Clearing The Air: Tri-Agencies Issue Enforcement Relief On The Wellness Program “Full Reward” Requirement

On August 26, 2026, the Departments of Labor, Health and Human Services, and the Treasury (collectively, the “Departments”) issued FAQs About Affordable Care Act and Health Insurance Portability and Accountability Act Implementation Part 74 (“FAQs”), addressing the HIPAA wellness program rules.

As outlined in our prior alert, the HIPAA wellness program rules have been the subject of more than 80 putative class action lawsuits claiming that wellness programs imposing premium surcharges for tobacco use violate ERISA. The key issue in these cases is whether employers can prospectivelyremove the premium surcharge when a participant who uses tobacco completes a wellness program’s “reasonable alternative standard,” which typically is a tobacco cessation course. Plaintiffs have argued that employers are required to provide retroactive reimbursement of premium surcharges as well —that is, a reimbursement of the total amount of premium surcharges they paid during a plan year before they completed the tobacco cessation course. Plaintiffs also have alleged that employers failed to comply with the wellness program regulation’s (the “Regulation’s”) requirements regarding the disclosure of the availability of a reasonable alternative standard.

In the FAQs, the Departments announced that they will not take enforcement action against a plan or issuer that provides a health-contingent wellness program reward only on a prospective basis—that is, from the date a participant satisfies a reasonable alternative standard—rather than retroactively to the first day of the plan year. The Departments also clarified the types of information that employers must disclose about a wellness program.

Enforcement Relief on Retroactivity

The FAQs provide that, until further guidance or regulations are issued, the Departments will not take enforcement action against a plan or issuer for failing to provide a reward retroactively to the beginning of the plan year, provided the plan or issuer (1) provides the reward corresponding to the period after the reasonable alternative standard is satisfied and (2) otherwise satisfies the Regulations. The Departments specifically acknowledged that “the regulatory text of the [Regulations] does not clearly require retroactive application of the reward.”

GROOM INSIGHT: At issue here is guidance from the Departments found in the preamble to the Regulations that provides that individuals who complete a reasonable alternative standard are entitled to the “same, full reward” as those who meet the health standard initially (in this case, those who do not use tobacco products). The gap between the statute and regulatory text, on the one hand, and the preamble language, on the other hand, is driving much of the current wave of litigation. As described in our prior alerts, some federal district courts have held that the preamble’s language is not legally binding and that the statute does not require retroactive reimbursement of premium surcharges paid prior to the completion of a reasonable alternative standard, while other federal district courts have applied the preamble’s retroactive reimbursement requirement. The FAQs acknowledge that the Regulations do not clearly require retroactive reimbursement. This acknowledgement, along with the Departments’ non-enforcement posture, may give courts more ammunition to dismiss claims predicated on a plan’s failure to provide retroactive reimbursement of premium surcharges paid prior to completion of a reasonable alternative standard. It also may inform the outcome of appeals that are currently pending before several circuit courts.

The Departments reiterated that their exercise of enforcement discretion on this issue does not change any other requirements in the Regulations (e.g., that the program must be reasonably designed to promote health or prevent disease and not be a subterfuge for discrimination). In addition, whether a reasonable alternative standard is, in fact, “reasonable” remains a facts-and-circumstances determination. The Departments also clarified that the wellness program must still provide sufficient time for individuals to complete the alternative standard and receive a reward under the program.

The FAQs note that HHS encourages states with primary enforcement authority over the PHSA wellness rules to adopt a similar approach and will not treat a state that does so as having failed to substantially enforce Title XXVII of the PHSA for exercising similar enforcement discretion.

Disclosure Requirements

The FAQs reiterated the statutory and regulatory requirement that the availability of a reasonable alternative standard (and, if applicable, the possibility of waiver of the otherwise applicable standard) must be disclosed in all plan materials describing the terms of a health-contingent wellness program.

The FAQs underscored that the Regulations require that the disclosure must include (1) contact information for obtaining a reasonable alternative and (2) a statement that the recommendations of an individual’s personal physician will be accommodated. However, materials that merely mention the existence of a program, without describing its terms, do not trigger this notice requirement. For example, the FAQs stated that a summary of benefits and coverage that notes that cost sharing may vary based on participation in an outcome-based program, without describing the wellness program’s standards, does not need to comply with the Regulation’s notice requirements. The FAQs point out that the Regulations include sample language for this notice. 

GROOM INSIGHT: This portion of the FAQs stands in contrast to recent district court decisions applying the Regulation’s notice requirements. Some courts have dismissed notice claims predicated on the physician accommodation requirement on the basis that this requirement is not found in, and cannot be harmonized with, the statute. Also, one court has held that a summary plan description must describe not only the existence of the wellness program, but also its terms (including the reasonable alternative standard) because the summary plan description affects participants’ rights and obligations under the plan.

Overall, based on the FAQ guidance, health plans that offer health-contingent wellness programs may have more flexibility in how they administer incentives to participants who meet the reasonable alternative standard, rather than the initial health standard, including in the amount of the incentive. However, health plans still should be aware of litigation trends because some plaintiffs or courts may continue to look toward the preamble guidance that requires retroactive reimbursement of premium surcharges paid prior to completion of a reasonable alternative standard. In addition, health plans should continue to ensure that they are providing sufficient notice of the availability of the reasonable alternative standard.