Wellness Program Primer: Tobacco Incentives

Employee Wellness Program Primer: Reasonable Alternative Standards (RAS) Requirements for Tobacco Incentives

As a new wellness year approaches, now would be a good time to refresh yourself on the legal requirements for incentivized wellness programs that have tobacco incentives or surcharges.

This is especially true given the recent rise in lawsuits filed against organizations whose wellness program included tobacco incentives or surcharges. These lawsuits had a common theme—alleged violations of two Reasonable Alternative Standard (RAS) requirements within the Affordable Care Act’s wellness incentive rules:

•  Failure to provide the program year’s full reward after the member met a Reasonable Alternative Standard (RAS); and/or:

• Failure to provide adequate notice that:
  • The full reward will be available for those meeting a RAS, and  
  • The recommendations of an individual’s personal physician will be accommodated in providing a RAS.

Here’s a short summary of the requirements, followed by further information about how they were allegedly violated …

Tobacco Incentive Requirements in a Nutshell

(Note: This short overview is merely educational in nature and does not constitute legal advice. To seek legal advice, please consult an appropriately qualified legal expert.)

Employee wellness programs that offer discounts/incentives for non-tobacco use (or surcharges/penalties for tobacco use) are categorized as outcomes-based wellness programs and must comply with specific requirements under the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA). The key requirements are:

1. Annual Opportunity: Employees must be given the opportunity to qualify for the reward at least once per year.

2. Reasonable Alternative Standard (RAS): If an employee cannot meet the initial standard (i.e., being tobacco-free), the program must offer a RAS whereby the member can earn the full non-tobacco incentive by achieving the RAS. For example, this could include the completion of a smoking cessation program such as Avidon’s online video-based tobacco cessation course.

3. Disclosure: The availability of a reasonable alternative standard must be disclosed in all plan materials describing the wellness program. This includes contact information for obtaining the RAS as well as a statement that recommendations of the individual’s personal physician will be accommodated.

4. No Additional Cost: The reasonable alternative standard must be provided at no additional cost to the employee.

5. Physician Involvement: If the Reasonable Alternative Standard involves medical advice, the program must allow the employee to comply with the recommendations of their personal physician.

Recent Lawsuits

Among recent legal complaints regarding tobacco incentive programs are lawsuits filed against well-known employers like Target, Walmart, Tractor Supply Company, 7-Eleven, The Campbell Soup Company, and others.

As mentioned before, these lawsuits all alleged failure to comply with one (or both) of the following aspects of the tobacco incentive program’s Reasonable Alternative Standards requirements. Below each is a brief explanation to help make sense of how this may occur.

1. Failure to provide the program year’s full reward after the member met a Reasonable Alternative Standard (RAS):

Let’s say the wellness program runs January 1st through December 31st and offers a non-smoker incentive reward of $50/month (i.e. $600/year). According to the plaintiffs’ allegations, even if the participant only met their RAS partway by completing a tobacco cessation program at the end of August, the employer would still be required to reward them $50/month retroactively from January 1st onwards—not September onwards. Furthermore, the employer would be required to reward them even if they continued to use tobacco during or after the tobacco cessation program.

2. Failure to provide adequate notice that:

• The full reward will be available for those meeting a RAS, and
•  The recommendations of an individual’s personal physician will be accommodated in providing a RAS.

This comes down to openly and fully disclosing the full extent of the opportunity available for tobacco users to earn the non-tobacco user incentive (or avoid the tobacco surcharge) by meeting the RAS.

These cases highlight the increasing scrutiny on wellness programs and the importance for employers to ensure compliance with federal regulations. So, take a good look at your tobacco incentive program if you have one—particularly your Reasonable Alternative Standard—and consult a legal expert if you have any doubt that your program fully complies with the legal requirements.