary to accomplish the intended purpose.

The law allows a group health plan to request, but not require, a participant or beneficiary to undergo a genetic test for research purposes, provided:

• The plan clearly indicates that compliance is voluntary and that noncompliance will have no effect on enrollment status or premium contributions.
• No genetic information collected or acquired is used for underwriting purposes.
• The plan notifies the Secretary of Health and Human Services that it is conducting activities pursuant to this exception.

Under GINA’s statutory provisions, a group health plan may not:

• Request, require or purchase genetic information for underwriting purposes or in advance of an individual’s enrollment;
• Adjust premiums or contribution amounts based on genetic information;
• Request or require an individual or family member to undergo a genetic test except in limited situations specifically allowed by GINA;
• Impose a preexisting condition exclusion based solely on genetic information, in the absence of a diagnosis of a condition;
• Discriminate against individuals in eligibility and continued eligibility for benefits based on genetic information; or
• Discriminate against individuals in premium or contribution rates under the plan or coverage based on genetic information, although such a plan or issuer may adjust group premium rates for an employer based on the manifestation of a disease or disorder of an individual enrolled in the plan.

Health Risk Assessments (“HRA”)

Final regulations applying GINA’s provisions to group health plans and insurers make clear that HRAs, which are often used in conjunction with health plan wellness programs, may no longer include questions about genetic information or family history  if an incentive (such as a premium reduction) is offered for completion of the HRA. In addition, genetic information or family history questions cannot be included on an HRA if that HRA is performed in connection with or prior to enrollment.

An employer may, in certain circumstances, offer an employee limited inducements for the employee’s spouse to provide information about the spouse’s manifestation of disease or disorder as part of an HRA administered in connection with an employer-sponsored wellness program. However, this exception does not extend to genetic information about a spouse or to information about manifestation of diseases or disorders in, or genetic information about, an employee’s children.

There are two keys to understanding this exception.  The first is to remember that it is limited to information about manifested conditions of the employee’s spouse as opposed to the much broader definition of genetic information generally; and that the exception never applies to the employee’s children (including adult children).  The second is that it is the spouse that must provide his or her own information.

An employer may not refuse coverage under any of its health insurance programs or retaliate against an employee, based on a spouse’s refusal to provide information about his or her manifestation of disease or disorder to an employer-sponsored wellness program.

In addition, an employer may not condition participation in a wellness program or an inducement on any individual’s agreement to the sale, exchange, sharing, transfer, or other disclosure of genetic information.

Most of the additional requirements under GINA track the ADA requirements closely and so will only be mentioned summarily below.

Inducements

Inducements (meaning both penalties and rewards, financial or in-kind) may not exceed 30% of the cost of self-only coverage under the employer’s health plan.  If the employer does not sponsor a group health plan, then the reference point is the cost of self-only coverage under the second lowest-cost Silver Plan available through an Exchange in the employer’s principal place of business.

Unlike the ADA, which only applies to employee discrimination, GINA permits an inducement equal to 30% of the applicable cost of self-only coverage for a spouse who provides information about his or her manifestation of a disease or disorder.

Authorization

When an employer offers an employee an inducement in return for his or her spouse’s providing information about the spouse’s manifestation of disease or disorder as part of an HRA (which may include a medical questionnaire, a medical examination, or both), the same written authorization requirements apply to the spouse as to the employee.   These include the requirement that the authorization must be written so that the individual from whom the genetic information is being obtained is reasonably likely to understand it; describe the type of genetic information that will be obtained and the general purposes for which it will be used; and describe the restrictions on disclosure of genetic information.

Reasonable Design

A wellness program must be reasonably designed to promote health or prevent disease.  This means that the program must have a reasonable chance of improving the health of, or preventing disease in, participating individuals.  It may not be overly burdensome, a subterfuge for violating GINA or other laws prohibiting employment discrimination, and may not be highly suspect in the method chosen to promote health or prevent disease.

For example, an employer may not deny an employee an inducement for participation of either the employee or the spouse in an employer-sponsored wellness program because the employee’s spouse has blood pressure, a cholesterol level, or a blood glucose level that the employer considers too high.  In addition, a program consisting of a measurement, test, screening, or collection of health-related information without providing participants with results, follow-up information, or advice designed to improve the participant’s health is not reasonably designed to promote health or prevent disease, unless the collected information actually is used to design a program that addresses at least a subset of conditions identified.

To ensure compliance with GINA and its regulations, group health plan sponsors should take the following actions:

• Review plan documents, wellness programs, and administrative procedures to make sure that no data is being gathered that is prohibited by these broad restrictions.
• Update training materials and supplement training for Human Resources personnel and other key with access to protected health information and other employee health data.
• Include a statement on your HIPAA Privacy Notice that no genetic information will be used or disclosed.
• Consult with any outside HRA provider (used in conjunction with plan incentives, rewards, or prior to or in connection with enrollment) to ensure that questions related to genetic information are removed from the assessment prior to the effective date of the GINA regulations for that group health plan.
• Ensure that any open-ended question on an HRA (used in conjunction with plan incentives, rewards, or prior to or in connection with enrollment) that may result in the individual volunteering genetic information, contain the following disclaimer:

In answering this question, you should not include any genetic information. That is, please do not include any family information related to genetic testing, genetic services, genetic counseling, or genetic diseases for which you believe you may be at risk.

Additional Resources

ADEA

EEOC Web Site

Part 1625.10 of the Age Discrimination in Employment Act (Cost and benefits under employee benefit plans)

EEOC Compliance Manual: ADEA Issues

ADA

ADA Home Page

EEOC Compliance Manual: ADA Issues

Calculating Incentive Limits for Wellness Programs

Title VII of the Civil Rights Act

Text of Title VII of the Civil Rights Act of 1964

EEOC Compliance Manual: Title VII Issues

PDA

EEOC Web Site

EEOC Compliance Manual: Discrimination based on Pregnancy

GINA

Text of Genetic Information Nondiscrimination Act

National Human Genome Research Institute Web Site

Regulations as published in the Federal Register

Calculating Incentive Limits for Wellness Programs