Health Plan Surcharge for Unvaccinated Employees: New Guidance Provides a Roadmap
Employers that are considering imposing health plan premium surcharges to encourage their employees to get vaccinated have clearer guidance on how to do so without running afoul of the nondiscrimination rules under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
Both vaccination surcharges and incentives are permitted by HIPAA, provided that a plan complies with the requirements for “activity-only” wellness programs under the HIPAA regulations. Importantly, that means limiting the amount of the health plan surcharge or incentive generally to 30 percent of the total cost of coverage under the health plan, and providing a reasonable alternative way to avoid the surcharge if it is medically inadvisable for an individual to get the COVID-19 vaccine.
That is the conclusion of a frequently asked question (FAQ) guidance that the U.S. Department of Labor, U.S. Department of Health and Human Services, and the U.S. Department of the Treasury issued on October 4, 2021.
The FAQ guidance resolves some uncertainty about exactly what set of HIPAA rules would apply to health plan surcharges, which have generated increased interest among employers ever since the U.S. Food and Drug Administration (FDA) granted full approval to the first vaccine on August 23, 2021. Even as the guidance provides employers some useful clarity, especially as they plan for 2022, employers are still eagerly awaiting an emergency temporary standard (ETS) from the U.S. Occupational Safety and Health Administration (OSHA) that would require employers with more than 100 employees to ensure that those employees are fully vaccinated or tested weekly. Some employers that have been considering adding health plan surcharges for unvaccinated employees are holding off on making any final decisions until they see exactly what the OSHA ETS will require of employers.
Generally, employers may not charge different premiums under their health plans based on the health factors of their employees. One exception to that rule is for wellness programs. Under the HIPAA rules, an “activity-only” wellness program must meet the following requirements:
Individuals must have the chance to qualify for the reward (or avoid the penalty) at least once per year.
The reward (or surcharge), together with any other rewards or penalties under health-contingent wellness programs for the plan, must not exceed 30 percent of the total cost of coverage. (This limit rises to 50 percent for wellness programs designed to prevent or reduce tobacco use.)
The program must be reasonably designed to promote health or prevent disease.
The reward must be available to all similarly situated individuals and include a waiver of the standards or a reasonable alternative for an individual for whom the activity (in this case, getting vaccinated) is medically inadvisable or unreasonably difficult due to a medical condition.
The plan must disclose in the written wellness program materials the availability of a reasonable alternative standard to qualify for the reward or avoid the surcharge.
Some employers and advisers had considered COVID-19 vaccination surcharges to be merely “participatory” wellness programs, to which most of these rules would not apply.
In addition to clarifying how the HIPAA wellness program rules would apply to vaccination surcharges, the new FAQ guidance clarifies a couple of other points for employers:
Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, employer-sponsored health plans are required to cover, without cost sharing, COVID-19 vaccines immediately (i.e., within 15 days) after the vaccines are approved by the FDA. Prior agency guidance had clarified those rules, but the new FAQ guidance indicates that some plan sponsors may have misunderstood when the coverage requirement kicked in after a vaccine was approved. For that reason, the FAQ guidance indicates that the agencies will only enforce the vaccine-coverage timing rule prospectively.
The new FAQ guidance explains how a health plan that applies surcharges to unvaccinated employees will apply the standards for “affordability” under the Affordable Care Act (ACA). If an individual is hit with a premium surcharge, that higher premium amount (i.e., including the surcharge) is used when determining whether the coverage is “affordable” for ACA purposes.