No retroactive reimbursement for participating in smoking cessation program
Beginning in 2015, the plaintiffs allege that their employer implemented and imposed a tobacco surcharge for all group health participants who used tobacco products. For plan years 2016 through 2020, Defendant deducted $50 per month from the wages of each covered individual using tobacco products.
Workers had the option of participating in a tobacco cessation program in order to avoid the surcharge. When they did so, however, they did not receive retroactive reimbursement of the monthly surcharge already paid. They argue that the casino’s failure to reimburse them for the surcharge violated ERISA's “reasonable alternative” standard for outcome-based wellness programs.
In their lawsuit the workers allege that: (a) in plan years 2016-2020, the defendant employer issued uniform documents that wrongfully failed to notify participants of an alternative way to avoid the tobacco surcharge; and (b) in plan years 2019 and 2020, the employer issued uniform documents that wrongfully informed participants they could not receive a retroactive reimbursement of a prior tobacco surcharge.
At its heart, this ERISA lawsuit is about the employer’s refusal to offer retroactive reimbursement of the surcharge to those who participated in the smoking cessation program. It is a novel question, apparently not previously considered by the courts, but of major concern to roughly 15,000 employees.
ERISA, Employee Wellness Programs, the ACA, and minimum wage laws
A lot of state and federal laws intersect in the regulation of employer-provided health plans. At risk of oversimplifying, here are some of the basic building blocks of this complicated scheme of regulation.
ERISA applies to employee welfare benefit plans that provide medical, surgical, or hospital care or benefits, or benefits in the event of sickness or accidents to participants. ERISA also prohibits discrimination based on an individual’s health status.
ERISA may apply to employee wellness programs (including smoking cessation plans) where the employer staffs the program with trained counselors who provide counseling sessions for mental health or substance abuse. ERISA would not apply in a situation where the employer simply provides free gym memberships or refers employees to outside service providers.
Since the adoption of the ACA, insurance companies have not been able to base premium rates on an applicant's medical history or reject an applicant based on pre-existing conditions or overall health history. However, the ACA does permit employer-sponsored health plans to add a tobacco surcharge of up to 50 percent of the standard premium.
When employers impose a tobacco surcharge, they must offer a tobacco cessation program and can only apply the tobacco surcharge if the employee opts not to participate in the program. An individual’s participation must be voluntary.
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Federal and state minimum wage laws were implicated in Lipari-Williams because the surcharge was assessed by means of payroll deduction. As initially brought, the lawsuit also alleged a host of other pay-related irregularities, including an illegal tip sharing pool.
Settlement pros and cons
The ERISA claims have been pending since 2020. Because the lawsuit is poised for settlement, many questions will remain unanswered for the near future. This may be disappointing to ERISA practitioners who would like to see the novel question of retroactive reimbursement resolved. Given the complexity of the lawsuit, however, the option of settlement may be the best option for all involved.