A Virginia federal district court recently denied the employer's motion to dismiss a class action lawsuit brought by wellness program participants over tobacco surcharges. The case is Bokma v. Performance Food Grp., Inc., 2025 WL 1452042 (E.D. Va. 2025). The Court referenced an April 2025 ruling in another federal district court (Mehlberg v. Compass Grp. USA, Inc., 2025 WL 1260700 (W.D. Mo. 2025)), in which that Court found the plaintiffs had standing to pursue a similar claim and had plausibly alleged that the surcharges violated the employer's fiduciary duties under the Employee Retirement Income Security Act (ERISA).
The employer's wellness plan imposed an annual surcharge of $600 for employees and $300 for spouses and domestic partners who failed to certify that they had been tobacco-free for at least one year. Wellness plan participants filed suit in December 2024, challenging the program as violative of ERISA and Health Insurance Portability and Accountability Act (HIPAA) nondiscrimination requirements, in that it discriminates based on health status. The participants also claim the program fails to meet the HIPAA wellness program regulations by providing them with a “reasonable alternative standard” (RAS) to avoid the full reward of the program, i.e., the surcharge. Although the employer offers participants the option to participate in a smoking cessation program, the participants argue that this option is deficient because they can only avoid the surcharges after completing the program, which leaves them still subject to surcharges while actively participating in the program. Furthermore, the employer fails to provide adequate notice of a RAS, allowing participants to obtain the full reward, address the surcharge in plan documents, or state that it would consider a doctor's recommendation regarding a participant's inability to complete the program.
Finally, the participants allege that the employer violated its fiduciary duties under ERISA by improperly prioritizing its interests over those of the participants, using plan assets to benefit itself, failing to disclose information about the program, administering the program in a discriminatory manner, and failing to ensure the program's compliance with applicable laws.
Wellness Plan Requirements Under ERISA
The nondiscrimination requirements of ERISA prohibit group health plans and insurers from imposing eligibility rules for enrollment based on health factors and from requiring individuals to pay a higher premium than others due to health factors. However, these rules permit plans to issue premium discounts, rebates, or adjustments to copayments or deductibles to participants who complete compliant wellness programs.
Additionally, the Affordable Care Act (ACA) incorporated requirements for wellness programs into ERISA. Under the ACA provisions, wellness programs must be reasonably designed to promote health or prevent disease, offer the full reward to all individuals, and notify individuals of any RAS or waiver in all plan materials describing the program.
Court Finds Standing of the Participants to Sue
The employer argued that the participants lacked Article III standing to sue because they had not claimed they had participated in the wellness program or that they would have participated had they received proper notice. The Court found that the participants had sufficiently alleged a concrete monetized injury in the form of the $600 annual tobacco surcharge. The Court further ruled that the participants' injuries were traceable to the employer's conduct in administering an allegedly noncompliant wellness program. Furthermore, the participants' monetary loss due to the surcharge constituted a redressable injury, as they also sought a declaratory judgment that the program was discriminatory and illegal under ERISA.
Court Rejects Employer's View of HIPAA Nondiscrimination Provisions
The employer argued that, under the U.S. Supreme Court's 2024 decision in Loper, the Court does not need to view the HIPAA nondiscrimination provisions as controlling. In Loper, the Supreme Court overruled its long-standing Chevron decision, which required courts to defer to the statutory interpretation held by the administrative agency administering the statute. The Court rejected this argument, finding that the Loper decision didn't unilaterally invalidate the agencies' regulations concerning wellness programs.
Court Finds Plausible Allegation of ERISA Fiduciary Breach Claim
To maintain their ERISA fiduciary breach claim, the participants had to demonstrate that the employer was a fiduciary of an ERISA plan, that the employer breached its fiduciary duties under the plan, and that injunctive or equitable relief is necessary to redress the breach.
The Court found that the participants plausibly alleged that the employer was a fiduciary under the plan, as it served as the plan administrator, exercised discretionary control over the management of the plan in making decisions about the wellness program, and failed to disclose information about the tobacco surcharge and the availability of a RAS. The Court also noted that the employer held the tobacco surcharges in its account, which decreased its contribution of assets to the plan.
Next, the Court determined that the participants had sufficiently alleged breaches of the employer's fiduciary duties of prudence and loyalty, as the employer had intentionally held plan assets and used those assets to benefit its own interests. Again, the employer held the disputed tobacco surcharges in its account, thus contributing fewer assets to the plan. The Court also found that the employer prioritized its financial interests over those of the participants by keeping surcharges already paid by participants who completed the tobacco cessation program, commingling plan assets with general assets, failing to provide participants with the full reward, and failing to give adequate notice of the program and RAS.
Court Finds Plausible Allegation of Discriminatory Surcharge
The Court ruled that the participants had made plausible allegations that the employer had violated the ERISA and HIPAA nondiscrimination provisions by not providing a RAS to obtain a full reward. The Court again cited the Mehlberg decision, in which the Court found that a RAS that didn't permit retroactive reimbursements of surcharges to receive the full reward was illegally discriminatory. The Court also relied on Mehlberg in concluding that the participants adequately alleged a violation of HIPAA wellness program regulations, which require programs to disclose a RAS. Based on its benefits materials, the Court pointed out that the employer's description of the program triggered full disclosure requirements under HIPAA.
As this is the second case to advance past the motion to dismiss stage in the past few months, employers should carefully review their wellness programs to ensure that any tobacco surcharges are compliant with the various regulations and laws raised in this lawsuit.
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