After considering a variety of health strategies, many employers (e.g., Google, Facebook) have decided to require employees to be vaccinated. To complicate matters, the Department of Labor will issue regulations soon requiring companies with 100 or more employees to ensure their workforces are either fully vaccinated or test negative for COVID-19 at least once a week - there are few details at this stage. The decision by Delta Air Lines to assess a $200 per month surcharge for health insurance for unvaccinated workers instead of requiring vaccination, however, has captured the attention of and generated debate among those employers who are deliberating the best course of action. Employers considering following Delta’s lead will need to consider the application of an array of laws, such as HIPAA, ACA, ADA, GINA and Title VII of the Civil Rights Act. In this post, we focus on the application of HIPAA and ACA in the context of imposing a surcharge on unvaccinated workers.

Nondiscrimination Requirements Overview.

In general, a group health plan that requires an individual to pay more than other similarly situated individuals for benefits through additional premiums or contributions violates the nondiscrimination rules under HIPAA and the ACA. However, an exception from the nondiscrimination rules allows group health plans to maintain permitted wellness programs that require a higher deductible, copayment, coinsurance; or set contributions based on a health factor if certain requirements are met. Employers that establish permitted wellness plans (as discussed below) can assess premium surcharges in compliance under the ACA and HIPAA rules.

Permitted wellness programs come in two varieties: participatory wellness programs and health-contingent wellness programs.  Health-contingent wellness programs consist of activity-only wellness programs and outcome-based wellness programs discussed below.

Participatory wellness programs.

A participatory wellness program either (i) does not require an individual to meet a standard related to a health factor in order to obtain a reward or (ii) does not provide a reward (i.e., reimburse all or part of diagnostic testing, with a reward for participation that does not base any part of the reward on test outcomes).

A participatory wellness program does not violate the nondiscrimination rules if the program is made available to all similarly situated individuals, regardless of health status.  By making a program available regardless of health status, the general prohibition against discrimination based on a health factor is not implicated and the program does not have to satisfy the additional requirements that apply to health­‑contingent programs (such as the percentage cost limitation).

Health-contingent wellness programs.

A health-contingent wellness program is a program that requires an individual to satisfy a standard related to a health factor in order to receive a reward. A health-contingent wellness program may be either an activity-only wellness program or an outcome-based wellness program.

Activity-only wellness programs.

An activity-only wellness program is a health-contingent wellness program that requires an individual to perform or complete an activity related to a health factor in order to obtain a reward but does not require the individual to attain or maintain a specific health outcome.

Outcome-based wellness programs.

An outcome-based wellness program is a type of health-contingent wellness program that requires an individual to attain or maintain a specific health outcome, like not smoking or attaining certain results on biometric screenings, in order to obtain a reward.

Rewards.

With respect to both participatory and health-contingent wellness programs, a reward includes both obtaining a reward (such as discount or rebate of a premium or contribution, a waiver of all or part of a cost-sharing mechanism, an additional benefit, or any financial or other incentive), as well as avoiding a penalty (like the absence of a premium surcharge or other financial or nonfinancial disincentives). Please note, however, that if the reward offered is in the form of a surcharge it will have the effect of increasing the cost of coverage for the purposes of calculating the affordability of the coverage under the ACA.

Additional Requirements for health-contingent wellness programs.

To be exempt from the nondiscrimination requirements, activity-only and outcome-based wellness programs must satisfy the following requirements:

  • Eligibility: rewards must be available to similarly situated individuals and participants must have the opportunity to qualify for a reward at least once a year.

  • Applicable percentage-of-cost limitation: reward must not exceed 30% of the cost of employee-only coverage under the plan. However, if spouses and/or dependent children participate in the health-contingent wellness program, the reward must not exceed 30% of the cost of the coverage in which an employee and any dependents are enrolled.   The cost of coverage is the total amount of employer and employee contributions for the benefit package under which the employee (or the employee and any insured dependent) receives coverage.

  • Program Design: the program must be designed to promote good health and prevent disease.

  • Reasonable Alternatives: all reasonable alternatives standards for obtaining a reward must be disclosed. A program satisfies the reasonable alternative standard (or waiver of the standard) if the same full reward is available to individuals who cannot meet the initial standard due to a medical condition or if it is medically inadvisable.
 
Takeaway

Before imposing a surcharge on unvaccinated workers or offering an alternative reward in order to encourage more workers to become vaccinated, employers should seek advice of counsel regarding whether the structure of the program will meet the nondiscriminatory requirements under HIPAA and the ACA as well as the impact, if any, of the other laws mentioned above. The application of these laws will weigh heavily on the design of the program.

If you have any questions about surcharges for health insurance for unvaccinated workers, mandating employee vaccines, or any other related issues, please do not hesitate to reach out to any attorney in the Firm’s Labor, Employment, and Employee Benefits Law Group.