Considering a Vaccine Surcharge? There’s a Lot to Consider

Tuesday, November 09, 2021

By Suzanne D’Amato, Business Contributor

PHOTO: file

A large number of employers are not affected by the Biden administration’s executive orders and directive to OSHA that mandates the COVID-19 vaccine for employers with over 100 employees, federal employees and contractors, and healthcare workers. Yet many of these companies are looking for other options to increase vaccinations among workers. A common strategy is to impose a surcharge on the cost of group health coverage for those who remain unvaccinated. However, if you go this route, there are some gray areas to navigate and a number of regulations and related rules to consider.

Specifically, vaccine surcharges are allowed only if the program qualifies as a wellness program, which implicates the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA) wellness program rules. Additionally, employers need to consider that the Americans with Disabilities Act (ADA), the Genetic Information Nondiscrimination Act (GINA), civil rights laws (e.g., Title VII), HIPAA nondiscrimination, Section 125 plan rules and state laws may come into play.

The Department of Labor (DOL), Internal Revenue Service (IRS), and Department of Health and Human Services (HHS) recently issued new COVID-19-related FAQs to provide clarity to employers considering this approach. While the guidance addresses premium discounts, the same principles would seem to apply to programs that impose premium surcharges on the unvaccinated. Given the complexities involved with designing any wellness program, employers considering a surcharge (or discount) should work with legal counsel to understand the risks and ensure their program is designed properly.

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HIPAA Considerations While many think of HIPAA as a privacy law, it also includes health nondiscrimination rules that generally prohibit an employer from charging employees higher health insurance premiums based on a health factor. However, HIPAA allows employers to offer financial incentives to those who participate in its wellness programs. These incentives are frequently designed as a surcharge to the premium the participant pays for coverage. The recent guidance confirmed that a premium surcharge on individuals who are not vaccinated would constitute an “activity-only health-contingent wellness program” and must comply with the following HIPAA and ACA rules:

- A participant must be given the opportunity each year to qualify for the reward

- The incentive must be uniformly available to all similarly situated individuals and cannot be a subterfuge for discrimination.

- The maximum reward or surcharge for all wellness program incentives is limited to 30% of the total cost of the employee-only coverage (or 30% of the total cost of coverage

- if dependents can also earn the incentive); this limit increases to 50% if the program includes a tobacco cessation incentive

- This surcharge would be combined with any other “health contingent” wellness program offered under the plan when determining if the incentives exceed the 30%/50% limit

- The program must provide a reasonable alternative activity (or waiver of the activity) for any individual who cannot get vaccinated because it is medically inadvisable or due to a sincerely held religious belief

- Participants must be notified of the availability of the reasonable alternative in all materials that describe the wellness program (or, if applicable, the availability of a waiver of the activity)

- The full reward must be available to participants who complete the activity or satisfy the reasonable alternative standard (or waiver), so if an employee who is paying the surcharge becomes vaccinated, they may be entitled to a refund (or credit) of the surcharges paid up to that point in the plan year

The recent FAQs also make it clear that plan sponsors cannot condition eligibility for benefits on a participant’s vaccination status, due to HIPAA’s prohibition against discrimination based on a health factor. Thus, health plans cannot deny benefits or eligibility for coverage based on whether an individual obtains a COVID-19 vaccination.

ACA Affordability

For ACA purposes, if the incentive is structured as a surcharge, the employer must treat all employees as if they failed to get vaccinated and were required to pay the increased amount, for purposes of determining whether coverage meets the ACA affordability requirements. In other words, a vaccine-related surcharge will have the effect of making coverage less affordable by ACA standards. Employers that are ALEs (i.e., have 50 or more full-time equivalent employees) need to keep this in mind when considering whether to implement a surcharge. Failure to offer affordable coverage could result in penalties if employee premiums are unaffordable and employees purchase subsidized coverage through the healthcare exchanges.

Implications of ADA and GINA

EEOC updated technical assistance states that employers may offer incentives to employees to voluntarily receive a vaccine, whether they receive the vaccine on their own from a pharmacy, health department or community health partner, or whether they receive a vaccine administered by the employer or an agent of the employer. However, if the vaccine is administered by the employer or an agent of the employer, then requirements under the ADA and GINA, which limit the amount of the incentive and impose confidentiality requirements (including a confidentiality notice requirement), will apply.

For example, if the vaccination is administered by the employer or agent of the employer, the employer may not implement incentives (or surcharges) to an employee in exchange for a family member’s receipt of a vaccination due to limitations under GINA. In addition, if the vaccination is administered by the employer or by an agent of the employer, the surcharge cannot be so substantial as to be coercive, due to the ADA. (The EEOC has not explained or provided examples of what incentives (or surcharges) will be considered “so substantial as to be coercive.”)

While the EEOC has confirmed that requesting documentation or other confirmation showing that an employee received a COVID-19 vaccination in the community is not a disability-related inquiry covered by the ADA, employers must be careful to limit the inquiry to vaccination status. Supervisors and managers should be trained on how to handle vaccine discussions to ensure they don’t inadvertently violate the ADA. Additionally, employers need to keep vaccination documentation confidential, stored in a confidential medical file consistent with ADA requirements.

Other Challenges to Consider

Employers should consider that implementing a premium surcharge on unvaccinated employees will not impact employees who waive health coverage by their employer, so it is unlikely to motivate those employees. Other challenges include developing reasonable alternatives that make sense and result in improved workplace safety, deciding how to document vaccination status and the penalty for providing false vaccination cards, and coordinating a testing program with payroll processing to impose the surcharge accurately and timely given the time lag that will likely occur with a testing program. Employers need to think carefully about these challenges and determine whether adding a surcharge to their plan will result in a meaningful increase in vaccination rates.

In addition to these issues, plan sponsors need to consider plan document requirements, Section 125 plan rules related to significant cost increases mid-year and determine whether a mid-year implementation of a surcharge creates an opportunity for participants to drop or change coverage. Employers also need to review state laws that might prevent employers from imposing a surcharge or may limit how and when they can implement a surcharge.

As we move rapidly toward January 1, 2022, employers considering a premium surcharge in their next plan year should work with their advisors and employee benefits legal counsel to evaluate whether, given their workforce and culture, the benefits outweigh the risks.

Suzanne D’Amato is an employee benefits attorney with 15-years of experience in the field who leads Hilb Group’s national compliance practice.

Considering a Vaccine Surcharge? There’s a Lot to Consider

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Considering a Vaccine Surcharge? There’s a Lot to Consider

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