What employers need to know about tobacco surcharges, the ACA, and offering a Reasonable Alternative Standard.
Do you offer financial incentives to employees for not using tobacco, such as a tobacco surcharge or a non-smoker discount?
IF YES…
The Affordable Care Act (ACA) allows employers to charge tobacco users more for health care than non-users—but with important restrictions! The goal is to encourage healthy behavior, not punish tobacco users. Employers who don’t follow the rules properly could face fines or lawsuits.
How it Works:
You can incentivize employees to make a quit attempt using a tobacco surcharge.
BUT under the ACA, if an employee can’t or doesn’t quit, you must clearly offer a “Reasonable Alternative Standard.”
The most common “Reasonable Alternative Standard” is participation or completion of an evidence-based cessation program, like 2Morrow’s.
Employees who meet the requirements of the alternative standard must receive the incentive for that year, even if they haven’t quit yet.*
Employers who fail to provide a Reasonable Alternative Standard risk EEOC complaints, lawsuits, or financial penalties.
IF NO…
If you’re not charging different health plan rates for tobacco users, this ACA rule likely doesn’t apply to you.
However, smoking still impacts your business. Each smoker costs employers an estimated $5,816 per year Berman et al.(2014) in lost productivity and healthcare expenses. Even if you don’t impose a surcharge, supporting employees who want to quit can lead to healthier, more productive teams.
How to Support Employees Who Want to Quit:
Go Smoke-Free – Establish a smoke-free workplace policy.
Run a Yearly Tobacco Awareness Campaign – Educate employees about the benefits of quitting and offer encouragement.
Offer Free or Subsidized Cessation Support – Make quitting resources easily available.
Incentivize Participation – Some employers offer free NRT, gift cards, PTO, or wellness program points for engaging in cessation efforts.
Encourage attempts without shame. It often takes people multiple attempts to quit.
Five-factor compliance test:
ACA Wellness Program Requirements for a Tobacco Surcharge
Under HIPAA and ACA nondiscrimination rules (45 CFR § 146.121(f)), an employer applying a tobacco surcharge through a health-contingent wellness program must meet this five-factor compliance test:
Annual opportunity — Employees must be able to qualify for the non-surcharged rate at least once per year.
Reward limit — The surcharge cannot exceed 50% of the total cost of self-only coverage when tied to tobacco use (30% is the general cap for other health-contingent programs; the extra 20 points are specifically allowed for tobacco).
Reasonable design — The program must be designed to promote health or prevent disease, not simply penalize employees.
Reasonable alternative standard (RAS) — Employees who don't meet the tobacco-free standard must be offered a reasonable alternative, such as a cessation program, to avoid the surcharge. If a personal physician determines that alternative isn't medically appropriate for a given employee, the plan must provide a different one.
Disclosure — The availability of the reasonable alternative must be clearly stated in all plan materials.
*Rules regarding tobacco surcharges may vary by state; some states limit or prohibit them entirely. Employers should consult their legal or compliance advisors for state-specific guidance.
Sources: 45 CFR § 146.121, current regulation · U.S. Department of Labor, HIPAA and Wellness Program guidance
Why Choose 2Morrow?
2Morrow’s evidence-based cessation program meets ACA requirements and includes:*
A private, digital-first experience designed for ease of use.
Access to a real coach – Participants can message or talk to a coach for guidance.
Nicotine Replacement Therapy (NRT) – Additional support for those who qualify.
A reporting dashboard to track participation, progress, and a certificate of completion.
Flexible, low-lift implementation – No extra burden for HR.
Available 24/7 – Employees access the program on their own time.
Promotional materials and a dedicated account manager
Digital tobacco cessation programs have been shown to deliver up to $9 in healthcare and productivity savings for every dollar invested (Brault, Rein & Graham, Journal of Medical Economics, 2025).
“When we added a tobacco surcharge, we needed a program that made compliance easy. 2Morrow gave us everything we needed: promotional materials, best practices for rollout, and an online reporting tool that lets me track enrollment and completion without any extra work on our end. This was a big change for our 3,200 employees, but 2Morrow helped us with supportive messaging focused on the health benefit.”
*Disclaimer:
Rules regarding tobacco surcharges and Reasonable Alternative Standards may vary by state, insurer, or plan type. This page is for informational purposes only and does not constitute legal or compliance advice. Employers should consult their legal or compliance advisors to ensure full ACA and state-specific compliance.