Employers that offer workplace wellness programs should take note of new federal guidance addressing how health-contingent wellness programs administer rewards when employees complete a reasonable alternative standard.
On August 26, 2026, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), together with the U.S. Departments of Health and Human Services (HHS) and the Treasury, released FAQs About Affordable Care Act and Health Insurance Portability and Accountability Act Implementation Part 74.
The guidance responds to questions raised in dozens of class-action lawsuits challenging tobacco surcharges that some employers impose as part of their group health plan wellness programs.
For wellness program sponsors, plan administrators, benefits professionals, and organizations that design or operate wellness initiatives, the FAQs provide important information about federal enforcement expectations.
What Are Health-Contingent Wellness Programs?
Under the Affordable Care Act (ACA) and the Health Insurance Portability and Accountability Act (HIPAA), employers may offer certain wellness programs that reward employees for meeting standards related to a health factor.
Examples of wellness programs can include initiatives focused on:
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Tobacco cessation
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Nutrition
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Weight management
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Physical fitness
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Stress management
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Alcohol or drug abuse assistance
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General health education
Health-contingent wellness programs differ from participatory wellness programs in that employees must meet a standard related to a health factor to receive the associated reward.
Tobacco surcharges are one example of a wellness-program design that has received significant legal and regulatory attention.
What Does the New Guidance Say?
The agencies announced an enforcement approach concerning reasonable alternative standards in health-contingent wellness programs.
Generally, federal rules protect employees who cannot meet a health-contingent wellness program's original standard due to a medical condition or other circumstances. A plan must offer a reasonable alternative standard that allows the employee an opportunity to qualify for the reward.
The new FAQs state that until further guidance or regulations are issued, the agencies will not take enforcement action against plans or issuers that do not retroactively provide wellness-program rewards to the beginning of the plan year after an employee completes a reasonable alternative standard.
Instead, under the enforcement relief described in the FAQs, a plan or issuer may provide the reward prospectively, beginning when the employee meets the reasonable alternative standard, provided that retroactive rewards are not otherwise provided.
Why does this matter?
The timing of wellness rewards can create significant administrative and compliance issues.
For example, imagine an employee is subject to a tobacco-related premium surcharge but later meets a reasonable alternative standard, thereby qualifying for the wellness reward.
Under the enforcement approach described in the new FAQs, a plan that does not otherwise provide retroactive rewards generally will not face federal enforcement simply because it provides the reward prospectively rather than retroactively to the beginning of the plan year.
That distinction could affect how employers and plan administrators structure their systems, communicate wellness requirements, and calculate premium adjustments.
The FAQs Also Address Disclosure Requirements
The guidance addresses another important issue: what plan materials must say about reasonable alternative standards.
According to the FAQs, if plan materials merely mention that a health-contingent wellness program is available without describing the program's terms, the plan or issuer is not required to disclose the availability of a reasonable alternative standard to qualify for the wellness reward.
This does not mean disclosure requirements can simply be ignored.
The details of what a plan communicates about its wellness program remain important. Employers and plan administrators should carefully review enrollment materials, summary plan descriptions, wellness communications, and other participant-facing materials to determine whether their disclosures accurately describe the program and applicable requirements.
This Is Enforcement Relief—Not Necessarily a Permanent Rule Change
One of the most important points for employers and wellness-program professionals is the language used by the agencies.
The FAQs describe an enforcement approach that applies until further guidance or regulations are issued.
Organizations should therefore be cautious about treating this guidance as a permanent revision of the underlying regulations.
Instead, employers should consider it an important compliance development to incorporate into their current review of wellness-program practices, while continuing to monitor federal developments.
What Should Employers and Wellness Programs Do Now?
Organizations offering health-contingent wellness programs may want to take this opportunity to review their programs and documentation.
1. Review your wellness program design
Identify whether your program is participatory or health-contingent and determine what health factors are involved.
2. Review reasonable alternative standards
Confirm that your program has an appropriate process for employees who need a reasonable alternative standard to qualify for a reward.
3. Examine how rewards are administered
Review when employees become eligible for a reward after completing a reasonable alternative standard, and ensure your administrative systems apply the program consistently.
4. Review participant communications
Look carefully at enrollment materials, plan documents, wellness-program communications, and other participant-facing materials.
Ask: What exactly are we telling employees about the wellness program and how they can qualify for rewards?
5. Coordinate with benefits and legal professionals
Wellness programs frequently involve multiple parties—including employers, health plans, insurers, benefits administrators, wellness vendors, and technology providers.
Make sure everyone understands how the program is intended to operate and who is responsible for compliance.
What Wellness Companies Should Take Away
This development is particularly relevant to companies that design, market, administer, or support workplace wellness programs.
A wellness program may have a compelling health-improvement goal, but the program's legal structure matters.
Wellness vendors should understand whether their services are being incorporated into a health-contingent wellness program, what standards participants must satisfy, how rewards are structured, and what information is communicated to employees.
Employers, meanwhile, should avoid assuming that a vendor's wellness solution automatically satisfies every applicable legal requirement.
The legal analysis follows the program's structure and operation—not simply its name.
A Reminder About Tobacco Surcharge Lawsuits
The new FAQs arise in the context of litigation involving tobacco surcharges, but the broader guidance concerns health-contingent wellness programs and reasonable alternative standards.
Employers should therefore consider the guidance in the context of their overall wellness program compliance rather than viewing it solely as a tobacco surcharge issue.
Moreover, the guidance is unlikely to have much impact on the tobacco surcharge lawsuits given the recent U.S. Supreme Court decision in Loper Bright Enterprises v. Raimondo, in which the Court ruled that courts must exercise independent judgment to decide if an agency acts within its statutory authority and can no longer defer to agency interpretations of ambiguous laws. One of the dozens of tobacco surcharge lawsuits, Fritsch v. Cracker Barrel Stores, recently survived a motion to dismiss. Thus, the tobacco surcharge lawsuits will not likely be deterred by this new federal guidance on health contingent wellness programs.
The Bottom Line
The August 26 federal guidance provides employers and plan issuers with meaningful enforcement relief concerning the timing of wellness rewards after an employee completes a reasonable alternative standard.
For organizations offering wellness programs, now is a good time to review:
Program design.
Reasonable alternative standards.
Reward administration.
Participant disclosures.
Vendor responsibilities.
Compliance processes.
Wellness programs can be powerful tools for encouraging healthier behaviors—but they must be designed and implemented with the applicable legal requirements in mind.
Wellness Law Center will continue to monitor developments affecting workplace wellness programs and the laws governing health and wellness initiatives.
Read the federal FAQs: U.S. Department of Labor — FAQs About ACA and HIPAA Implementation Part 74
This article is for educational and informational purposes only and does not constitute legal advice. Employers, plan sponsors, wellness companies, and other organizations should consult qualified legal counsel regarding their specific programs and circumstances.