On August 26, 2026, the U.S. Department of Labor (DOL), the U.S. Department of Health and Human Services (HHS), and the U.S. Department of the Treasury released guidance indicating that they will not take enforcement action against employers if they do not provide retroactive application of a wellness program reward back to the beginning of the plan year to employees who meet a reasonable alternative standard, instead of the traditional standard for the wellness program. The guidance follows a recent wave of litigation challenging tobacco surcharges and health-contingent wellness programs.

• The federal government released FAQs that confirm employers are not required to retroactively allocate the full reward for a wellness program when an employee completes a reasonable alternative standard. The guidance applies to health-contingent, outcome-based wellness programs.
• The FAQs provide welcome DOL enforcement relief, but they do not eliminate private litigation risk or resolve all open compliance questions for wellness programs.
• Federal law requires employers to provide a reasonable alternative for employees who cannot satisfy an initial standard under an outcome-based wellness program because of their medical condition.
• The FAQs are not binding on federal courts.

Background

In an effort to help plans address rising healthcare costs, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Affordable Care Act (ACA) permit employers to reward employees...

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