Get access to 100’s of HR resources in HRM INSIDER
HRMorning
With open enrollment season underway, you’re probably looking for ways to offer a competitive benefits package – without blowing the budget.
One common way to help keep costs in line is to implement a tobacco surcharge.
And if that’s a strategy you use (or are considering), you’ll probably want to watch a proposed class action recently filed in a New Jersey federal court. It’s the latest in a string of similar lawsuits.
In the lawsuit, Campbell Soup employees allege the company’s tobacco surcharge for health insurance violates The Employee Retirement Income Security Act (ERISA).
Among other things, the suit asserts that the employer should’ve provided “a reasonable alternative” for individuals who could not meet the initial health requirement, such as participating in a smoking cessation program, to avoid the surcharge.
Here, the company provides a smoking cessation program, but it only waives the tobacco surcharge for participants who complete the program, the suit alleges. Moreover, the tobacco surcharge would be waived on a prospective basis only for successful participants who complete the program.
“Participants who complete the program may stop the surcharge for the remainder of the plan year but are not retroactively reimbursed for premiums already paid. This violates ERISA’s requirement that participants receive the ‘full reward’ upon satisfying the alternative standard, as it unfairly denies retroactive relief to participants who complete the program,” the suit claims.
And Campbell Soup isn’t the only employer to face legal action over tobacco surcharges in recent weeks:
Until recently, complaints like this were pretty rare.
But last fall, the DOL investigated a Chicago food service provider for airlines and found it wrongly imposed tobacco surcharges and improperly charged employees deductibles for certain diagnostic tests.
On Sept. 13, 2023, a federal court in Illinois ordered Flying Food Group to reimburse the affected plan participants.
Relevant here, the investigation determined the company violated federal regulations by charging a tobacco surcharge to employees who disclosed their tobacco use on health benefits enrollment forms. However, the company failed to inform the employees that a reasonable alternative existed that would allow them to avoid paying the surcharge.
The court ordered Flying Food Group to pay $16,660 to those affected participants.
If you’re like many HR pros, you might be thinking: Wait, I thought a tobacco surcharge was OK!
As with so many things in HR, the answer is: Well, it depends …
The Affordable Care Act (ACA) allows health insurance plans to charge tobacco users up to 50% more in premiums than non-tobacco users. This tobacco surcharge aims to encourage folks to quit smoking and using other tobacco products.
Beyond that, a patchwork of state laws governs tobacco surcharges. Some states have either prohibited or limited the tobacco surcharge.
However, the majority of states follow federal law and allow full tobacco surcharges – but employer wellness programs must follow certain rules for those surcharges to be legal.
And it would appear that the 2023 DOL investigation discussed above shined a spotlight on areas where employers were making missteps. So how can you avoid a similar mistake?
In 29 C.F.R. § 2590.702(c)(3), the DOL outlines appropriate ways for employers to offer incentives to plan participants in exchange for their participation in the relevant wellness programs. For example, waivers for tobacco surcharges in exchange for participating in a tobacco cessation program.
The EX program is an industry-leading tobacco cessation program developed in partnership with the Mayo Clinic.
It has created a five-factor test to help employers develop wellness programs that comply with ERISA wellness incentive rules and allow employers to impose a tobacco surcharge on employees who use tobacco.
Of course, you’ll want to check out the full test at the link above – but here are the highlights:
Get the HRMorning Newsletter
With HRMorning arriving in your inbox, you will never miss critical stories on labor laws, benefits, retention and onboarding strategies.
White Papers
Provided by Blackbaud
White Papers
Provided by Incomm
White Papers
Provided by Gallagher
Webinars
Provided by J.J. Keller
Case Studies
Q&As
What Would You Do?
What Would You Do?
An employee was fired after asking out a woman at a neighboring business, but his company ended up in court when the worker claimed his age …
It’s always been an employer’s duty to keep the workplace safe for employees. But ever since the pandemic and remote work, the l…
A female firefighter filed sexual harassment and sex discrimination claims. She alleged that she was subjected to severe mistreatment at wor…
Paternity leave – both paid and unpaid – provides multiple benefits for employers and employees alike.In the U.S., both mothers and fath…
An employee who said work caused his hearing loss applied for workers’ compensation benefits. But unfortunately for him, he also provided …
When you hear “FLSA lawsuits,” you probably think about wage-and-hour disputes and overtime violations. But we’ve spotted …
HRMorning, part of the SuccessFuel Network, provides the latest HR and employment law news for HR professionals in the trenches of small-to-medium-sized businesses. Rather than simply regurgitating the day’s headlines, HRMorning delivers actionable insights, helping HR execs understand what HR trends mean to their business.
Enter your username and password below to log in
Forget Your Username or Password?
Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.
Log In 
We ask for your credit card to allow your subscription to continue should you decide to keep your membership beyond the free trial period. This prevents any interruption of content access.
Your card will not be charged at any point during your 21 day free trial
and you may cancel at any time during your free trial.
