Premium Surcharges for Nonvaccinated Employees | JGS Insurance 

Premium Surcharges for Nonvaccinated Employees

By Barry Fields 

Many employers are exploring options related to COVID-19 vaccination status within their workforce, including whether to charge a premium surcharge for nonvaccinated individuals.

There are a number of legal considerations to take into account when determining whether to impose a premium surcharge (or offer an incentive) based on vaccination status. Subject to any specific state laws prohibiting this practice, employers may generally provide incentives to employees for receiving the COVID-19 vaccine (or penalize employees for failing to get vaccinated).

This information is intended as an overview of the various compliance concerns for implementing a wellness program related to COVID-19 vaccination status.

Action Steps

Employers that wish to impose a premium surcharge or offer an incentive based on COVID-19 vaccination status should carefully consider the compliance obligations related to this strategy. Because this would likely need to be structured as a wellness program, employers should become familiar with the legal requirements for wellness programs.

Employers may need to make exceptions to an incentive or penalties for employees who are unable to get vaccinated due to a disability or a strongly held religious belief. Treating those employees differently because of their lack of vaccination could potentially be discriminatory under the Americans with Disabilities Act (ADA) or Title VII of the Civil Rights Act.

Legal Background

There are several legal issues involved in designing workplace wellness programs. Wellness programs must be carefully structured to comply with both state and federal laws. The main federal laws that should be considered when designing a wellness program related to COVID-19 vaccination status are the following:

  • the Health Insurance Portability and Accountability Act (HIPAA);
  • the ADA; and
  • the Affordable Care Act (ACA).

These laws each have their own set of legal rules for acceptable wellness program design, which are not always consistent with one another.

HIPAA Nondiscrimination Rules

Under HIPAA, workplace wellness programs are divided into two categories: participatory wellness programs and health-contingent wellness programs. This distinction is important because participatory wellness programs are not subject to the same restrictions on incentives or rewards that apply to health-contingent wellness programs.

Note that federal agencies have not issued guidance addressing COVID-19 vaccination-related wellness programs, including which category this type of program would fall under.

ADA Requirements

The ADA prohibits employers with 15 or more employees from discriminating against individuals with disabilities. As a general rule, to comply with the ADA, covered employers should structure their wellness plans to ensure that qualified individuals with disabilities:

  1. have equal access to the program’s benefits; and
  2. are not required to complete additional requirements in order to obtain equal benefits under the wellness program.

ACA Requirements

The ACA imposes “employer shared responsibility” requirements on applicable large employers (ALEs), also known as the “pay or play rules” or “employer mandate.” Under these rules, ALEs that do not offer a certain level of health coverage to their full-time employees (and dependents) may be subject to a penalty. The affordability of any health coverage offered by an ALE is key in determining whether the ALE will be subject to an employer shared responsibility penalty.

The affordability of an employer-sponsored plan is determined by assuming that each employee fails to satisfy the wellness program’s requirements (unless the wellness program is related to tobacco use). This means that the affordability of a plan that includes premium discounts for vaccinated individuals will generally be based on the higher premium amount charged to nonvaccinated individuals. As a result, premium incentives related to COVID-19 vaccination status may cause some employer-sponsored plans to be considered unaffordable for purposes of the ACA’s employer shared responsibility penalties, potentially resulting in penalties for those employers in some cases.

State Laws

Several states have enacted laws related to COVID-19 vaccination requirements that may impact an employer’s ability to impose premium surcharges or incentives related to vaccination status. Many of these laws prohibit employers from coercing their employees to get vaccinated or discriminating against employees based on vaccination status. Employers should consult the laws in their particular states and carefully consider their options with respect to their employees’ COVID-19 vaccination status.

This information is not intended to be exhaustive nor should it be construed as legal advice.