New guidance issued by the U.S. Departments of Health and Human Services (HHS), the Treasury, and Labor (DOL) aims to clarify the application of wellness program surcharges within employer-sponsored group health plans, particularly concerning tobacco use. The guidance, released on August 26, 2026, arrives amidst a surge in class-action lawsuits challenging these surcharges, which an attorney warns are undermining previously settled aspects of the Employee Retirement Income Security Act (ERISA). The move by the federal agencies seeks to provide employers with a clearer framework for implementing these financial incentives, while also acknowledging the ongoing legal scrutiny surrounding their design and execution.
The interagency collaboration underscores the complexity of balancing employer desires to promote employee health with the legal protections afforded to plan participants under ERISA. The practice of applying surcharges or offering premium discounts based on health-related behaviors, such as tobacco cessation, has roots in legislation dating back to the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and was further expanded by the Affordable Care Act (ACA). These laws empowered employers to incentivize healthier lifestyles, encompassing areas like substance abuse, nutrition, stress management, weight loss, and tobacco use. The intention was to foster a healthier workforce and potentially reduce healthcare costs.
However, the interpretation and implementation of these provisions have become a focal point for legal challenges. Timothy Collins, a partner at Duane Morris, highlighted the escalating litigation in an email to HR Dive, describing it as an "example of employers being subject to pressure on all sides." He elaborated that "areas that were viewed as ‘settled’ continue to be attacked as potentially violating ERISA’s fiduciary protections." This suggests a shift in legal strategy, where previously accepted practices are now being scrutinized through the lens of ERISA’s core principles of prudence and loyalty owed by fiduciaries to plan participants.
The newly issued guidance, presented in a Frequently Asked Questions (FAQs) format, is intended to offer "helpful guidance as they structure their wellness program surcharges, specifically with respect to a reprieve on certain DOL enforcement actions," according to Collins. This reprieve implies that the DOL, at least for a period or under specific conditions, may exercise discretion in pursuing enforcement actions related to certain wellness program surcharge designs that align with the new guidance.
Background and Evolution of Wellness Program Incentives
The concept of incentivizing healthy behaviors within the workplace gained significant traction following the passage of HIPAA in 1996. Section 1554 of HIPAA initially allowed for the exclusion of certain health status-related factors from group health plan eligibility or premium calculations. This was later refined and expanded under the ACA, which permitted employers to offer rewards, such as premium discounts or cash incentives, to employees who participated in wellness programs and met certain health-related standards. These standards could include biometric screenings, participation in health coaching, or verifiable outcomes like smoking cessation.
The ACA specifically allowed group health plans and health insurance issuers to offer premium discounts of up to 20% (later expanded to 30% for tobacco cessation programs) for individuals who met certain health-related standards. The intent was to create a win-win scenario: employees are motivated to adopt healthier habits, and employers potentially benefit from a healthier workforce with reduced healthcare expenditures. The regulatory framework, however, has always emphasized that such programs must be "reasonably designed" and "otherwise non-discriminatory."
The Growing Wave of Litigation
Despite the legislative intent, the implementation of these wellness program incentives has not been without controversy. A significant number of class-action lawsuits have been filed in recent years, primarily targeting employers who impose surcharges on employees who do not participate in or achieve certain outcomes in wellness programs, particularly those related to tobacco use. These lawsuits often argue that the surcharges are, in effect, discriminatory penalties that violate ERISA’s anti-discrimination provisions or that the programs themselves are not "reasonably designed" to promote health.
For instance, some lawsuits have challenged the definition of "tobacco use," questioning whether occasional use or past use qualifies for the surcharge. Others have questioned the scientific validity or accessibility of the programs designed to help individuals quit tobacco, arguing they place an undue burden on certain employee groups. The financial implications for employees can be substantial, with some surcharges amounting to thousands of dollars annually, making these programs a significant point of contention.
The DOL’s Employee Benefits Security Administration (EBSA) has historically played a role in overseeing ERISA compliance. Assistant Secretary Daniel Aronowitz, quoted in the original report, stated that the goal of the new guidance is to ensure that "as long as [employers] are offering reasonably designed, and otherwise non-discriminatory wellness programs, they will not be penalized for wanting to help motivate the people they cover to make efforts to improve their health." This statement suggests a desire to provide clarity and avoid overreach, while still maintaining the core principles of non-discrimination.
Key Provisions and Implications of the New Guidance
While the full text of the guidance document is extensive, its core message appears to be an attempt to provide clearer parameters for employers regarding wellness program surcharges, particularly those tied to tobacco use. The guidance likely addresses several critical areas that have been the subject of litigation:
- Reasonably Designed Programs: The guidance is expected to offer more specific criteria for what constitutes a "reasonably designed" wellness program. This could include requirements for program accessibility, the availability of alternative standards for individuals unable to meet specific health-related outcomes due to medical conditions, and the scientific validity of the program’s approach to promoting health behaviors.
- Non-Discrimination: A central tenet of ERISA is its prohibition against discrimination. The guidance likely aims to clarify how employers can design programs that offer incentives for healthy behaviors without unfairly penalizing individuals who, for reasons beyond their control, cannot achieve those behaviors. This could involve more robust accommodations for individuals with disabilities or other health conditions.
- Tobacco Use Definitions and Measurement: Given the prominence of tobacco cessation programs in litigation, the guidance may offer clearer definitions of what constitutes tobacco use for the purposes of surcharges and provide best practices for verifying cessation. This could include acceptable methods for testing or attestation.
- DOL Enforcement Discretion: The mention of a "reprieve on certain DOL enforcement actions" is a significant aspect of the guidance. This suggests that the DOL may be signaling a willingness to exercise its enforcement discretion in favor of employers who can demonstrate compliance with the new guidelines. However, this does not equate to immunity from lawsuits filed by private parties.
Expert Analysis and Future Outlook
Timothy Collins’s assessment that the DOL guidance provides "some arguments in rebutting those claims, but does not offer safety from such claims going forward" is crucial. While the federal agencies’ pronouncements carry significant weight and can influence judicial interpretation, they do not eliminate the possibility of private litigation. Employees and their legal representatives can still bring claims under ERISA, alleging violations of fiduciary duties or other provisions.
The implications of this guidance are far-reaching for employers navigating the complex landscape of employee benefits and wellness programs. Businesses that have been hesitant to implement or have scaled back their wellness programs due to legal uncertainty may find this guidance provides a renewed impetus to design and offer such initiatives. However, they must proceed with caution, ensuring that their programs are meticulously crafted to meet the standards outlined in the new guidance.
Broader Impact on Employee Well-being and Healthcare Costs
The ongoing debate surrounding wellness program surcharges highlights a fundamental tension in employer-sponsored healthcare. On one hand, employers have a vested interest in promoting employee health to manage rising healthcare costs and enhance productivity. On the other hand, ERISA mandates that these plans be administered in a way that protects the interests of all participants, avoiding discriminatory practices.
The long-term impact of this guidance on employee well-being and healthcare costs remains to be seen. If the guidance successfully clarifies the regulatory environment and encourages the implementation of well-designed, non-discriminatory wellness programs, it could lead to improved health outcomes for employees and potential cost savings for both individuals and employers. However, if the guidance is perceived as insufficient to deter aggressive litigation or if it is narrowly interpreted, the legal challenges may persist, creating ongoing uncertainty and administrative burdens for employers.
The issuance of this joint guidance by HHS, Treasury, and DOL represents a significant development in the ongoing effort to strike a balance between promoting employee health and ensuring compliance with ERISA. As employers digest this new information and legal experts analyze its nuances, the landscape of workplace wellness programs is poised for further evolution, driven by both regulatory clarity and the persistent realities of legal challenges. The success of these initiatives will ultimately hinge on their ability to genuinely promote health in a fair and equitable manner for all employees.
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