Federal Courts Evaluate Tobacco Surcharges And Alternatives In Employer Health Plans

Federal district courts in Minnesota and Illinois recently considered the legality of tobacco surcharges in employer-sponsored group health plans, as well as the reasonable alternative standards for employer wellness plans, under the Employee Retirement Income Security Act (ERISA). The cases are Chirinian v. Travelers Cos., Inc., 2025 WL 2147271 (D. Minn. 2025) and Buescher v. N. Am. Lighting, Inc., 2025 WL 1927503 (C.D. Ill. 2025).

In Chirinian, a former employee filed a proposed class action on behalf of all employees who paid surcharges for tobacco use under the employer's health plan.
She alleged that the employer's wellness program violated ERISA by setting a deadline for enrolling in a tobacco cessation program, failing to disclose a reasonable alternative standard, and failing to inform plan participants that they could consult with their physicians when determining a reasonable alternative standard.

The court agreed that the employer's plan structure met ERISA requirements because it provided plan participants the opportunity to avoid the surcharge each year by completing a tobacco cessation program and retroactively refunding the surcharges to those who completed the program by a certain deadline. However, the court agreed with the former employee that the summary plan description did not inform plan participants about their right to involve their physicians. As a result, the court allowed that portion of the former employee's claim to move forward.

In Buescher, the employer health plan also included tobacco surcharges unless plan participants completed a tobacco cessation program. However, completion of the program did not result in a retroactive refund of the surcharges, but rather in a waiver of surcharges for the following year. A former employee sued, claiming that the prospective-only waiver of tobacco surcharges violated ERISA.

The court sided with the employer, ruling that the plan was compliant with ERISA because it gave employees a full year to complete the program before imposing a tobacco surcharge on them. Therefore, the "full reward" of waived tobacco surcharges was available to all plan participants – by not using tobacco or by using
tobacco and completing the tobacco cessation program.

The former employee also claimed that the plan failed to provide adequate notice of the cessation program as a reasonable alternative standard. The court allowed that claim to proceed, but only because the employer made no argument relating to notice in opposing the former employee's claims.

These court decisions illustrate that tobacco surcharges and reasonable alternative standards for avoiding them in employer-sponsored group health plans remain under constant scrutiny. Employee wellness programs involving tobacco surcharges are only valid under ERISA if plan participants may avoid them and receive the "full reward" through a reasonable alternative standard. Plan sponsors must take care to ensure that their programs and plan documents comply with all legal requirements.