With employers considering the imposition of health plan premium surcharges on participants who are COVID unvaccinated, a recent court decision highlights the importance of complying with the HIPAA wellness program requirements.

A federal district court in Ohio recently rejected a portion of Macy’s motion to dismiss the Department of Labor’s (DOL’s) enforcement action with respect to the tobacco surcharges on health plan premiums Macy’s imposed as part of its wellness program.  In its enforcement action, the DOL focused on the lack of a reasonable alternative standard for some of the years covered by the enforcement action and the lack of retroactively refunding the surcharge to participants who earned the right to avoid the surcharge later in the plan year for certain years in which a reasonable alternative standard was made available. As background, health contingent wellness programs are required to provide a reasonable alternative standard for earning the incentive (avoiding the surcharge) under HIPAA.

Even though the DOL’s enforcement action against Macy’s wellness program involves tobacco surcharges, similar analysis applies to surcharges imposed on the COVID unvaccinated (among other legal considerations).  Even if Macy’s ultimately prevails on the merits, this DOL enforcement action emphasizes the importance for employers to:

• provide a reasonable alternative standard,
• carefully consider how incentives/surcharges are handled when a reasonable alternative standard is satisfied later in a plan year and ensure the retroactive incentive/refund policy is clearly disclosed in the wellness program communications,
• provide the required notice of availability of the reasonable alternative standard, and
• ensure the award is made available at least once per year.