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Health Plan Premium Surcharges for the Unvaccinated? Employer Considerations

Charging higher premiums to unvaccinated workers raises some issues

A stethoscope sits on top of a health insurance form.

Editor's Note

Wade Symons, regulatory resources group leader at HR consultancy Mercer, recently told Forbes: "At the same time that [COVID-19] vaccination rates have stalled, we have received inquiries from at least 20 employers over the past few weeks who are giving consideration to adding health coverage surcharges for the unvaccinated as a way to drive up vaccination rates in their workforce."

The "stick" of a premium surcharge is in addition to the "carrots" many employers have offered to date, such as gift cards, a day off from work, cash and other financial incentives to convince workers to get vaccinated against COVID-19.

According to Mercer, the amount of the surcharge being discussed with these employers is akin to the $20 to $50 a month that companies already charge workers who smoke, Forbes reported.

Separately, Mercer advised that:

From a compliance perspective, premium surcharges and other incentives tied to the medical plan trigger HIPAA wellness program rules. Employers considering surcharges should confirm the plan would still align with ACA affordability if employees forego the vaccine and have to pay a higher premium. EEOC wellness rules are triggered if the employer or its agent is administering the vaccine, as well as the prohibition on “coercive” incentives/surcharges noted above. As with incentives, accommodation should be provided to those who are unable to receive the vaccine due to a disability or sincerely-held religious belief, with an alternative offer to avoid the surcharge. State law restrictions related to vaccine status must also be considered.

Below, Joseph J. Lazzarotti, an attorney with Jackson Lewis, discusses issues that employers should consider before putting in place a surcharge on the health plan premiums of unvaccinated workers.

-- SHRM Online

According to Forbes, more employers are considering imposing a premium surcharge on employees participating in the company's health plan who are not vaccinated for COVID-19.

Whether positioned as rewards or penalties, wellness program incentives have become vehicles of choice for encouraging behaviors believed to be healthy and reducing health plan costs. For years, tobacco users have faced health plan premium surcharges if they failed to cease using tobacco products (and if they also failed to comply with reasonable alternatives, such as completing a smoking cessation program). 

More COVID-19 "unvaccinated" employees may start facing similar surcharges if they choose to remain unvaccinated for COVID.

Implementing a COVID-19 premium surcharge wellness program to provide an incentive for more plan participants to get vaccinated comes with some compliance challenges. Those challenges depend largely on the design of the program and the administration of it. And, unfortunately, the guidance surrounding wellness programs, particularly from the Equal Employment Opportunity Commission (EEOC), remains less than clear.

Considerations for Employers

Employers considering a health plan premium surcharge for plan participants who remain unvaccinated have some issues to consider in structuring the program, such as:

  • How much will the surcharge be?
  • How does a vaccination surcharge interact with other wellness incentives the employer offers?
  • Will the surcharge apply only with respect to employees who remain unvaccinated? What about spouses and dependents?
  • How long should plan participants have to get fully vaccinated?
  • What proof will be required to establish vaccination? There has been a rise in fake vaccination cards, and a warning from the FBI that making or buying such cards is a crime. What are the consequences under the plan for a participant who submits a fake card?
  • Is the vaccination requirement "participatory," or is it "health-contingent"? If health contingent, and considered "activity only," what reasonable alternative standard will be made available should vaccination be medically inadvisable for the participant?
  • What protections are in place for the handling of vaccination data and, in some cases, medical data supporting a reasonable alternative standard, all of which constitute protected health information under HIPAA?
  • Does the Americans with Disabilities Act apply even if vaccination does not constitute a disability-related inquiry or a medical examination? In other words, what reasonable accommodations need to be made available, if any?
  • As COVID-19 variants continue to emerge along with more talk of vaccine boosters, should the program also include boosters, if available?

[Want to learn more about compensation and benefits? Join us at the SHRM Annual Conference & Expo 2021, taking place Sept. 9-12 in Las Vegas and virtually.]

Wellness Incentives Guidance

On May 28, 2021, the EEOC updated its pandemic guidance to clarify that employers may offer employees an incentive if the confirm they have been vaccinated on their own from a pharmacy, public health department or other health care provider. According to the same guidance, employers may even offer an incentive to employees for voluntarily receiving a vaccination administered by the employer or its agent, so long as the incentive (a reward or penalty) is not "so substantial as to be coercive."

However, the incentive may not extend to the employee's family members receiving a vaccination administered by the employer or its agent, as that could violate Title II of the Genetic Information Nondiscrimination Act, according to the EEOC.

Prior to its May 2021 guidance, the EEOC had issued a notice of proposed rulemaking attempting to clarify its position on wellness program incentives. The proposed rule, however, was withdrawn by the incoming Biden administration

Notably, the general rule—which would have permitted only de minimis incentives—came with an exception for health-contingent wellness programs that (i) are part of, or qualify as, group health plans and (ii) are subject to and comply with the applicable provisions on wellness program incentives under the Health Insurance Portability and Accountability Act (HIPAA) as amended by the Affordable Care Act (ACA). 

Such programs would have been able to provide more than de minimis incentives, provided there were not greater than what is permitted under the ACA/HIPAA wellness rules [generally, incentives of up to 30 percent of the total cost of an employee's health insurance premiums for self-only coverage, rising to 50 percent of individual-coverage costs for employees who participate in programs that prevent or reduce tobacco use].

Some employers are moving beyond incentives, including surcharges, to simply mandate COVID-19 vaccinations on the condition of employment. That approach comes with its own set of issues and risks. However, organizations choosing a health plan premium surcharge wellness program approach will want to consider these and other related issues carefully.

Joseph J. Lazzarottiis an attorney with Jackson Lewis in Morristown, N.J. © 2021 Jackson Lewis P.C. All rights reserved. Reposted with permission. Additional hyperlinks in the article above were added by SHRM Online.

Related SHRM Article:

Delta Air Lines Charges Unvaccinated Workers $200 Monthly Premium Surcharge, SHRM Online, August 2021

Premium Surcharges Can Motivate Vaccination, Research Shows, SHRM Online, September 2021


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