Smoker Penalty Mind Your Ps and Qs

In recent months, there has been an increase in lawsuits challenging employer’s wellness programs, specifically as it relates to smoker penalties. Including such big names as Target, Walmart and Honeywell.

As a reminder, a HIPAA compliant contingent wellness program must meet five criteria:

1. The program must be reasonably designed to promote health or prevent disease.
2. Individuals must have the opportunity to qualify for the program at least once annually.
3. Incentives cannot exceed 30% of cost of individual coverage (30% of applicable family rate if program is offered to family).Incentive maximum is 50% for tobacco cessation programs.
4. The program must be available to all similarly situated individuals, and there must be a reasonable alternative for participation.
5. Plan must provide notice and description of the wellness program and the available alternative.

In these lawsuits there are two primary allegations; first, that the employer is not making the full reward available to individuals, and second, that the reasonable alternative is not being adequately communicated. A wellness program must make a reasonable alternative available to individuals in an activity-only program for whom it is unreasonably difficult to satisfy the program requirements due to a medical condition and in an outcome-based program to individuals who do not achieve the required goal or outcome, without regard to whether the failure is due to a medical condition. If an individual achieves the reasonable alternative the full reward must be made available to them.

The claimants in these lawsuits allege that the employer is not communicating the availability of a reasonable alternative. They are further alleging that if the reasonable alternative, such as completion of a smoking cessation class, is achieved, the individual is only being given a partial reward such as a premium discount for the balance of the plan year and not for the full plan year.

Coincident with these class action lawsuits the Macy’s wellness litigation that has been ongoing for several years, see past Benefit Beat here, the defendant has been granted the right to ask for Loper Bright considerations, meaning court review of administrative action. Whether or how this will play out remains to be seen.

The bottom line for employers offering wellness programs is to make sure your wellness program is designed and administered in accordance with applicable laws.

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.