QUESTION: Our company is thinking about implementing a tobacco-use premium surcharge next year. If an employee were to complete a tobacco-cessation program midyear, would the employee be entitled to a retroactive refund of tobacco-use premium surcharges paid earlier in the year?
ANSWER: The DOL, HHS, and IRS have announced enforcement relief under which, until further guidance or regulations are issued, they will not take action against a plan or issuer solely because it does not provide a reward retroactively to the start of the plan year when an individual completes a cessation-based reasonable alternative standard (RAS) midyear, provided that the reward is granted for the period after the RAS is satisfied. (The plan must also allow sufficient time for participants to complete the alternative standard and receive a reward and otherwise comply with wellness program regulations.) Because of mixed court decisions and continuing litigation risk, however, cautious plan sponsors will want to consult with benefits counsel and may still decide to provide the full annual tobacco-related reward retroactively when a participant completes an RAS midyear.
The enforcement relief was issued in response to dozens of lawsuits challenging tobacco surcharges under employer-sponsored group health plans. As background, the 2013 tri-agency wellness regulations treat a tobacco-use premium surcharge (or tobacco-free discount) as a wellness “reward.” When the premium differential is conditioned on satisfying a standard related to a health factor—such as refraining from tobacco use—the program is generally an outcome-based health-contingent wellness program. As such, it must satisfy various requirements, including making the full reward available to all similarly situated individuals by offering an RAS for obtaining the reward. The preamble to the 2013 regulations states that if a participant satisfies an RAS partway through the plan year, the plan must provide the full reward retroactive to the beginning of the plan year. Courts have been divided on whether this retroactive approach is required. Because the enforcement relief does not have a direct, binding effect on private litigation and courts may continue to require retroactive rewards, employers should not assume that the relief will foreclose private claims.
Employers that sponsor or are considering tobacco-related surcharges or discounts will want to decide how to administer rewards once participants satisfy the RAS, taking into account factors such as enforcement relief, administrative feasibility, employee relations, and litigation risk. Sponsors and administrators should review plan terms, SPDs, enrollment materials, employee communications, and vendor practices to confirm that a compliant RAS is available, that rewards are applied after satisfaction of the RAS, and that required notices are properly provided in materials describing the program’s terms. They should also confirm that payroll, billing, and vendor systems can consistently implement the chosen approach. Those who work with these programs should also watch for further developments such as future agency rulemaking or additional judicial interpretations.
For more information, see EBIA’s HIPAA Portability, Privacy & Security manual at Sections VI.G (“Wellness Programs”), XI.I (“Wellness Programs Must Meet Specific Nondiscrimination Requirements”), and XV.E (“HIPAA Nondiscrimination Violations”). See also EBIA’s Consumer-Driven Healthcare manual at Section VI.D.2 (“Nondiscrimination Exception for Wellness and Disease-Management Programs”), EBIA’s Group Health Plan Mandates manual at Section XX.F (“ADA Considerations for Wellness Programs”), EBIA’s Health Care Reform manual at Section XIII.C (“Health Status Nondiscrimination and Wellness Programs”), and EBIA’s Self-Insured Health Plans manual at Section XIII.D.3 (“Nondiscrimination Rules’ Interaction With Wellness Programs”).
Contributing Editors: Thanks to attorney Jason Lacey for his contributions to this Question of the Week, with final editing by EBIA staff. He is Associate General Counsel at IMA Financial Group, Inc., and a Contributing Author of EBIA’s Form 1094/1095 Workbook, Self-Insured Health Plans manual, and Health Care Reform manual.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
