What You Need to Know About Offering a Tobacco Surcharge

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).

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unclear how much of a tobacco surcharge can be charged when a tobacco screening medical test is used because the EEOC rescinded its 30% incentive limit and hasn’t further addressed the issue.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).