As employers consider implementing a vaccine mandate to encourage employees to get vaccinated against COVID-19, we have recently discussed the merits of imposing a “vaccine surcharge” on monthly health insurance premiums for those employees who remain unvaccinated.  There were unanswered questions about specific legal issues, but now the Department of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments) issued FAQ guidance (the “FAQ”) to confirm that employers can incentivize employees by offering discounts on monthly insurance premiums for those who have been vaccinated for COVID-19 or impose insurance “surcharges” for those who choose not to be vaccinated (for reasons other than due to a medical condition.)  In making such clarifications, the FAQ also confirmed:

Insurance discounts/surcharges for COVID-19 vaccinations must adhere to existing Health Insurance Portability and Accountability Act (HIPAA) wellness guidelines for activity-based wellness programs.  Q/A-3 of the FAQ confirms that requiring an employee to be vaccinated for COVID-19 to receive the benefit of lower health insurance premiums does require the employee to perform or complete an activity related to a health factor and thus must satisfy the existing five criteria for activity-based wellness arrangements under HIPAA:

• The program must be reasonably designed to promote health or prevent disease (the FAQ suggests helping schedule vaccination appointments and establishing a toll-free hotline to answer questions);

• The program must provide a reasonable alternative standard to qualify for the discount on health insurance premiums (the FAQ suggests providing the discount if the individual can verify it would be unreasonably burdensome or medically inadvisable to be vaccinated for COVID-19 due to an existing medical condition);

• The program must provide notice of the availability of a reasonable alternative standard (the FAQ suggests mandating compliance with the CDC’s mask guidelines for any employee who cannot otherwise be vaccinated because of an existing medical condition);

• The incentive award (or penalty) cannot be more than 30% of the total cost of employee-only coverage when combined with all other wellness program awards or penalties; and

• All employees must be offered the opportunity to qualify for the incentive at least once per year.

Note that the FAQ does not require an accommodation for religious or other non-medical reasons.  There is also no prohibition against allowing employees to meet the vaccination criteria at any time during the year.  However, the FAQ does advise employers considering adopting COVID-19 vaccination incentive programs to consult Section K of the Equal Employment Opportunity Commission’s What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws.

The premium discount/surcharge amount must be included in affordability calculations under the Affordable Care Act.  As we have discussed previously, Q/A-5 confirms that wellness incentives for COVID-19 vaccinations are considered the same as any other non-tobacco incentive.  To determine whether the employee’s monthly premium cost is “affordable” under Code Section 4980H(b), employers with over 50 full-time employees or full-time equivalents must disregard any premium discount amounts and include any vaccine surcharge amounts in the total cost of employee-only coverage.

Employers may not exclude employees from eligibility or coverage under a group health plan solely because of an employee’s COVID-19 vaccination status.  As an alternative to using a vaccine surcharge to incentivize employees, several employers have considered providing an exclusion from coverage under a group health plan for COVID-related claims for nonvaccinated employees.  Q/A-4 clarifies that such exclusionary practices would violate HIPAA nondiscrimination mandates and thus are not permissible.

Employers must provide 100 percent coverage of all COVID vaccination costs, including boosters.  The FAQ confirms that employers must provide coverage under their non-grandfathered group health plan for 100 percent of the cost of all vaccine shots (in compliance with Section 3203 of the CARES Act,) and Q/A-1 confirms this coverage mandate also includes the cost of any booster doses authorized or approved by the Food and Drug Administration or through an Emergency Use Authorization through the Centers for Disease Control.  But in a welcomed clarification, Q/A-1 and 2 indicate that because of confusion from prior guidance, the mandate for 100 percent coverage under a group health plan will not be enforced for periods before the release of this FAQ, October 4, 2021.

Conclusion:  Other questions remain, such as how the vaccine surcharge program should work during mid-year periods and whether it uniformly applies to other dependents (or other questions raised in our previous articles).  The FAQ clarifies many questions for employers considering implementing these arrangements just in time for the upcoming health plan renewal season.  For more information about imposing a vaccination surcharge on unvaccinated employees or other wellness program related questions, please contact the authors or the Jackson Lewis attorney with whom you regularly work.