Did Your Employer Charge You More for Health Insurance Because You Use Tobacco?

A federal judge just cleared a nationwide class action to move forward. If you paid a tobacco surcharge, you may be entitled to a refund.

Millions of American workers pay more each month for their employer’s health plan for one reason: they smoke, vape, chew, or checked “yes” on a tobacco question. Employers call it a “tobacco surcharge.” It is often set as a percentage of the premium or a flat monthly amount — in the case described below, 10% of the premium, roughly $780 a year deducted straight from the employee’s paycheck.

Here is what most employees do not know: federal law does not simply let an employer charge smokers more. A tobacco surcharge is legal only if the employer follows a specific set of rules. When the employer skips those rules, the surcharge may be unlawful, and the money may have to be paid back.

THE BOTTOM LINE If you paid a tobacco surcharge on an employer health plan and your employer never clearly offered you a real, year-long way to earn back the full amount of the surcharge, such as a named quit-smoking program you could join at any point, with the money refunded for that plan year, you may have a claim under federal law. There is no cost to have your situation reviewed.

What Federal Law Actually Requires

Employer health plans are governed by the Employee Retirement Income Security Act (ERISA). ERISA’s non-discrimination provision, 29 U.S.C. § 1182(b)(1), bars a group health plan from making you pay a higher premium than a similarly situated coworker based on a health status–related factor. Tobacco use is treated as such a factor.

There is a narrow exception. Under § 1182(b)(2)(B), a plan may offer premium discounts or rebates in return for participation in a program of health promotion and disease prevention, a wellness program. But Congress and the U.S. Department of Labor attached conditions. Under 42 U.S.C. § 300gg-4(j) and the DOL’s regulation at 29 C.F.R. § 2590.702(f)(4), a tobacco surcharge program must, among other things:

• Be reasonably designed to promote health — not a disguised way to shift health costs onto people with a particular health status.
• Make the full reward available to everyone — the plan must offer a reasonable alternative standard to any participant who does not meet the initial standard, and someone who completes that alternative must receive the same full benefit a non-tobacco user gets. Not a partial credit. Not a discount that starts next year.
• Disclose the alternative in all plan materials — every document describing the program must state that a reasonable alternative standard is available, give contact information for obtaining it, and state that recommendations of your personal physician will be accommodated.

In plain terms: the law requires an employer to hand you a genuine, clearly explained off-ramp. Many employers never built one — or buried it in fine print that discourages anyone from using it.

The Ruling: A Court Lets a Surcharge Class Action Proceed

On July 30, 2026, Judge Stephen R. Bough of the U.S. District Court for the Western District of Missouri issued an order in Hatfield v. O’Reilly Automotive, Inc., No. 6:26-cv-03030-SRB, largely denying the employer’s motion to dismiss a proposed class action over its tobacco surcharge.

The named plaintiff, a former O’Reilly employee, alleged he paid a tobacco surcharge of 10% of his medical premium, roughly $780 a year, under a plan that, according to the complaint, never made a compliant quit-smoking alternative available to him and never told participants how to get the money back. The employer asked the court to throw the case out. The court refused, allowing the following claims to move into discovery:

• Failure to provide a reasonable alternative standard. The plan’s benefits guide offered an alternative route to the non-tobacco discount only where quitting would be “unreasonably difficult due to a medical condition” or “medically inadvisable.” The court held the plaintiff plausibly alleged this improperly narrows an alternative the regulation says must be available to any participant who does not meet the initial standard.
• Failure to give proper notice. The plaintiff alleged the plan materials never explained a reasonable alternative that would deliver the same premium relief non-tobacco users received, never explained when or how a premium adjustment would be applied, and omitted the required statement that a personal physician’s recommendations would be accommodated. The court found that stated a claim.
• Breach of fiduciary duty and prohibited transactions. The plaintiff alleged the employer kept the surcharge money in a self-funded plan and used it to reduce or delay its own funding obligations, keeping the cash and the interest for itself. The court held that the plaintiff plausibly alleges both a loss to the plan and self-dealing under 29 U.S.C. §§ 1104, 1106, and 1109.

The court also confirmed something important for employees: paying the surcharge is itself a real, out-of-pocket financial injury sufficient to sue. The employer had argued the plaintiff suffered nothing more than an “informational” harm. The court disagreed, noting that when a failure to disclose contributes to a financial injury, standing is established.

The employer won one point. Because the plaintiff no longer works for the company, the court held he cannot seek forward-looking injunctive relief; however, the claims for money back were left intact.

THIS IS NOT AN ISOLATED CASE Courts across the country are working through a wave of these lawsuits. The O’Reilly order discusses tobacco surcharge decisions from federal courts in Virginia, Pennsylvania, Texas, Tennessee, Minnesota, New York, Illinois, Missouri, and elsewhere, including cases against Performance Food Group, Rentokil North America, Whole Foods Market, Sedgwick Claims Management, Travelers, PepsiCo, Compass Group, JPMorgan Chase, and 7-Eleven. In most of the decisions the court relied on, the employers’ motions to dismiss were denied at least in part.

Warning Signs Your Surcharge May Have Been Unlawful

Pull out your benefits guide, summary plan description, or open-enrollment packet and look for these problems. Any one of them is worth asking about:

• No program is actually named. The materials mention an “alternative” but never identify a cessation program, a vendor, or how to enroll.
• The alternative is available only for medical reasons — for example, only if quitting is “medically inadvisable” or “unreasonably difficult due to a medical condition.”
• No completion standard is stated. Nothing explains what you must finish, or that participating in a program, rather than actually quitting, earns the discount.
• No refund for the current plan year. Nothing says the surcharge you already paid will be returned or that your payroll deduction will be corrected retroactively.
• No physician language. The materials never state that your own doctor’s recommendations will be accommodated.
• No contact information for requesting the alternative standard.
• You asked and got nowhere, or you were told you had to quit outright, or wait until the next enrollment period.

An important caveat: not every tobacco surcharge is unlawful. Where an employer genuinely offered and disclosed a compliant cessation program, courts have dismissed these cases. In a New Jersey case decided just days before the O’Reilly order, the court dismissed a surcharge claim because the parties agreed the employer had in fact made a real cessation program available. The details of your plan documents are what matter, which is exactly why a review is worth doing.

What Could Be Recovered

Where these claims succeed, the relief typically sought includes:

• Return of the surcharges you paid, potentially reaching back several plan years.
• Disgorgement of profits the employer earned by holding and using that money.
• Correction of the plan going forward, so current employees stop being overcharged.
• Attorneys’ fees and costs, which ERISA permits a court to award to a prevailing participant, meaning these cases are ordinarily handled with no out-of-pocket cost to you.

For a worker paying $65 a month, three years of surcharges is roughly $2,340. Across a large workforce, these claims often run into the millions, which is why they are typically brought as class actions on behalf of every participant who paid.

What To Do Now

1. Gather your documents. Benefits guides, summary plan descriptions, open-enrollment materials, and any email or portal screenshot describing the tobacco surcharge or a cessation program.
2. Find the deduction. Pay stubs or payroll records showing the surcharge amount and the dates it was withheld.
3. Note what you were told. If you asked about avoiding the surcharge, write down who you asked, when, and what they said.
4. Do not wait indefinitely. ERISA claims are subject to filing deadlines, and plan documents sometimes shorten them. Delay can cost you recoverable years.
5. Have it reviewed at no charge. Send us your plan materials, and we will tell you whether your surcharge appears to comply with federal law.

FREE, CONFIDENTIAL CASE REVIEW Bohrer Brady LLC represents employees and consumers in class and collective actions nationwide. If you paid a tobacco surcharge on an employer-sponsored health plan — whether you still work there or not — we would like to review your plan documents.