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Joint Agency Guidance Issued on Vaccine Incentives and Surcharges

A common question as of late has been whether employers can require employees who are unvaccinated to pay a premium surcharge in effort to incentivize vaccination, and the short answer is, yes, they can. However, there are some considerations that must be given prior to doing so, which prompted some recently issued joint federal agency guidance that is intended to assist employers who want to implement vaccine incentives.

The federal Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury issued joint frequently asked questions (FAQs) that address questions regarding COVID-19 vaccinations and group health plans. The FAQs also address the use of surcharges and incentives under their group health plans aimed at encouraging employees to get vaccinated.

What Are the Key Highlights of the FAQs?

The FAQs address required coverage for COVID-19 vaccines, whether eligibility for benefits or coverage can be based on vaccination status, and compliance with HIPAA’s non-discrimination rules when providing vaccine incentives.

The FAQs confirm that health plans must cover the full cost of COVID-19 vaccines that have received an “emergency use authorization” from the Centers for Disease Control (CDC) or have been approved by the Food and Drug Administration (FDA).

According to the FAQs, health plans and their sponsors may not exclude individuals from benefits or coverage based on their vaccination status.

The FAQs also provide that vaccine incentives offered in connection with employee health plan contributions must comply with the requirements applicable to health-contingent wellness programs. Specifically, the reward the plan provides in connection with the vaccine incentive program must not exceed 30 percent of the total cost of employee-only coverage and must give individuals eligible for the program the opportunity to qualify for the reward under the program at least once per year. In addition, the incentive program must:

  • Allow individuals to qualify for the incentive at least once per year;
  • Be reasonably designed to promote health or prevent disease;
  • Be available to all similarly situated individuals, including providing a reasonable alternative for those individuals who cannot be vaccinated for medical reasons to qualify for the discount; and
  • Provide notice of the availability of the reasonable alternative(s) to all participants, including contact information for obtaining the reasonable alternative and a statement that recommendations from the participant’s personal physician will be accommodated.

Does the ACA Come Into Play?

Yes; under the Affordable Care Act (ACA), employer-shared responsibility payments for plan coverage must be affordable. Employers covered by the ACA (50 or more full-time employees or full-time equivalents) must remember that premium premium surcharges will be considered in determining affordability.

For a plan to be considered affordable, employers must have at least one health plan option where the employee’s share of single coverage is less than the affordability percentage multiplied by the employee’s household income. The IRS adjusts the affordability percentage each year. For 2022, the percentage has been adjusted down from 9.83 percent to 9.61 percent.

Next Steps for Employers

Employers considering health plan related vaccine incentives or surcharges will need to comply with the requirements applicable to health-contingent wellness programs, as well as ensuring affordability. It should be noted that the guidance only addresses vaccine incentives and surcharges that impact the cost of coverage under group health plans, and it does not address incentives that are part of workplace policies and are unrelated to the group health plan. The guidance also does not address any implications for compliance under other state or federal laws, such as the ADA and GINA, and instead refers employers to the Equal Employment Opportunity Commission’s (EEOC) guidance regarding vaccine incentives, a topic which we have previously reported here.

HR Works, headquartered in Upstate New York, is a human resource management outsourcing and consulting firm serving clients throughout the United States for over thirty years. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.