Employers Considering Health Insurance Surcharge for Failure to Obtain the COVID-19 Vaccine. What you should know if you are too!

Since full FDA approval of the Pfizer vaccine, employers have begun not only mandating receiving the vaccine, in some cases, but even adding COVID-19 vaccination to the employer plan wellness program. This idea is not a new one. In some industries, such as healthcare, employees are often mandated to have the flu vaccine, and in many cases will suffer an insurance surcharge for failing to comply with that health-contingent feature to the wellness plan.

Surcharges are really just a different way to structure what many employers call an incentive for reaching certain health metrics or standards — or, participating in a wellness plan required event (e.g., biometrics screenings, health coaching, smoking cessation, etc.)

Whether reducing a premium contribution for meeting a wellness metric or standard (incentive) or increasing premium contributions (surcharge), there are many compliance considerations. Don’t forget your employment law considerations! Your state and federal wage and hour laws may limit the ability to structure your wellness program as a surcharge, depending on garnishment rules. That discussion is outside the scope of this article.

Consult your employment law expert for how to address any state and federal wage and hour law issues. If you need access to an employment attorney, contact your Leavitt Group representative. We are here to help! For your employee benefits compliance considerations, our in-house ERISA attorney and compliance team assembled a list of all the employee benefits areas to consider first if thinking about adding a COVID-19 vaccine surcharge feature to your wellness program.

Considerations for a COVID-19 Vaccination Surcharge Feature

If you are an employer thinking about implementing an insurance surcharge for employee-plan participants who fail to obtain the COVID-19 vaccine, there are several compliance considerations. Ask the following questions:

• What is the scope and intent of the vaccination and surcharge program?
  • Be sure you define all terms in the plan document or wrap document.
  • Will the scope include only employees or covered spouses?
• How much will the surcharge impose on the health insurance of the unvaccinated? (See below for details on incentive/surcharge limits).
  • Avoid surcharges so high as to be coercive.
  • The rules as to what would be considered coercive are under development after some recent court challenges and EEOC guidance changes.
  • Wellness incentive rules are under construction now but will likely reflect the HIPAA limits for incentives.
  • Using the the tobacco surcharge limit of up to 50% of the premium is a common approach, although it is not founded in black and white guidance due to the early stage of this issue and the regulators’ inability to draft regulations to address the quickly changing environment.
  • Expect clarifying guidance in the coming months.
• Does the surcharge take into account existing incentives?
  • Incentives are limited to 30% or total cost of employee-only coverage (up to 50% for tobacco surcharge).
  • A new incentive versus an existing one could make it more likely that the incentive limit be reached.
  • Be aware of the total incentive being provided across all wellness program incentives, including biometric screenings and smoking cessation.
• What is the reasonable alternative should the employee not be able to receive the vaccine? (See below for details on reasonable alternatives).
  • Remote work.
  • Isolate in the workplace.
  • Reassign.
  • Strict compliance with masking and social distancing.
• What proof of vaccine will be obtained?
  • Doctor’s note.
  • Self-attestation.
    • Will there be a consequence for submitting inaccurate information? Be sure to outline this in any materials describing the vaccination program and wellness component of the vaccination surcharge program.
  • How will that data be protected pursuant to HIPAA & ADA?
  • Will booster shots be required to earn the incentive, and if so, at what point would those be deemed necessary in order to be considered fully vaccinated?
• Does plan document language permit midyear plan cost change? If so, employees may be able to disenroll or change election to less expensive coverage.
• If changing the plan midyear to add this surcharge, consider your ability to change any COBRA premiums should you have COBRA participants subject to the terms of the wellness program.
• Is there a Collective Bargaining Agreement (CBA)? If so, it may limit your ability to add this surcharge to the wellness program for those under the CBA.

Wellness Program Considerations

The first question is “Can we place a surcharge on the unvaccinated?” The answer is “yes.” COVID-19 vaccine surcharges would be part of the plan wellness program. There is no direct guidance on this issue yet, but the analysis will follow one of two paths:

1. Participation-only program
   • Do not require any conditions for receiving a reward and have very few requirements associated with them, except that they must be available to all similarly-situated individuals.
2. Health-contingent program
   • Base rewards on satisfying a standard related to a health factor; further subdivided into two types of health-contingent programs
     • Activity-only
     • Outcomes-based programs

The analysis considers whether getting the vaccine is a participation-only program since the plan participant merely needs to get the COVID-19 vaccine to achieve this metric. It does not require the individual remain free from COVID-19. But, such a surcharge program may actually be a health-contingent program because not everyone can get the vaccine since some may have an underlying health condition or religious objection. Absent direct guidance from the Department of Health and Human Services (HHS) on the issue of applying a surcharge to a COVID-19 vaccination wellness program, it may be safest to assume such a program would be a health-contingent activity-only program. A health-contingent activity-only wellness program must meet the following requirements:

1. Incentive limit
   • Limit the incentive to 30% of the cost of coverage (increased to 50% if it includes a tobacco cessation feature)
   • Based on the overall cost of coverage (i.e., COBRA rate for elected coverage value, for example, self-only, family, etc.)
   • Any vaccination program incentive or surcharge would need to be combined with any other health contingent wellness program offered under the plan when determining if the incentive limit was reached
2. Reasonable alternative
   • Must be offered to those unable to get vaccinated due to a medical inadvisability, or, due to a sincerely held religious belief
   • Must be notified of the availability of the reasonable alternative in all materials describing the wellness program terms
3. Be uniformly available to all similarly situated individuals
4. Provide annual opportunity to qualify for reward
5. Be void of discrimination and intent to discriminate by using this program

For additional details on wellness program rules, view our Leavitt Group articles. Also see the HHS guide on wellness programs. Health contingent wellness programs that are outcomes-based programs will have additional requirements outside the scope of this article. A COVID-19 vaccination program would not likely be an outcomes-based program since one cannot guarantee they will not contract COVID-19, and hence, not be able to achieve the outcome of not catching COVID-19.

Affordable Care Act (ACA) Considerations

Applicable Large Employers (ALE) opting to place a surcharge on the health insurance premium of the unvaccinated employee will also have to consider the impact of financial incentives and reduced premiums on the ACA affordability calculations. ALEs are required to offer full-time employees affordable, minimum essential coverage or risk a tax penalty. In determining what an affordable premium is, plans with wellness programs must consider the impact of the value

Wellness incentives that are not tobacco related are treated as “not met” for purposes of determining ACA affordability calculation in complying with the Employer Shared Responsibility Mandate. By adding any vaccine surcharge, this will effectively increase the cost to employees, making it more challenging for some employers to fall within the realm of affordable coverage.

Conclusion

If thinking about going further and limiting access to group health plan coverage to those who are vaccinated, this is not permitted as it would violate HIPAA nondiscrimination rules. But aside from that, it is permitted to charge more for the unvaccinated if complying with the myriad of rules applicable to wellness programs. It is ultimately up to the industry type, risks, and company culture to determine whether mandating a vaccine and imposing a surcharge on the unvaccinated is appropriate.

If considering a surcharge program, be sure to consider all the factors above, in writing preferably, and at minimally, detailing many of these terms in the plan document. If amending the plan midyear, a change to the Summary of Benefits and Coverage and Wrap Summary Plan Description language is required. Be sure to distribute the amended language as soon as possible, preferably 60 days ahead of the change, but no later than 60 days after the change.

Stay tuned to the news.leavitt.com news source as we will let you know as additional details and regulatory guidance are released. Be sure you are subscribed to receive the news as it is released.