Plaintiffs continue to file lawsuits against employers challenging wellness programs that impose a health insurance premium surcharge on participants if they use tobacco and do not complete a tobacco cessation course—in total, plaintiffs have filed more than 45 such lawsuits. This alert provides a brief update on the status of these lawsuits and key takeaways for employers.
Allegations
The complaints generally allege that group health plans that provide a lower premium for enrollees who either certify that they do not use tobacco products or agree to participate in a tobacco cessation course violate the HIPAA wellness program requirements because (1) the plans only offer premium reductions for participating in the wellness program alternative (i.e., the tobacco cessation course) prospectively, as opposed to offering the incentive for the full plan year; and (2) the plans do not comply with the HIPAA wellness program rule’s notice requirements regarding the availability of the alternative path to earn the lower premium – the tobacco cessation course. Further, the complaints allege breach of fiduciary duty claims under ERISA section 502(a)(2) based on alleged losses to the plans. The plaintiffs claim that the employers enriched themselves at the expense of the plans by using the surcharges to reduce the amount of the employers’ funding obligations.
Motions to Dismiss
A number of defendants have attempted to obtain dismissal of the claims. Seven federal district courts have ruled on these motions. While some courts have dismissed the plaintiffs’ claims in part, no court has dismissed a complaint in its entirety.
Prospective Premium Refund Claims
Courts are split as to whether the plaintiffs’ allegations that the plans only offer premium reductions on a prospective basis are sufficient to survive a motion to dismiss:
- Three federal district courts have dismissed the plaintiffs’ allegations that the plans violated the HIPAA wellness program requirements. The courts did so based on differing rationales that were specific to the terms of the plans at issue:
- Two courts held that plans complied with the HIPAA wellness program requirements where the plans (1) afforded participants a reasonable opportunity to enroll in the tobacco cessation course at the beginning of the plan year and (2) provided the “full reward” of the wellness program to those who timely enrolled in and completed the tobacco cessation course. In other words, the plan prospectively waived the tobacco surcharge for the rest of the plan year and retroactively refunded all tobacco surcharges paid for that plan year. When reaching these decisions, the courts specifically cited to language in the plan documents/SPDs explaining how participants could obtain the “full reward,” including a retroactive refund of the tobacco surcharge, upon completion of the tobacco cessation course. These courts relied on 2014 regulations from the Departments of Labor, Treasury, and Health and Human Services and related guidance issued by the Department of Labor to hold that a plan can require that a participant complete the tobacco cessation course within a specified time period (for example, where a plan required a participant to complete the tobacco cessation course midway through the plan year) to obtain the “full reward,” i.e., waiver of the premium surcharge prospectively and the retroactive refund of the surcharge.
- A third court held that a plan complied with the HIPAA wellness program requirements where the plan removed the tobacco surcharge for the entire plan year if the participant completed the tobacco cessation course during the prior plan year (for example, the plan provided the opportunity for a participant to complete the tobacco cessation course during the 2018 plan year to avoid the plan year 2019 surcharge). The court held that the plan made the “full reward” available to all participants, even though the wellness program worked as a “one-year offset.”
- Four federal district courts have held that the plaintiffs’ allegations that the plans did not offer a retroactive reimbursement of the surcharge were sufficient to survive a motion to dismiss. Certain of these courts specifically noted that the plan documents/SPDs only referenced the removal of the tobacco surcharge on a prospective basis and were silent as to whether the surcharge would be removed for the entire plan year.
Notice of Reasonable Alternative Standard Claims
Courts also are split as to whether plaintiffs plausibly alleged violations of the HIPAA wellness program rule’s notice requirements. In some instances, courts have focused on the plans’ failure to notify participants that they have the option to involve their physicians in the decision as to whether to participate in the wellness program (i.e., the tobacco cessation course) to hold that plaintiffs plausibly alleged violations of the wellness program rule.
ERISA Breach of Fiduciary Duty Claims
Finally, courts are split as to whether the complaints allege breach of fiduciary claims under ERISA section 502(a)(2). Some courts have dismissed the plaintiffs’ ERISA fiduciary breach claims on the basis that the alleged breaches did not result in losses to the plan as a whole—instead, the complaints allege losses only to the participants who paid the tobacco premium surcharges. Notably, these courts did not opine as to whether the employers were acting in a fiduciary capacity when designing and administering the tobacco surcharges. Instead, the courts held that, even if the employers were acting as ERISA fiduciaries, the fiduciary breach claim still failed as a matter of law because the plaintiffs only alleged individualized, and not plan-wide, losses. By contrast, other courts have allowed the fiduciary breach claims to proceed beyond a motion to dismiss, holding that the assessment and collection of an unlawful tobacco premium surcharge, if proven, could amount to a breach of fiduciary duty resulting in loss to the plan.
Settlements
To date, five tobacco premium surcharge cases have settled on a class action basis. The dollar value of the settlements has varied widely—from approximately $300,000 to more than $5 million. The primary factors that influenced the settlement amounts are the size of the class, the dollar amount of the surcharges, and length of the class period.
Key Takeaways for Employers
We are likely to see plaintiffs continue to file additional lawsuits given that some plaintiffs have had success at the pleadings stage and in obtaining class-wide settlements. We also are likely to see federal district courts across the country continue to reach varying conclusions as to whether the plaintiffs’ claims are sufficient to survive a motion to dismiss, particularly given the differences in how health plans structure and administer their wellness programs. It is important to note that even if some claims move beyond the pleadings stage, the plaintiffs will still need to take discovery to prove their claims at the summary judgment stage and at trial, which may turn out to be a significant challenge.
For now, employers should review their wellness programs to confirm that they fully comply with the HIPAA wellness program requirements. Some courts have credited language in plan documents/SPDs articulating how participants can obtain the “full reward”—i.e., the prospective removal of the tobacco surcharge, as well as the retroactive refund of the surcharge—when dismissing plaintiffs’ claims that the tobacco premium surcharge violated the HIPAA wellness program requirements. Employers also should carefully review the description of wellness programs in plan documents/SPDs. Even if a program was designed to comply with the HIPAA wellness rules initially, there may be have been inadvertent changes to administration or communications through the years that need to be updated or clarified.
Annual enrollment is the key time that many employers kick off these types of wellness programs, which are typically described in the plan’s enrollment materials or SPD. Fall is annual enrollment season for calendar year plans, so now is an ideal time to take a second look at these programs.
For an in-depth discussion of tobacco premium surcharge litigation and strategies for employers that may be the target of these lawsuits, please see our prior alerts here and here.
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