Group Health Plans & COVID-19 Vaccinations: Premium Surcharges Clarified in Time for Open Enrollment

By Christine M. Zinter - Bullard Law

October 19, 2021

Although OSHA has yet to publish the anticipated Emergency Temporary Standard (ETS) regarding President Biden’s COVID-19 workplace vaccination and testing mandate, it is realistic to expect the final draft of the regulation to be made public as early as this week with the final text published in the Federal Register – thus making it the law of the land – before the end of October. Despite the inevitable legal challenges, employers with more than 100 employees should be prepared to comply with a vaccination mandate as early as December 1, 2021.

With that in mind, and with many employers currently gearing up for their annual benefits Open Enrollment periods, employers may be considering health plan premium discounts for COVID-19 vaccinated employees (or, cast in a more negative light, a non-vaccinated surcharge). While the treatment of vaccine incentive programs has been plaguing employers and their legal advisors all year, happily the Biden administration, through an October 4 FAQ released in tandem by the Departments of Labor, Health and Human Services, and Treasury, provided cohesive guidance in advance of many employers’ January 1 new plan years.

HIPAA Nondiscrimination Rules and Wellness Incentives

Under the nondiscrimination rules promulgated by the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Affordable Care Act, health plans and health insurance issuers are generally prohibited from discriminating against participants in eligibility, premiums, or contributions based on a health factor. However, group health plans have long taken advantage of an exception to this rule that allows employers to offer employee premium discounts (or, on the other side of the coin, surcharges) in return for adherence to certain programs of health promotion and disease prevention—commonly referred to as wellness programs.

The 2013 final wellness program regulations, updating earlier (2006) nondiscrimination and wellness program provisions, set the permissible reward (penalty) at 30% of the cost of coverage (based on the total amount of employer and employee contributions toward the cost of single coverage for the benefits package under which the employee is receiving coverage), established guidelines for the reasonable design of a health-contingent wellness program, and required that wellness programs provide reasonable alternatives for those medically unable to meet the program requirements in order to avoid prohibited health-related discrimination.

In 2016, the Equal Employment Opportunity Commission (EEOC) issued its own workplace wellness program regulations reflecting HIPAA’s 30% discount/surcharge rule. Still, the Washington D.C. district court struck it down for conflicting with the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) and vacated it as of January 1, 2019, leaving many wellness programs in a state of limbo.

Just as the COVID-19 vaccine started to roll out in early 2021, conservative advisors found themselves counseling their employer clients to limit any vaccination incentive programs to very minimal amounts to avoid any claims of discrimination or coercion.

Employee Healthcare Premium Discounts/Surcharges Related to Vaccination Status Allowed

An October 4, 2021 guidance document, FAQs About Affordable Care Act Implementation Part 50, Health Insurance Portability and Accountability Act and Coronavirus Aid, Relief, and Economic Security Act Implementation clarified that employers wishing to offer a premium discount/surcharge as a wellness program provided by the group health plan would not be limited by the EEOC’s guidance relating to other workplace policies that may incentivize vaccinations.

Due to this guidance, employers that wish to provide an employee premium subsidy/surcharge related to a health factor—in this instance, obtaining a COVID-19 vaccination—are allowed to do so, provided the group health plan’s wellness program complies with the following five criteria attributable to activity-only wellness programs:

1.  The plan must provide an opportunity to qualify for the reward at least once per year;
2.  The award/penalty must be limited, along with all other health-contingent wellness programs, to 30% of the total cost of employee-only coverage under the plan;
3.  The wellness program must be reasonably designed to promote health or prevent disease;
4.  The full reward must be available to all similarly situated individuals, which includes a reasonable alternative standard for obtaining the reward (avoiding the penalty) for any individual who, due to medical condition, finds it unreasonably difficult or medically inadvisable to satisfy the standard; and
5.  The plan materials must fully disclose the activity-only wellness program and the availability of reasonable alternatives to qualify for the reward (materials are to include the statement that recommendations of an individual’s personal physician will be accommodated).

Other Limitations Related to Vaccination Status Prohibited

Outside of an employee premium discount/surcharge, a health plan may not condition other benefits eligibility or benefits coverage on vaccination status. For instance, some employers have contemplated excluding group health plan coverage for COVID-19 treatment for unvaccinated employees. The FAQ makes it clear this is not permissible under HIPAA’s nondiscrimination rules.

Reasonable Alternatives

Employers considering a premium discount/surcharge program need to decide what vaccination alternatives could be offered to a person for whom the COVID-19 vaccination is medically contraindicated. (Note, there is no religious exemption requirement in HIPAA. Therefore, even an employee excused from a vaccination mandate under Title VII would not be entitled to a surcharge waiver under the group health plan.) The FAQ suggests, as an example, that the wellness program may offer a waiver if a person attests to following other COVID-19-related guidelines such as continued compliance with the CDC’s mask guidelines for unvaccinated individuals (currently, remaining masked in all public indoor settings). Another alternative may include periodic COVID-19 testing (even if the employer is not subject to a federal or state mandate), requiring the worker to perform duties at a social distance from co-workers or nonemployees, or continued telework opportunities (if available).

Whatever alternative an employer chooses to provide must not be overly burdensome to the individual and should also be designed to prevent infection with the SARS-CoV-2 virus

Employers Subject to the Affordable Care Act’s Employer Mandate

For those serious about pursuing a premium discount/surcharge program, employers subject to the ACA’s employer shared responsibility payments should be aware that wellness program incentives unrelated to tobacco use are taken into account when addressing health plan “affordability.” For instance, if an employer discounts an employee’s premium by 30%, this discount is disregarded for the purposes of calculating affordability; conversely, if there is a 30% surcharge for a non-vaccinated individual, the surcharge is not disregarded in assessing affordability.

Should an Employer Implement an Employee Premium Discount/Subsidy for COVID-19 Vaccination?

If and when there is a vaccine mandate in place, employers may not feel the need to add a discount/surcharge program in order to incentivize vaccination further. Adding a compliant wellness program, even one as simple as a premium discount/surcharge, represents an additional administrative burden, including payroll issues, the need to implement and track a “reasonable alternative” program for those employees who have a health condition that precludes vaccination, handling claims and appeals, and the proper notification of employees.

Employers implementing a program should consider whether employees will be able to take advantage of the lower rate if they are vaccinated midyear; how vaccination status will be tracked and kept confidential; if and how to calculate a surcharge for spouses and dependents; whether booster shots will be required in order to continue receiving the discount (assuming boosters become medically recommended for the general public); and even whether the surcharge will sunset when the pandemic is “over” (whatever that definition may be) or if the intent would be to continue such a program indefinitely.

Whether positioned as a reward or penalty, 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 (up to 50%) if they failed to cease using tobacco products (or failed to comply with reasonable alternatives, such as completing a smoking cessation program). Unvaccinated employees are at a much higher risk of hospitalization, death due to COVID-19, and are more likely to expose others at the workplace. We have reached the stage in the pandemic where employers should not only make it easy for employees to get vaccinated but also consider making it more difficult to remain unvaccinated.