New Wave of ERISA Lawsuits

Tobacco Surcharges

Employers and sponsors of group health plans should be aware of several class action lawsuits across the U.S. targeting smoker surcharge programs tied to group medical plan premiums.  Here’s what you need to know.

1. The lawsuits are on behalf of employees who use tobacco.
2. Employers being targeted are those that tie the surcharge to the group medical plan (i.e. non-smokers pay less for their medical insurance than smokers).
3. A tobacco surcharge must be part of a compliant wellness program when tied to group medical plan premiums.
4. The class action lawsuits to date involve mega companies like Target and Walmart.
5. The common theme amongst these new class action lawsuits is that the employer failed to offer a reasonable alternative standard or failed to include notices in the required materials.

Some employers fail to realize implementing a tobacco surcharge may be considered a wellness program subject to HIPAA and EEOC wellness rules. Employers choosing to use a tobacco-related surcharge must be mindful of requirements such as incentive limits and reasonable alternative standards, as well as confidentiality notices if medical testing is involved.

Tobacco surcharges can be designed to be compliant; however, the employer/plan sponsor must recognize that a wellness program is created that’s subject to certain laws, like the requirement to offer a reasonable alternative standard to tobacco users.

Next Steps:

Employers that sponsor a group medical plan which includes a tobacco surcharge should revisit the program to ensure compliance with applicable laws. To minimize risk of a lawsuit, employers be able to answer yes to the following:

1. Is a reasonable alternative standard available to those that use tobacco?
2. Is the availability of a reasonable alternative standard communicated in all plan materials describing the terms of the premium differential (aka tobacco surcharge) program?

For more information, click here or contact your benefits broker.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information. This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.

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