Vaccine Surcharge Programs

Published in All Insurance Industry Insights on Monday, September 20, 2021

In light of the FDA’s Pfizer vaccine approval and news of Delta Airlines implementing a surcharge on health plan premiums for unvaccinated employees, many employers have questions about vaccine surcharge compliance requirements. Although federal agencies have not issued direct guidance on vaccine surcharge programs, existing regulations indicate that such a program would only be compliant when structured as a wellness program under the HIPAA nondiscrimination rules. 
The HIPAA nondiscrimination rules generally prohibit treating individuals differently (charging higher premiums) based on a health status (vaccinated/unvaccinated), but the regulations provide a very important exception for wellness programs under which a plan may treat individuals differently based on a health status as long as the wellness program meets the conditions set forth in the regulations.  
It is unclear whether this would be treated as a participatory wellness program (which have very few limitations) or a health-contingent wellness program subject to additional requirements, including the requirement to provide a reasonable alternative standard. 

While it may be possible to support the position that a vaccine surcharge wellness program should be treated as a participatory wellness program because individuals need only “participate” by getting the vaccine, the better position is probably to treat it as an activity-only health-contingent wellness program. As an activity-only health-contingent wellness program, the program must provide a reasonable alternative standard when it is medically inadvisable for the individual to get the vaccine (or if it is unreasonably difficult due to a medical condition to get it, which seems unlikely). If treated as a health-contingent wellness program, it would also be subject to the 30% incentive limitation--i.e., the value of the incentive/surcharge (when combined with any other wellness program incentives) cannot be greater than 30% of the cost of coverage.
The ADA would also require an employer to provide a reasonable accommodation to receive the wellness program incentive/avoid the surcharge if the employee is unable to get the vaccine due to a disability. 
Importantly, wellness programs connected to health plans are also generally subject to other requirements, including requirements under ERISA. As a result, the vaccine wellness program needs to have ERISA-compliant plan materials,  and employers should be mindful of potential implications on its other benefits and compliance obligations (e.g., ACA affordability). Given the sensitive and evolving nature of this issue, employers should exercise care to structure the vaccine wellness program to work best for its particular circumstances, its other welfare benefit plans, and its workforce.

Information provided by Maynard Cooper.