COVID-19 Unvaccinated Surcharges and Vaccination Incentives 

Last updated August 19, 2021

 

Many employers are concerned about vaccine hesitancy and workplace safety. Some vaccine policies are using behavioral motivators: “carrots” or “sticks”. Various incentives have been offered, including cash or paid time off. Some employers are enforcing mandatory vaccines for certain workers. Recently there has been media attention on premium surcharges for unvaccinated health plan participants. Adopting these vaccine policies requires balancing thorny legal considerations and anticipating potential backlash from employees.


Premium surcharges have long been used to encourage healthy behavior and reduce plan costs. This is a rapidly changing area of law and there is not clear guidance on the legal implications of charging health premium surcharges for unvaccinated employees. The ADA, HIPAA non-discrimination rules, and EEOC wellness plan regulations may be implicated when designing and administering unvaccinated surcharges. The EEOC has commented on many aspects of COVID-19 policies in the workplace but has not commented directly on unvaccinated surcharges. As a result, implementing this kind of vaccination incentive is somewhat risky, at least for the moment.


An unvaccinated surcharge would need to be implemented through a wellness program. In setting this up, the employer will need to consider:

  • How the surcharge will work with other wellness incentives;
  • Amount of surcharge;
  • Notice procedures;
  • Deadlines to get vaccinated and anticipating boosters;
  • Midyear election changes;
  • Documentation standards for vaccination status and exemptions; and
  • What may be offered as reasonable alternatives.

As to the amount of the surcharge, HIPAA’s limitations on wellness program incentives will apply. Specifically, HIPAA limits wellness program incentives to 30% of the total cost of the medical plan coverage (50% for programs which include a tobacco-cessation incentive). The total of all wellness program incentives must be below the applicable limit. In addition, the amount of surcharge may impact ACA affordability calculations for Applicable Large Employers.


If this change is implemented midyear, additional notice obligations (including SMMs) may be triggered. With a change in employer contributions requiring some employees having to pay more, there will likely be a material reduction requiring distributing an SMM within 60 days after adoption. This could also be a significant cost change under the cafeteria plan, thereby allowing an employee to adjust their elections. Employers should review their cafeteria plan document and carrier documents for restrictions on midyear changes due to an increase in employee contributions.


The last consideration as to reasonable alternatives is tricky. A reasonable alternative standard for those who cannot be vaccinated for medical reasons may be required under HIPAA rules for health-contingent wellness programs. For example, tobacco wellness programs typically offer attending a smoking education class as a reasonable alternative. What would a reasonable alternative to vaccination look like: weekly testing and/or a vaccination education class? But how difficult and expensive would that be to administer?


Many people feel very strongly about COVID-19 vaccinations and employers’ emerging policies are making headlines. Given the potential risks from employee lawsuits or federal enforcement action, employers should consult with legal counsel in designing any unvaccinated surcharge wellness program.   

 

Consider an alternative: tempting incentives for employees who vaccinate on their own

Incentives are a less risky way to promote vaccinations across a workforce – and less of a hassle. The EEOC has clarified that employers may offer unlimited incentives to employees who voluntarily provide documentation or other confirmation that they received a vaccination on their own (typically through a pharmacy, health care provider, or public health department). Incentives may include cash, gift cards, raffle prizes, or additional PTO. While vaccine surcharges are subject to caps and only impact health plan participants, incentives broadly promote safety goals across a workforce. 


Requesting documentation or other confirmation showing that an employee received a COVID-19 vaccination in the community is not a disability-related inquiry covered by the ADA. Employers must still be careful to limit the inquiry to vaccination status. There are many potential reasons unrelated to disability which may explain why an employee has not been vaccinated. If an employee hasn’t been vaccinated, asking further for the reason why may draw out information about a disability, possibly violating the ADA. With the risk in mind, employers should train supervisors and managers on how to handle vaccine discussions. In asking about COVID-19 vaccination status, employers should warn employees to not provide any unnecessary medical information, only proof that they were vaccinated. Typically, a vaccination card does not contain any additional medical information. But employers still need to keep the vaccination documentation confidential, since an employee’s response regarding vaccination is, in-and-of-itself, confidential medical information. 


Many employers offer onsite vaccines or partner with a third party to vaccinate on a voluntary basis. Incentives are restricted for these types of employer-sponsored vaccine programs. Employers may offer an incentive to employees for voluntarily receiving a vaccination administered by the employer (or its agent), provided that the incentive is not so substantial as to be coercive. These incentive restrictions do not apply when employees get vaccinated on their own, through a pharmacy, provider, or public health department, as discussed above. An employer may not offer any incentives to an employee in exchange for a family member’s receipt of a vaccination from an employer or its agent. Where the employer administers the vaccine, the EEOC did not explain or provide examples of what incentives will be considered “so substantial as to be coercive” but in simpler terms, this may mean the offered incentive cannot be so great that it makes the employee’s participation effectively involuntary. 

 

The EEOC’s latest COVID-19 guidance for employers can be found here (see Vaccinations section).


Finally, be sure to review the latest state and local laws and regulations on COVID-19 vaccination of employees. 


More information and resources on navigating workplace issues stemming from the pandemic can be found here.