Quitting Cold Turkey: Federal Agencies Suspend Enforcement of Back-Pay Requirement for Employee Wellness Incentives, Including Tobacco Cessation Programs (US)
For many employees, the benefits of maintaining a healthy lifestyle aren’t just physical; they are financial. Through health-contingent wellness programs, employers can offer monetary rewards or reduced health insurance costs to employees who achieve specified health-related goals. These programs may focus on nutrition, weight loss, tobacco cessation, fitness, substance abuse assistance, stress management, or general health education.
However, determining what rewards employees are eligible for, and when those rewards must be provided, has long presented a compliance challenge for employers. After years of uncertainty, federal regulators have provided long-awaited guidance for employers sponsoring health-contingent wellness programs under HIPAA and the Affordable Care Act (ACA), clarifying whether employees who earn certain wellness incentives mid-year must receive those rewards retroactively or only prospectively.
Suspension of Enforcement of Retroactive Wellness Incentive Payments
On August 26, 2026, the U.S. Departments of Labor, Health and Human Services, and the Treasury jointly announced that, until further guidance or regulations are issued, they will not take enforcement action against plans or issuers that do not provide wellness program rewards retroactive to the beginning of the plan year when an employee completes a “reasonable alternative standard.” This question has recently been raised in numerous class-action lawsuits challenging tobacco surcharges some employers add to premiums for their group health plans through workplace wellness programs.
Under existing law, employers must provide employees who cannot meet the primary targets of a health-contingent wellness program with an alternative means of qualifying for the program’s reward through a “reasonable alternative standard” (or waiver of the applicable health standard). As previously noted, one common example of a health-contingent wellness program is a “tobacco surcharge,” under which employees who use tobacco pay a higher health insurance premium, such as an additional $ 50 per month. In this context, an employee may satisfy a “reasonable alternative standard” by participating in tobacco cessation counseling, even if the employee has not yet successfully quit using tobacco.
Under the new guidance, an employer would not be required to refund tobacco surcharges paid earlier in the year if an employee completes the cessation program mid-year. For example, if an employee satisfies the alternative standard in June, the employer would not be required to reimburse surcharges paid from January through May. Prior guidance created significant uncertainty regarding whether such rewards had to be applied retroactively.
Disclosure of Reasonable Alternative Standards
The new guidance also addresses an employer’s disclosure obligations related to “reasonable alternative standards” available as part of health-contingent wellness programs. Specifically, if plan materials merely indicate that a health-contingent wellness program is available without describing its terms, the plan or issuer is not required to disclose the availability of a reasonable alternative standard for qualifying for the program’s reward.
“The experimental nature of wellness programs enables them to drive significant and clinically meaningful health maintenance and improvements,” Assistant Secretary for Employee Benefits Security Daniel Aronowitz noted in a related U.S. Department of Labor press release. “This guidance makes clear to sponsors and issuers that, as long as they 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.”
Complete guidance on these topics can be found in Employee Benefits Security Administration FAQ Part 74.