Should You Charge the Unvaccinated a Surcharge for Their Healthcare?

September 3, 2021

By Anthony Kaylin, courtesy of SBAM Approved Partner ASE

Recently Delta Airlines announced that it will charge employees on the company health plan a $200 per month additional charge if they fail to get vaccinated against COVID-19. Delta argues that the costs of hospital stays for COVID total, on average, about $40,000-$50,000 per incident thus driving up healthcare costs for all employees.

First, it was the carrot to get employees vaccinated. Employers have offered gift cards, a day off from work, cash, and other financial incentives to convince their workers to get vaccinated against Covid-19. It hasn’t totally worked. Almost 30% of the workforce is still unvaccinated.

So now comes the stick. According to a Mercer study, many employers are willing to take additional measures to increase vaccine levels, but not mandates yet because of potential employee relations issues that move could provoke. Some employers, though, are reviewing an alternative tactic – health coverage surcharges.

“Employers have tried encouraging employees to get vaccinated through offering incentives like paid time off and cash, but with the Delta variant driving up infections and hospitalizations throughout the country – at the same time that vaccination rates have stalled – we have received inquiries from at least 20 employers over the past few weeks who are giving consideration to adding health coverage surcharges for the unvaccinated as a way to drive up vaccination rates in their workforce,” said Wade Symons, Mercer’s regulatory resources group leader.

Even employees are in favor a surcharge. A survey by human resources consultant Eagle Hill showed that 41% of workers polled agreed that non-vaccinated employees should pay higher insurance rates.

In order for employers to impose a surcharge, they need to consider how to frame it. Generally, the surcharge being discussed by employers is similar to the $20 to $50 a month charges companies already charge workers who smoke. Therefore, the discussion is falling under wellness programs.

According to Seyfarth, they believe such a program would be considered a health-contingent “activity-only” program. In general, a health-contingent activity-only wellness program must meet the following requirements:

Incentive Limit:

Limit the incentive to 30% of the cost of coverage (this limit is increased to 50% if the program includes a tobacco cessation component)
The limit is based on the overall cost of coverage — i.e., the COBRA rate — applicable to the value of coverage elected — i.e., self-only, family, etc.
This incentive would need to be combined with any other “health contingent” wellness program offered under the plan when determining whether the incentives exceed the limit (except that if any incentive is linked to smoker status, the limit is increased to 50%)

Reasonable Alternative:

A reasonable alternative must be offered to persons who cannot get vaccinated because it is medically inadvisable or, as a result of the overlay of Title VII, due to a sincerely held religious belief.
Participants must be notified of the availability of the reasonable alternative in all materials substantially describing the program.

Annual Opportunity to Qualify:

Provide an opportunity to qualify for the reward at least once per year
Be uniformly available to all similarly situated individuals; and
Not be a subterfuge for discrimination.

Finally, Seyfarth states that “it must not run afoul of the Affordable Care Act (ACA) affordability rules. In other words, if the ‘incentive’ is structured as an increased premium, the employer must treat all employees as if they failed to get vaccinated and were required to pay the increased amount for purposes of determining the affordability of coverage, regardless of whether that’s the case.”

HIPAA will apply as it does for any medical information that the employer obtains on an employee; therefore, that the information must be held in a secure location.

It is recommended that employers considering the surcharge option work with counsel and their benefit providers to work out the program reviewing such information as:

How much will the surcharge be?
How does a vaccination surcharge interact with other wellness incentives the employer offers?
Will the surcharge apply only with respect to employees who remain unvaccinated? What about spouses and dependents (assuming a COVID-19 vaccination is available)?
How long should plan participants have to get fully vaccinated?
What proof will be required to establish vaccination status? There has been a rise in fake vaccination cards, and the FBI has warned that making or buying such cards is a crime. What are the consequences under the plan for a participant who submits a fake card?
Will it also include a requirement for booster shots, and how will that look in the proposed program?

Other considerations to include are:

Does the employer under federal and/or state law have to pay for time-off (wage and hour laws) for requiring a vaccine?
If a union workforce, does this surcharge have to be negotiated? (highly likely)

Getting back to a semblance of “normal” will likely take much longer than anticipated. With unvaccinated employees and people, the likelihood of new variants, which may not be stopped by current vaccines, could predominate. Therefore, anything to get the number of unvaccinated down will likely be a preventive measure against any new shutdown in the future.