On August 26, 2026, the Departments of Labor, Health & Human Services and the Treasury (Departments) issued FAQs addressing topics that have been the subject of numerous lawsuits involving tobacco surcharge programs.

These cases have generally focused on two questions:

• Whether a premium surcharge may be removed only prospectively after a participant satisfies a reasonable alternative standard, or whether the participant must receive a retroactive reimbursement.
• Whether employers have satisfied the disclosure requirements relating to the availability of a reasonable alternative standard.

Background

HIPAA generally prohibits group health plans from charging different premiums based on an individual’s health status.  However, an exception allows plans to offer premium discounts or impose surcharges through health-contingent wellness programs provided the program satisfies certain conditions:   

• Eligible individuals must have an opportunity to qualify for the reward – including elimination of the surcharge – at least once a year.
• The reward (or surcharge) may not exceed the applicable percentage of the total cost of employee-only coverage under the plan – generally 30%, or up to 50% for programs designed to prevent or reduce tobacco use.
• The full reward under the program must be available to all similarly situated individuals.  A reasonable alternative standard for obtaining the reward (or waiver of the otherwise applicable standard) must be offered to individuals who do not meet the initial standard.
• The program must be reasonably designed to promote health or prevent disease.
• All plan materials describing the terms of the wellness program must disclose the availability of a reasonable alternative standard.  This disclosure is not required in plan materials that merely mention such a program is available without describing its terms.

FAQ Guidance

Although the FAQs do not amend the 2013 final rules for wellness programs, they confirm the Department’s interpretation of the regulations.  The FAQs also provide guidance on when participant-facing materials must include the required reasonable alternative standard disclosure.

Availability of the Full Reward

The Departments acknowledge there are discrepancies between the preamble to the 2013 final regulations and the regulatory text and that the regulations “do not clearly require retroactive application of the reward”.  The FAQs:

• State that, until further guidance or rulemaking is issued, the Departments will not take enforcement action against wellness programs that provide a reward or remove a surcharge only for the period after an individual satisfies the reasonable alternative standard (and not retroactively to the start of the plan year).
• Emphasize that wellness programs must continue to comply with all other applicable requirements.

Employee Notice

The FAQs discuss the reasonable alternative standard disclosure requirements and reiterate that required disclosures must include:

• Contact information for obtaining a reasonable alternative standard
• A statement that the recommendations of an individual’s personal physician will be accommodated

The FAQs also reiterate that the disclosure is not required when plan materials merely mention that a wellness program is available without describing the program’s terms.

• Example: A Summary of Benefits and Coverage that states that cost sharing may vary based on participation in a wellness program – but does not describe the program’s standards – would not trigger the disclosure requirement.

Although the FAQs provide guidance on the Departments’ position for their own enforcement activity, they do not necessarily ensure the courts will adopt the same interpretation.

Client Actions

Clients should continue to monitor legal developments with respect to wellness programs and review their plan design, as well as plan documents and participant communications to ensure compliance with the final regulations. Your Piper Jordan account team is available to answer any questions.

Information contained in this email is intended for general information purposes only and should not be considered legal or tax advice or legal or tax opinion on any specific facts or circumstances. Recipients are urged to consult their legal counsel and tax advisor concerning any legal or tax questions that may arise.