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Health plan surcharges pose litigation risks for employers

August 2025 employment law letter
Authors: 

Lake Moore, McAfee & Taft

Many employers implement wellness programs into their employee health plan offers. Wellness programs have varying designs but commonly offer premium discounts to participants who are tobacco-free or achieve certain biometric thresholds encouraging healthy living (LDL cholesterol, glucose, blood pressure, BMI). Noncompliant programs have become a frequent target for employees’ lawyers, arguing certain designs violate nondiscrimination requirements of the Health Insurance Portability and Accountability Act (HIPAA). Bass Pro Shops recently settled a lawsuit for nearly $5 million, but employers of all sizes are at risk.

Premium discounts

HIPAA generally prohibits charging higher premiums based on a health factor (like tobacco use or the health metrics mentioned above). A safe-harbor exception permits premium discounts/surcharges for programs that promote good health and disease prevention. Health-contingent, outcomes-based wellness programs—which require participants to meet certain health outcomes to earn the discount—must satisfy multiple requirements under HIPAA:

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