EEOC Wellness Incentive Rules – Where are We Today?

You may recall that early last year the EEOC withdrew proposed wellness program rules in response to the Biden Administration’s regulatory freeze memo. Given that many of us at Mercer who assist clients with wellness initiatives saw some significant issues with the proposed rules, the withdrawal was welcome news – but it doesn’t mean they won’t be released at some point. That’s why I was pleased to have the opportunity to speak with Keith Sonderling, one of the five EEOC Commissioners, and share our concerns with the proposed rules as they stood in February 2021. For a more complete review, you can refer to articles we posted before the rules were withdrawn (a summary and our first impressions). Here I will just share the gist of what we discussed:

  • De minimis incentive value: Only incentives of de minimis value would be permitted for participation in wellness activities subject to the EEOC rules (those that include disability related questions or medical exams). The IRS specifically excludes cash or cash equivalents from its definition of de minimis fringe benefits. The Commissioner indicated the EEOC’s definition of de minimis value was different than that of the IRS, although it was not defined in the proposed rules. Examples of permissible incentives included things like a water bottle or gift card “of modest value”, whereas a gym membership or $50 monthly premium differential wouldn’t be permitted. At the least, any difference between the IRS’s and EEOC’s definitions of de minimis value are likely to cause confusion for employers.
  • Medical plan-based incentives: The EEOC proposed an incentive safe harbor limited to those who are enrolled in the medical plan and participate in a health-contingent program. Employees who are not enrolled in the medical plan do not have access to the same incentive. We have clients with over 30% of their population not enrolled in the companies’ health plans. Research has shown that organizational and cultural support is key to lowering health risks, improved health, and lower medical costs. All employees contribute to the organization’s culture of health and well-being. Therefore, intentionally excluding a portion of the population from earning incentives for wellness participation may void this most important best practice and success factor.
  • Further limiting wellness incentives could lead to a significant drop-off in participation: If employers are limited to incentives of de minimis value, it’s very likely that wellness participation rates will drop significantly. This is especially likely for wellness programs that require participation in a variety of activities throughout the year. The average maximum incentive amount reported by nearly 1,600 employers who completed the HERO Health & Well-being Best Practices Scorecard in Collaboration with Mercer© was $500.

Other thoughts

Contemporary well-being programs have moved away from a primary focus on physical health to also provide support for emotional, social and financial wellness. The EEOC’s unofficial proposed rules were narrowly focused on physical wellness, and even more narrowly on those who have chronic health conditions. Supporting health risk improvement, preventive health screenings, as well as emotional, social and financial elements of well-being for the entire employee population, are important upstream objectives of successful comprehensive well-being initiatives.

The COVID-19 pandemic has impacted physical, emotional, social and financial wellness in numerous negative ways – so much so, that in late 2020, 45% of employers (up from 27% in 2018) reported that investing in their employees’ health and well-being was integral to their business success. Most employers want their employees to experience optimal health and well-being so they can thrive at work and in their personal lives.

With revised wellness regulations, the EEOC has the opportunity to provide clear guidance on the type and value of incentives employers will be allowed to offer to all employees to encourage them to voluntarily participate in a wide array of physical, emotional, social and financial wellness activities. We urge the EEOC to allow employers to offer reasonable and meaningful incentives for all employees that will propel their comprehensive well-being initiatives forward, rather than imposing narrowly focused and minimal incentives that are likely to significantly reduce employee participation in the wellness activities they need now more than ever.

Thanks to Katharine Marshall for contributing to this post.

Steven Noeldner
by Steven Noeldner

Well-being Vertical Leader

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