On Tuesday, August 22 a federal judge ruled that regulations related to wellness programs issued by the U.S. Equal Employment and Opportunities Commission (EEOC) last year are arbitrary and capricious. The regulations allow employer wellness programs to utilize financial incentives up to 30 percent of the entire individual health insurance premium to encourage employees and their spouses to complete health risk assessments or other personal health questionnaires as part of a wellness program.

Overview of Regulations

The EEOC issued two sets of regulations allowing financial incentives for personal health inquiries related to employee wellness programs in 2016. The first regulations interpret the Americans with Disabilities Act (ADA). The ADA prohibits employers from asking if an employee has a disability or requiring medical examinations that are not consistent with business necessity. The second regulations interpret the Genetic Non-Discrimination Act (GINA). GINA prohibits employers from requesting genetic information from employees. Under GINA, personal health information of a spouse and children is considered genetic information.

Both the ADA and GINA have exceptions for voluntary inquiries related to wellness programs. Prior to the 2016 regulations, EEOC had issued guidance that defined a voluntary inquiry under the ADA and GINA as one in which the “employer neither requires participation nor penalizes employees who do not participate.” The 2016 regulations define voluntary by allowing employers to use financial incentives of up to 30 percent of the total cost of the individual health insurance plan the employee is enrolled in. Thirty percent of the average cost of employer coverage in 2016 is $1,930. As many commenters pointed out in comments submitted to the proposed EEOC regulations, this is a significant cost for many employees. The reasoning given by EEOC for using the 30 percent threshold is that it would bring the ADA and GINA regulations in line with the HIPAA requirements on participatory wellness programs.

The Decision

AARP brought the suit in October 2016 alleging the regulations violated the Administrative Procedure Act (APA). The APA is a federal law governing procedures of administrative law, including how executive branch bodies issues regulations. The Judge granted AARP’s motion for summary judgment concluding the EEOC was “arbitrary and capricious” in interpreting the word “voluntary” to allow financial incentives up to 30 percent of individual health insurance premiums. The decision went as far as to say “the Court can find nothing in the administrative record that explains the agency’s conclusion that the 30% incentive level is the appropriate measure for voluntariness.” Basically, the EEOC provided inadequate reasoning for the 30 percent threshold.

Importance of Commenting on Federal Regulations

The Judge relied heavily on public comments submitted to the proposed regulations as part of the administrative record. This is an interesting aspect of the decision because it highlights the importance of the public commenting process as part of the APA and federal policy making. For example, the Judge referenced comments submitted by AARP and other commenters that undermined the EEOC’s reasoning that the 30 percent incentive level is consistent with HIPAA, since HIPAA allows an incentive up to 30 percent of the cost of family coverage. The decision also referenced numerous comment letters that were part of the administrative record providing reasons as to why 30 percent of the cost of individual health coverage is not voluntary:

While the final regulations did not address all of these comments, the decision makes clear that the EEOC has a responsibility to respond to “substantial criticisms” and that criticisms of the 30 percent threshold as voluntary are substantial.

What This Means for the Future

The ultimate fate of the EEOC regulations remains to be seen. For now, the EEOC regulations still exist as law because the Judge chose not to vacate the regulations “assuming the agency can address the rules’ failings in a timely manner.” This means employers can continue offering financial incentives up to 30 percent of the cost of the individual health coverage for employees and their spouses to provide personal information. But the Judge did order the EEOC to provide reasons for allowing the 30 percent threshold. Under the APA and related case law, courts defer to the agency’s interpretation if there is a reasoned explanation. It is therefore possible that the EEOC will reissue regulations with stronger reasoning. However, one does wonder if such reasoning exists given that none was provided in the 2016 regulations. And, of course, the EEOC can appeal the decision. In the end, nothing may change or the regulations may eventually be vacated.

But the decision is also important for future regulatory changes, including regulations changing Obama-era rules implementing the Affordable Care Act. This decision is a reminder that the Administration cannot change prior policy in a manner that is arbitrary and capricious. It also highlights the role public comments are supposed to play in the regulatory process and that the courts provide checks and balances if the Executive Branch ignores public comments.