Class-action Lawsuits Target Health Plan Tobacco Surcharges

Numerous class-action lawsuits have recently been filed against employers alleging that health plan premium surcharges related to tobacco use violate federal compliance requirements. These lawsuits have been filed by current and former employees of major U.S. companies who have paid more in premiums due to their tobacco use, often hundreds of dollars more per employee per year.

Employers commonly require tobacco users to pay an additional charge for health plan premiums, whether they use cigarettes, cigars, e-cigarettes, or smokeless tobacco. To comply with federal law, tobacco surcharges must be offered through a wellness program that meets the Health Insurance Portability and Accountability Act’s (HIPAA) nondiscrimination requirements.

In general, the lawsuits assert that the health plans violated HIPAA’s nondiscrimination rules by:

• Not offering a reasonable alternative standard to avoid the surcharge (or only applying the premium reduction on a prospective basis after completing the alternative standard)
• Not describing the availability of the alternative standard in all plan materials

The lawsuits request various forms of relief, including reimbursing employees who paid the surcharges with interest, disgorging any benefits or profits, and paying all attorney fees and costs.

Given the recent wave of litigation, employers that impose tobacco surcharges should review whether their wellness programs are administered in accordance with HIPAA’s requirements, including making available a reasonable alternative standard to qualify for the full reward and communicating the surcharge to employees in all materials.

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