Employer charging more for tobacco use

[SLuskin]

We have a COBRA client and the carrier has a 4 tier rate: employee only, employee + child, employee + spouse, employee + family.

The employer is charging the employees different amounts for the premium based on whether or not the employee/or spouse uses tobacco.

They are pretaxing this premiums through their pop plan.

For example, employer pays 100% of employee only for non-smoker, and 85% of the employee only rate if the employee smokes.

What sort of discrimination testing would you have to do for that?

[J Simmons]

Is there a greater proportion of the lesser paid employees that smoke?

Is one who only smokes off hours subject to the extra premium charged for tobacco users?

[SLuskin]

The participants are charged more for any tobacco use.

It is an alcholo distribution company, so most of the employees are warehouse, distribution and truck drivers.

We don't do their Section 125, only their COBRA, so I don't have the salary information. I am trying to use this as a way to get the Section 125 business, because it doesn't look right to me.

However, the person who referred the business to us is the broker and she may have been the one who suggested the tobacco premium in the first place.

[J Simmons]

Hi, SLuskin,

Take a look at what the DoL webpage has to say about charging a lower premium for nonsmokers than for smokers re HIPAA and wellness programs. For example: "The program must accommodate those for whom it is unreasonably difficult to quit using tobacco (for example, due to nicotine addiction) by providing a reasonable alternative standard (such as a discount in return for attending educational classes or for trying a nicotine patch)."

Depending on the demographics, you might also have a cafeteria plan discrimination problem as the benefits IRC § § 125(b)(1)(B) and 125©.

Finally, you may have state law issues. Take a look at this recently decided case in Massachusetts applying its state privacy law.