September 10, 2021Client Alert

Higher Health Care Premiums for Unvaccinated

Following the formal federal approval of the Pfizer vaccine and as Covid-19 cases are on the rise, we’ve seen many employers tightening vaccine policies, including mandating the vaccine. A national airline (Airline) is one of the most notable in a group that has taken another approach — raising the cost to employees of being unvaccinated.

According to a series of publications, beginning November 1, all Airline employees who are covered by the company’s group health insurance will (with certain limited exceptions) face a $200/month surcharge on their insurance premium if they are not vaccinated. The company asserts that the average cost to the company of a COVID-19 hospitalization is $50,000 and that thus far, all of the Airline’s employees who have been hospitalized in the recent surge of COVID-19 cases have been unvaccinated. Thus, the Airline believes the surcharge on the cost of health coverage is an appropriate way to address the financial risk to the company of employees choosing to be unvaccinated. 

Implementing the approach that the Airline is taking will likely fall under certain “wellness program” rules – as a “health-contingent” program -  and, thus, any contemplated surcharge (or discount) to health insurance premiums is likely to trigger the Affordable Care Act (ACA)/HIPAA nondiscrimination rules, including (without limitation) complying with the limit on wellness incentives.

Under current ACA/HIPAA guidance, wellness programs must do all of the following:

  • Give eligible participants the opportunity to qualify for the reward at least once per year.
  • Limit the total reward for all the plan’s wellness programs that require satisfaction of a standard related to a health factor to 30 percent (or 50 percent for programs designed to prevent or reduce tobacco use) of the cost of employee-only coverage under the plan.
  • Be reasonably designed to promote health and prevent disease.
  • Make the full reward available to all similarly situated individuals. This means the program must allow a reasonable alternative standard (or waiver of the otherwise applicable standard).
  • Disclose in all materials describing the terms of the program the availability of a reasonable alternative standard (or the possibility of a waiver of the otherwise applicable standard).

As noted above, since the surcharge would also be combined with any other non-tobacco related incentives for health-contingent activities in assessing whether the incentive limit (30%) has been reached, a comprehensive review of wellness programs will be required. Moreover, since activities that only require participation and are not based on a health factor do not count against the limit, it will be important to carefully vet which wellness activities are participatory versus health-contingent.

Other related considerations include: (1) whether any surcharge or discount will impact the “affordability” of the coverage for ACA purposes, (2) whether and how forthcoming EEOC guidance concerning voluntary wellness programs will impact the wellness program path, and (3) union negotiation impact.

Even in light of the uncertainty, many employers are now grappling with the decision of whether to implement a stricter vaccination policy. It’s unclear whether the vaccine surcharge (rather than a mandate) will face less backlash from certain employees who are opposed to the vaccine in various ways. Mandates and health plan surcharges are more like “sticks” than “carrots."

Interestingly, the EEOC issued guidance in May 2021 indicating that an employer’s requesting documentation or other confirmation showing that an employee received a COVID-19 vaccination in the community is not a disability-related inquiry. Therefore, an employer could offer an incentive to employees to provide such proof that would have no dollar limits. However, requiring an employee to participate in an employer-sponsored vaccination program in return for an incentive or avoidance of a surcharge would be subject to limitations under the Americans with Disabilities Act (with additional guidance still potentially forthcoming, as noted above).

Accordingly, some employers with particularly resistant workforces may consider adopting a vaccine incentive – either in the form of a one-time cash bonus and/or ongoing stipend – e.g., $20/paycheck. If you have questions related to what type of vaccine policy is best for your business or how to respond to employee push back to vaccine related policies, please reach out to your Michael Best attorney

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