Can an Employer Surcharge Its Unvaccinated Employees? An Update
In one of the first reported attempts to “nudge” its unvaccinated employees to become vaccinated, Delta Airlines announced that starting in 2022 it was imposing a $200 per month premium surcharge for any COVID-19 unvaccinated employee enrolling in one of its health plans. Other employers quickly began asking if this was allowable under a myriad of employee benefit laws and regulations. The answer is “yes,” but…
To begin the analysis, you have to treat the COVID-19 vaccination under the existing HIPAA wellness rules. As you’ll recall, there are two types of wellness programs under these rules: participatory and health-contingent. From the existing regulations of wellness programs, it was unclear which of these two types or programs the COVID-19 vaccination surcharge would fall (or conversely, reward for those vaccinated). An argument could have been easily be made for either type. However, on October 4, 2021, the Departments of Labor, Treasury, and Health and Human Services (HHS) announced that vaccine incentives/surcharges fall into the participatory form of wellness. That has significant ramifications for employers.
A participatory wellness program must meet five criteria:
- Give individuals eligible for the program the opportunity to qualify for the reward under the program at least once per year;
- limit the reward, together with the reward for other health-contingent wellness programs, to 30 percent (or 50 percent for wellness programs designed to prevent or reduce tobacco use) of the total cost of employee-only coverage under the plan;
- Be reasonably designed to promote health or prevent disease;
- Be made available to all similarly situated individuals and include a reasonable alternative standard (or a waiver of the otherwise applicable standard) for obtaining the reward for any individual for whom it is unreasonably difficult due to a medical condition, or medically inadvisable, to satisfy the otherwise applicable standard; and
- Disclose, in all plan materials describing the terms of the wellness program, the availability of the reasonable alternative standard (and, if applicable, the possibility of waiver of the otherwise applicable standard), including contact information for obtaining a reasonable alternative standard and a statement that recommendations of an individual’s personal physician will be accommodated.
In a participatory program (sometimes referred to as “activity-based”), the employer must ensure that there are alternatives for those who are medically unable to get the vaccine (for example, an immunocompromised employee in the middle of chemotherapy) and for those who claim a religious exemption (for example, a member of the Church of Christ, Scientist). An employer is allowed to request a statement from the individual’s personal physician. For those claiming a religious exemption, you will want to consult your employment law counsel as to how to determine if a religious exemption claimed applies. Further, there is a HIPAA-imposed limit that the surcharge not exceed 30 percent of the employer plus employee cost for employee-only coverage (see #3 above). In Delta Airlines’ case, assuming no other wellness surcharges/rewards, a $200 surcharge means that the total monthly cost for employee-only coverage would have to exceed $666.67 ($200 divided by 30 percent).
Next, you have to consider the impact of the ACA’s affordability rules. Under the existing regulations, employees both vaccinated and unvaccinated would be considered to be paying the sum of the regular premium co-share plus the surcharge. [Note: This is one of many oddities in the current regulations. The same rule applies to those who were offered a medical opt-out taxable credit but chose health coverage anyway. The total cost of employee-only premium co-share plus the declined opt-out credit is used for the ACA’s affordability calculation]. It is entirely possible that a $200 monthly surcharge would render the plan unaffordable under the ACA’s three safe harbors, opening up the employer to either the $2,000 or $3,000 penalties (in 2021, those stand at $2,700 and $4,060). Under the “(a)” penalty, if the employee co-share with the surcharge was greater than any of the three affordability safe harbors for more than 5 percent of the employer’s eligible employees, and any one eligible employee went to the Exchange/Marketplace and received a premium subsidy credit there, the employer would be on the hook for the $2,000 per head penalty–even though it offered coverage to all eligible employees. For the “(b)” penalty, assuming that less than 5 percent of the employer’s eligible employees had the coverage deemed unaffordable, then for those individuals that went to the Exchange/Marketplace and received a premium subsidy credit there, the $3,000 penalty would apply. Thus, the amount of a surcharge/reward must be examined to determine its impact on any given employer’s affordability standard.
The bottom line: determine if and how much of a surcharge/reward you want to offer to “nudge” employees to become vaccinated. If after the analyses are conducted you still wish to do so, you at least know the potholes to avoid.