Compliance Calendar
More than fifty class actions now challenge employer tobacco surcharges. Federal agencies issued guidance in August 2026 that helps, but it does not stop the lawsuits. A short review of your wellness materials is the cheapest protection you have.
Key takeaways
- Employers can charge tobacco users up to 50% more for coverage, but only if the program gives a reasonable alternative to qualify for the lower rate and says so in required notices.
- Plaintiffs say many plans failed to offer the alternative properly or to refund surcharges retroactively when an employee completed it.
- Several courts dismissed cases in early 2026, others did not, and the August 2026 federal FAQs say agencies will not pursue plans that apply the reward prospectively.
The rule behind the suits
Health-contingent wellness programs, such as a tobacco-free discount, are allowed under HIPAA and ACA rules if they meet conditions. The premium difference is capped, generally at 30% of the cost of coverage and 50% for tobacco programs. Everyone who is subject to the surcharge must be offered a reasonable alternative way to earn the discount, such as completing a cessation program, and the plan’s materials must describe that alternative. Plaintiffs’ lawyers say that many plans omitted it or required employees to wait, and that employees who completed the program should have been refunded the surcharge back to the start of the plan year.
What the August 2026 FAQs and the courts say
The Departments of Labor, Health and Human Services and the Treasury issued FAQs on August 26, 2026. They state that the agencies will not enforce the rules against a plan that gives the full reward prospectively, meaning from the date the employee completes the alternative, without refunding earlier surcharges. They also say the reasonable-alternative notice is required in the materials that describe the program’s terms, not in every mention such as a summary of benefits. The FAQs are non-binding and do not limit private suits.
Courts have been mixed. In the first quarter of 2026 federal courts dismissed claims against several employers, including cases in Missouri, New York and Ohio, with some reasoning that setting premium incentives is the employer’s design choice and that nothing required retroactive refunds. At least one case survived a motion to dismiss. We have not seen an appeals court ruling, and some cases are settling, so the ground will keep moving.
A short checklist
- Read the plan document, SPD and open enrollment materials for any promise to refund surcharges back to the plan year start. Those promises can bind you whatever the FAQs say
- Confirm the reasonable-alternative language, contact information and the physician-recommendation option appear in the materials that describe the program
- Check that the alternative is actually available all year, not just at open enrollment
- Look at the actual premium difference against the 50% cap
- Consider whether the surcharge is worth keeping. It is often small in dollars and large in legal risk
- Ask your counsel whether your plan should be amended to state prospective-only treatment
Questions we get
Is a spousal surcharge the same thing?
No. A spousal surcharge is an eligibility or contribution design question, not a wellness program, and different rules apply. We have not seen the same pattern of class actions for it.
Do I have to refund surcharges now?
Not under the August 2026 guidance, unless your own plan documents say you will. Whether a court agrees is a separate question, so involve counsel.
Can we just drop the surcharge?
Yes, and some employers have. The money at stake is usually modest, and removing it ends the exposure for future years.
Sources: HIPAA and ACA wellness program rules (29 CFR 2590.702); tri-agency FAQs (August 26, 2026) as summarized by law firms; reports on 2026 federal court decisions. This is general information and not legal advice.
Related Reading
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