Employers sponsoring wellness programs that include tobacco surcharges have faced a growing wave of Employee Retirement Income Security Act class-action litigation over the past several years. These lawsuits primarily challenge whether such programs comply with Affordable Care Act and HIPAA wellness program regulations, particularly the requirement to provide a “full reward” and properly disclose a reasonable alternative standard.
Warner attorneys Stephanie Grant and De’Andre Robbins discussed the tobacco surcharge legal landscape with Modern HealthCare for its article, “How employers can stub out tobacco surcharge litigation.”
Health plans can charge employees that use tobacco products up to 50% more in
premiums to encourage healthier behavior. But companies must offer a
reasonable alternative workers can utilize to receive lower-cost insurance, and
plaintiffs allege the programs fail to meet key criteria. Plaintiffs have filed more than 75 tobacco surcharge lawsuits against employers since 2024.
Although recent rulings may provide some relief for employers worried about the wave of lawsuits, Robbins offers a cautious view. “It’s becoming a more mainstream issue,” he said.
Employers face similar claims across many of the cases. Under HIPAA’s nondiscrimination rules, employers cannot charge more based on health status factors such as tobacco use, but businesses can set up wellness programs to meet HIPAA requirements and require tobacco users to pay higher premiums, Grant said.
Once employees complete a reasonable alternative, such as an online course, they are required to receive full reimbursement. Many workplaces remove the tobacco surcharge going forward, but lawsuits claim employers are also required to pay surcharges retroactively to the beginning of the plan year.
Companies should offer a retroactive refund until guidance is clearer in their jurisdiction, Robbins said. They can also consider switching to third-party administrators that are better equipped to handle retroactive refunds, he said.
Subscribers to Modern HealthCare can read the full article here.
Read Warner’s blog on this topic here.
