Humana violated the Employee Retirement Income Security Act by improperly deducting a tobacco surcharge as part of its employee medical coverage, according to a class-action lawsuit recently filed in U.S. District Court for Western Kentucky.
The company deducted $40 from each paycheck of tobacco users, the lawsuit said. This deduction violated ERISA rules stipulating that business can enact health-contingent wellness programs only if three conditions are met:
- There is a reasonable alternative for employees encountering higher charges because of a specific health factor;
- This standard is clearly communicated; and
- Employees can access the same financial benefit for the plan year if they complete the alternative.
For example, although Humana may have allowed tobacco users to complete a stop-smoking program, the summary plan description and other plan materials never let them know they could get the surcharge refunded. "Defendants cannot take advantage of the statutory safe harbor and, therefore, the surcharge functions as a penalty rather than a compliant wellness incentive," according to the lawsuit.
The plaintiffs further alleged that Humana used the surcharges to offset its own contributions to the health plan, on which the company may have earned interest. The lawsuit seeks several forms of relief, including reimbursement and removal of the plan's fiduciaries.
Humana's employee health plan included more than 60,000 members as of the end of 2024, the complaint said. The class action is open to U.S.-based individuals who paid the surcharge for the health plan at some point since 2014.
Tobacco surcharges have faced increasing legal and legislative scrutiny in recent years. In 2023, Virginia passed legislation banning such surcharges under Affordable Care Act plans. The following year, monthly premiums dropped from between $25 and $123 for tobacco users in the state, while overall monthly premiums rose by $3.80 per member to compensate for the lost surcharge revenue.
"These trends suggest that policymakers and courts alike are reconsidering whether tobacco surcharges serve their stated purpose," according to the website DistilINFO. "Critics argue the penalties fall hardest on lower-income employees who struggle most with addiction. Supporters, meanwhile, contend that surcharges drive healthier behavior and reduce long-term costs.
"For now, the suit puts a spotlight on how large employers design and communicate wellness programs. It also underscores the legal risks of failing to disclose employee options under ERISA-governed health plans."
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