Can You Institute a Surcharge on Your Health Plan to the Unvaccinated?

Last week Delta airlines announced it was going to begin charging employees enrolled in its health plan an extra $200 per month if they were not fully vaccinated.   Since that story made the news, we have received numerous inquiries from clients as to whether they could also charge employees more to be in their health plan.   The simple answer is yes, but like all things related to benefits, it is nowhere near that simple.

Charging a surcharge to the unvaccinated should be done through a HIPAA wellness program.  While it is not entirely clear under the HIPAA wellness rules if such a wellness program would be a “participatory” or “health contingent” wellness program, the cautious approach is to treat it as a health contingent wellness program.

A health contingent wellness program must meet a number of requirements to be compliant.  The first is that the amount of the reward/surcharge cannot exceed 30% of the cost of single coverage (unless the program also applies to dependents which is a more complicated analysis).  So when clients ask me “Can we also charge a $200 surcharge?” my answer is “maybe.”  If the cost of your health plan, including both employer and employee contributions, is $600 or more, then a $200 wellness surcharge would be compliant as long as you don’t offer any other wellness incentives.  If, for example, you already have a reward/surcharge of $50 per month for obtaining certain health metrics, that $50 would count toward the 30% limit, so the amount of surcharge allowable for a $600/month plan would only be $150.

A health contingent wellness program must also offer a reasonable alternative way to earn the reward (i.e., the lower rate) to anyone for whom it is unreasonably difficult due to a medical condition or medical inadvisable to satisfy the standard.  You are permitted to seek verification from the employee’s personal physician that it is inadvisable or unreasonably difficult for them to be vaccinated.   In order to avoid religious discrimination charges, you should also likely offer a similar alternative to those with valid religious objections to getting the vaccine.  All communications about the vaccine surcharge should have notice of how to obtain a reasonable alternative.

There is another complicating factor for employers with 50 or more full-time equivalent employees.  Under the ACA employer mandate, an applicable large employer must provide affordable health plan coverage providing minimum value or it could be assessed a penalty for each employee who goes to the exchange and qualifies for financial assistance.  The penalty for 2021 $338.33 per month.  When determining whether coverage is affordable under any of the 3 affordability safe harbors, an employer must use the rate that is charged to an employee who fails to satisfy any wellness conditions.  In other words, you would have to use the premium plus the surcharge when determining affordability even for those vaccinated employees who actually paid the lower amount.  Many employers already struggle to offer an “affordable” plan, so for them a surcharge may not be a practical given increased exposure to ACA penalties.

A health plan surcharge may be an effective strategy to increase your vaccination rates as it is a penalty that an employee in your health plan will face each month.  However, it is important that you design it in a way that does not subject your company to penalties.  If you are considering implementing a surcharge, any member of the Graydon employee benefits team would be happy to assist you in designing a compliant approach.

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