Wellness Programs and Smokers’ Penalties under Scrutiny - Bim Group

Wellness Programs and Smokers’ Penalties under Scrutiny

READ TIME: 5 MINUTES

A recent lawsuit involving Macy’s Inc. and the U.S. Department of Labor (DOL) is bringing attention to the way companies structure their wellness programs—particularly those that impose penalties on employees who smoke. This case highlights the potential risks for employers who charge higher health premiums to smokers and raises questions about how courts will interpret wellness plan regulations following the Supreme Court’s Loper Bright decision.

 

The Macy’s Lawsuit and ERISA’s Wellness Program Rules

The DOL’s lawsuit against Macy’s claims that the retailer’s wellness plan violates the Employee Retirement Income Security Act (ERISA) by charging smokers higher premiums without offering a reasonable alternative to avoid the penalty. Specifically, Macy’s imposes a surcharge of $35 to $45 per month for employees who smoke, but the penalty is not fully waived for those who attempt but fail to quit smoking, even after participating in a smoking cessation program.

ERISA prohibits health plans from charging different premiums based on health-related factors, such as tobacco use, but allows exceptions for wellness programs that promote health. According to DOL regulations, surcharges for smokers are permitted if the wellness plan offers a reasonable alternative—like a smoking cessation program—that fully waives the penalty, even if the employee is unsuccessful in quitting.

 

Loper Bright’s Impact

The recent Loper Bright Enterprises v. Raimondo decision has introduced a new layer of complexity to wellness program disputes. The Supreme Court’s ruling in Loper Bright rejected the Chevron deference doctrine, which for decades allowed courts to defer to federal agencies’ interpretations of ambiguous statutes. Instead, courts must now apply the “best read” of a statute.

Macy’s argues that this decision is relevant to its case, claiming that under the “best read” of ERISA, smokers must actually quit smoking to avoid the penalties. Macy’s contends that the DOL’s interpretation of ERISA—which requires penalties to be waived for anyone who participates in a smoking cessation program, regardless of success—should no longer be followed now that courts are not required to defer to agencies’ interpretations.

However, the DOL has argued that Loper Bright is not applicable in this case. The Department contends that the dispute is not about statutory interpretation but about the application of the DOL’s wellness program regulation. Macy’s, the DOL claims, is misrepresenting the issue as a statutory one when it is really about following established regulations, which clearly require surcharges to be waived based on participation in a cessation program, regardless of success.

 

Why This Matters for Employers

This case is just one of many recent challenges to wellness programs that penalize tobacco use. Companies like Walmart, Bass Pro Group, and others have also faced lawsuits over similar issues. As courts reconsider the boundaries of agency interpretation in light of Loper Bright, employers should be cautious in the way they design wellness programs, especially those that impose financial penalties based on employee health behaviors.

 

Employer Action Items

With these legal challenges in mind, employers should take steps to ensure compliance and mitigate potential risks.

  • Review wellness program policies for compliance

Conduct a thorough review of wellness programs, particularly those with penalties for tobacco use. Ensure that any surcharges or penalties comply with ERISA and DOL wellness program regulations, which require offering reasonable alternatives to avoid penalties.

  • Understand the “reasonable alternative” requirement

The DOL requires that wellness programs with financial penalties, such as smoker surcharges, provide a reasonable alternative to avoid the penalty. For tobacco use, this means offering a smoking cessation program that waives the penalty regardless of the employee’s success in quitting.

  • Update wellness program documentation

Ensure that your wellness program documentation is clear and compliant. Include details about the availability of reasonable alternatives to avoid penalties, and make sure employees understand their options.

 

This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.

Recent Insights

April 7, 2025
News

Impact of Executive Order on Sex and Gender Identity

On January 20, 2025, the Trump administration issued an executive order redefining the terms sex, gender identity, and related concepts as they pertain to federal law and policy. These changes will affect compliance requirements across various employee benefit provisions and related regulations. Key Provisions of the Executive Order Revised Definitions The Executive Order revised the […]
Read more
April 7, 2025
HIPAA

Recent HIPAA Amendments and Proposed Regulations

In the last year, two significant HIPAA regulations were issued, impacting employer group health plans. This article summarizes the new rules – one under the privacy rule provisions and one under the security rule provisions – and what employers need to know about the current legal status of these rules and how to prepare for […]
Read more
March 28, 2025
FMLA

Navigating Employer Leave under Federal FMLA and State Family and Medical Leave Programs

Employers are increasingly faced with the challenge of managing time-off policies amid a complex web of state, local, and federal laws – specifically the interplay between state paid family and medical leave (PFML) programs and the federal Family and Medical Leave Act (FMLA). An opinion letter issued by the U.S. Department of Labor’s (DOL) Wage […]
Read more
March 27, 2025
Affordable Care Act (PPACA)

Reporting Rules Ease Employer ACA Compliance Obligations

Two new federal laws passed at the end of 2024 bring welcomed updates to benefit plan sponsors. Under the Employer Reporting Improvement Act (ERIA) and the Paperwork Burden Reduction Act (PBRA) plan sponsors are no longer required to distribute Forms 1095-B and 1095-C to all covered individuals. The laws also offer employers new protections related […]
Read more