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: Although recent court decisions are mixed, cautious group health plan sponsors should assume that participants who complete a cessation-based reasonable alternative standard (RAS) midyear are entitled to the full value of that year’s tobacco-related reward, requiring a retroactive refund or equivalent credit. When a participant completes a compliant, cessation-based RAS during the plan year, agency guidance under HIPAA’s wellness program rules supports providing the participant with the full value of the plan year’s tobacco-use reward, rather than ending the surcharge prospectively. Some courts, however, have upheld prospective-only approaches, particularly if participants had a full-year opportunity to avoid the surcharge and the plan’s notices were otherwise adequate.
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 five regulatory requirements: (1) annual opportunity to qualify for the reward; (2) compliance with percentage‑based limits (including a 50% cap for tobacco‑related incentives); (3) reasonable design; (4) uniform availability with a compliant RAS or waiver, including accommodation of the recommendation of a participant’s personal physician regarding medical appropriateness; and (5) the required RAS notices.
For tobacco-related incentives, a plan may satisfy the RAS by allowing a tobacco user to earn the reward simply by participating in a cessation program, even if the individual does not quit using tobacco. Agency guidance explains that once an individual meets either the initial standard or RAS, the plan must provide the full reward for the applicable period within a reasonable time. For example, a participant in a calendar-year plan who completes a cessation-based RAS on April 1 must receive the premium discount for the entire year, including January through March, which may be provided via lump-sum reimbursement, payroll adjustment, or premium credit.
DOL enforcement actions support a guarded approach. In Acosta v. Dorel Juvenile Group., Inc., the DOL obtained restitution and required plan changes after an investigation concluded that employees had been charged tobacco surcharges without a compliant RAS. In other challenges, the courts have been divided. For example, in Mehlberg v. Compass Group USA, Inc., and Bokma v. Performance Food Group, Inc., courts allowed claims to proceed based on allegations that prospective-only relief and deficient RAS practices violated the wellness rules. However, in Buescher v. North American Lighting, Inc., the court upheld a prospective-only design, while allowing a notice-based claim to proceed. In Chirinian v. Travelers Cos., Inc., the court likewise allowed a notice claim but largely upheld the program. More recent cases include Plesha v. Ascension Health Alliance, 2026 WL 279321 (E.D. Mo. 2026), and Greene v. Progressive Corp., 2026 WL 785004 (N.D. Ohio 2026), which rejected claims that wellness program rules require retroactive reimbursement of tobacco surcharges.
Employers that sponsor such programs will want to monitor the litigation regarding tobacco-related incentives. In addition, sponsors and administrators should review plan terms, enrollment materials, wellness notices, and administrative practices to confirm compliance with federal wellness regulations, that a RAS is available, that required notices are properly provided, and that payroll or vendor systems can administer any needed make-whole adjustment.
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 Health Care 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”).
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