On August 26, 2026, the Departments of Labor, Health and Human Services, and the Treasury jointly posted FAQs Part 74 on HIPAA/ACA wellness programs. It is the first tri-agency guidance on two nagging questions since FAQs Part XVIII in 2014 — and it landed while tobacco-surcharge designs are under heavy class-action scrutiny.
If you run a health-contingent wellness program — biometric outcomes, tobacco status, activity goals tied to a health factor — read this before you finalize 2027 open-enrollment materials.
What tripped people up: "full reward" timing
Under the 2013 wellness final rules, the full reward under a health-contingent program must be available to all similarly situated individuals. If someone does not meet the initial standard (say, they still use tobacco at enrollment), the plan must offer a reasonable alternative standard — often a cessation program — and the reward when they complete it.
The preamble to those 2013 rules said the reward had to run retroactively to the start of the plan year once the alternative was satisfied. Example from the preamble: a calendar-year plan with a premium discount must credit January–March when the participant finishes the alternative on April 1.
The regulatory text never clearly required that retroactive payment. Plans, issuers, and TPAs have been stuck between the preamble example and designs that only apply the discount going forward from completion — especially for tobacco surcharges.
Q1: Prospective rewards are OK (for now)
FAQ Part 74 answers with enforcement discretion, not a formal rule change:
Until further guidance or regulations issue, the Departments will not take enforcement action against a plan or issuer that fails to pay a health-contingent reward retroactively to the beginning of the plan year, if the plan:
- Provides the reward for the period after the reasonable alternative standard is satisfied, and
- Otherwise meets 26 CFR 54.9802-1(f), 29 CFR 2590.702(f), and the parallel PHS rule.
Plans that want to keep paying retroactively may still do so. The FAQ does not cap how you pay the catch-up — lump sum or pro-rata over the rest of the year both worked under the old preamble example, as long as the participant received the full amount.
Important caveats baked into the same answer:
- The program must still be reasonably designed to promote health or prevent disease — not a back door for underwriting.
- Participants need enough time to complete the alternative and actually receive a reward.
- HHS encourages states with PHS enforcement authority to take the same approach; check with your carrier if you are fully insured outside ERISA.
This is subregulatory relief. It does not erase private litigation risk. Several tobacco-surcharge class actions argue retroactive relief is still required regardless of what DOL chooses to enforce.
Q2: Where you must disclose the reasonable alternative
The FAQ also narrows notice obligations.
You must disclose the availability of a reasonable alternative standard (and waiver, if applicable) in:
- All plan materials describing the terms of a health-contingent wellness program, and
- For outcome-based programs, any notice telling someone they failed the initial standard.
You do not need that full disclosure when materials only mention that a wellness program exists without describing its terms. The FAQ’s example: an SBC line that cost sharing may vary based on an outcome-based program, without describing the program’s standards, does not trigger the reasonable-alternative notice.
When disclosure is required, the 2013 rules still expect contact information for obtaining an alternative and a statement that a personal physician’s recommendations will be accommodated. The regulations include sample language employers and carriers have used for years.
Tobacco surcharges: still health-contingent
FAQ Part 74 discusses tobacco in the same breath as other health-contingent designs. The reward caps have not moved:
- 30% of the total cost of coverage (employee-only if the program applies that way) for most health-contingent programs.
- 50% when the program targets tobacco use — the higher cap many employers use for smoker/non-smoker premium tiers.
A typical compliant pattern: surcharge at enrollment unless the employee attests to non-use or agrees to a cessation program (the reasonable alternative). The new FAQ mainly tells you DOL will not chase you solely because the surcharge lift starts at completion rather than January 1 — if you otherwise run a non-discriminatory, reasonably designed program.
What employers should do
- Pull your wellness SPD excerpts, OE slides, and payroll surcharge logic — especially tobacco tiers — and compare them to Q1 and Q2 before 2027 rates lock.
- Decide consciously: retroactive reward (participant-friendly, aligns with 2013 preamble) vs. prospective-only (now DOL-safe on enforcement, may still draw plaintiff arguments). Document the choice.
- Split "mention" vs. "describe" in communications. High-level OE bullets can reference wellness without triggering alternative-standard notices; anything listing standards, surcharges, or biometric targets needs the full disclosure package.
- Confirm time to complete the alternative is realistic mid-year — the FAQ keeps that requirement.
- Loop in employment counsel if you are in (or worried about) wellness class litigation; agency non-enforcement is not a get-out-of-court card.
- Watch for formal rulemaking — the FAQ explicitly says this discretion lasts only until further guidance or regulations.
CBA administers COBRA, FSAs, HSAs, HRAs, and consolidated billing — not wellness incentive design. But surcharge and premium timing errors show up on the same payroll feeds we reconcile. If your wellness vendor and benefits TPA are not comparing notes before open enrollment, that is a good week to introduce them.