Imposing Group Health Plan Monthly Surcharges on the Unvaccinated

Calling it “a more-punitive approach toward getting its workforce vaccinated against Covid-19,” the Wall Street Journal recently reported that Delta Airlines will require its unvaccinated workers to pay a $200 monthly health insurance surcharge.  Delta’s CEO is quoted as saying the “additional charge will help to cover hospital stays that are more likely for unvaccinated people infected with Covid-19,” which he claimed “can cost the company as much as $50,000 a person.”  Delta later reported that “just within the two weeks of the announcement, we’ve seen nearly 20%, or one-fifth, of that 20,000 decide to get the vaccine.”  While efforts to impose workplace vaccine mandates are not new (and only heating up), Delta’s approach based on an economic incentive has caused some to ask whether it is permitted under applicable law.  This post explores that question. 

Delta’s $200 Monthly Surcharge is Likely Permissible under HIPAA and the ACA. 

First, some background.  No Federal law requires that employers provide group health plan coverage to all employees on the same terms and conditions.  Rather, employers have a good deal of latitude to design their group health plan eligibility and coverage terms and to dictate premium costs subject to certain limitations.  For example, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Affordable Care Act (ACA), bars health plans from discriminating (e.g. charging different premiums or contributions imposing different deductibles, copayments or other cost sharing requirements) against an individual based on the individual’s “health factors,” which would likely include one’s vaccination status.  

To this general nondiscrimination rule, however, HIPAA recognizes an exception for certain “wellness programs,” whereby an employer can offer an award to the employee based on their participation in the program.  Final regulations issued in 2013 under the Affordable Care Act (ACA) (the 2013 Final Regulations) recognize two types of wellness programs provided in connection with a group health plan that will satisfy the exception to HIPAA’s nondiscrimination rules: (1) participatory wellness programs; and (2) health-contingent wellness programs.

(1) Participatory wellness programs

Participatory wellness programs are generally available without regard to an individual’s health status. Either no reward is offered, or none of the conditions for obtaining a reward are based on an individual satisfying a standard related to a health factor.  These programs comply with the nondiscrimination requirements so long as the program is made available to all similarly situated individuals.

(2) Health-contingent wellness programs

Health-contingent wellness programs require participants to satisfy a standard related to a health factor in order to obtain a reward.  There are two types of health-contingent wellness programs: (i) activity-only; and (ii) outcome-based.

(i) Activity-only programs

Activity-only programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward.

(ii) Outcome-based programs

Outcome-based programs require an individual to attain or maintain a specific health outcome (such as not smoking or attaining certain results on biometric screenings) in order to obtain a reward.

In order to present as a viable health-contingent wellness program (and therefore avoid a violation of the HIPAA/ACA nondiscrimination rules), such a program must meet the following five conditions:

1. The program must give individuals eligible to participate the opportunity to qualify for the reward at least once per year.

2. The total reward for all the plan’s wellness programs that require satisfaction of a standard related to a health factor is limited – generally, it must not exceed 30 percent (or 50 percent for programs designed to prevent or reduce tobacco use) of the cost of employee-only coverage under the plan.  If dependents (such as spouses and/or dependent children) may participate in the wellness program, the reward must not exceed 30 percent (or 50 percent) of the cost of the coverage in which an employee and any dependents are enrolled.  For example, for an employee who elected self-only coverage with a total monthly premium of $1,600 per month, the $200 surcharge would total 13% of the total premium cost of the coverage, which is less than the 30% limit imposed by the final ACA wellness plan regulation.

3. The program must be reasonably designed to promote health and prevent disease.  

4. The full reward must be available to all similarly-situated individuals.  This means the program must allow a reasonable alternative standard (or waiver of the otherwise applicable standard) (more on that below).  

5. The plan must disclose in all materials describing the terms of the program the availability of a reasonable alternative standard (or the possibility of a waiver of the otherwise applicable standard).

Different requirements apply for activity-only and outcome-based programs when satisfying certain of these factors.  With respect to the alternative standard, under an activity-only program, a reasonable alternative standard (or waiver of the otherwise applicable standard) must be offered to any individual for whom it is unreasonably difficult due to a medical condition to satisfy the otherwise applicable standard, or for whom it is medically inadvisable to attempt to satisfy the otherwise applicable standard.  The program can seek physician verification with respect to a request for a reasonable alternative standard, if the request is reasonable under the circumstances. 

Although regulatory guidance has yet to be issued, provided Delta satisfies the above five factors, Delta’s $200 monthly surcharge is likely a permissible activity-only, health-contingent wellness program under HIPAA/ACA.  That is: the program requires an individual to become fully vaccinated (the “activity”) for purposes relating the individual’s health status (protection against severe illness or death because of COVID-19), and in return, the vaccinated employee will not incur the $200 monthly surcharge (the award). 

We look forward to seeing how Delta designed its program to satisfy the reasonable alternative standard.  Does Delta’s plan require physician verification of the reason for an alternative along with attendance at an employer-paid educational training course covering pandemic-control measures (handwashing, distance, masking).  Does it also require masking and testing?  Or, in the alternative, does Delta merely waive the surcharge? 

While we don’t know all of the particulars of Delta’s program, it is in all likelihood permissible, at least under HIPAA and the ACA. 

Delta’s $200 Monthly Surcharge is Also Likely Permissible Under Applicable Anti-Discrimination Laws If It Offers Reasonable Accommodations and Part of a Voluntary Wellness Program. 

Most employers that sponsor group health plans are subject to the Americans with Disabilities Act (ADA), which prohibits employers from discriminating against individuals on the basis of disability, including regarding employment compensation and other terms, conditions, and privileges of employment, which includes fringe benefits.  They are also subject to other Federal, state and local laws prohibiting discrimination, such as Title VII of the Civil Rights Act, which, among other things, prohibits discrimination based on religion.  The ADA and Title VII (and similar state and local anti-discrimination laws) also require employers to make reasonable accommodations to disabled employees and employees with certain religious objections and practices to enable them to have equal access to fringe benefits, such as access to, and participation in, wellness programs, unless doing so would cause the employer undue hardship. 

The “reasonable accommodation” standard under the ADA and Title VII and the “reasonable alternative” standard under the HIPAA wellness program requirements are two similar, but ultimately different, concepts.  As the 2013 Final Regulations recognize, compliance with the HIPAA wellness program rule requirements does not necessarily equate to compliance under any other provision of the law, including the ADA and Title VII.  But presumably if an employer provides a reasonable alternative that would allow participation in the wellness program, then it should also meet the ADA and Title VII’s reasonable accommodation standard.  (A now-withdrawn ADA final rule from the Equal Employment Opportunity Commission (EEOC) had said as much.)  For example, Delta would likely satisfy the ADA and Title VII’s reasonable accommodation requirements by permitting a surcharge waiver if the employee attends a pandemic control educational course.  Other accommodations could include onsite masking or testing, or simply waiving the surcharge requirement altogether for those that qualify for an accommodation. 

The ADA also generally restricts employers from asking employees to provide health information or to submit to a medical exam.  As with the HIPAA/ACA nondiscrimination rules, an exception applies here, too – employers may inquire about an employee’s health or conduct medical examinations that are part of a voluntary employee health program, including wellness programs. 

Some may point to a recent EEOC pandemic-related guidance document in which the EEOC notes that inquiring about an employee’s vaccination status is not a disability related inquiry under the ADA when the inquiry pertains to a vaccination administered by a third party (e.g. the employee’s health care provider, pharmacy, etc.) and not by the employer or its agent.  And therefore, the voluntary nature of the wellness program is irrelevant because the ADA does not apply.  But we urge employers to exhibit caution here despite the fact that this observation would indeed be correct.  And that is because if an employer requires an employee to identify their need for a “reasonable alternative” under their wellness program to satisfy HIPAA rules – a/k/a the employer is asking the “why” behind the employee’s unvaccinated status to make an exception to its program’s requirements – then the employer has now potentially asked a disability-related question and we fall back into ADA territory.

The EEOC has, over the last few years, struggled to establish rules governing the meaning of “voluntary” under the ADA (and another discrimination law, the Genetic Information Nondiscrimination Act (GINA), which prohibits discrimination based on genetic information with respect to health insurance and employment).  A Federal district court invalidated a 2016 final rule defining the meaning of “voluntary.” Proposed Trump-era rules issued in January 2021 under the ADA and GINA tried again, this time by stating that de minimis incentives could be offered to meet the definition of voluntary for a health-contingent wellness program and noted that HIPAA’s 30% reward rule (discussed above) would meet that standard.  The Biden Administration, however, withdrew these proposed rules.  So the EEOC’s current position on health-contingent wellness programs is in flux, and its most recent view can be found in the aforementioned EEOC pandemic guidance Q&A document in which it states that to be voluntary, “any incentive (which includes both rewards and penalties)” must not be “so substantial as to be coercive.” 

With this in mind, questions remain over whether Delta’s program would comply with the ADA.  Would the Biden Administration conclude that a $200 monthly surcharge ($2,400 annually) is not “so substantial as to be coercive,” and therefore Delta’s program is voluntary?  We would think given the Biden Administration’s push for vaccination, it would endorse this program, but we eagerly await further guidance confirming or disabusing us of this view.  Further, regardless of the Administration’s view, would a court apply the EEOC’s current standard similar or the “de minimis” standard from the now withdrawn regulation, or some other standard in analyzing the surcharge? 

Questions also remain over whether a wellness program will be considered “voluntary” where an employer waives the surcharge if the employee agrees to COVID-19 testing, but where the employer requires the employee to pay for such testing.  Leaving aside any potential wage and hour issues, vaccination may seem like the only viable option for employees in that case, which could impact a voluntary finding.

Takeaways

For all the reasons cited above, it is apparent that the laws governing COVID-related group health plan surcharges are less than clear.  Hopefully, further clarifying guidance is on the way that will allow other employers desiring to utilize a surcharge or other incentive to shape and implement their plans accordingly. 

Until such guidance is issued, we recommend employers take a measured approach when designing and implementing any plans to ensure any incentives offered could not be viewed as coercive.  Additionally, employers should ensure that such plans provide for medical and religious-based exemptions.  Finally, we recommend that employers with unionized employees consider bargaining over this issue.