A former Humana employee filed a class-action lawsuit on March 17. The filing alleges that the insurer improperly deducted tobacco surcharges from employee paychecks. The case was filed in the U.S. District Court for Western Kentucky. It raises serious questions about employer compliance with federal wellness program rules.
What Sparked the Lawsuit
The plaintiff worked at Humana and used tobacco products. As a result, the company deducted a surcharge from each paycheck. However, the lawsuit argues that these deductions were not legally justified. Specifically, it claims Humana failed to meet the transparency requirements set by federal law.
The health plan covered more than 60,000 members at the end of 2024. Furthermore, the class action is open to all U.S.-based individuals who paid the surcharge at any point since 2014.
How ERISA Governs Wellness Programs
The Federal Standard for Health-Contingent Programs
The Employee Retirement Income Security Act — known as ERISA — sets clear rules for health-contingent wellness programs. Under these rules, employers can charge tobacco users higher premiums. However, they must meet three specific conditions.
First, the employer must offer a reasonable alternative for employees who face higher costs due to a health factor. Second, the employer must clearly communicate this alternative to all employees. Third, employees must receive the same financial benefit if they complete the alternative program.
Consequently, employers who skip these steps risk violating ERISA outright.
Key Allegations Against Humana
Failure to Disclose the Refund Option
According to the lawsuit, Humana did allow tobacco users to complete a smoking cessation program. In theory, this could qualify as the required “reasonable alternative.” However, the company never disclosed that completing the program would lead to a surcharge refund.
This omission is central to the case. Neither the Summary Plan Description nor any other plan materials mentioned the refund option. As the complaint states, Humana “cannot take advantage of the statutory safe harbor,” and therefore the surcharge functions as an unlawful penalty rather than a compliant wellness incentive.
Surcharge as a Penalty, Not an Incentive
This distinction matters greatly under ERISA. A surcharge can only be legal if employees have a real path to avoid it. Without proper disclosure, employees had no meaningful way to opt out. Thus, the surcharge operated more like a disciplinary fine than a health incentive.
Financial Burden on Employees
The numbers add up quickly. Tobacco-using employees faced a $40 deduction per paycheck. That totals $80 per month and $960 per year. Over a decade, eligible employees could have paid thousands of dollars in surcharges without ever knowing they could reclaim the funds.
Moreover, the class action seeks reimbursement of all such surcharges going back to 2014. The civil cover sheet outlines a total demand of $5 million.
Fiduciary Misconduct Claims
Beyond the surcharge issue, the lawsuit raises an additional concern. It alleges that Humana used the collected surcharges to offset its own contributions to the health plan. Additionally, the company may have earned interest on those funds. This, the complaint argues, constitutes a breach of fiduciary duty.
As a remedy, the lawsuit requests the removal of the plan’s fiduciaries. It also seeks other forms of equitable and financial relief.
Broader Context: Tobacco Surcharges Under Scrutiny
This lawsuit does not exist in isolation. Tobacco surcharges have faced growing legal and legislative pushback in recent years. In 2023, Virginia passed legislation banning such surcharges under ACA plans entirely. Following that change in 2024, monthly premiums dropped between $25 and $123 for tobacco users in the state. However, overall premiums rose by $3.80 per member per month to compensate for the lost surcharge revenue.
These trends suggest that policymakers and courts alike are reconsidering whether tobacco surcharges serve their stated purpose. 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.
What Comes Next
Humana has not yet issued a public response to the lawsuit. Becker’s contacted the company and will update coverage when more information becomes available. Meanwhile, the case will move through the federal court system in Western Kentucky.
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.
