Tobacco Surcharge Litigation

Recent litigation continues to evolve around tobacco surcharge wellness programs, with courts increasingly focusing on how these claims are brought rather than definitively resolving questions about compliance with HIPAA nondiscrimination rules. In a recent Ohio case, the court concluded that implementing a tobacco surcharge is a plan design (settlor) decision, not a fiduciary function, making it more difficult for participants to pursue claims under ERISA’s fiduciary standards. The court also declined to require retroactive refunds when a participant later satisfies a reasonable alternative standard (RAS), a position that contrasts with earlier decisions and DOL guidance.

Importantly, these cases hinge on ERISA’s role as the enforcement mechanism, as HIPAA itself offers limited avenues for private lawsuits, meaning courts can dismiss cases without fully resolving the underlying HIPAA nondiscrimination requirements. As a result, while the litigation landscape may be trending more employer-friendly, the underlying HIPAA wellness rules have not changed, and agencies (such as the DOL, IRS, or HHS) could still enforce a more conservative interpretation. Employers should continue to administer tobacco surcharge programs carefully, particularly around RAS availability and communication, given ongoing legal uncertainty and the potential for future regulatory or enforcement shifts.

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