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What You Need to Know About Offering a Tobacco Surcharge

tobacco surcharge compliance

2 minute read

Some employers may offer a smoking cessation program to help their employees stop smoking and refrain from using tobacco products. The program may include a tobacco surcharge to help motivate employees. The surcharge is an extra charge on your health plan if you’re a tobacco user or for those who don’t partake, they may receive a discount.

Smoking cessation programs that include tobacco surcharges need to comply with federal rules for workplace wellness programs. Depending upon how your program is structured, you should review your compliance obligations under Health Insurance Portability and Accountability Act (HIPAA) and Americans with Disabilities Act (ADA).





Applies to smoking cessation programs that include a tobacco surcharge or otherwise relate to a group health plan.


Applies to smoking cessation programs that use a medical test (such as a blood or urine test) to detect participants’ smoking or tobacco use.


Non-compliant programs are subject to employee lawsuits or federal enforcement action by the Department of Labor (DOL) or the Equal Employment Opportunity Commission (EEOC).

Some key compliance points include:

  • To comply with HIPAA, a reasonable alternative standard* must be available for participants who continue to smoke or use tobacco.
  • Those who satisfy the alternative standard must receive the full reward.
  • A reasonable alternative standard may include attending an education class or wearing a nicotine patch.
  • To comply with HIPAA, the surcharge can’t exceed 50% of the total cost of health coverage.
  • If the program uses a medical test to detect nicotine or tobacco use, it must also comply with ADA’s rules for voluntary wellness plans.
  • It’s currently unclear how much of a tobacco surcharge can be charged when a tobacco screening medical test is used because the EEOC rescinded its 30% incentive limit and hasn’t further addressed the issue.

Additionally, if you have a negotiated contract, check to make sure it doesn’t contain any exclusions on surcharges.

For more information, download the bulletin.


 *To comply with HIPAA, health-contingent wellness programs must provide a reasonable alternative standard (or waiver of the otherwise applicable standard) to qualify for the full reward for anyone who does not meet the initial standard (that is, those who smoke or use tobacco products).

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National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.

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Steve Smith

Steve Smith

Steve Smith, Employee Benefits Consultant for National Insurance Services, has his energy level permanently set at “high.” His maxim is “work hard, play hard." In addition to coaching youth basketball and his relentless addiction to volunteering, Steve’s community service and political activities make him an expert in stirring the groundswell and getting groups of people working together for a higher cause. Minnesota schools, cities, and counties rely on Steve’s unique and creative ideas of engaging employees in their own health and wellness to lower utilization trends. He has a background in the health insurance field doing compliance, cost mitigation, utilization, analytics, wellness plans, and strategic planning. Steve is a licensed insurance agent and is Medicare Certified. He holds the designations for Managed Healthcare Professional (The Health Insurance Association of America), Certified Patient Protection and Affordable Care Act Professional (National Association of Health Underwriters), and Group Benefits Disability Specialist (Hartford School of Insurance). Steve is a member of the Minnesota Assocation of Health Underwriters (MAHU). He specializes in Employee Benefits Consulting for Minnesota schools, cities, and counties including fully insured, self-insured, and stop-loss plans.