Voluntary Versus Mandatory Wellness Programs

Voluntary and Incentive-Based Programs

Wellness programs are usually offered to employees on a voluntary basis, and various incentives often are added to foster continued participation. A number of the nation's leading employers have realized tremendous benefits by investing in comprehensive voluntary and incentive-based wellness programs.

Motorola, Inc., for example, maintains a wellness program known as the 'LIVESMART Challenge.' This program provides monetary incentives for employee participation in programs within four areas: health screenings and self-care, nutrition and weight management, exercise and stress management, and health conditions management. Motorola employees also receive their medical plan at discounted rates if they participate in a voluntary health risk assessment. In connection with the LIVESMART Challenge, Motorola provides on-site Wellness Centers in locations across the country, and offers services ranging from flu immunizations and health screenings to risk appraisals, smoking cessation programs, and '24-7' health care hotlines. In recognition of its program, Motorola received a C. Everett Koop National Health Award in 2002, and its programs recently have been recognized with WELCOA's Platinum Award and the National Business Group on Health's Best Employer's for Healthy Lifestyles Platinum Award. According to Motorola officials, in addition to receiving numerous awards for program design and the results it has achieved through its wellness programs, Motorola has saved $3.93 for every $1.00 it invested in Wellness benefits. For U.S. employees in 2000, that translated to savings of $6,479,673.

Caterpillar Inc. also has developed a wellness program known as 'Healthy Balance.' In connection with Healthy Balance, employees are given a health risk assessment form on a semi-annual basis, and are offered a reduction on premiums for Caterpillar-sponsored health care if they complete the form. According to Caterpillar officials, approximately 90% of Caterpillar's employees
complete the form, and the data they provide is used to determine the type of wellness services that are appropriate for employees and their spouses. Employees who demonstrate lower health risks are given general educational materials. Those who show higher risks of serious medical conditions, such as heart disease or diabetes, are offered entry into comprehensive programs that are tailored to their particular needs. Healthy Balance also places a particular emphasis upon smoking cessation. Approximately 1800 employees (or spouses of employees) have participated in the smoking cessation program, and approximately 35% of the participants have quit smoking after three years. Caterpillar has received numerous awards for the results it has achieved. For example, in 2000, Caterpillar received the C. Everett Coop National Health Award. In addition, based upon Healthy Balance and additional efforts to promote the health and safety of its employees, Caterpillar also was this year's recipient of the American College of Occupational and Environmental Medicine's Corporate Health Achievement Award. It is anticipated that Healthy Balance ultimately will continue to yield significant savings in health care costs.

When considering the cost savings associated with wellness plans, it is noteworthy that on July 9, 2007, Senators Thomas Harkin (D-IA) and Gordon Smith (R-OR) introduced the 'Healthy Workforce Act' (S. 1753), which would amend the Internal Revenue Code of 1986 to provide a tax credit to employers for the costs of implementing wellness programs. If employers provide the type of comprehensive wellness program that this bill contemplates, they would be eligible for a tax credit of up to $200 per employee for the first 200 employees, and up to $100 per employee thereafter to businesses that provide comprehensive wellness programs, for up to ten years.

In addition to lower health care costs, Motorola, Caterpillar and others have found that the benefits of voluntary and incentive-based wellness programs include:

• higher productivity;
• greater morale;
• lower absenteeism; and
• less attrition.

Mandatory Programs

A minority of employers provide comprehensive wellness programs, which not only encourage employees to get healthier by providing extensive health care services, but require employees to get healthier by prohibiting certain conduct, such as using alcohol and tobacco. Mandatory programs also may impact employees' diets by targeting obesity and cholesterol rates.

Some of the risks attendant to mandatory wellness programs, such as lower morale and attrition, are rather obvious. Indeed, employees can be expected to respond unfavorably when employers tell them they must cut out the occasional smoke, high-calorie brew or rib-eye steak, even on weekends. Less obvious risks linked to mandatory wellness programs include certain landmines in varying state laws. Scores of states have enacted laws that protect legal, off-duty conduct, and employees can be expected to seek protection under these laws if they are subjected to other adverse employment actions as a result of engaging in statutorily protected conduct. For example:

The following jurisdictions protect employees' off-duty use of tobacco: Arizona, the District of Columbia, Indiana, Kentucky, Louisiana, Maine, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Virginia, West Virginia and Wyoming.

The following states protect employees' off-duty use of lawful products: Illinois, Minnesota, Montana, Nevada, North Carolina and Wisconsin.

The following states generally protect employees' off-duty, legal activities that do not directly conflict with their employers' legitimate interests: Colorado, New York, Connecticut, and North Dakota.

The California Labor Commissioner is empowered to assert on behalf of employees 'Claims for loss of wages as the result of demotion, suspension, or discharge from employment for lawful conduct occurring during nonworking hours away from the employer's premises.'

Michigan and two cities in California, Santa Cruz and San Francisco, prohibit discrimination based on obesity.

The District of Columbia prohibits discrimination based on personal appearance.

Employees who are denied jobs or discharged as a result of failing to comply with a mandatory wellness program also can be expected to claim that their privacy rights were violated. In particular, they can be expected to invoke the protections of state privacy statutes and argue that their employers 'intruded upon their seclusion.'

Although employers may face substantial exposure by violating these laws, it is important to explore whether such claims are preempted by the Employee Retirement Income Security Act ('ERISA'). More specifically, wellness programs offered in connection with group health benefit plans may be governed by ERISA, and courts have recognized that Section 514 of ERISA preempts state laws that directly or indirectly regulate employer-sponsored health plans.

This article concludes next month with an in-depth discussion of the risks associated with mandatory programs.

David S. Baffa, a member of this newsletter's Board of Editors, is a partner with Seyfarth Shaw, and has a broad-based consulting and litigation practice representing employers in employment litigation and union avoidance matters. He can be reached at: 312-460-5928 or [email protected].

The astronomical costs of health insurance coverage and prescription drug plans for employees continue to plague employers. It has been predicted that, at the present rate, 'by 2008 the average Fortune 500 company may be spending as much on health benefits as it earns in profits.' ('Will Health Benefit Costs Eclipse Profits,' The McKinsey Quarterly Chart Focus Newsletter, McKinsey and Company. September 2004.) Illustrating the practical economic implications of these costs, General Motors Corp. reported that 'health care costs alone add $1500 to the sticker price of every automobile it makes, and estimates that by 2008 that number could reach $2000.' (L. Hudson Teslik, 'Healthcare Costs and U.S. Competitiveness,' Council on Foreign Relations. May 14, 2007.) An overwhelming amount of these costs are related to the treatment of preventable illnesses, which commonly result from the use of alcohol and tobacco products, and unhealthy diets.

With the understanding that preventable illnesses means preventable costs, many employers have instituted programs aimed at improving employees' overall physical and mental health. These strategies are commonly referred to as 'wellness programs.' This is a broad term that encompasses a range of plans geared toward improving employees' well being. These programs typically focus on smoking cessation, coping with various forms of mental illness (e.g., stress, anxiety and depression), combating obesity and risks related to unhealthy diets, and lowering alcohol consumption.

Wellness programs have taken different forms and each form presents varying degrees of risks and benefits. This article examines the types of wellness programs that have been used with increasing frequency, as well as the benefits and risks associated with those programs. As noted in Patricia Anderson Pryor's article in the August issue of this newsletter, www.lawjournalnewsletters.com/ Admin/issues/ljn_emplaw/15_4/news/ 149096-1.html, 'Wellness Programs: complying with the ADA and HIPAA,' wellness programs have the potential to run afoul of both the Americans with Disabilities Act of 1990 and the Health Insurance Portability and Accountability Act of 1996. In addition to those important considerations, there are numerous other legal risks and economic considerations of which an employer must be keenly aware when crafting and implementing a wellness program.

Voluntary and Incentive-Based Programs

Wellness programs are usually offered to employees on a voluntary basis, and various incentives often are added to foster continued participation. A number of the nation's leading employers have realized tremendous benefits by investing in comprehensive voluntary and incentive-based wellness programs.

Motorola, Inc., for example, maintains a wellness program known as the 'LIVESMART Challenge.' This program provides monetary incentives for employee participation in programs within four areas: health screenings and self-care, nutrition and weight management, exercise and stress management, and health conditions management. Motorola employees also receive their medical plan at discounted rates if they participate in a voluntary health risk assessment. In connection with the LIVESMART Challenge, Motorola provides on-site Wellness Centers in locations across the country, and offers services ranging from flu immunizations and health screenings to risk appraisals, smoking cessation programs, and '24-7' health care hotlines. In recognition of its program, Motorola received a C. Everett Koop National Health Award in 2002, and its programs recently have been recognized with WELCOA's Platinum Award and the National Business Group on Health's Best Employer's for Healthy Lifestyles Platinum Award. According to Motorola officials, in addition to receiving numerous awards for program design and the results it has achieved through its wellness programs, Motorola has saved $3.93 for every $1.00 it invested in Wellness benefits. For U.S. employees in 2000, that translated to savings of $6,479,673.

Caterpillar Inc. also has developed a wellness program known as 'Healthy Balance.' In connection with Healthy Balance, employees are given a health risk assessment form on a semi-annual basis, and are offered a reduction on premiums for Caterpillar-sponsored health care if they complete the form. According to Caterpillar officials, approximately 90% of Caterpillar's employees
complete the form, and the data they provide is used to determine the type of wellness services that are appropriate for employees and their spouses. Employees who demonstrate lower health risks are given general educational materials. Those who show higher risks of serious medical conditions, such as heart disease or diabetes, are offered entry into comprehensive programs that are tailored to their particular needs. Healthy Balance also places a particular emphasis upon smoking cessation. Approximately 1800 employees (or spouses of employees) have participated in the smoking cessation program, and approximately 35% of the participants have quit smoking after three years. Caterpillar has received numerous awards for the results it has achieved. For example, in 2000, Caterpillar received the C. Everett Coop National Health Award. In addition, based upon Healthy Balance and additional efforts to promote the health and safety of its employees, Caterpillar also was this year's recipient of the American College of Occupational and Environmental Medicine's Corporate Health Achievement Award. It is anticipated that Healthy Balance ultimately will continue to yield significant savings in health care costs.

When considering the cost savings associated with wellness plans, it is noteworthy that on July 9, 2007, Senators Thomas Harkin (D-IA) and Gordon Smith (R-OR) introduced the 'Healthy Workforce Act' (S. 1753), which would amend the Internal Revenue Code of 1986 to provide a tax credit to employers for the costs of implementing wellness programs. If employers provide the type of comprehensive wellness program that this bill contemplates, they would be eligible for a tax credit of up to $200 per employee for the first 200 employees, and up to $100 per employee thereafter to businesses that provide comprehensive wellness programs, for up to ten years.

In addition to lower health care costs, Motorola, Caterpillar and others have found that the benefits of voluntary and incentive-based wellness programs include:

• higher productivity;
• greater morale;
• lower absenteeism; and
• less attrition.

Mandatory Programs

A minority of employers provide comprehensive wellness programs, which not only encourage employees to get healthier by providing extensive health care services, but require employees to get healthier by prohibiting certain conduct, such as using alcohol and tobacco. Mandatory programs also may impact employees' diets by targeting obesity and cholesterol rates.

Some of the risks attendant to mandatory wellness programs, such as lower morale and attrition, are rather obvious. Indeed, employees can be expected to respond unfavorably when employers tell them they must cut out the occasional smoke, high-calorie brew or rib-eye steak, even on weekends. Less obvious risks linked to mandatory wellness programs include certain landmines in varying state laws. Scores of states have enacted laws that protect legal, off-duty conduct, and employees can be expected to seek protection under these laws if they are subjected to other adverse employment actions as a result of engaging in statutorily protected conduct. For example:

The following jurisdictions protect employees' off-duty use of tobacco: Arizona, the District of Columbia, Indiana, Kentucky, Louisiana, Maine, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Virginia, West Virginia and Wyoming.

The following states protect employees' off-duty use of lawful products: Illinois, Minnesota, Montana, Nevada, North Carolina and Wisconsin.

The following states generally protect employees' off-duty, legal activities that do not directly conflict with their employers' legitimate interests: Colorado, New York, Connecticut, and North Dakota.

The California Labor Commissioner is empowered to assert on behalf of employees 'Claims for loss of wages as the result of demotion, suspension, or discharge from employment for lawful conduct occurring during nonworking hours away from the employer's premises.'

Michigan and two cities in California, Santa Cruz and San Francisco, prohibit discrimination based on obesity.

The District of Columbia prohibits discrimination based on personal appearance.

Employees who are denied jobs or discharged as a result of failing to comply with a mandatory wellness program also can be expected to claim that their privacy rights were violated. In particular, they can be expected to invoke the protections of state privacy statutes and argue that their employers 'intruded upon their seclusion.'

Although employers may face substantial exposure by violating these laws, it is important to explore whether such claims are preempted by the Employee Retirement Income Security Act ('ERISA'). More specifically, wellness programs offered in connection with group health benefit plans may be governed by ERISA, and courts have recognized that Section 514 of ERISA preempts state laws that directly or indirectly regulate employer-sponsored health plans.

This article concludes next month with an in-depth discussion of the risks associated with mandatory programs.

David S. Baffa, a member of this newsletter's Board of Editors, is a partner with Seyfarth Shaw, and has a broad-based consulting and litigation practice representing employers in employment litigation and union avoidance matters. He can be reached at: 312-460-5928 or [email protected].